Tax Avoidance and Tax Havens; Undermining Democracy
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We might not like the idea of paying taxes, but without it, democracies will struggle to function, and will be unable to provide public services. This affects both rich and poor nations, alike.
Individuals and companies all have to pay taxes. But some of the world’s wealthiest individuals and multinational companies, able to afford ingenious lawyers and accountants, have figured out ways to avoid paying enormous amounts of taxes. While we can get into serious trouble for evading payment of taxes, even facing jail in some countries, some companies seem to be able to get away with it. In addition, if governments need to, they tax the population further to try and make up for the lost revenues from businesses that have evaded the tax man (or woman).
Why would companies do this, especially when some of them portray themselves as champions of the consumer? The reasons are many, as this article will explore. In summary, companies look for ways to maximize shareholder value. Multinational companies are in particular well-placed to exploit tax havens and hide true profits thereby avoiding tax. Poor countries barely have resources to address these — many have smaller budgets than the multinationals they are trying to deal with.
Yet, companies and influential individuals also pour lots of money into shaping a global system that they will hope to benefit from. If the right balance can’t be achieved, not only will attempts to avoid taxation and other measures undermine capitalism (which they claim they support) they will also undermine democracy (for even responsible governments may find it hard to meet the needs of their population).
On this page:
- Corporate Welfare
- Corporate Crime
- Tax Avoidance
- The scale of tax avoidance
- Why is tax revenue important?
- Why don’t poor countries raise sufficient tax revenues?
- What are the impacts of tax havens on poor countries?
- Why have tax havens in the first place and who benefits?
- How much money is held in offshore tax havens?
- How much potential tax revenue is lost through off-shoring?
- What is profit laundering?
- How much profit laundering is there?
- What is Tax competition and why is it bad?
- Where did the idea of tax competition come from?
- How did tax avoidance come about in the first place and who are the main actors?
- Tax avoidance undermines capitalism
- Tax avoidance undermines democracy
- Tax Shelters and Avoidance in the US
- Transfer Pricing — Intercepting Wealth
- Privatizing profits, socializing costs
- Tackling the problem, or pretending to do so?
- Rich country governments finally acting because it now affects them?
- More Information
Corporations and corporate-funded think tanks, media and other institutions are often the ones that loudly cry at the shame of welfare and the sin of living off the government and how various social programs should be cut back due to their costs. What is less discussed though is the amount of welfare that corporations receive.
Corporate welfare is the break that corporations get both legally and illegally through things like subsidies, government (i.e. public) bailouts, tax incentives and so on. Corporations can influence various governments to foster a more favorable environment for them to invest in. Often, under the threat of moving elsewhere, poorer countries are forced to lower or even nearly eliminate certain corporate taxes to these large foreign investors.
This distorts markets in favor of the big players. As such influence spreads globally, it contributes to a form of globalization that seems less like true free market capitalism that they talk of, but more like a modern form of the unequal mercantilism that prevailed during colonial and imperial times.
When we talk about crime, we think of the violations of law caused by individuals, some of which are horrendous. However, almost rarely talked about (especially in corporate-owned media) is the level of crime caused by corporations. Such crime includes evasion of taxes, fraud, ignoring environmental regulations, violating labor rights, supporting military and other oppressive regimes to prevent dissent from workers, including violent crime against workers, and so on.
In the US, for example, back in the mid-1990s it was estimated that corporate crime cost the country about $200 billion a year1.
Tax avoidance is sometimes differentiated from tax evasion. Avoidance often applies to legal means (such as loopholes and clever accounting techniques) to avoid paying the full amount of tax, whereas evasion is often applied to more criminal forms of not paying tax.
As tax expert Richard Murphy notes5, tax evasion and tax avoidance can happen on the same transaction for different taxes in different places and often involve elaborate trails involving more than one person, company or organization.
The scale of tax avoidance
Through offshore tax havens and fraud, and through transfer pricing, billions of dollars go untaxed. Estimates range from $50 billion to $200 billion of revenue losses.
For example, in 2000, Oxfam made a conservative estimate that tax havens had contributed to revenue losses for developing countries of at least US$50 billion a year6. Side NoteAnd they stress that this is a conservative estimate as it did
not take into account outright tax evasion, corporate practices such as transfer pricing, or the use of havens to under-report profit.
