Wednesday, December 29, 2010

Offshore and the struggle for sovereignty

Some people claim that tax policy is a central plank of national sovereignty, for which reason they resist attempts to harmonise corporate tax bases. They delude themselves. Governments have a degree of sovereignty in some areas, including taxing land, labour (up to a point) and consumption, but not when it comes to taxing multinational corporations. As William Brittain-Catlin points out in this Guardian article, banks and large corporations shifted their tax affairs offshore decades ago and there has been little or no political will to tackle this massive global problem.

So what is to be done? Brittain-Catlin recommends that governments of progressive nations should refuse to truck with corporations having offshore operations, applying strict due diligence to ensure compliance:

Onshore you're in, offshore you're out, simple as that. And let us subject every company and individual to the onshore test: a rigorous due diligence investigation to make sure that there is absolutely no offshore tax haven link to any company or person that wishes to use the onshore nation as place to do business in. Those that pass the onshore test will then be welcomed to join in and establish the new order.

Some French regional authorities have already taken steps in this direction. We would like to see local authorities in other countries take similar steps, if only to raise the profile of this extraordinary threat to democracy and market economies.

But TJN has a more ambitious agenda. We see the tax haven threat as systemic, which means we must pressure politicians to adopt systemic solutions at a global level. Thus paradoxically, we see international cooperation on tax matters as the only effective means of reasserting democratic national sovereignty on taxing multinational companies and the rootless parasitical elites who free-ride on the backs of those who live, work and pay tax onshore.

So what do we propose? Well for starters we propose automatic exchange of tax information as the effective solution to cross-border tax evasion. In the same vein, we propose a radical shift away from the current system of taxing multinational corporations to a system based on a formula approach to dividing profits between the countries where they are actually generated.

We also propose global rules for transparency of corporate ownership to prevent dodgy people from hiding behind secret offshore companies. And we propose an international standard for financial reporting on a country-by-country basis requiring multinational corporations to reveal appropriate accounting information for their subsidiaries in every country where they operate.

These proposals might not sound very exciting, but cumulatively they would roll back all those sneaky little dodges and rigged rules that have enabled the exploitation of tax havens for so many decades. These are the measures we demand of our politicians, and we call on ordinary people in all countries to rally to support them.

Tackling the tax haven issue must become a central feature of global economic reform. In 2011 the G-20 falls under the presidency of Nicolas Sarkozy of France. We must join our French colleagues in insisting that tax havens feature prominently on their agenda.


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