The current crisis must not be used by tax avoiding companies to get government assistance. If the wealth concealed by these companies and individuals had been properly taxed the world could have been better prepared for this pandemic. Ordinary people were forced to bail out the financial system after 2008, this time they must start paying their dues.
“Business as usual is over”… This is the introductory statement in a new article by Nick Shaxson of the Tax Justice Network, considering the normally unthinkable changes that governments have been forced into making by the spread of the Corona virus.
For the moment the reality of a breakdown in public health and the economy has forced politicians in rich countries to back off from slogans and soundbites and face up to the physical living world – a world that was only an intrusion onto TV screens where the important business of making money was mostly going on.
Reality, that word of ridicule for post-modern philosophers was just ‘a far-away country of which we know nothing’.
In British PM Chamberlain’s statement in 1938, he commented ‘how horrible, fantastic, incredible it is that we should be … trying on gasmasks…’ because of a conflict in this other country, Czechoslovakia. Wherever this virus has come from, his statement captures the shock and bewilderment at the global lockdown now in progress.
World War 2 images are everywhere, but before we Brits rush into memories of Dunkirk and the Blitz spirit, the enemy we are fighting now is not only a physical, biological one. It has a shadowy and secretive twin that has set the conditions for the virus to be so destructive, and which is now being revealed.
Understanding context is essential, and that means stopping companies –especially the multinationals– from making huge profits while dumping the social costs of their activities onto the general population, in the form of pollution, damaging local small companies, paying low wages, and enjoying the public infrastructure already in place. Inequality involves the whole of the social contract, so that when millions of people in the US cannot afford private health insurance, this sits alongside their low wages, and the fact that the very rich don’t pay their share, as part of the exploitation that they suffer.
The countries that suffer most from Caribbean hurricanes are those with the poorest infrastructure. Cuba – while being poor and targeted by Trumps vindictive sanctions – has a socialist government which prioritizes the health of its people and its readiness to face disasters.
The injustices of the tax system
Besides borrowing on a massive scale, the other way that governments can pay for the spending that they are now engaged in is taxation.
Income taxes started as a temporary means for governments to raise money for wars, starting with the French Revolutionary War in Britain and the Civil War in the US, and it was recognised that to be fair a tax system should be progressive.
Thus, those with large disposable incomes should pay a higher percentage on the part of their income above certain thresholds.
Taxes such as VAT, on the other hand, hit the poor hardest, unless basic essentials are exempted.
During WW2 very high rates of tax were imposed on high incomes, and this continued for a long time after, but as Shaxson points out we are not in a wartime economy with full employment, but a collapsing economy and companies that may not survive the crisis.
What is required now is cutting taxes for those on low incomes and greatly increasing them on large corporate profits, bonuses and high incomes, as was done in the past.
But the economy has changed in another important way as it has become more globalized, and financialized, and for this problem new measures are necessary.
The wealth economy and offshore
In a second article on his blog, Shaxson addresses the scandal of offshore wealth, estimated at between $8 – 35 trillion. Not only is the figure scandalously large, but the huge range of uncertainty in the estimate tells us that secrecy is also a big part of the problem.
And of course it is the poor countries that are worst hit – or rather the majority of the populations of those countries, as the Luanda Leaks story illustrates. Isabel dos Santos the daughter of the previous president of Angola used a network of over 400 companies to move and hide wealth amounting to hundreds of millions of dollars, and avoid taxes, with the help of western business advisers from companies such as PwC and Boston Consulting Group, who racked up an estimated $ 5.6 million in fees between 2010-17.
And to conceal a $1.8 million apartment in Lisbon she turned to the expertise available in the world’s biggest tax haven – the good old USA, now ranked number 2 behind the Cayman Islands on the TJN Financial Secrecy Index 2020.
And on the TJN Corporate Tax Haven Index the three top places are taken by British Crown Dependencies or Overseas Territories, which if lumped together with the UK itself would put Britain at the top.
In other words, the clever educated financial experts in the advanced countries are running a nice little earner by colluding with klepto-rulers in the developing world.
The total annual loss of revenue worldwide is estimated at up to $800 billion, and it involves multi- national companies (MNEs) and high net worth individuals (HNWs) in the advanced world too.
What must be done
The TJN blog acknowledges that some improvements have been made by the OECD in controlling tax havens, but still too little and too slow.
Individuals of high net worth are costing tax authorities an estimated $200 billion a year, and although the Common Reporting Standard has been introduced, the US remains scandalously obstructive.
Thus, while the US tracks the activities of US citizens operating abroad, it refuses to offer proper equivalence for foreign citizens profiting from accounts held in the US.
Fake residency schemes run by countries like Dubai offer a legal get-out so that information on personal wealth is sent to the fake jurisdiction instead of to the country where tax should be paid – a global conspiracy enabling the super-wealthy to stick two fingers up to tax authorities and hang onto wealth that should be helping global development and removing poverty.
Since several UK offshore territories and crown dependencies are heavily involved in this dirty business, Her Majesty’s Government has the power to impose direct rule and close them down, but any chance of this happening under a Tory UK government looks unlikely without serious public protest.
Trust funds also need to be forced to publicly reveal their true beneficial owners and stop the fiction of ‘ownerless limbo’, where the owners are permitted to give away the contents of the fund while at the same time retaining control, and in so doing conceal the wealth from tax authorities.
Corporate wealth sequestered offshore amounts to even more, $5-600 billion annually disappeared.
To deal with this, Country-by-country reporting, proposed by TJN in 2003 is only now being timidly introduced by OECD countries. This would stop multi-national companies from reporting on a merely regional basis, and force them to show who owns what, and how much profit is generated in each jurisdiction.
This could be rationalised under what is known as Unitary Taxation, where taxes would simply be paid at current rates to each country in which an MNE operates and any manipulation of transfer pricing would also be made clear.
And, as George Turner says, the current Coronavirus bailouts must not be used to give the corporate tax dodgers a new lease of life, when part of the current problem comes from them.
What can you do?
Obviously pressuring MPs is one necessity, and another is to support those who are investigating and reporting on this global injustice. They include TJN, Global Financial Integrity, and the International Consortium of Investigative Journalists.