In 2008, Christian Aid, estimated that the developing world loses US $160bn a year in tax revenue8 from just two forms of tax evasion — mispricing transfers and false invoicing.
This is a lot more than official foreign aid9.
Such estimates are conservative, given they are only able to use a handful of measures, because of the very nature of what they are trying to fathom; secretive tax avoidance.
Such large numbers may sound small compared to the amounts some governments are able to find (miraculously quickly) when it comes to bailing out large financial institutions as seen in the current global financial crisis10, but the effects are, as Christian Aid puts it, life threatening and
In early 2012 tax expert, campaigner and founder of the Tax Justice Network, Richard Murphy, produced a report noting that tax evasion and tax avoidance might cost the governments of the European Union Member States €1 trillion a year 12 ($1.3 trillion). This down as approximately €860 billion a year being lost through tax evasion, and €150 billion a year being lost in tax avoidance.
Murphy notes that this amount is
- More than the total health care spending in EU countries
- 4 times higher than the amount spent on education, on average
- Equivalent to paying off total EU public debt in under 9 years
Murphy also lists data suggesting there is no clear relation between the level of taxes and the level of tax evasion in the European Union Member States, implying that often argued notion of higher taxation causing more tax evasion may not be a warranted concern.
Murphy also said that using similar estimation techniques for the US would suggest a
tax gap (the non-filing, under-reporting and underpayment of taxes) of US$337 billion. The Inland Revenue Service itself estimated that the tax gap in the US was $385 billion for 200613 ($376 billion of which was under-reporting).
The developing world lost nearly one trillion dollars in 2010 as a result of corruption, tax evasion, and other financial crimes not involving cash transactions 14, according to a report by the Global Financial Integrity (GFI).
The Tax Justice Network also estimates that in offshore tax havens alone, by 2010 some $21 to $32 trillion dollars were hidden away by the super elite 15, and aided by many of the big banks that citizens of many nations bailed out (and those same citizens were typically rewarded with austerity measures by their governments). It is also estimated that less than 100,000 people worldwide own about $9.8tn of the wealth held offshore.
Based on $21 trillion dollars, it is estimated that this unrecorded wealth might have generated tax revenues of $189 billion per year (p.42).
These figures are described as very conservative and do not include various things such as assets and land, etc.
In essence, the world is awash with wealth; it is just that those who have the means have tried to hide it so that even their fair share of taxes are not paid for, thus avoiding any contribution back to societies they have benefited from (while at the same time being able to influence government policy).
Individuals too have been involved in huge amounts of capital diversions. For example, former dictator of Nigeria, Sani Abacha, and his associates are said to have diverted over $55 billion to private accounts in foreign banks — Nigeria at one point after that suffered a $31 billion external debt burden.
Why is tax revenue important?
Some may wonder why taxation is important. One perspective is that less tax paid to the government means more for individuals, who are best placed to make appropriate use of it, and thus contribute to the economy. That may work well for rich nations and wealthier segments of society. But for poor countries, they have another situation to deal with: the political pressures from rich countries:
Why don’t poor countries raise sufficient tax revenues?
What are the impacts of tax havens on poor countries?
There are a number of impacts of tax havens on developing countries 18 as Tax Justice Network reports:
- Secret bank accounts and offshore trusts encourage wealthy individuals and companies to escape paying taxes
- The ability of transnational corporations to structure their trade and investment flows through paper subsidiaries in tax havens provides them with a significant tax advantage over their nationally based competitors. In practice this biased tax treatment favors the large business over the small one, the international business over the national one, and the long-established business over the start-up. It follows, simply because most businesses in the developing world are smaller and newer than those in the developed world and typically more domestically focused, that this inbuilt bias in the tax system generally favors multinational businesses from the North over their domestic competitors in the developing countries.
- Banking secrecy and trust services provided by global financial institutions operating offshore provide a secure cover for laundering the proceeds of political corruption, fraud, embezzlement, illicit arms trading, and the global drug trade.
- The offshore economy has contributed to the rising incidence of financial market instability that can destroy livelihoods in poor countries. Offshore financial centers (OFCs) are used as conduits for rapid transfers of portfolio capital in to and out of national economies which can have a highly destabilizing effect on financial market operations.
