International Tax Justice – Why Brazil Should Play a Lead Role

James S. Henry, TJN Board Member, spoke at the Seminário Internacional sobre Justiça Fiscal in Brasilia on August 10. We blogged the event here, and you can read Jim's remarks here.

Jim looks at the roots of the offshore question in Brazil:

How much untaxed offshore private wealth is there, and why should Brazil care about it?

The roots of the problem that we’re discussing really go back to that $3+ trillion that was loaned to developing countries, including Brazil, in the 1970s and 1980s. The fact is that much of this $3.2 trillion went into poorly-planned, over-priced projects ... But the largest chunk of it didn’t remain in the borrowing countries. Directly and indirectly, it helped to finance a huge volume of capital flight from developing countries to First World banks, much of which was accumulated offshore and out of the reach of tax authorities in developing countries.

And explains:

A great deal of this flight capital ended up back in the very same banks that had loaned the money.

Much of this capital flight finally ended up, not in tiny Caribbean tax havens like the Cayman Islands, but in First World countries like Switzerland, the UK and the US. Indeed, with respect to Latin America, it turns out that for decades the US has been one of the largest single ultimate-destination tax havens, in terms of where people around the world like to plant their money, tax free. In fact, the US and these other key First World destination havens have designed their tax codes to make them very attractive to places to invest without paying any taxes, for so-called “non-resident aliens.”

On the big question: "How much untaxed offshore private wealth is there, and how much income is it generating?"

Well, the numbers are staggering. For example, our best estimate is that the stock of “flight wealth” from Brazil that is located outside the country is now worth at least three hundred to four hundred billion dollars, and that Latin America as a whole has nearly $1.4 trillion.

This offshore wealth generates income, much of which is reinvested tax free, and is not consumed. In Brazil's case, the total unreported income on the foreign flight capital since the 1980s is more than $250 billion, and is now in the order of more than $40 billion dollars a year

Jim addresses the critical issue of global collaboration to combat the offshore problem:

We at Tax Justice Network would really welcome an effort by developing countries like Brazil and Mexico to join with other developing countries and demand more transparency from countries like the US, the UK, Germany, Canada, and Switzerland, where most of this untaxed offshore loot hangs its hat.