Tax havens in trouble

While the Panama leaks of 2016 have thrown into bold relief the financial shenanigans of people with political power and pelf in the developing countries, at the same time the episode has exposed the unscrupulous financial dealings of the developed world as well.

Tax havens have attracted large companies along with wealthy private investors who seek refuge from taxation policies in their home countries. These havens have been known to greatly reduce and eliminate taxes that would have otherwise been due by domestic tax authorities if not for their placement in offshore accounts. Thanks to offshore companies spread the world over, tax avoidance alone is said to have caused around $32 trillion in lost revenues in international banking systems.



A recent Oxfam report is quoted as saying that when governments lose tax revenues, “ordinary citizens pay the price: schools and hospitals lose funding and vital public services are cut. At the same time, increased profits as a result of lower corporate taxation benefit wealthy company’s shareholders, only further increasing the gap between the rich and poor.”

Many hold the US as “effectively the biggest tax haven in the world”. A 2012 study by various US universities showed that the US has the most lenient regulations for setting up a shell company anywhere in the world outside of Kenya. Tax havens such as the Cayman Islands, Jersey and the Bahamas were far less permissive, researchers found, than states such as Nevada, Delaware, Montana, South Dakota, Wyoming and New York. Both Hillary Clinton and Donald Trump are said to have firms registered in North Orange Street.

Europe is also home to many tax havens that offer advantageous environments for capital gains taxes, income taxes and corporate taxes. London is Europe’s tax haven capital for non-British individuals. Germany, Jersey, the Netherlands, Switzerland, Sweden, Denmark and Luxembourg are all tax havens differing in degrees in secrecy. The Caribbean also offers some of the most popular tax havens in the world.

Lately a realisation is said to have dawned on the political leadership in the West that in ultimate analysis these tax havens are causing immense damage to their own respective economies.

According to Angel Gurria, Secretary General of the OECD, it had become “politically intolerable,” after billions in taxpayers’ money were used to bail out the world’s largest banks and corporations following the 2008 financial debacle that “only the middle classes and small- and medium-sized enterprises pay taxes while high net-worth individuals and multinationals don’t pay any at all.”

In an article (The Lure of Europe’s Tax Havens — Foreign Affairs: April 17, 2017)) by Alexander Saeedy in 2009, leaders of the G–20, at the ‘now-infamous’ Pittsburgh Summit, acknowledged that it was time “to turn the page on an era of irresponsibility” in global taxation and vowed to “take action against non-cooperative jurisdictions, including tax havens. “As the group announced later that year, “the era of banking secrecy [was] over.”

He said although the United States’ Foreign Account Tax Compliance Act of 2010, which required foreign banks to report the overseas assets of US citizens, may have signalled the beginning of the end to anonymous banking schemes, a number of scandals, including the Luxembourg Leaks in 2014 and the Panama Papers two years later, have continued to expose how the world’s wealthiest exploit shortcomings in corporate tax rules in order to shift money across the world and hide cash from tax authorities.

Those leaks are said to have spurred on countries in Europe, in particular, to pick up the pace on corporate tax reforms. “The Common Consolidated Corporate Tax Base (CCCTB) is expected to create a EU-wide tax regime designed to eliminate profit shifting, which corporations like Google and Apple are said to use to avoid paying taxes in Europe.



“CCCTB would apportion the size of a company’s tax burden according to its real economic activity in a jurisdiction and ‘letterbox’ jurisdictions such as Luxembourg would stand to lose the most.”

Published in The Express Tribune, August 19^th, 2017.

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