Why have tax havens in the first place and who benefits?
A number of reasons including the following:
- The main appeal of tax havens come from their inherently secretive nature;
- Tax havens imply low- or no-taxes to be paid;
- This makes it easier to avoid paying tax.
Christian Aid is also worth quoting:
In a later report they also note it is a systemic problem:
As noted by the Tax Justice Network (an organization working for international tax co-operation and against tax evasion and tax competition) in a report titled Tax us if you can
one per cent of the world’s population who hold more than 57 per cent of total global wealth use these havens to escape taxation.
How much money is held in offshore tax havens?
As noted earlier, the Tax Justice Network estimated that in offshore tax havens alone, by 2010 some $21 to $32 trillion dollars were hidden away by the super elite 22.
How much potential tax revenue is lost through off-shoring?
Tax Justice Network reports that because tax authorities continue to be mainly limited to powers within their own countries, the result has been a massive loss of tax revenue. As a result, based on the $11.5 trillion above, they estimate that $255 billion is lost each year to governments around the world because of the no or low taxation of funds in offshore centers 23. Importantly, they reiterate, this estimate does not include tax losses arising from tax competition or corporate profit-laundering.
The Tax Justice Network’s 2005 estimates were based on estimating $11.5 trillion being held offshore earning about 7.5% which should then be taxed at around 30% if they were paying up.
When they revised their estimates in 2012, they came up with $21 – £32 trillion being held offshore as noted earlier. This time, they assumed just 3% returns, taxed at 30% giving $189 billion in tax per year24.
As these practices have been going on for years, during better economic times, these potential revenues would be even higher.
What is profit laundering?
Profit laundering is the moving of profit from the countries in which it was earned and where it would incur tax, into tax havens. It is only possible to do this if there is secrecy to avoid the tax authorities noticing it.
Interestingly, Christian Aid notes that:
Not only is globalization not really
global, but a large chunk of world trade may include laundering of profits.
This is one reason you may occasionally hear of mispricing. Some examples Christian Aid noted included how:
- Some TV antennas from China could be under priced at US$0.04;
- Rocket launchers from Bolivia could be under priced at US$40; and
- US bulldozers could be under priced at US$528
But other items could also be over-priced, for example:
- German hacksaw blades priced at US$5,485 each;
- Japanese tweezers at US$4,896; and
- French wrenches at US$1,089.
How much profit laundering is there?
Christian Aid reported in 2005 that the total estimated dirty money flowing into the global banking system is $1 trillion 26. Breaking that down:
- Amount siphoned from the developing world
- $500 billion
- Amount of profit laundered by multinational companies
- $200 billion
- Amount of profit laundered by individuals and criminals
- $250 billion
- Amount lost through corruption
- $50 billion
In another report, Christian Aid tried to estimate the amount of capital flows through mispriced trade alone, from just non-EU countries to the EU, US, UK and Republic of Ireland (ROI), between 2005 and 2007
In sum, it estimated (conservatively) that $1.1 trillion flowed into the EU and US from mispricing from non-EU countries alone27. This would amount to $365 billion in lost tax for developing countries (or almost $122 billion a year).
What is Tax competition and why is it bad?
In short, tax competition is about countries out-competing each other to offer the lowest taxes possible to attract foreign investment.
Tax Justice Network describes the negative impact that Tax Competition has on developing countries:
Where did the idea of tax competition come from?
Tax Network Justice summarizes:
But the Network goes on to mention that this is
fundamentally flawed as a development strategy because it limits the control any country can have over taxation policies and creates harmful distortions.
In addition to being
anti-democratic the notion of making nations compete with other this way does not make sense for its citizenry (though it does for multinational companies who can have a
choice of which country to invest in.)
How did tax avoidance come about in the first place and who are the main actors?
Tax Justice Network provides a decent summary in the same report mentioned above (see chapter 3). In short, the main players who promote what they call
tax injustice are:
- Transnational corporations
- Tax haven governments
- Tax avoiders and tax evaders
In addition, the Network says that this whole idea probably started with the US and the British Empire.
The And then,
offshore phenomenon probably began in the US when states such as New Jersey and Delaware realised that they could lure businesses from more prosperous states by offering tax advantages on condition that they register in their states.
