TAX havens and offshore companies exist for the super-rich to get away with paying little or no tax. But there is much more to them than that.
The depth of Richard Murphy’s knowledge and research and the clarity of his explanations makes his book Dirty Secrets a must-read, especially for politicians. They are the ones who must tackle the problem.
Sadly, their understanding of the complexities and the damage done by tax havens and offshoring hardly extends beyond the Monte Carlo casino in tax-free Monaco.
Those who use tax havens, and the professionals who help them, seek to live in a world where the law doesn’t apply to them but constrains the actions of everyone else.
Tax havens are much more damaging than allowing the super-rich to avoid paying taxes because they provide tier upon tier of secrecy and a launch pad for attacks on the tax systems and regulations of all major democracies.
They allow for the concealment of companies’ ownership, with apparent competitors under common ownership and thus able to rig markets. Companies operating from tax havens can grow and keep their retained profits quicker than those located in countries where profits are taxed.
Since the source of much of the capital used by businesses comes from retained profits, it follows that companies based in tax havens have easier access to cheaper capital, thus undermining the free market.
London, capital of the overseas territories and crown dependencies over which Britain holds widespread powers, is the epicentre of the largest tax haven network in the world. If they were taken into consideration, Britain would top the Financial Secrecy Index ahead of Switzerland, everyone’s favourite usual suspect, and more conventional tax havens such as the Cayman Islands.
The US demands significant data from every country in the world on the income of its citizens who live in other countries but refuses to reciprocate with details of income earned in the US by non-residents.
Its states have their own laws. Delaware, with its lax tax rules and a population of 945,000, is home to more than a million corporations and the accounts of private companies there need not be published. Wyoming and Nevada compete to provide similar secrecy.
Tax havens increase inequality, with the burden of tax falling on labour rather than capital. They challenge democratic choice, undermining trust and the rule of law and even the free market itself.
Developing countries, traditionally thought of as the home of tax havens, suffer disproportionately from their role. Their local governments train and educate young people to service the needs of this one sector.
If tax havens were abolished, few people would be affected, just the handful of expats who work in the industry and to abolish them would not be difficult. But it would require international co-operation and political will. Both are in short supply.