Tax Havens: Destroying laissez-Faire Capitalism's Final Refuge.
In these extraordinarily precarious times, It is time for National governments and the world's biggest economies to put an end to capitalism's open and very dirty secret.
Tax avoidance, it must be said has always been with us. Along with this salient fact of the wealthiest among us avoiding their responsibilities, has been the existence of tax havens. In Europe, nation states and principalities such as Switzerland and Monaco were favored destinations for plutocrats operating in the early post war period, when high taxes became the order of the day, across many western nations.
Back in the 1960s, when vast numbers of celebrities were unhappy at the tax bill, with which they were saddled, the singer, song writer, John Lennon was approached by two gentlemen, who were once employees of Arthur Andersen, now known today as Accenture. These gentlemen had worked out the best way to circumvent being encumbered with a huge bill from the Inland revenue (British equivalent of the IRS)and they were now selling this trick to a world famous artiste.
These men, Roy Tucker and Ian Plummer perfectly understood how to game the system and worked out that if they were quite successful in helping the legendary Beetle of the day in paying very little tax, then vast numbers of people within the ranks of rich would follow suit.
And that was exactly how things panned out.
Other Celebrities were ensnared by what they regarded a much needed respite from the claws of the almighty tax man.
Until the very long arms of the law, eventually caught up with Messrs. Tucker and Plummer, closing them down in the early 1970s, when their hubris got the better of them, these gentlemen had dared to do what no one else could do and succeeded on a massive scale.
The highly creative tax avoidance scheme of Messrs. Plummer and Tucker, had whetted the appetite of Britain's wealthy elite for shirking their moral obligations and prepared the ground for the world of the 80s and beyond.
The Great British Reinvention
Great Britain, reeling from having lost much of its empire, in the aftermath of the second world war, was in a desperate state. The trade unions were busy flexing their muscles, grinding much of Britain to a halt and the with the state coffers running on empty, it needed to chart a different course, rewrite its rules of engagement in a rapidly changing world.
Competing in a world, on equal terms, was something of a huge shock to the system and Britain was losing very badly, in the 60s and 70s.
It was perhaps out of this profound sense of precariousness and a loss of identity, that Britain took the very first step in reinventing itself and in doing so, found the solution, right under its nose.
The use of its overseas territories several thousand miles away from mainland Britain, was the masterstroke that it needed in generating a space that was dedicated to actively avoiding taxes.
This certainly was the consideration when a junior civil servant was ordered by his bosses, at the foreign office, to go a tiny island, located in the Caribbean, to act as Governor-General.
This island was a place that was mosquito infested and populated with reptiles which would give the country its name -The Cayman Islands.
The Emergence of the Cayman Islands
This tiny sand bar had all that was needed to be phenomenally successful; It was an actual island, it was still being governed from Whitehall, thus giving it the political stability needed to attract the major players.
But the existence and success of Cayman as a tax haven comes down to two words:
According to a report generated by the University of Amsterdam, a few years ago, we are given an idea of how extremely important common law is to the business of tax avoidance.
The key difference between common law and civil law is that common law only states what is prohibited, and civil law, as practiced in the Japan, Germany or France, identifies what is permitted. The consequence is that new financial innovations such as hedge funds or CDOs, CLOs and CMOs (my addition) can be set up easily, because strict regulation is only put in place with conspicuous misconduct or strong pressure from powerful foreign actors -governments
And it is because of this Carte Blanche in place, since its inception, we get to have a much clearer understanding of how tax havens, such as Cayman became monstrously huge and powerful over the years.
When it began operating in the late 60s, it was the likes of Pablo Escobar and the other major players of the drug cartels of Central and South America, who provided the Cayman with its first bit of business, when it began dropping bags of money from the skies to launder their illicit wealth.
Once the Neoliberal vision of the 1980s was in place, promising to roll back the frontiers of state, deregulating financial markets and delivering low taxes for the 1%, the importance of Cayman took on a completely different dynamic.