The first real cases of international tax planning occurred in the British Empire in the early twentieth century when wealthy people started to use offshore trusts established in places like the British Channel Islands to exploit the curious British phenomenon of the separation of taxation residence and domicile.
In the 1920s, the UK found new ways for the
internationally mobile person to avoid tax
when a UK court ruled that a company incorporated in the UK was not subject to UK tax if its board of directors met in another country and it undertook all its business overseas. At a stroke, the concept of the separation of the place of incorporation of a company and its obligation to pay tax had been created. This concept survived in UK law until the 1990s, by which time it had become the basis for the operation of most tax haven corporations throughout the world.
In the 1930s Switzerland offered
internationally mobile people residency, only requiring them to pay a fixed, pre-agreed amount, each year, not varying with income, and not disclosed.
This concept has been widely copied the Network also noted.
The Network continues by adding that
the other major Swiss contribution to tax injustice is banking secrecy, a concept which they developed at the time of the French Revolution (for the benefit of the French aristocracy) but which became enshrined in Swiss law in the 1930s. The Swiss believed at the time that it provided them with a competitive advantage as a small, land-locked state in a hostile European environment.
This all happened not by chance, but, as the Network also notes, by plan:
They were thought up by lawyers and accountants and were exploited by them and their bankers for commercial gain.
Tax avoidance undermines capitalism
As Christian Aid notes, tax avoidance distorts markets, undermining capitalism:
Tax avoidance undermines democracy
Today, of the 72 tax havens, almost half are British territories, dependencies or Commonwealth members. Britain alone loses some £100 billion (approx. US $170 billion) a year in avoided taxes. Even for a wealthy nation, this is a reasonable sum when public funds are scarce and people are reluctant to see the government spending more money on various programs.
In effect then, tax avoidance is also a threat to democracy, according to Prem Sikka, a professor of accounting at the University of Essex, UK:
Tax Shelters and Avoidance in the US
A PBS Frontline broadcast on tax shelters in the US revealed some important issues in the US alone.
The scale of the problem
In an introduction to the tax shelter report33, Frontline notes that
The General Accounting Office estimates that illegitimate tax shelters cost the government more than $85 billion in recent years. (It would seem that this number is a conservative estimate, if, as per further above, some deem a cost of $50 billion per year.)
Why a rise in tax shelters in the 1990s?
Bogus tax shelters in the 1970s and 1980s were shut down by the US government. In the 1990s, however, they started to proliferate. How did this happen? There seems to be two major reasons:
- Economic boom of late 1990s
- Effective marketing of tax shelters
The economic boom put pressure on companies to increase profits and keep stock prices up. As Frontline also noted,
One favored means was to drive down the tax line of their corporate returns. According to Harold Handler, former chair of the Tax Section of the New York State Bar,
What changed in the '90s was that the tax line of the financial statement became a profit center for many corporations.
The effective marketing was a major issue. Harold Handler also added that, Businesses started to do artificial transactions for the purpose of reducing tax only34. Quoted at further length:
Corporations manage to reduce their tax burden
But these tax shelters were being promoted by powerful and wealthy institutions36.
legitimate firms — accounting firms, law firms, tax investment firms — were the engine of these deceptions. They were the promoters, the designers [of] the marketing that went into them.
Looking at just the top 250 US corporations between 1996 and 1998 only, the Institute on Taxation and Economic Policy discovered that
companies are paying less than half of what they’re supposed to, roughly 15 to 20% of tax, compared to the corporate tax rate of 35%. Much of this was believed to be due to tax code loopholes, and shelters.
Former US Treasury Secretary, Lawrence Summers, noted in 2000 that while corporate profits rose 20%, tax revenue fell by 2%37. The gap between what was reported to Wall Street and what was reported to the IRS widened. As Summers added,
The income to shareholders went up rapidly. The taxable income reported to the IRS stayed the same, and in some years, actually declined. It was pretty obvious that the reason had to be more shelter[s] and activity of various kinds.
Some mega corporations were actually paying zero taxes or even getting refunds38.
