Until there's a multilateral approach to tax-dodging, we will continue to be shocked but not surprised by avoidance

If the G20 countries or the wider OECD were determined enough then the tiny states and dependencies that offer these rackets would be pressured into withdrawing them

Monday 06 November 2017 18:06 GMT
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The majority of the Paradise Paper leaks have originated from a Bermuda-based company
The majority of the Paradise Paper leaks have originated from a Bermuda-based company (EPA)

The reaction of Shadow Chancellor John McDonnell to the revelations in the so-called Paradise Papers was about right: shocked but not surprised. Indeed some of the names that are buried deep in the millions of pages of these chronicles of tax efficiency might be disappointed if they were not on the list, and immediately place a call to their tax accountant to ask why on earth they haven’t got a few million, or billion, lying around in Bermuda, seeing as everyone else seems to.

Lord Ashcroft, the Duchy of Lancaster (which is unfairly personalised as the Queen), some oligarchs, a few showbiz types and the US Secretary of Commerce were all there; not quite the usual suspects, but, as Mr McDonnell indicates, no one will be falling off their chair in surprise at their appearance. More will follow and, no doubt, another wave of outrage will be witnessed.

The outrage is justified enough, even if voiced with a certain weary familiarity. It is, of course, wrong for the very wealthy and their agents to use such conveniences to avoid paying a fair share for funding of the public services in the communities they live among or whence they derive their rents and profits.

The reporting of these papers makes clear that “there is no question of breaking the law”, and suchlike; yet tax is also a deeply moral issue or, more accurately, an amoral activity. If personal tax-planning for plutocrats was organised by the types who appear on Radio 4’s “Thought for the Day”, then no doubt there would be no money turning up in tax havens at all, and rather more sent to charities.

As it is, the large global army of tax accountants, tax lawyers and tax advisers are not motivated by abstruse moral considerations; they are charged with minimising their clients’ tax liabilities and otherwise maximising returns, and they get on with it. They leave their consciences at reception.

It is equally the case that if every jurisdiction that offers such advantages were somehow morally reborn, ended the secrecy and raised the rates, then much of the industry would dry up. It is being suggested that the UK now push its overseas territories (formerly crown colonies) such as the Cayman Islands and Bermuda, and the crown dependencies nearer home, being the Bailiwick of Guernsey, the States of Jersey and the Isle of Man, to reform.

This is laudable, but carries with it the danger that some at least of those territories could simply become independent instead, and carry on regardless. Bermuda, for example, is prosperous enough to manage on its own. The places that are too small or too poor to do so would need assistance in finding other ways to make a living – agriculture, tourism or other industries.

Some of the former British West Indies now resort to flogging their citizenship and passports, for example, in return for dollar investments in real estate or local businesses, or just a straightforward contribution to the government. Just $100,000, for example, will make anyone a citizen of the Commonwealth of Dominica in the West Indies (population 74,000).

At the conclusion of all that, however, the rich would simply move their funds to the next available destination, and so long as there is some atoll somewhere that will bank the funds and keep shtum then the world has a problem, and there are plenty of microstates willing to take the cash, no questions asked.

Some of the more attractive destinations for certain activities, indeed, are nestled in precisely the large countries or organisations that often complain so loudly about tax-dodging – the State of Delaware in the US; Luxembourg, Cyprus and Malta as member states of the European Union; as well as odd scraps of sovereign territory that are semi-attached to the EU, such as Andorra and Lichtenstein.

The UK’s special “non-domiciled” tax status is also, in effect, a scam to avoid taxation (the Irish being the only other country in the world to have such an anomalous category of resident). There is, it must be said, a certain degree of confusion and hypocrisy attending the debate about tax justice.

Things are not hopeless, however. Thanks to the quiet, determined work of the Organisation for Economic Cooperation and Development (OECD), a club comprising the planet’s more advanced economies, backed by the G20 states, many tax havens have agreed to cooperate with the tax authorities in other countries, and disclose certain details about trusts, about their directors, beneficial owners and the flow of funds around these little paradises. Tax-dodgers are being shopped. Even Panama, source of the last round of fiscal mega-leaks, has made progress. They have succumbed to pressure from the largest economies in the world; others are proving more resistant, and remain on the OECD “blacklist”.

The likes of Andorra, Micronesia and Vanuatu are now “largely compliant” paradises; less “compliant” with required standards is Trinidad and Tobago, for example. Yet the standards themselves say nothing about the rates nations’ charge, the orthodoxy of “tax competition” thwarting any attempt to restrain one of the most fundamental reasons for the existence of these odd little regimes.

The simple fact is that these are places where you will not pay any tax on the interest, profits or dividends you receive, which gives the less scrupulous the option of avoiding their taxes in their home countries, and especially if the authorities in the tax haven are cagey about what data they offer up to inquisitive tax officials from outside their borders.

As with most things, if the G20 countries or the wider OECD were determined enough, then the tiny states and dependencies that offer these rackets would be pressured into withdrawing them. The global multibillion-dollar tax-efficiency industry – something that has no social value whatsoever – would disappear. The lawyers and accountants could be redeployed to more useful work. The rich would pay their taxes – or have to fall back on more traditional and obviously illegal measures, such as bribery and corruption, to dodge their obligations. Unless the G20 countries – and not all of them with an unblemished record of their own – act, then the hard-pressed ordinary taxpayers of the developed world will continue to be shocked but not surprised when they hear about yet another tax dodge.

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