Holiday is a great time for reflection. It's also an opportunity to stand back from the day to day and to view the bigger picture. But sometimes a story from the day to day invades that bigger picture. The story of Bono's tax planning that erupted into the news a couple of weeks ago was one such event.
Bono
Bono is seen as a guru. Of course, he's a successful musician (although, I'll be candid, I'm not sure I'd recognise a single one of his songs). And with Bob Geldof he's been seen as the leader of the culture that has driven the 'pop' development agenda. It's one that has not always sat comfortably with either the serious development agencies or government, but as a lobby exercise there's no doubt it has contributed to awareness.
But, there has always been risk in his position. Bono has accumulated personal worth of hundreds of millions (chose your currency, I think the answer is the same in dollars, euros or sterling). And many (perhaps most) people still think wealth comes with responsibility, especially when the owner asks for that responsibility from others.
Shift tax
This makes Bono's shift of his tax affairs from Ireland to the Netherlands all the more difficult to understand. As I've said before on this site, and will say again, Ireland is a tax haven. And amongst the absurd benefits it has offered is tax free status to artists. U2 have apparently exploited this to ensure that no tax has been paid on the royalties they have earned from their songs.
Now, in a slightly more enlightened moment Ireland has decided to cap the income which can be subject to this exemption at 250,000 euros per annum. This is, of course, income beyond the dreams of about 99% of artists, whatever their medium, and so hardly diminishes Ireland's commitment to support the arts, if that was the intent of the exemption. But the change is apparently unacceptable to U2.
Let’s put this in context. At worst the change means that if their excess royalties were shifted into an Irish company they might be subject to 12.5% corporation tax. This is, because Ireland is a tax haven, one of the lowest corporate tax rates in the world. Except that the Netherlands, which as I've also noted before will get increasing attention from this site, offers an even better deal on royalties and hopes to improve still further upon it from January 2007.
In essence, the Netherlands has done two things. Firstly, unlike almost any other tax haven, it has developed a considerable network of double tax treaties. These offer the advantage almost unknown in the tax haven world of allowing royalties to be paid to the Netherlands without tax being deducted at source in many of the originating counties, or if taxes are to be deducted, the rate is much reduced. This makes it an ideal place to receive royalties.
As a tax haven the Netherlands has gone a deliberate stage further than this, which might otherwise be a characteristic it otherwise shares with a fair number of developed countries. The additional feature it has added that in essence the Netherlands seeks to tax the royalties received at a very low rate. The rate is officially 10% from January 2007 but given the significant range of reliefs and deductions also available, not usually available elsewhere, the effective rate can be much lower, which is absurd even by Irish standards. The rate can be reduced still further if the royalties are then paid on to a Netherlands Antilles holding company. It's clear Bono is looking to exploit some of these arrangements, although precisely how is not certain. But, the Stones have been there before them. It's clear they work.
Development
It's important at this point to remind oneself why this is important. The reason is simple. Tax is a key component in the development equation. Development thinking started with aid. Then it moved to loans (which of course subsequently led to the whole debt issue), which in turn led to trade and the need to generate the income to repay the loans, but now tax is seen as the fourth component in the equation.
The reason is simple. Loans have not worked, as Bono is keen to point out. The resulting debt cannot be repaid. Trade remains an enormous issue, with the odds still stacked against developing countries. So aid remains on the agenda. But no one who is serious about development really sees aid as the long term solution to the development issue. Aid dependency is the outcome of it. And that does not result in the creation of viable independent states capable of supporting their own populations which has to be the objective of development. Only a country which can raise the tax to support itself can do that.
Holistic approach
What this argument on tax and development suggests is that the two are simply inseparable. Not everyone buys this argument yet, but it is hard to see how its validity can be denied. This means that anyone who promotes development has to be serious about tax: more than that, they have to be serious about paying tax.
That attitude to payment has to be evidenced in two ways. The first is a personal commitment to paying the tax that is due by an individual or corporation on the income they have earned in the location in which it can be best determined that it has been earned. The second commitment is to the integrity of the tax system, nationally and internationally.
