Friday, March 27, 2009

Secrecy vs Confidentiality

A frequent justification trotted out by defenders of tax havens is that wealthy people need privacy. Not surprisingly, it is being pleaded all over the place now, as tax havens have come under pressure. So in the Financial Times we read a story about how the `ferocious campaign unleashed against investors who hide their money in secrecy jurisdictions' is impacting also on clients of private banking specialists even if they `have never been tempted to dodge taxes'.

Apparently they have all sorts of motives for wanting privacy: religious reasons, or concealing their wealth from family members, or from potential kidnappers.

It is said that the outrage from banks which blocked the proposals in 2001 for the US to require banks to report interest payments to non-residents, so that the information could be passed to US treaty partners, was because of fears that `sensitive financial information could fall into the wrong hands'.

Nothing to do with tax evasion, you understand.

However, banks in every country in the world have a strict legal obligation to keep customers' information confidential. There is no difference in this respect between a bank account in London or Lichtenstein, which could be with the same bank. The key difference is that in some countries the tax authorities can obtain information from the banks, for tax purposes. Not family members. Not kidnappers. Not religious zealots.

It's usually fairly easy for, say a kidnapper, to identify rich people. They are the ones who have large houses and flashy cars, and own football clubs. Magazines like Forbes publish estimates of their wealth.

The FT story claims that the fees for managing trusts `will go through the roof', yet in spite of the costs the clients are `diversifying' by setting up trusts in various jurisdictions, so that `If they are revealed as the ultimate beneficiary in one jurisdiction, they can fall back on another.'

All this apparently has nothing to do with tax. It's all about religion, or predatory or vulnerable family members, or kidnappers.

Pull the other one.


Blogger Physiocrat said...

Of course the wealthy should pay their way but not surely through more and more surveillance, spreading across national borders? That is the internationalisation of the police state.

If the tax systems are changed, the obscenity of people who garner vast quantities of wealth to themselves will end.

10:42 pm  

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