Mythbusters: “There’s nothing we can do about tax havens”
Tax havens play a key role in facilitating tax avoidance, yet so far, few serious measures have been taken to prevent their operation. Fuelling this inertia are not one, but several myths: a book of fairy tales and fantastical claims telling us there’s nothing we can do to tackle the glorified accounting functions that are tax havens.
Let’s take a moment to clear these up.
Sub-myth 1: “There’s no such thing as a tax haven”
The lobby for tax havens tries to convince us that because there’s no universally accepted definition of what a tax haven is, no one can be accused of being one.
But even in the absence of clear-cut definition, facts are stubborn things. The Tax Justice Network has produced the Financial Secrecy Index that uses a raft of data from a variety of official sources to rank tax havens. Not only do tax havens exist, they can be compared and contrasted with considerable precision.
Sub-myth 2: “Financial secrecy is a basic human right”
Lobbyists further tell us that tax havens safeguard basic human rights. Dan Mitchell of the Cato Institute declares that “there is even a moral case for tax havens. They play a critical role in protecting people who are subject to religious, ethnic, sexual, political or racial persecution.”
In reality, having your money stashed offshore does not protect you from persecution. And since tax havens exist to protect property rights to the fullest extent possible, their impact on even more fundamental rights is disastrous: Christian Aid estimates that $160 billion leaves the developing world illicitly via tax havens each year.
Clearly, the right of the wealthy to guard themselves from hypothetical dangers must be weighed against the right of everyone else to secure the minimum necessary to sustain life.
Sub-myth 3: “There’s nothing to do – the offshore sector has already reformed”
When it seems appropriate lobbyists tell us that the tax havens have substantially reformed. Only last month Anthony Travers of the Cayman Island Stock Exchange assured the world that “the Overseas Territories already demonstrate full tax transparency.”
This will come as news to tax authorities around the world, including HM Revenue and Customs. As Christian Chavagneux noted on the OECD blog in March 2012: “France made 230 requests for information to 18 countries in the first eight months of 2011. The reply rate was only 30 per cent and the quality of the information supplied wasn’t always of the highest quality.”
Sub-myth 4: “Leave us alone, or else!”
Last but not least we come to the ‘You’ll regret it if you interfere!’ myth. This is the threat, made often by tax havens, that if measures are taken against them by any other country then the wealthy people and large corporations located in that country will up sticks and leave permanently - taking the tax they currently pay with them.
For corporations, this threat has now become completely hollow. The UK’s territorial tax system taxes profits arising in the UK, and it is not possible for corporations to take this tax away with them. Meanwhile, few individuals would wish to suffer the social upheaval of moving country simply to save on tax – as shown in our recent mythbuster debunking the idea that “A competitive tax system is a better tax system”.
An end to the havens
Even a casual glance at the arguments that the offshore lobby use to defend tax havens reveals the glaring inconsistencies between them. They want us to believe that these ‘non-existent’ jurisdictions are both the helpless victims of bullying by large economies, and capable of bringing these same economies to a standstill at the first sign of effective regulation.
Tax havens say there is nothing that can be done about them. But that’s not true. Some steps have been made already. The US Foreign Account Tax Compliance Act (FATCA) now requires tax havens to maintain all the information needed for full automatic information exchange on all individuals and schemes they operate. The EU’s new rules for banks have set a precedent for all companies operating internationally.
While there is much more that needs doing, we are nearing a tipping point. It seems the ‘little people’ are keen for the rich to pay their tax, too, and the evidence is that we can tackle the havens.