Powerful interests minimize Congress’s chance of tough action
Frontline looked into the challenges of doing something about this problem, as ordinary US citizens are the ones affected. The following highlights well the challenges involved:
Sheer amount of money involved implies problem will remain
Frontline notes that some people argue that in the aftermath of Enron and other corporate scandals, companies will be less likely to use devices such as tax shelters to pump up their bottom line. Others maintain that the current lull in shelter activity is due to the current economic downturn and that the widespread use of tax shelters will flourish when the economy rebounds.
One question, however, is whether it is even a lull period at this time. Senator Charles Grassley, (Republican for Iowa) provides an answer when interviewed:
Transfer Pricing — Intercepting Wealth
Transfer pricing provides a multinational corporations' tax-avoiding dream. It allows the ability to set up offshore accounts and paper companies through which most transactions occur, without having to pay as much taxes. Internal accounting and costing is therefore adjusted to minimize the costs and maximize the profits.
Much needed revenue for social needs in a country is therefore lost this way.
The following quotes summarize this quite well:
(Note in the above quote at the sheer amount of intra-company trade as a percentage of world trade. Bear this in mind the next time corporate-media talk about the growing trade and prosperity for all.)
And the above-mentioned PBS Frontline report also notes the importance of Cayman Island as a tax haven42:
45 of the world’s top 50 banks have subsidiary or branch operations in Cayman, and in 2003 alone $415 billion in deposits flowed through this sandy resort.
As an example of corporate evasion, the following is about Rupert Murdoch’s News Corporation:
Privatizing profits, socializing costs
One of the quotes above, is from J.W. Smith. There he describes the cost of transfer-pricing. He goes on to explain quite well the effects and points out that both high-wage and low-wage countries lose out as the wealth is siphoned to offshore accounts to avoid taxes. This is
historical mercantilism to perfection by intercepting both the foreign country’s wealth and one’s own.
However, as he goes on to point out, there is a difference in that today’s corporations don’t have any loyalty to any nation, due to greed.
The last 20 years has seen the wealth of the United States reduced as corporations seek out44 cheaper and cheaper places where wages are less and environmental, safety and other regulatory measures are less or non-existent. (This has the effect of depressing wages and labor rights in industrialized as well as developing countries and therefore affects the wealth of those countries.)
Disparities between the wealthy and poor continue to rise, in the most powerful nation as well as all other countries. As Smith continues to point out,
Tackling the problem, or pretending to do so?
While Smith wrote the earlier piece in 1994, it is applicable today as well, with wave of news about
corporate crime around the start of 2000 and fascination of some CEOs and other executives as some major American companies have faced bankruptcy or have collapsed.
Yet, the media, while offering an outpouring of news and analysis have by and large concentrated on individual characters and looked for scapegoats (CEOs being the current flavor!). The impacts of the underlying system itself has been less discussed and when it has, often been described as basically ok, but just affected by a few
bad apples. As media critic Norman Solomon describes,
In some countries, the business community shouts a lot about government interference (in their profits) and recommends that the government be reduced in bureaucracy. While many governments are plagued with inefficiency, some is due to the powerplay of groups including various industries.
However, without the various governments, entire industries and market economies wouldn’t have got started in the first place. In the US, for example:
- The pharmaceutical industry received research and development funds from the US government.
- The Internet was created with public funds, but is now handed to corporations to profit from.
- Most major industries receive some support or bailout, including:
- Energy industries
- Information Technology
- Weapons/arms/military industrial complex
- and so on.
While the private companies profit, any costs, such as social problems resulting from environmental degradation, resulting social degradation and so on, are all socialized.
Privatizing profits, socializing costs is a common phrase heard in critical circles.
Some argue that minimizing tax is one of the various parts of a company’s responsibility to maximize shareholder value. As such, tax is seen as a
cost to be minimized. However,
And politics has gotten even murkier since the aftermath of the September 11, 2001 terrorist attacks on the U.S. Some industries have used the September 11th incident to say that has led to loss of business and to try and ask for government assistance as a result. While it has surely had an effect, for example, in the airline industry, as the UK’s BBC 24 news program on September 27, 2001 at about 8:30pm in an interview, said that before the tragic terrorist attacks some of the airline companies such as British Airways were already suffering quite badly, and this tragedy provided an excuse to get out of it.
Of course, this doesn’t mean all companies were using the excuse, but it does highlight the difficulty of addressing these issues during highly emotional times. Companies are understandably going to try and use this to their advantage, if possible.
