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.