Norway Invests More in Tax Havens than in Sweden

It is constantly becoming more popular for Norwegian investors to invest in tax havens like Singapore and Bermuda. In 2010, NOK 155 billion was invested in tax havens, more than was invested in Sweden, which heads the list of attractive investment targets with NOK 154 billion. Simultaneously, investments in tax havens are increasing each year, from NOK 6 billion in 1998 to NOK 155 billion in 2010. This is shown in an investigation by The Future in Our Hands based on figures from Statistics Norway’s StatBank.

Secrecy Jurisdictions

So-called tax havens are countries or regions that offer the possibility to establish companies that pay little or no tax and little or no access into the companies’ ownership or economic situation. Tax havens – also called secrecy jurisdictions – contribute to enabling international companies avoid paying tax, conceal information and hide money resulting from corruption or other crime.

For Norwegian investors Singapore and Bermuda are most popular. On the latter vacation island the headquarters of John Fredriksen’s shipping company Frontline and rig company Seadrill are located. Fredriksen was recently designated Norway’s richest man, even though he is a citizen of Cyprus.

Several participants, such as The Future in Our Hands, Tax Justice Network, Publish What You Pay and the Norwegian Agency for Development Cooperation (Norad), have during the past few years criticised the use of tax havens because they hinder economic development in poor countries.

The Future in Our Hands has written about tax havens previously; you may read further in the following articles (in Norwegian):

• Norwegian Companies in Tax Havens
• Report Reveals Massive Use of Tax Havens
• Lawyers Must Fight Tax Havens
• Secrecy Hinders Development

Critical of Development

Sigrid Klæboe Jacobsen, the leader of Tax Justice Norway, is critical of the fact that Norwegian investors are increasingly using tax havens. “The use of tax havens indicates that taxes do not end up where the true economic development occurs. In tax havens little or no economic development occurs; in some it is forbidden to carry out true economic activity,” Jacobsen relates. “The tax havens are a cover; they conceal international money flows and prevent us from ascertaining how much tax the international companies should pay.”

Tax havens make it much easier for companies to evade taxes because the company is removed from the country where the economic development occurs. The problem is greatest in the extraction industry – such as oil, gas, mines and timber – which often is found in poor countries. Another problem is that tax havens conceal true ownership and make it difficult to find those responsible when, for example, an accident occurs.

Sigrid Klæboe Jacobsen mentions two examples from Europe. In the first, it took the French authorities 20 years to find the responsible owners after a shipwreck off the coast of France. In the second, the ownership, and thus the responsibility, in the Scandinavian Star accident in Norway in 1990 has never been finally established, because the ship was registered in the tax haven of the Bahamas.

According to Tax Justice Network, little research had been carried out on where the money invested in tax havens finally ends up.

“Little research has been done on this,” Jacobsen says. “There are figures from Mauritius, where the money goes in a circle from India to Mauritius and back to India.”

The island community of Mauritius, with a population of 1.2 million, is the biggest investor in India, with its population of 1.2 billion. Mauritius invests more in India than Great Britain and the USA, which are the next two biggest investors in India.

According to figures The Future in Our Hands has obtained from Statistics Norway, in 2010 Norway invested NOK 82 billion in Singapore and NOK 55 billion in Bermuda. The funds may then have been further invested in controversial companies in conflict areas or simply been reinvested in Norway. That same year Bermuda invested NOK 25 billion in Norway, and Singapore NOK 12 billion. The Cayman Islands, a British dominion in the Caribbean with 56,729 inhabitants, invested NOK 18 billion in Norway.

Many participants who work with tax havens and capital flight consider the use of tax havens an obstacle for the development of poor countries.

“This is clearly a great development problem. To bring about development, poor countries need to generate their own incomes – among other things from taxes from countries that operate in the country. Many developing countries are very dependent on taxing foreign companies because the population is poor and the income tax for private individuals is poorly developed. When international companies conceal their income in tax havens, developing countries lose enormous incomes that could have been used for development,” Klæboe Jacobsen explains.

The 10 Most Important Recipients of Norwegian Investments in 2010

Sweden                                                       154 390
USA                                                             113 943
Singapore                                                   82 408
Spain                                                             80 470
Netherlands                                                   71 251
Belgium                                                          68 714     
Denmark                                                         63 759
Bermuda                                                      55 152
Great Britain                                                   49 043
Russia                                                            47 904

Collected investments in tax havens   155 753

(incl. Singapore and Bermuda)
(The amount includes invested equity and net loan claims for abroad. Collected investments in tax havens apply to investments in so-called offshore financial centres, often referred to as tax havens in Norwegian.)

In 2008 the government appointed an expert committee to examine the tax havens’ part in capital flight from developing countries. The next year a report (NOU 2009:19) called “Tax Havens and Development” was released.
 
The report lists several characteristic and problematic features of tax havens. They:

• Increase the risk premium in international finance markets.
• Weaken the tax system’s mode of operations and the public finances.
• Lead to unjust distribution of tax incomes.
• Cause resource allocation to be less efficient in developing countries.
• Make economic crime be more profitable.
• May lead to rent-seeking and lower private income in developing countries.
• Damage institutional quality and growth in developing countries.

The report also recommends that “Norwegian authorities should increase efforts to strengthen and improve the tax systems and anti-corruption work in developing countries” and, not least, that “Norwegian economic policy should reflect more closely the goals of Norwegian aid, so that the two policy areas are as little as possible in conflict with each other.”

After the report was released, Norad has held several conferences on tax havens and strengthened the aid to help developing countries with taxes and jurisprudence. But the development with regard to Norwegian trade and industry has, as shown by the above figures, taken a wrong turn.

The figures in this article were derived from Statistics Norway when no other source is given.

What Does The Future in Our Hands Think of This Issue?

The Future in Our Hands has for many years supervised Norwegian investments in poor countries and has been concerned about how companies in rich countries use subsidiaries in tax havens.

“We are concerned about the development by which Norwegian companies to an increasing extent invest in tax havens,” FIOH’s leader, Arild Hermstad, relates.

It is in the nature of tax havens that they conceal the companies’ further investments, so that we do not know where the money is reinvested from the tax havens.

“We fear that Norwegian companies use tax havens to escape taxes and to prevent access to where they invest. We have for many years paid close attention to Norwegian investments in controversial regimes and international companies that violate human rights. Tax havens make it difficult to follow the money flow and may constitute a “back door” for Norwegian companies into controversial countries,” Hermstad says.

Norwegian authorities have done a good job internationally by directing attention to the use of tax havens, with the report “Tax Havens and Development” (NOU 2009:19) and a special aid commitment.

“Something must have gone wrong when Norwegian authorities start up a praiseworthy campaign against tax havens at the same time that the Norwegian investments in tax havens increase,” Hermstad states.