What Bono proves
What seems clear is that Bono has not bought into this argument. I think he should be aware of it. The Tax Justice Network has tried to contact him. We've never succeeded in doing so. So, perhaps, to use tax jargon, he's simply avoiding it. Which is an action in denying responsibility, as we've always argued.
But the example he provides is more important than that. What he proves is that for some people (and especially those with considerable wealth) the only acceptable rate of tax is no tax. However low the rate of tax a country offers, and contrary to all the arguments put forward by those who promote flat taxes, so long as any tax is charged some will try to avoid or evade them in denial of responsibility to the societies in which they live. In essence this proves that all the arguments that cutting taxes will increase tax revenues are based on a myth. Only 0% is acceptable to tax avoiders. And the result is obvious. In this case the state fails, and one can only presume that this is what those who promote this argument really want.
And yet the reaction to Bono's actions prove something else is happening in parallel. The outrage suggests that tax planning continues to carry with it a reputational risk. His actions are seen as unacceptable. He is not accepting his responsibility to society. The message is simple. Paying tax is a moral imperative.
Paying tax is essential to development
Where does this leave Bono? Seriously out of step I'm afraid. In fact, well outside the development agenda. The tax havens he uses undermine development. They divert income from developing countries. They ensure tax is not paid in them. They facilitate capital flight from those developing counties. As Raymond Baker has shown, tax avoidance driven capital flight costs developing countries ten times their aid receipts.
Bono is endorsing this. His credibility is in tatters.
But he has a choice. He could pay tax. This is an option he can afford. But it’s more important than that: it's his duty.
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Richard: pop stars have amries of PR people whose main task in life is to keep the likes of thee and me away from them. The last thing they want are hard questions asked about how they organise their tax affairs. I should know, I used to do that kind of work. And I paid an army of…
Richard
My personal opinion is that it is
1. up to the conscience and the morals of Bono to lawfully arrange his personal tax affairs as he sees fit
2. open to Bono to use his public profile to put his personal political views to the public
But, what is at the same time hypocritical, laughable and unacceptable is for Bono to have the gall to avoid taxes and at the same time chastise others (governments, individuals, corporations and supra-national bodies) for meanness in the area of aid and to hector others for loans to basket-case countries to be written off. Unless, that is, he does a Bill Gates and forms his own charitable foundation from his wealth.
I’m off now to download all the U2 tracks I can from free sites – I now consider it to be my moral duty.
[…] The International Herald Tribune published an article on Bono’s tax activities yesterday. A certain Richard Murphy is quoted in the report (although I have no recall of speaking to the IHT – I think it all came from this blog). […]
The State didn’t write, perform or help Bonos song-writing in any way.
They deserve nothing from Bono,
Neither do Africans deserve Irish peoples forced work (Income tax). That should be left to genuine charity.
However it has to be said Bono is still a hipocrite.
I have allowed AntiCitixenOne’s comment. I was inclined not to, but I think the pseudonym he has chosen says everything about his opinion and how unacceptable it must be to the majority.
So I let himself show how absurd he is.
[…] Bono is, as is now well known, a fan of tax avoidance. The New York Times, amongst others, have noticed that fact. […]
bono is a hipocrite. he talks about god. and than robs his own people. than the rest of band have these big castles and there hotel clarance house they own I used to them but I DON’T ANY MORE. AND WANT TO PAY TAXES. HOW DARE THEY.
Much as I used to admire Bono for his unique combination of good music and noble deeds (well, intentions at the least!), your post has shown me a side I was unaware of. Being a tax consultant to multinational companies myself, I have always wondered at the effects tax havens have on developing countries. Would the law always lag behind the (misdirected) brains?
Vijay
A general anti-avoidance provision could stop a lot of this
Otherwise the law is doomed to lag behind
Richard
Hi Richard
We have spoken a few times
Sorry I have not spent time looking much at your website before. I commend you on the quality and efficiency of it. I have yet to put enough effort into mine, but it has a new look this week, with a link as well to an earlier version which has quite a lot of useful information and ideas that are still current.
