Wednesday, October 28, 2009

Taxes to rise in secrecy jurisdictions?

The Guardian expects a Treasury Commission tomorrow to bring out a new report on tax havens (or secrecy jurisdictions, as we prefer to call them):

"Having spent the last 20 years luring the world's super-rich and top companies to their shores, Britain's offshore centres will be told they have no excuse not to diversify their tax bases to ward off financial crisis

Many of these jurisdictions are in trouble. This letter we dug up from the Cayman Islands Financial Services Association in May shows the sheer financial panic that has been underway there; we have remarked on several occasions since -- try this for example, or this -- how the islands have headed for bankruptcy. As the Guardian now notes:

"Similarly, the Caymans have also faced a financial crisis after a public spending programme and reduced fees from banks meant it was forced to beg the Foreign Office for permission to raise a £280m bank loan."

Or take Jersey, another major satellite of Britain and the City of London. It has recently become apparent that Jersey's so-called zero-ten tax regime for businesses -- a central plank of its fiscal regime -- will not be compliant with the EU Code of Conduct. John Christensen, TJN's director, and Richard Murphy, a Senior Adviser to TJN, warned Jersey in a letter to the Jersey Evening Post in 2006 that exactly this would happen - and they were mocked and ridiculed in Jersey. The Jersey authorities will now be wishing they had listened. Read Murphy's analysis of this here and here.

There is the Isle of Man, another Crown Dependency, like Jersey. Murphy has long pointed out that the Isle of Man receives a large subsidy from Britain's taxpayers, via a secret pooling arrangement on Value Added Taxes, supporting the secrecy jurisdiction as it drains money out of countries around the world and channels them into the City of London. Then we had Isle of Man Today this week saying:

"It is perhaps the secret nature of the deal that has fuelled claims by the Island’s most ardent critics, most notably Richard Murphy of the Tax Justice Network, that it effectively provides us with a £230 million subsidy from the UK."

And now the Guardian notes that:

"Earlier this month the Treasury slashed the Isle of Man's budget by £140m after it discovered a 400-year revenue sharing agreement was weighted sharply in the tax haven's favour. The cut was equivalent to a 24% budget reduction. The 80,000-strong island faces steep spending cuts and possible higher taxes."

The secrecy jurisdictions have brought this upon themselves, and a time of reckoning for their decades of abusive selfishness seems to be here.

Alas, this time may be all too short-lived: the Guardian's assessment that "Britain's tax havens will be read the last rites tomorrow" is way off the mark. For one thing, it will be as easy to wean these jurisdictions off abusive financial activity as it is to wean a decades-long heroin addict off the junk. In fact it will probably be much harder, given that tax havenry is embedded in the these places' very psyche, with their political systems, economies and media outlets almost entirely captured by the offshore sector.

And that is by no means all. Unless there is a marked sea-change in the fortunes of Britain's Labour Party soon, it will be out of power by the middle of next year, and Britain will be run instead by the Conservative Party - the party of offshore. Unless we see a Damascene conversion by the Conservatives - and we see absolutely no sign of that whatsoever - Britain's government will be working hard towards getting these places back to business as usual, as fast as they can.

More broadly, a recent OECD push for more countries to sign its information exchange protocols has led to a widespread perception that the tax haven problem is on the way to being solved. This is an extremely dangerous perception, for if it persists it will pave the way for business as usual.
Mike McIntyre, a former chair of the UN Subcommittee on Information Exchange, calls the OECD list system a "sad joke" and adds (sorry, no link available):

"The OECD efforts at getting countries to sign information exchange agreements based on its model TIEA is a sideshow, even a charade. With all these illusory TIEAs being signed with great fanfare, some may fear that we are seeing the end of the reform movement rather than the beginning."

He may well be right.


Post a Comment

<< Home