Economist and professor at MIT, Paul Krugman highlights this with the case of the highly publicized Enron collapse, in a piece that appeared in the New York Times, quoting here at length:
Rich country governments finally acting because it now affects them?
For many years, various organizations have attempted to highlight these problems and its effects on poor countries.
If anyone can help sort this out, it would be rich country governments as they would have the clout to do something. Poor countries simply don’t have the resources to deal with this.
However, as shown throughout history (and throughout this web site) how much they care about the effects these things have on poor countries is questionable.
When it is for their own strategic or self-interest then rich nations will act. (To some extent, this is understandable; in the murky world of politics,
might makes right and
realism triumphs (or, at least is the excuse!)
And it is at such a time that we see some rich countries potentially pressuring tax havens to become more transparent.
The current global financial crisis48 has hit nations like the US and UK very hard. As such, one of the causes of the problem, tax havens, has come into the fore.
Countries such as the US (with its Stop Tax Haven Abuse Act), the UK, France and Germany, are all showing signs of acting by demanding more transparency, for example. The Pope is even to call for the closure of all tax havens.
The UK, for example, has made Jersey recently sign an agreement to increase transparency, as Channel 4 news reports:
Some tax havens, such as Monaco, have tried to suggest that they are victims because others are
jealous of their
If individual nations such as UK or US try to deal with this alone, they might find their companies looking for other ways around any new measures and regulations by going elsewhere, or that companies will fight hard to resist measures by saying other countries are not doing it and they will therefore be at a competitive disadvantage.
As Christian Aid therefore says, the solution needs to be global, not unilateral:
It’s too early to tell at time of writing whether or not these measures will have any meaningful effect or if they will just give the appearance of toughness while the financial crisis takes hold. Unfortunately, signs are not good.
A recent agreement for more exchange of tax information by multinational companies52, though welcome, is feared to be quite weak, for example.
In the April 2009 G20 Summit to address the global financial crisis, there was much hope (and fanfare) about dealing with tax havens. Some leaders claimed the
the era of banking secrecy is over. Unfortunately, the reality was less definitive, as Bretton Woods Project summarized:
In addition, a coalition of some European NGOs, Counter Balance, revealed in May 2009 that key EU-funded development projects in the Global South are being carried out by companies registered in tax havens and financial off-shore centers54, potentially costing developing countries tens of millions in tax revenues and leading to corruption, capital flight and lack of transparency and accountability.
And while much of this section about the global financial crisis impact was written in mid-2009, into 2012/2013, it seems that many companies are still avoiding large sums of tax, just as individuals are being squeezed even further.
This is by no means an exhaustive list in any way, but an example of some of the ones that have made headlines in recent months:
- The agency responsible for collecting tax in UK, HMRC, produced a list of photos on the popular photo-sharing site, flickr, showing 2012’s top tax criminals in the UK55.
- A Swiss bank became the first foreign bank to plead guilty in the US for helping some Americans evade their taxes56, which also resulted in the bank to close.
- Another Swiss bank, UBS, had encouraged rich Americans to store more than $20 billion in offshore Swiss bank accounts and cheat the IRS57 in the largest tax evasion scheme in U.S. history.
- The HMRC has also targeted wealthy UK taxpayers over possible large-scale tax evasion58 based on a list of high net-worth individuals with accounts at the Swiss division of HSBC stolen by an employee and passed to the taxman by the French authorities. That same list was used by a Greek reporter who published a list of 2,000 Greeks with such HSBC accounts. He was arrested59 just at a time that the country has been going through an extremely severe set of austerity measures, thus flaming further resentment at the Greek government and the elite.
- At the end of 2012 it was revealed that Facebook paid just $4.64 million on its entire non-US profits of $1.344 billion for 2011 60 — roughly a 0.3% tax rate below the already low Irish corporate income tax of 12.5%. This was achieved through legal means channeling funds through the Cayman Islands.
- Bloomberg reported that Google avoided about $2 billion in worldwide income taxes in 2011 by shifting $9.8 billion in revenues into a Bermuda shell company 61, again using legal means.
- After a number of high profile cases emerged of multinationals such as Amazon, Google and Starbucks avoiding millions in taxes in the UK, the Public Accounts Committee concluded that multinationals
do not pay their fair shareof taxes62, that the problem is
widespreadand it also affects British businesses negatively who compete on an uneven playing field because they pay the full amount of taxes.
