A report from the Tax Justice Network in 2024 suggests that nations lose about 416 billion euros (or $49.2 billion) annually due to profit shifting by multinational corporations and offshore tax strategies employed by wealthy individuals.
The UK, in conjunction with its overseas territories and Crown dependencies, is highlighted as the largest source of global tax revenue losses, responsible for 26% of the total.
The report indicates that European countries collectively contribute to over 70% of the risks associated with global corporate tax erosion.
This prompts questions about which European jurisdictions are most commonly used in international tax strategies, what roles these countries play, and whether existing regulations will make tax reduction easier for corporations.
What is the Corporate Tax Haven Index?
The Corporate Tax Haven Index (CTHI) employs a scoring system created by the Tax Justice Network to evaluate jurisdictions based on how much they facilitate multinational companies in profit shifting and lowering tax burdens.
Jurisdictions are ranked according to their involvement in promoting global corporate tax erosion, with the 2024 report detailing their scores based on tax aggressiveness in facilitating corporate tax avoidance.
The UK’s overseas territories, specifically the Virgin Islands, Cayman Islands, and Bermuda, lead the index, each accumulating over 2,400 points.
Among European nations, Switzerland ranks highest outside the UK-associated jurisdictions with a score of 2,279, while the Netherlands tops the European Union with a score of 1,945.
Tax risks across Europe’s largest economy
Among Europe’s top five economies, the UK holds the highest CTHI score of 894, closely followed by France at 883. Germany scores 590, Spain 557, and Italy scores best with 342, indicating that lower scores can suggest greater success in reducing corporate tax avoidance.
The impact of the UK’s tax avoidance network
The CTHI sharing metric reveals that the UK and its overseas territories are responsible for roughly a third of global corporate tax avoidance risks, with EU countries contributing another third.
Specifically, the UK’s overseas territories account for 19.7% of worldwide tax evasion risk, with the Virgin Islands at 7.1%, the Cayman Islands at 6.7%, and Bermuda at 5.8%.
In comparison, the UK itself is just 2.1% of this risk, which is still significant among Europe’s largest economies, as France is also at 2.1%.
Germany and Spain contribute 1.4% and 1.3%, respectively, while Italy is responsible for 0.8% of global tax avoidance risks.
Switzerland accounts for 5.3%, and when additional European countries and their jurisdictions are taken into account, Europe’s total contribution reaches 72%.
Understanding tax haven scores
The Haven score is another crucial metric that examines how much jurisdiction laws and regulations provide opportunities for corporate tax avoidance, whether intentional or not.
In 2024, the UK’s overseas territories dominated the rankings with eight jurisdictions receiving a perfect score of 100. The UK itself scored 59.
Besides the UK network, Switzerland (89) has the highest haven score in Europe, while Ireland and Cyprus, both at 79, lead within the EU. Portugal shows the lowest score at 46.
Tracing financial activities
In 2021, multinational companies are estimated to have moved profits worth 1.2 trillion euros to low or no tax jurisdictions, equating to a loss of 294 billion euros in government direct tax revenues globally.
Global scale weights are another measure indicating where financial activities by multinationals are conducted or concluded.
Europe and its overseas territories are responsible for 61% of global financial activity, with the UK and its networks comprising the largest individual share at 16%.
Of the individual European nations, the Netherlands registered the highest scale weight at 11.1%, followed by Luxembourg at 8.8%, with the UK (8.3%), Germany (4.2%), Switzerland and Ireland (both 3.4%), and France (3.1%) also showing significant weights.
Documented tax rates and incentives
If a nation offers special tax incentives or preferential arrangements for multinationals, it can result in these companies paying significantly less than the official corporate income tax rate, leading to a much lower effective tax rate. This is known as the lowest available corporate income tax rate (LACIT), and it’s assessed by the Tax Justice Network through an analysis of legal discrepancies and tax strategies.
The OECD indicates that for UK overseas territories and Crown dependencies, the statutory corporate tax rate is effectively zero. However, there are often substantial gaps between statutory and lowest rates in various jurisdictions.
This discrepancy suggests opportunities for tax planning that may yield much lower effective rates. For instance, in Luxembourg, the legal rate is 24.9%, but the LACIT is just 0.3%.
In Switzerland, the comparison is 19.7% legal vs. 2.6% effective; in Ireland, it’s 12.5% against almost zero. Belgium sees a difference of 25% legal vs. 3%, while Malta presents the largest difference, with a legal rate of 35% dropping to 5%.
The Netherlands also has a stark contrast with a legal rate of 25.8% compared to an effective rate of 5%. For overseas territories like Alba and Curacao, statutory rates vary from over 20% to 0%.
