Sol Picciotto is is an emeritus professor at Lancaster University and, like me, a senior adviser to the Tax Justice Network. He had an article in the FT yesterday in which he said:
Banks employ large teams of highly paid people to devise transactions mainly for the purpose of avoiding tax. These activities seem to be far more profitable than the humdrum business of managing payments and channelling savings towards investment. Why?
The answer shows the close link between tax avoidance and the speculation that has fuelled financial instability for 30 years. There were clearly other causes of the current crisis but the faults of the international tax system were a big contributory factor.
And he, with care and precision then explains why, before noting:
For multinationals and rich investors the point is the same: returns on financial transactions are ultimately taxed at a low or zero rate, making them far more profitable than genuine business endeavours. This distortion of the tax system has greatly fuelled the excess of liquidity channelled into largely speculative financial transactions. The offshore secrecy system has been a main element of the opacity that has undermined corporate and financial regulation.
As he notes:
The remedies lie in fundamental reforms of international fiscal and financial regulatory co-operation, and their co-ordination. International tax co-operation requires a comprehensive, multilateral system for both obtaining and exchanging information for all tax purposes, with proper safeguards for taxpayers. Requiring multinationals to break down their accounting information by each country in which they do business would inject much-needed transparency into the system. Reform should include a shift towards unitary taxation, which most international tax specialists recognise is long overdue. This would be preferable to the Obama administration’s new proposals to tinker with US rules on tax deferral.
Then we might have a better tax system. But this level of systemic reform is required to ensure fairness, progressive taxation, a proper deal for developing countries, the elimination of the abuse tax havens cause and the prevention of the waste of human talent now aimed at tax avoidance.
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I came accross Prof Picciotto’s article going through the FT. With all due respect, I was missing some supportive numbers or hard evidence about the impact of tax heavens on the global system.
(Compare the hedge fund issue: pure populism by politicians, hedge funds are estimated at less than 5% of global AUM and the tail does not wag the dog. Also on this topic see in case of interest a technical paper dated March 09 by IOSCO.)
Finally, and not wanting to be facetious, a proper administration of tax moneys and incentives to build up capital/equity basis could regulate some of the problem through a positive incentive route.
Wilhelm
The data is widely available – and we publish much of it. It does not become you to comment without bothering to acquaint yourself of the facts
As for the suggestion that positive incentives can be used to promote tax payment – can you advise what you are smoking? Candidly, there is no evidence that suggests that is true – much as I would like to believe it possible
Richard
Richard
Many thanks for your admonition, humbly I accept your interest in my smoking habits
But let me submit just very sketchy a few things that I do think I know, they refer in this instance only to Austria and not to any of the numerous jurisdictions where I used to live and work. I know that:
in Austria we pay accross the board 10% more taxes than the OECD average (see their latest study from a few days ago), and that for a doubtful administration that is comparatively about 3 times as costly as that of the swiss gnomes
as a small firm owner I am punished/discouraged for trying to build up my firm’s capital base (not much better for bigger firms actually), thereby having a stronger B/S, less reliance on banks and becoming hence a potentially safer contributor for the system at large
conclusion: I as many others do not feel to be partner in a fair deal, just considering a Liechtenstein solution that would save me about 25K a year which is just about what I pay (not tax deductable) for the education of my two girls who will hopefully through better education turn out to be great contributors to a future fair system
Alas, for the facts I still have a problem and this is best highlighted by another FT article in which you are quoted:
Why tax havens make such great scapegoats
By Jonathan Guthrie
Respectfully I make particular reference by way of example in quoting out of the last paragraph of this article:
In any case, clamping down on tax havens may not raise the revenues of big economies by very much. According to a study by Revenue and Customs, evasion involving offshore bank accounts probably costs the UK £900m to £1.5bn a year. Mr Murphy offers a meatier estimate of £18.5bn.
The range of figures mentioned here, amongst other things, does unfortunately not become me either to offer more educated comments
Willi