Tax havens

On the day the Scottish Parliament is setting a budget that implements the Con-Dem coalition's cuts, it is perhaps a good time to look at some alternative means of financing public services.

I have just read 'Tax Havens: How Globalisation Really Works by Palen, Murphy and Chavagneux. This is everything you wanted know about tax havens and everything you feared would be the case. The authors take us through the history of tax havens, how they work and set out some vital statistics. They reckon individual annual tax loss amounts to over $255bn and that figure is dwarfed by corporate tax dodging. In the UK alone 30% of the largest companies don't pay any tax. Half the global stock of money goes through tax havens.

They then show us how rich individuals and corporations use tax havens to dodge tax. The array financial instruments, offshore companies etc is truly staggering. All of this is facilitated by the 'Big Four' international accountancy firms. This includes our old friends KPMG, caught out again, this time by US tax authorities. They were fined $456m for selling tax evasion products worth $1.4bn that they netted $124m in commissions on. The ECJ also concluded that another KPMG scheme was an improper attempt to avoid VAT. And they want to tell us how to run Scotland's public services!

The book highlights a particular concern over the impact on the developed world, with $850bn flowing out into tax havens, ten times the total world aid budget. Another big loser are the salaried middle classes who are paying for the tax dodging rich.

There is some hope that the latest financial crisis is leading to a renewed attack on tax havens, or at least the secrecy that surrounds them. Including the OECD, G7 and countries including the USA, Germany and France. Sadly the UK is not rising to the challenge particularly when many tax havens are British dependencies.

In fact they are going in the opposite direction. As George Monbiot has highlighted in the Guardian the Con-Dem coalition is planning the biggest corporate tax cut in history.

"At the moment tax law ensures that companies based here, with branches in other countries, don’t get taxed twice on the same money. They have to pay only the difference between our rate and that of the other country. If, for example, Dirty Oil plc pays 10% corporation tax on its profits in Oblivia, then shifts the money over here, it should pay a further 18% in the UK, to match our rate of 28%. But under the new proposals, companies will pay nothing at all in this country on money made by their foreign branches. Foreign means anywhere. If these proposals go ahead, the UK will be only the second country in the world to allow money that has passed through tax havens to remain untaxed when it gets here. The other is Switzerland. The exemption applies solely to “large and medium companies”: it is not available for smaller firms. The government says it expects “large financial services companies to make the greatest use of the exemption regime”. The main beneficiaries, in other words, will be the banks.

But that’s not the end of it. While big business will be exempt from tax on its foreign branch earnings, it will, amazingly, still be able to claim the expense of funding its foreign branches against tax it pays in the UK. No other country does this. The new measures will, as we already know, accompany a rapid reduction in the official rate of corporation tax: from 28% to 24% by 2014. This, a Treasury minister has boasted, will be the lowest rate “of any major western economy”. By the time this government is done, we’ll be lucky if the banks and corporations pay anything at all. In the Sunday Telegraph, David Cameron said: “What I want is tax revenue from the banks into the exchequer, so we can help rebuild this economy.” He’s doing just the opposite. These measures will drain not only wealth but also jobs from the UK. The new legislation will create a powerful incentive to shift business out of this country and into nations with lower corporate tax rates. Any UK business that doesn’t outsource its staff or funnel its earnings through a tax haven will find itself with an extra competitive disadvantage. The new rules also threaten to degrade the tax base everywhere, as companies with headquarters in other countries will demand similar measures from their own governments."
So there you have it, official government policy in the UK is to promote tax havens and make the rest of us on PAYE pick up the bill. Why? Another story in today's news may give us a clue. Half of all Tory donations come from the City. More precisely, from the very same hedge funds that make extensive use of tax havens.
 
The US authorities found 18,857 businesses registered at just one address in the Cayman Islands. As President Obama said "that's either a very big building or a very big scam'. I think we know which!