- It emerged that another tech giant, Microsoft, pays no UK tax on £1.7bn of online revenues63.
- An investigation by the BBC, the Guardian newspaper and the International Consortium of Investigative Journalists identified a flourishing industry helping people evade tax64 and turn a blind eye to criminal activity through the existence of an extraordinary global network of sham company directors65.
- In October 2012, councillors from Finland’s capital city, Helsinki, voted to sever business ties with companies operating in, or having links to, tax havens 66.
It should be noted that many of the above cases while morally outrageous or questionable at least, are often quite legal. As many have suggested, tackling this requires global cooperation such that it levels the playing field and no-one can simply play countries against each other in tax competition. However, as history has shown, where a lot of money is at stake and where there is a lot to lose, such cooperative agreements are less likely to happen.
If the economic problems start to ease, it is easy to imagine that the little attention this issue has achieved so far, will fall off the radar of the mainstream and a prolonged period of boom may encourage more tax avoidance in the future resulting in continued misery for the less well-off.
I have not even scratched the surface of this issue here, at it is large and complex. Since the September 11 tragedy, this issue has ballooned incredibly and I have hardly discussed any of the issues arising since then. However, there are a number of organizations doing more research on this, and critics have pointed out these issues for a long time. You could start off at the following links to learn more:
- Tax Havens; Releasing the hidden billions for poverty eradication67, Oxfam Policy Paper, June 2000.
- Global Shell Games; How the corporations operate tax free 68, by U.S. Senator Byron Dorgan.
- Corporate Welfare and Foreign Policy69 from Foreign Policy in Focus looks at the US roles in corporate welfare, providing statistics and a collection of articles.
- Essential Information70 has a lot of information on all sort of issues relating to corporate accountability.
- EnronGate71 from Alternet.org news web site is an example of many sites providing articles on Enron-related issues
- Explosive Revalation$72, from In These Times magazine, provides a look at a banking system that secretly moves trillions of dollars around the world.
- Tax me if you can73, from PBS Frontline provides a detailed look into the issue of tax shelters in the US, with interviews from key politicians.
- The Shirts Off Their Backs; How tax policies fleece the poor 74 from Christian Aid, September 2005 provides details about the scale and effects of tax avoidance.
- Tax Us If You Can 75 from Tax Justice Network, September 5, 2005 looks in depth at the role of tax havens.
- New Internationalist’s Tax Justice issue76, October 2008 has a collection of articles on the topic.
- The Tax Gap77 from the British Newspaper, The Guardian provides many articles on the topic, looking into numerous evasions by some of UK’s top companies, and includes a
tax databaseof what the top 100 UK companies have paid, or not paid, in tax in recent years.
- Tax Havens78 section from Bloomberg.
- Tax Research UK79 by tax expert Richard Murphy
2 articles on “Tax Avoidance and Tax Havens; Undermining Democracy” and 3 related issues:
Read “Corporations” to learn more.
Poverty is the state for the majority of the world’s people and nations. Why is this? Is it enough to blame poor people for their own predicament? Have they been lazy, made poor decisions, and been solely responsible for their plight? What about their governments? Have they pursued policies that actually harm successful development? Such causes of poverty and inequality are no doubt real. But deeper and more global causes of poverty are often less discussed.
Read “Causes of Poverty” to learn more.
Read “Trade, Economy, & Related Issues” to learn more.
We often hear leaders from rich countries telling poor countries that aid and loans will only be given when they show they are stamping out corruption.
While that definitely needs to happen, the rich countries themselves are often active in the largest forms of corruption in those poor countries, and many economic policies they prescribe have exacerbated the problem.
Corruption in developing countries definitely must be high on the priority lists (and is increasingly becoming so in the wake of the global financial crisis), but so too must it be on the priority lists of rich countries.
Read “Corruption” to learn more.
The global illicit drugs market is enormous, estimated at some $320 billion. This makes it one of the largest businesses in the world. Some believe in strong prohibition enforcement. Others argue for decriminalization to minimize the crime and health effects associated with the market being controlled by criminals. Are there merits to each approach?
Read “Illicit Drugs” to learn more.
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