The implementation of the policy of lower taxes in the United States and the United Kingdom helped create a new class of the super wealthy, who needed new places to funnel their money and Cayman was best suited for this purpose.
This simply meant that tax avoidance, which had a bad name in the past, was now a practice, in which every man and their dog happily indulged.
Tax Avoidance And Tax Havens In The Age Of Multi-National Corporations
The biggest beneficiaries of this new thinking were the likes of Google, Apple, Microsoft, Facebook, Amazon and other large multi-nationals which came of age in the late 1990s to the early noughties.
Other examples include British brands such as Walker's crisps, Argos and Boots, which were taken over by American companies in the 1990s.
In a bid to avoid paying high taxes, these new American owners loaded their British subsidiaries with debts, thus presenting a different picture of the health of these organizations.
It is estimated that 7–10 billion pounds is being lost annually by the United Kingdom in unpaid taxes.
As for Google, its strategic nous in setting up its operating license in Bermuda (another British colony in the Caribbean, reinvented as a tax haven), and then charging its British and Irish subsidiaries for its use and booking its sales in Ireland, before moving the revenue to the Netherlands, ahead of its final journey to its ultimate destination in the Cayman and Bermuda has allowed it to pay next to nothing in taxes.
Utilizing the scheme described above, Google moved $23 billion to Bermuda in 2017 alone.
Using Google as a microcosm of the nature of the aggressiveness of tax avoidance among multi-national corporations, we now have a much greater understanding of the scale and scope of the problem, with which we are grappling.
It also comes as no surprise, when it was estimated that $427 billion is being lost to tax abuse by individual and firms annually. And to further buttress this point, according to another study, close to $50 trillion dollars sits in offshore accounts today. An amount much more than the external assets of Japan, Canada and Italy.
$50 trillion dollars?
Not thousands, millions or billions, but trillions of dollars?!
In a world where millions of children go to sleep hungry, where the use of food banks have grown exponentially to feed the poor across Britain, where several thousands of refugees die in crossing the Atlantic to seek refuge in Europe and in a world where we are plagued with famine and disease, we must ask, why have our governments allowed this to happen and why have we continued to vote in people who continue to entrench the interests of the wealthy ahead of everyone else and what are national governments doing about tax avoidance?
The Role of National Governments And The Big Four Accounting Firms In Exacerbating The Problems Of Tax Avoidance
It's an open secret that the national governments of the Netherlands, Singapore, Luxembourg, Switzerland and Great Britain, through its crown dependencies - Isle of Man and Jersey have helped provide a conduit for tax avoidance to become the monster that it is today.
The big four accounting firms - Deloitte, Ernst and Young (EY), KPMG and PricewaterhouseCoopers have made a fortune and consolidated their place in the world today, by advising individuals and multi-national corporations on how best to exploit the tax laws written by the respective countries listed in the previous paragraph.
These global accounting organizations, owing to their years of operations across the globe have a forensic understanding of tax laws, tax treaties and tax regimes (by this I mean, corporation tax, stamp duty, withholding tax and value added tax). And these same players have been at the forefront of creative accounting, which has inevitably led to the unbridgeable chasm between the haves and have nots in western societies today.
This brings me to the next question, what must be done?
Laws are written not by the accounting firms, nor are they written by the large multi-nationals and private individuals, they are written by national governments, who have been in thrall to the super wealthy among us.
National governments come from political parties which command the majority in parliament or senate. There has to be a clear concerted attempt on the part of the twenty biggest economies in the world, acting in unison to ensure that tax havens and tax avoidance become a thing of the past.
With President Joe Biden in charge, we are starting to see the kind of leadership that his Democratic predecessor failed to provide when he allowed the wealthiest consolidate their position after the near destruction of the global economy in 2008.
Ending and destroying tax havens isn't only an act of mercy, but something that has become the great moral imperative of our time.
For if we continue to allow so few to accumulate so much wealth at the expense of the vast majority of humanity, we will not only have blood on our hands, but also there will be no planet to pass on to future generations.
Thanks very much for reading.
Done by Jacques Peretti
The Guardian Newspapers