On the subject of tax and Bono, I mostly agree with what you say. I want to point out in his defence that large numbers of people do not believe that every part of a government’s money is put most efficiently to a good purpose.
This does not absolve them from paying tax and some do good work with their spare money (even though they do a lot of damage with their excess consumption). But as you imply on your main website it is quite abhorrent that the most wealthy pay very little tax and that accountants turn a blind eye in many cases.
There is not even a sliding scale that says that those super-rich will pay a slightly greater proportion as they earn more after the middle incomes. And if they run a company many of their expenses are offsettable, so they even get their VAT returned.
This is why I believe that we have to look not just at tax reform for private equities etc but at the structure of both money creation and of trade in favour of a point of sale tax which is harder to avoid and hypothecated to protect the global ecology etc (see the website).
This will pay security dividends for the wealthy.
We have spoken about this before and the ETI proposal available on http://www.STEERglobal.org has gone a long way, but requires more heavyweight support to finally begin to be implemented to help level the field and a bit in favour of the remaining industry in consumer nations. This needs to be done because needless relocation is hardly efficient either of resources or wrt government having to pick up the pieces in the community.
Sometimes relocation is only done in search of quick profit and could be much better managed if thought of a a global level. Simple-minded versions of economics (sophiscated only in their complexity to avoid transparency) incorporating little or no real ethics or transparency and inadequate justice in the way finance and banking both work is, as we have seen a recipe for runaway capitalism with global consequences as we almost have now. The insecurity referred to in another section of your website is entirely relevant here. Can I conclude with a call for unity of purpose of NGOs and all those with a right-minded attitude in turning the global situation around. Britain could be the leaders in this field, instead of lagging (as was recently shown in research about happiness, wellbeing and child health. (Children should be educated close to home and families should not have both partners forced to work to pay off big loans so they would help with the process). All this is relevant to the tax system and in improving economic and social efficiency.
regards, Ian
If MOST of the tax money we pay go towards HELPING humanity (including foreign development, education & health care), and not DESTROYING humanity (as in buying arms, and using violence to fruitlessly combat violence), then maybe most people would NOT try and avoid tax, including Bono. I don’t agree with your argument that tax aids development. Compassion and justice on the part of elected governments is what aids development. Not wasting money and resources and LIVES on war is what aids development. We are all hypocrites, and the best we can do is to judge ourselves before we judge others.
how to the problem in africa is give birth control that will solve one issue. wake up bono and smell the coffee
richard, i agree, agree, agree……he (bono) still has’nt found what he’s looking for!!!! dont trust a man in high heels!!
[…] convinced as I was that itznewstome.com is a super-duper-reputable news source, I stumbled across this article the other […]
[…] haven’t written about Bono for a while, although what I have written about him remains among the regularly read pages on this […]
[…] Bono is seen as a guru. Of course, he’s a successful musician (although, I’ll be candid, I’m not sure I’d recognise a single one of his songs). And with Bob Geldof he’s been seen as the leader of the culture that has driven the ‘pop’ development agenda. It’s one that has not always sat comfortably with either the serious development agencies or government, but as a lobby exercise there’s no doubt it has contributed to awareness. But, there has always been risk in his position. Bono has accumulated personal worth of hundreds of millions (chose your currency, I think the answer is the same in dollars, euros or sterling). And many (perhaps most) people still think wealth comes with responsibility, especially when the owner asks for that responsibility from others. Shift tax This makes Bono’s shift of his tax affairs from Ireland to the Netherlands all the more difficult to understand. As I’ve said before on this site, and will say again, Ireland is a tax haven. And amongst the absurd benefits it has offered is tax free status to artists. U2 have apparently exploited this to ensure that no tax has been paid on the royalties they have earned from their songs. Now, in a slightly more enlightened moment Ireland has decided to cap the income which can be subject to this exemption at 250,000 euros per annum. This is, of course, income beyond the dreams of about 99% of artists, whatever their medium, and so hardly diminishes