By a conservative estimate, tax havens deprive countries of taxes amounting to 30 Lakh Crores every single year.
By Subhash Jangala
Nine top-tier cricketing nations competed over two years in the toughest form of international cricket for a chance to claim the first ever World Test Championship, 2021’s marquee event of the International Cricket Council. India started its campaign with seven consecutive victories and secured its spot in the final after handing England a thorough drubbing at Ahmedabad. The final against New Zealand is slated to be played at the Ageas Bowl, the home of the Hampshire County Cricket Club. It is quite intriguing that Hampshire’s connections with India are as old as the game of cricket itself. While the earliest definite reference to cricket dates back to 1597, Hampshire became one of the biggest benefactors of the East India Company from the early 1600s. Employment for its labour, demand for its timber, requests for its ships, markets to its investors and consumers for its farmers. India gave Hampshire what it takes to build a modern city. Historically and culturally speaking, it wouldn’t be too much of a stretch to consider Ageas Bowl, the Indian team’s home ground. After all, who fills the stands?
Incidentally, a widely publicized meeting of the Finance Ministers of the G7 took place in the first week of June. Rishi Sunak, the Indian origin head of the UK’s Treasury, announced that a historic breakthrough was achieved in bringing equity and equality in international taxation. The Communique of the meeting committed the G7 to award a new taxing right to market economies (countries with huge markets like India). It also committed the G7 to the ideal of achieving a global minimum corporate tax rate of 15%, essentially, the beginning of the end of tax havens. But what connects the G7 meeting with ICC’s eagerly awaited final? Precisely Taxes and Equity.
The biggest revenue-generating item of any cricket event is broadcast rights. The ICC holds the broadcast rights for the Aegas Bowl final. While we are not sure of the price fixed for broadcasting the final, the ICC has substantial revenues that it generates from cricketing events across the globe. The 2019 statement of comprehensive income pegged ICC’s annual net income at USD 392 Million, close to Rs 3,000 Crores. That would be about Rs 650 Crores in taxes if the company was operating in any country in which cricket is actually played. But the British Virgin Islands isn’t really famous for its cricket. Why does the ICC operate from there?
The International Cricket Council is registered as a Business Company in the British Virgin Islands (BVI). The law applicable to such a company is the BVI Business Companies Act. Since the International Cricket Council’s income-generating activities are outside the BVI, the ICC is exempt from all provisions of the Income Tax Act (including dividends, interest, rents, royalties). Capital gains realised on most transactions by persons who are not resident in the BVI are also exempt. No estate, inheritance, succession or gift taxes payable by persons who are not resident in the BVI on most financial assets. No stamp duty is payable in the BVI on a transfer of shares in a BVI international business company. The ICC is, essentially exempt from all taxes on its global income in the British Virgin Islands.
Let’s consider ICC’S subsidiaries. The corporate structure of the ICC is shown below along with the functions performed by each entity. As it can be seen, quite understandably, all entities involved in exploiting commercial interests and generating income are located in zero-tax jurisdictions/regimes. The entities in Dubai are situation in free zones, identified by the “FZ” in the name. Free zones essentially are special geographical enclaves that provide a no-tax holiday for a 10/15 year period.
Dubai has historically only taxed oil and gas companies and foreign banks. There is no withholding tax or Capital Gains tax in Dubai either. Mauritius is also known to have run a regime under the nomenclature of the International Business Company or Global Business Company regime wherein entities generating income only from outside Mauritius are provided tax holidays/extensive exemptions from taxation. The ICC Americas, registered in the USA, clearly does not generate income and consequently the ICC doesn’t really care where it is situated.
On income of USD 392 Million, essentially, the ICC doesn’t pay any tax. In addition to situating itself in tax havens, the ICC also lobbies in countries where the events are held to obtain tax exemptions on the income generated from the events. However, it is not entirely clear why the ICC has an aversion to taxes. Taxes build a nation. Taxes build an audience. Taxes build a sport. Taxes are necessary for the ICC to have healthy viewership.
It is precisely these tax havens like the BVI, UAE and Mauritius that Rishi Sunak has promised to attack in the G7 meeting. The United Kingdom’s satellite network of overseas territories and dependencies comprising of the BVI, the Cayman Islands, Bermuda and Jersey are often alleged to top the charts of corporate tax havens. So, it is not clear how the dichotomy will work. Will the UK take real significant measures to sever the very arteries of its financial muscle that dictate terms across the financial world today? In this background, the announcement from UK’s Chancellor of the Exchequer is intriguing. As much as Hampshire’s India connection.
By a conservative estimate, tax havens deprive countries of taxes amounting to 30 Lakh Crores every single year. The countries most affected are the market economies, those born out of the same colonies that were colonized until about half a century back. Tax havens, silently and discreetly, rob nations of their wealth.
With a low threshold of 15% minimum tax rate and possible exemptions for individuals, trusts and investment funds, the G7’s decision while a positive measure, is slightly short of game-changing. However, whether the swindle of tax havens will come to an end is yet to be seen.
(Subhash Jangala is Joint Director (OSD), Publicity Division, Directorate General of Administration and Taxpayer Services, CBDT. The views expressed are the author’s own, and do not represent those of the Government of India or Financial Express Online.)