Tax competition is criminal

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I wrote yesterday about an Op-ed in the Wall Street Journal that supported Swiss bank secrecy and encouraged tax competition.

In my critique I said:

Blatantly this is the Wall Street Journal promoting the merits of tax evasion and the role of tax havens in undermining the democratic rule of law.

A Channel Islands critic has persisted in arguing I am wrong. He has said:

Where does he say people should break the law?

Of course, it is typical of those in the financial services industry in such places to be unable to identify tax evasion, but let me offer an explanation from a strong supporter of tax competition, Richard Teather, a UK chartered accountant and lecturer at Bournemouth University, who when speaking of the OECD anti-tax haven initiative says (page 81):

This is attacking a classic use of a tax haven, as explained in the previous chapter, in which a person resident in (or otherwise subject to the taxation system of) a highly taxed country places his capital in a tax haven where it can earn untaxed income. While there are many cases where the home country does not tax foreign source income (such as the UK’s non-domicile exemption discussed above), most Western countries have a worldwide taxation system that seeks to tax the worldwide income of its residents (or all of its citizens in the case of the USA). This tax haven income therefore does not cease (legally) to become liable to tax merely by being earned offshore: it is still liable to tax and the investor has a duty to report it to his home tax authority. In practice, however, if the investor does not report his income, then the home country can have great difficulties in discovering and taxing it, particularly if the haven country has strong banking secrecy laws.

While I am not seeking to condone dishonesty or criminal activity, from an economic perspective this is merely another
example of tax competition: indeed, it is often necessary behaviour in order to take advantage of tax havens. Without the willingness of some to engage in this sort of activity, tax competition would be much less effective and therefore reduce the benefits that flow from it for the rest of us.

Note: criminality is often necessary behaviour in order to take advantage of tax havens. and he then argues the benefits flow to all of us.

He is referring to exactly what the WSJ op-ed was applauding, people hiding their money in tax havens /secrecy jurisdictions out of sight of the US IRS, and he recognises that for the benefits that the WSJ says flows from this criminal behaviour is required.

What more evidence do you need?

These people are seeking to undermine the rule of law and all that goes with it. To put it bluntly, they are attacking the very fabric of our society because they don’t believe there is such a thing. The criminal legacy of Thatcher lives on.

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