Ireland’s commitment to support the arts, if that was the intent of the exemption. But the change is apparently unacceptable to U2. Let’s put this in context. At worst the change means that if their excess royalties were shifted into an Irish company they might be subject to 12.5% corporation tax. This is, because Ireland is a tax haven, one of the lowest corporate tax rates in the world. Except that the Netherlands, which as I’ve also noted before will get increasing attention from this site, offers an even better deal on royalties and hopes to improve still further upon it from January 2007. In essence, the Netherlands has done two things. Firstly, unlike almost any other tax haven, it has developed a considerable network of double tax treaties. These offer the advantage almost unknown in the tax haven world of allowing royalties to be paid to the Netherlands without tax being deducted at source in many of the originating counties, or if taxes are to be deducted, the rate is much reduced. This makes it an ideal place to receive royalties. As a tax haven the Netherlands has gone a deliberate stage further than this, which might otherwise be a characteristic it otherwise shares with a fair number of developed countries. The additional feature it has added that in essence the Netherlands seeks to tax the royalties received at a very low rate. The rate is officially 10% from January 2007 but given the significant range of reliefs and deductions also available, not usually available elsewhere, the effective rate can be much lower, which is absurd even by Irish standards. The rate can be reduced still further if the royalties are then paid on to a Netherlands Antilles holding company. It’s clear Bono is looking to exploit some of these arrangements, although precisely how is not certain. But, the Stones have been there before them. It’s clear they work. Development It’s important at this point to remind oneself why this is important. The reason is simple. Tax is a key component in the development equation. Development thinking started with aid. Then it moved to loans (which of course subsequently led to the whole debt issue), which in turn led to trade and the need to generate the income to repay the loans, but now tax is seen as the fourth component in the equation. The reason is simple. Loans have not worked, as Bono is keen to point out. The resulting debt cannot be repaid. Trade remains an enormous issue, with the odds still stacked against developing countries. So aid remains on the agenda. But no one who is serious about development really sees aid as the long term solution to the development issue. Aid dependency is the outcome of it. And that does not result in the creation of viable independent states capable of supporting their own populations which has to be the objective of development. Only a country which can raise the tax to support itself can do that. Holistic approach What this argument on tax and development suggests is that the two are simply inseparable. Not everyone buys this argument yet, but it is hard to see how its validity can be denied. This means that anyone who promotes development has to be serious about tax: more than that, they have to be serious about paying tax. That attitude to payment has to be evidenced in two ways. The first is a personal commitment to paying the tax that is due by an individual or corporation on the income they have earned in the location in which it can be best determined that it has been earned. The second commitment is to the integrity of the tax system, nationally and internationally. What Bono proves What seems clear is that Bono has not bought into this argument. I think he should be aware of it. The Tax Justice Network has tried to contact him. We’ve never succeeded in doing so. So, perhaps, to use tax jargon, he’s simply avoiding it. Which is an action in denying responsibility, as we’ve always argued. … Paying tax is essential to development Where does this leave Bono? Seriously out of step I’m afraid. In fact, well outside the development agenda. The tax havens he uses undermine development. They divert income from developing countries. They ensure tax is not paid in them. They facilitate capital flight from those developing counties. As Raymond Baker has shown, tax avoidance driven capital flight costs developing countries ten times their aid receipts. Bono is endorsing this. His credibility is in tatters. Tax Research UK / Bono’s choice […]
I don’t accept the “I disagree with the state, therefore I avoid tax” argument. You can offset tax through charitable donations instead of simply avoiding it, and you can’t argue that you disagree with everything the state does (even idiots like Anticitizenone would accept policing, rule of law etc.) so avoiding a large proportion of tax cannot be justified.
Oh, and Anticitizen if the state didn’t pay for Bono’s education how would he have written his songs?
Bono HAS received substantial help. Nearly 100% of his royalties were gained through the government grant of license called “Copyright”. Enforcement of his contracts are made valid through government laws on contracts.