Here at The Undercurrent we’re sick of getting forced to pay more and more tax while huge corporations pay little or no tax. Corporations like Apple, the poster child of aggressive tax avoidance strategies. Apple are basically a small country now; they issue bonds against their debt, have cash holdings larger than the GDP of New Zealand, and they’ve forgotten that they were once broke too. As individuals it’s hard for us to achieve anything. But as a group of citizens we have huge purchasing power. You can stand alongside us and express your discontent at how Tim Cook is taking a giant tax free dump on us from Apple HQ and join the #iPhone7Boycott.
It’s a much bigger problem than you think
- The Financial Secrecy Index estimates US$21 – $32 trillion of private wealth is located in secrecy jurisdictions around the world. That’s double US GDP and 20 times Australian GDP
- Since the 1970’s it is estimated that African countries have lost over US$1 trillion in capital flight
- The amount of money syphoned offshore would be enough for Africa to pay off its foreign aid debt 5 times over
- The global foreign aid budget is around US $130bn. For every $1 of aid provided by OECD countries to developing nations $10 flows back in the form of tax evasion
This is allowed to happen because large multinational corporations have the power to operate everywhere and exist nowhere. For over 100 years rich (white) nations like the US and the UK have been helping their elite invest globally to grab huge market share and not pay tax on the profits they’re generating. They do this by legalising tax havens, encouraging secrecy, blocking important measures that would combat tax evasion, and gutting their own tax authorities to make them flaccid in the fight against evasion. As this money is flowing out in tax evasion, countries all around the world are slashing social services.
‘PanamaPapers’. Because ‘Poor People Who Aren’t White’ sounds bad
It’s easy to look to places like Panama and say well of course they can’t be trusted because they’re poor and they’re not white. But over half the jurisdiction of choice set up through Mossack Fonseca were UK havens, specifically the British Virgin Islands. Turns out you can’t trust white people either.
Along with Luxembourg, the City of London is the world’s most important tax haven because it controls 20 outside territories that are known tax havens. They all operate somewhat outside the laws of the UK government, but are still protected by them. During the GFC just one of the UK’s jurisdictions, Jersey, was the single largest source of bank deposits being streamed up to the City of London. In other words money coming in from just one UK tax haven was outstripping money coming in from legitimate sources. The banking industry has an individual with a seat in UK parliament, who specifically looks after their interests. Collectively the UK’s network of tax havens is larger than any other jurisdiction in the world.
Like an asthmatic fainting toward the finish line (most of) the EU is sloooooowly implementing laws aiming to (at least partially) combat tax evasion. So a question that’s been on our mind here at The Undercurrent is around all the Brexit talk – are the UK looking to cut ties with the EU so they can keep a firm hold of the estimated $1.2tn of financial assets under their management?
The ‘Offshore Magic Circle’ (jerk)
The Panama Papers, and the Lux Leaks before them, have given us an insight into both the scale and complexity of the global industry that has been created just to avoid tax. Companies like Mossack Fonseca are themselves generating huge profits by helping companies and individuals hide their profits. And they’re not the only ones. The brilliantly named Offshore Magic Circle is a list of the top law firms practising in offshore jurisdictions, many of whom are head-quartered in the UK.
OECD + EU = Rich White Guy Country Club
The OECD represents countries that control 70% of global wealth, but only 23% of the world’s population. They began casually chatting about tax reform around the time Hammer made his money. But since they released a report just weeks before the Panama Papers leak saying that Panama was a cooperating country (i.e., nothing to see here, move along) we can safely assume they have no teeth when it comes to tax reform.
And the EU is also pretty well stitched up. Carl Juncker, the former PM of Luxembourg whose greatest hits include Luxembourg’s famous comfort letters, tax free interest payments and virtually tax free royalty payments is now head of the European Commission, the body charged with investigating the tax system in Luxembourg and developing the EU’s tax strategy. He recently told German TV ‘no one has ever been able to make a convincing and thorough case to me that Luxembourg is a tax haven’. Better off having someone in the top job who knows where all the bodies are buried, I guess.
Compete or Die
Corporations force countries to compete with each other for tax revenue. They threaten to shift their business to more tax friendly countries and scare governments into doing their bidding for them. In Australia for example 40% of big business paid no tax between 2005 and 2008. In the US in the 1950s the percentage of tax revenue that came from corporations was 30%. Today it sits around 6.6%. Taxing citizens more doesn’t win you elections, but taxing corporations doesn’t win you power.
