The Geography of Tax Evasion

– Manuel B. Aalbers –

What is it about?
Taxation in general and tax evasion in particular are inherently geographical in nature but not a very popular area of research. In this article I present geographers’ research on offshore financial centres alongside the work of researchers from other disciplines to present an overview of what we know about the geographies of tax evasion and avoidance. It is argued that not only much regulatory work but also much research remains to be done on tax havens.

Why is it important?
Regulators, governments and non-governmental organizations have a complex relationship to tax havens. While the dominant discourse is increasingly critical of the activities of tax havens and calls for a major crackdown on these jurisdictions, the regulatory responses are much more ambiguous. This is in part the result of competing political and administrative frames, but it is also a result of the situation in which many jurisdictions are simultaneously tax havens and the victims of other tax havens.

Some authors are afraid that tax havens are locked into a regulatory race to the bottom. But regulation is needed to protect investors, implying that completely laissez-faire tax havens, such as some Pacific atoll states, have failed to establish themselves in tax haven networks. Yet, tax evasion takes place in a competitive environment in which tax havens compete with each-other in several leagues, as they tend to specialize in different things. That does not imply that money always flows to the least regulated jurisdictions, but rather that money flows to and through those jurisdictions that have the most favourable regulation for specific practices.

Tax harmonization remains partial and has only been executed in very limited realms within the EU. Tax cooperation is more widespread: information is increasingly exchanged between tax agencies and OECD’s 1998 ‘Project on Harmful Tax Competition’ has spread to the more inclusive ‘Global Forum on Transparency and Exchange of Information for Tax Purposes’ in 2010. Most authors discuss some of the regulatory progress, but also point out that the flows of money to, through and from tax havens in recent years have increased rather than decreased. LuxLeaks, SwissLeaks and PanamaLeaks have put tax evasion on the global agenda, but have not yet resulted in a complete shutdown of or backlash towards tax havens. Much regulatory work remains to be done.

Our understanding of the historical geography and contemporary use of tax havens remains unfinished; for many tax haven jurisdictions we lack studies on their genesis and development. Tax havens have mostly been approached from an economic angle, but since fiscal relationships are about the “struggle over the nature of the social, the political, and the national” (Roitman, 2005) we need economic as well as social and political geographers to research and theorize these struggles.

Please find the full progress report on geographies of tax evasion here. An extended version of the report with more examples and references is also available here.

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