Tuesday, November 06, 2007

Tax Justice Goes Bananas

As he was growing up in his native Jersey, TJN’s director John Christensen used to stare at the ships in harbour and dream of the adventures of the great English explorer Walter Raleigh, who established the second English colony in the New World.

The Boyhood of Walter Raleigh, by J.E. Millais, 1870.
"Is that a banana boat?" (John Christensen is in the black jacket)

Later, in the 1980s, John became economic adviser to the states of Jersey, and, among many other things, he helped handle negotiations for the introduction to Jersey of a new exotic breed that was being imported from the Cayman Islands and other outposts of the New World: the International Business Company (IBC).

IBCs effectively allow companies that use them to negotiate their tax rates – in Jersey’s case: between one half of one percent and two percent of profits. Multinational companies then engage in tax gymnastics to shift their profits into these jurisdictions – and so cut their tax bills. The Guardian newspaper today has filled its front page with a first-rate story that quotes John (and TJN's Richard Murphy) and describes how big banana companies – three of which control over two thirds of the world banana trade between them (and generated over $50bn in the last five years) – are:

creating elaborate structures to move profits through subsidiaries to offshore centres such as the Cayman Islands, Bermuda and the British Virgin Islands, to avoid handing money over to tax collectors in the countries where their goods are produced, and in those where they are consumed. Governments at both ends of the chain are increasingly being deprived of the ability to raise tax for development or services.

If you follow the paper trail of some of the banana companies, you might be forgiven for thinking that Jersey is a substantial exporter of bananas to the UK. But how could this be? Jersey, a chilly place in winter, is subject to the full force of Atlantic gales, and you would be mad to try and grow bananas there. Read this second excellent Guardian article, and this handy interactive guide to transfer pricing, to get an idea of what is really going on in our increasingly complex and dysfunctional global economy.

Richard Murphy helps explain more about this in his blog on this issue, here, and fills in a couple of details that the Guardian didn't include. If you can, buy the hard copy of the newspaper - it's got some excellent graphics accompanying the stories.


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