UNDERNEWS

Undernews is the online report of the Progressive Review, edited by Sam Smith, who has covered Washington during all or part of one quarter of America's presidencies and edited alternative journals since 1964. The Review has been on the web since 1995. See main page for full contents

May 10, 2009

HOW OFFSHORE TAX HAVENS HELPED CREATE THE CRISIS

Sol Picciotto, Financial Times - 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 channeling 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. . .

The relaxation and final abandonment of exchange controls in the 1970s led to the blossoming of “offshore” finance and a boom in tax havens. These depend on both outright tax evasion and the exploitation of grey areas by tax avoidance. . . in recent separate surveys by the US Government Accountability Office and the Tax Justice Network, the largest user of tax havens in every country surveyed was a bank. . .

The tax authorities in the US and the UK have acepted a lax interpretation of residence and source rules, accepting that these funds are resident and their profits sourced offshore (mostly in the Cayman Islands) – even though they are effectively managed from London and New York. Not only are the funds’ gains treated as realized in Cayman, and hence not taxable, but their distributions are not subject to withholding tax – a great benefit for their investors. The funds’ location in a secrecy jurisdiction facilitates tax avoidance and is an open invitation to evasion. . .

This distortion of the tax system has greatly fuelled the excess of liquidity channeled into largely speculative financial transactions. The offshore secrecy system has been a main element of the opacity that has undermined corporate and financial regulation.

1 Comments:

Anonymous Anonymous said...

Maybe if people were happier about how their tax contributions are spent, they would be less reluctant to contribute. But consider the US budget, or EU and UK MP expenses scandals: do you really expect individual taxpayers feel guilty about NOT contributing to government incompetence and corruption? Fix government, and the taxes will fix themselves.

May 12, 2009 1:51 AM  

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