http://english.daralhayat.com/business/04-2009/...
The Hell of Tax Havens
Michel Morkos Al-Hayat – 21/04/09//
Are tax havens responsible for the world economic crisis and the
proliferating high risk money instruments? Or are they just
loopholes through which taxpayers keep their money instead of
pumping them into state treasuries?
Early April, the G20 leaders agreed during
the London summit on a series of stringent decisions to curb these
tax havens. But their goal was not to lift and weaken banking
secrecy as much as it was to seize financial resources that would
give the needed leverage to high expenditure economic stimulus
plans.
Every accused country was apparently complying with the lifting
of bank secrecy, within specific conditions that require legally
proving incidences of tax evasion. Anything other than that remains
within the banking standards in anti laundering measures against
the proceeds derived from crime and smuggling.
In the opinion of the American expert Raymond Baker, tax havens
get 5% of their resources from crime proceeds, 30% from corruption,
while the remaining percentage comes from embezzlement, fraud and
tax evasion. Hence, tax havens are not only open to outlaws and
mafia gangs, but also to the elite and highly educated customers.
Among them are the multinational high-income people who refuse to
pay their due taxes and prefer that senior wage earners in their
companies do so instead. From this standpoint, tax havens have been
considered as tools that helped globalization in the expansion of
inequality.
These havens, as experts estimate, incur every year around a
billion dollars in lost tax revenues in Europe, or up to ten
percent of all tax revenues. This is while these countries need to
redress their budget deficits with at least a 3 % margin.
As a matter of fact, the rich resort to tax havens as a means to
mask their income, whether it comes from wages or investments. To
this end, they either settle into such havens or establish fake
companies, where they keep their surplus income and revenues. They
can also use them to keep the gains from matches or avoid paying
inheritance taxes and alimony in case of divorce.
According to some reports, major international banks are the
most prominent customers of tax havens, driven by their own
interests, for tax purposes, or to offer services to their wealthy
clients and institutions. Multinational corporations have also used
tax havens in order to establish overseas branches investing in
various parts of the world, or to intensify the low-tax high-profit
intellectual property protection instruments – while branches in
the countries of destination countries pay higher taxes. Companies
also use tax havens as a means to hide actual figures from
investors and to manipulate their budgets and statements of
accounts.
Meanwhile, the OECD estimates that the
116-square-kilometer Jersey island attracts 500 billion dollars in
assets of approximately 32 thousand companies, whose accounts are
mostly mail boxes. Switzerland attracts 1,500 billion dollars,
compared with 1,300 billion dollars for Britain, 740 billion
dollars for Luxemburg, 670 billion dollars for the Caribbean and
Central America, 370 billion dollars for Singapore, 370 billion
dollars for the United States and 150 billion dollars for Hong
Kong.
These tax havens seemed to be easy targets to save money. The
massive aids to troubled banks, and the plans to cushion the impact
of the financial crisis on economy and employment, all blow the
budget deficits. For these reasons, the idea of recovering lost
taxes appealed to the summit leaders.
This rush to monitor off shore financial centres is justified by
the argument that they allow key financial players the full liberty
to develop high risk insane and diversified activities and
speculations. These havens did not cause the subprime mortgage
crisis in America, but played a role that until now remained widely
underestimated. A report by the Government Accountability Office in
the U.S shows that part of the virtual offshore banking system was
established by American banks in the Cayman Islands, in order for
these offshore banks to promote on the behalf of American banks
complex money bonds, something that was the basis of the
multidimensional crisis.
Whether it is about the failure of the British Northern Rock
bank, the American Bear Stearns, the German Hypo Real Estate, the
Icelandic banks, or the embezzlements by Bernard Madoff or Sir
Allen Stanford, the main events of this crisis definitely pass
through tax havens. For this reason, the decision to reorder these
offshore centres came as a necessary condition to ensure effective
reshuffling of the world monetary system.
However, the attack on safe havens does not put an end to the
perversions of financial globalization, despite the stringent
measures taken by central banks, which are now ready to monitor the
mechanisms adopted when tackling risks, and to cater for the highly
diversified money instruments.
The American Secretary of Treasury, Henry Morgenthau, said:
“Taxes are what we pay for civilized society. Too many individuals,
however, want the civilization at a discount.”
Will the world’s public finances regain what they lost to tax
havens?
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