Non-OECD member countries like Brazil, China and India who have the population and therefore the purchasing power to force companies to behave are now simply telling them how much tax they will pay regardless of their creative accounting designed to reduce their profits to zero.
What Makes a Good Tax Haven?
Most people think tax havens are idyllic island getaways where your Sex on the Beach is served with a side of offshore bank account and anonymous company. There are plenty of these, but the ones that have the most power in the world are
- Delaware because you need more identification to set up a library card than you do a bank account
- The City of London as we mentioned above
- Luxembourg because of the special laws it has around corporate tax and the access it has to EU markets
Tax havens need two things to be highly successful, opacity and capacity. They need to be very secretive about the tax and banking information they give away to outside jurisdictions and they have to have the skill, capacity and systems to shift enormous amounts of money. Basically a good tax haven won’t steal your money but doesn’t mind if you steal someone else’s. According to the Tax Justice Network the 10 most significant secrecy jurisdictions in the world are: Delaware in the US, Luxembourg, Switzerland, Cayman Islands, the City of London, Ireland, Bermuda, Singapore, Belgium and Hong Kong.
Many organisations around the world are calling for transparency around tax matters because they believe secrecy is the problem. But it’s not.
There are many ways to achieve anonymity but the most common way is to create layers and layers of accounts and companies using Nominee Services, which is where you pay people to act as the legal registered owners and directors of your company for tax purposes. The nominee signs a completely confidential and totally invisible power of attorney with you and you don’t have to declare that you’re the beneficial owner to tax authorities. An investigation by The Guardian revealed a group of 28 individuals act as the nominee company directors for 21,500 companies around the world.
Companies can reduce their tax bills to very low rates, which is not the problem of one tax system but the intersection of many. Hundreds of bilateral tax agreements exist around the world and most of them look identical because they are based off the OECD tax treaty template. They’re designed to eliminate double tax and minimise evasion and avoidance.
The best example of this is the tax treaty Ireland and the US have in place are both fine, the problem arises from the difference in their local laws:
- US law says that companies pay tax where they are incorporated.
- Irish law says that companies pay tax where they are based.
This means US companies like Apple, Google, Microsoft, Dell, Dropbox, eBay, Hewlett-Packard, LinkedIn, PayPal, Oracle, Symantec, Twitter and Pfizer, all US companies with headquarters in the US can and have incorporated in Ireland they pay tax virtually nowhere.
Transparency is not the answer
This shows why transparency is not the answer because countries can share all the information they like, but they will simply find anonymous companies hundreds of layers deep. The real answer is beneficial ownership laws – forcing organisations to reveal who really owns the company, trust or foundation that is the final resting place for all the profits.
Apparently whistle-blowers are the real problem
Rudolf Elmer a Swiss banker operating out of the Cayman Islands decided to blow the whistle on these practices. He is in prison for violating Swiss banking secrecy laws. The source of the LuxLeaks, former PwC employee Antoine Deltour, and another unnamed man, are both facing trial this month for violating the same laws. So if secrecy is the problem, and transparency is the answer, why criminalise the release of information?
What we really need
Laws that force the sharing of data across jurisdictions have become more prevalent so it’s getting easier to see who has money stashed where, when the money is held in named company accounts. But none of the tax/transparency laws target trusts. In fact, in 2013 David Cameron personally and actively blocked measures to include trusts in EU wide tax avoidance laws, stating trusts are sometimes used to protect ‘vulnerable people’.
Many of those vulnerable people will be touching down at Heathrow in their private jets to participate in a summit on May 12th, 2016 aimed at ‘Tackling Corruption Together‘. Allegedly this is an international tax and anti-corruption summit. We think it has more potential as a wine tasting seminar but we’ll wait and see. The way to tell if anything serious is happening there is to see if the word ‘trust’ is measured. Not in a ‘let’s all stand in a circle and catch Vladimir’ kind of way. In a ‘rich white boy on holidays with his father’s yacht’ kind of way. Any measures that don’t include trusts are just window dressing. What we need are the following outcomes:
- Public registers of the real owners of companies, trusts and foundations held offshore
- Real time and automatic exchange of information around tax and banking arrangements
- Multinationals reporting on the real substance of their activities in every country they operate in
- Countries committing to properly financing their tax authorities to give them real teeth to combat tax evasion
Join us in our #iPhone7Boycott, and send a message to our corporate overlords and political leaders that together, we have more power than they do.