How to tackle tax havens
It's estimated that $11.5 trillion was held offshore in 2005. That figure will be much higher now. Some $250bn of tax has been lost on that income. That's almost three times the size of the global aid budget. Corporations claim low tax encourages investment. But it doesn't.
Low tax jurisdictions encourage the world's biggest corporations to move their profits, through the system of price transfer, to where they attract the lowest taxes. So profits made elsewhere are shifted to new territories to avoid tax. And losses are shifted to higher tax economies. Where they attract tax relief.
Double non-taxationSo a system which companies originally pushed for to avoid double-taxing – where profits are taxed both where they are made and where the parent company is based – has become a system of double non-taxation. And this process is conducted largely in secret.
Nicholas Shaxson, the journalist whose gripping book Treasure Islands exposes the business of offshoring, told me: "Tax havens are about serving interests elsewhere. Cayman's secrecy, or its tax or financial loopholes, are designed to attract money not from locals, but from foreigners. ('Elsewhere:' hence the term 'offshore.' )
"Offshore lawmakers are always separated from those affected by the laws they write, so there is never proper democratic consultation when these laws are written. This is not only deliberate – it is the whole point. These are laws by insiders, for insiders, without democratic accountability: they are private law-making machines.
"Offshore is, almost by definition, a smoke-filled room. The implications for the last financial crisis, and for pretty much any major economic process that we care about, should be quite clear.
It's a complicated business. Many people will say that this is just business and that nothing can be done to change it. But this is not just business and there are measures that can be taken to change it. What it needs is the political will to challenge the capture of national governments by financial interests.
Straightforward actionRichard Murphy, the former KPMG accountant turned tax justice campaigner who this web channel named one of its Heroes of 2010, says that doing so would be quite straightforward.
"Tax havens are the place where multinational corporations hide their profits," he told me. "We could stop that. Country-by-country reporting in their accounts would tell us where they hide every penny of their profits around the world, and where they avoid their taxes. It would be game over for the tax avoiders."
The Green MP Caroline Lucas has tabled a bill in Parliament which proposes introducing country-by-country reporting. The bill will receive its second reading on 25 November. You could write to your MP and ask them to support it, because MPs have been strangely lukewarm in their support.
But there are other measures which could, and should be taken. They include;
- Bringing the City of London Corporation, which currently floats free from democratic control at the centre of the global offshore web, into a unified and fully democratic London authority.
- Introducing land value taxation, which would encourage the best use of land, keep rents down and – because it is a tax on land and not on property – be both simple to administer and proof against offshore escape.
- Encouraging governments to lead through unilateral action by taxing and regulating the financial services industry according to the needs of the economy.
In the conclusion to his book, Nicholas Shaxson says this. "The final and most important thing is to change the culture. When pundits, journalists and politicians fawn over people who get rich abusing the system – getting around tax and regulation and forcing everyone to shoulder the associated risks and taxes – then we have lost our way."