How tax havens killed small music businesses

A new UK website has been opened, vatloophole.co.uk, highlighting some particular abuses of Value Added Tax loopholes that have allowed large music corporations operating out of the Channel Islands to kill off their competitors.This is a UK-focused site, but its implications are generic and apply to all countries. The site publishes an open letter to the UK Chancellor George Osborne highlights what has been going on:

"My business was a healthy, profitable, online mail order business until HMV moved operations to Guernsey. The majority of independent music retailers in business in the UK 5 years ago are now out of business. Their decline far exceeds that explainable by the decline in the overall UK CD market."

and he explains one of the great tax haven problems, at root:

"The abuse of LVCR [the VAT relief loophole] has also caused a massive distortion of competition, contrary to the principles of free markets and fiscal neutrality. When one supplier has to charge VAT and another does not, clearly customers will choose the one that does not have to pay VAT, and a business that is viable in the absence of the VAT differential will go out of business. This happened to me"

And something else pretty damning:

"I have multiple quotations from numerous industry insiders highlighting that the only reason that retailers have any establishments on the Channel Islands is because of the VAT advantage, and that no business that had to charge VAT on its CDs could possibly compete."

It all goes to show: tax havens undermine markets, and the very efficiency they claim to be promoting. Hat tip: Tax Research.