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Nef (the new economics foundation) “There’s nothing we can do about tax havens” Polly Toynbee, The Guardian Lydia Prieg, nef.

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Presentation on theme: "Nef (the new economics foundation) “There’s nothing we can do about tax havens” Polly Toynbee, The Guardian Lydia Prieg, nef."— Presentation transcript:

1 nef (the new economics foundation) “There’s nothing we can do about tax havens” Polly Toynbee, The Guardian Lydia Prieg, nef

2 nef (the new economics foundation) What is a tax haven? Low tax rates A veil of secrecy that helps people or entities get around the rules, laws and regulations of other jurisdictions

3 nef (the new economics foundation) The myth 1.Tax is a legitimate cost to be minimised 2.Tax havens are democracies – they should be allowed to set whatever tax rate they like 3.Financial secrecy is a basic human right 4.There aren’t any tax havens any more 5.Britain by itself can’t do anything about tax havens 6.If Britain takes on tax havens, there will be a mass exodus of big business 7.Tax havens can stimulate investment in developing countries 8.Recent action by Cameron and the G8 means that much of the work on tax havens is already done

4 nef (the new economics foundation) In the wild “Rather than trying to kill tax havens, wouldn’t the world be better if our politicians instead sought to beat them at their own game?” – Eamonn Butler, Director of the Adam Smith Institute

5 nef (the new economics foundation) Tax is a legitimate cost to be minimised The myth: I don’t approve of high tax rates and big government Businesses have a duty to their shareholders to minimise their costs Minimising your tax bill increases the efficiency of businesses It’s no different to putting money in an ISA

6 nef (the new economics foundation) Tax is a legitimate cost to be minimised The reality: Tax avoidance is not expressing a view on the size of the state. It is free-riding, as it increases the burden on others Businesses should pay dividends to all of their stakeholders. Just as shareholders expect to be compensated for the capital they provide, the state expects to be compensated for the infrastructure etc. it provides Tax avoidance favours big business and so undermines competition ISAs are a door that the government has deliberately opened to encourage socially beneficial behaviour

7 nef (the new economics foundation) Tax havens are democracies The myth: International interference undermines democracy in these countries The reality: Tax havens can set whatever tax rates they want Campaigners just want economic activity to be taxed in the jurisdiction where it takes place, not where a letter-box is located For this we need transparency on where and how companies are operating (e.g. country-by-country reporting)

8 nef (the new economics foundation) Financial secrecy is a basic human right The myth: Britain doesn’t want an intrusive police state. People have a right to privacy The costs of compliance are an enormous financial burden The reality: The public should only have access to info about publically listed companies via better disclosure in annual reports etc. Only tax authorities should have access to info about individuals Markets work best when people have lots of information Well run companies already have all the required info

9 nef (the new economics foundation) There aren’t any tax havens any more The myth: “The era of bank secrecy is over” (G20, 2009) The reality: The OECD set the bar extremely low – at 12 tax information exchange agreements (TIEAs) that can be signed with each other When blacklist was introduced, only 4 countries were on it. Essentially overnight they signed the requisite TIEAs and were removed from the blacklist TIEAs require you to know the answer before you can ask the question

10 nef (the new economics foundation) There aren’t any tax havens any more The reality: For example only 4 pieces of information were exchanged between the USA and Jersey in 2008 Christian Chavagneux of the OECD said “France made 230 requests for information to 18 countries in the first eight months of The reply rate was only 30 per cent and the quality of the information supplied wasn’t always of the highest quality.”

11 nef (the new economics foundation) Britain by itself can’t do anything about tax havens The reality: Many of the world’s tax havens are British Crown Dependencies or Overseas Territories, which we have the right to legislate for (Kilbrandon Report, 1973) For example we overthrew the government in the Turks and Caicos Islands in 2009 We could stop praising tepid international action and push, for example, for country by country reporting We could stop making once-off agreements with tax havens – this only legitimises them and tax evasion, undermines reform efforts, and doesn’t help developing countries

12 nef (the new economics foundation) A mass exodus of big business The reality: Campaigners are pushing for country-by-country reporting to be included in international accounting standards, which are used in over 100 countries Britain cracking down on crown dependencies and overseas territories is entirely independent from whether or not a business chooses to be domiciled in the UK Companies want to access the UK market. The government could leverage this to increase transparency

13 nef (the new economics foundation) Tax havens can stimulate investment The myth: China and the UK do very well as a result of tax havens The reality: Do we really want money that should be tax revenue in, for example, Mali? Developing countries lose more via tax havens than they receive in aid & they allow corrupt governments to rob states The best way for developing countries to grow their way out of poverty, increase life expectancy and reduce infant mortality is through public services and public investment in the infrastructure long-term business needs Financial inflows to the City only benefit the 1%

14 nef (the new economics foundation) Trickle down doesn’t work Source:

15 nef (the new economics foundation) What Cameron has done: Companies registered in Britain would come under a legal obligation to obtain and hold adequate, accurate and current information on the ultimate owner who benefits from the company – and be required to place the information on a central register, maintained by Companies House Tax authorities have a better chance of tracking the true ownership of trusts and shell companies Britain expects the G8 to call on the OECD to implement a new agreement modelled on the US-led Financial Action Task Force on tax transparency, which is supported by 75 countries. The deal would lead to "automatic exchange", in which countries pass on tax details without a request having to be made What about recent action by Cameron at the G8?

16 nef (the new economics foundation) What about recent action by Cameron at the G8? The reality: Companies House doesn’t have the resources to police compliance with the beneficial ownership register, so it will essentially be voluntary Rumour has it that we may only get a requirement that companies know who their beneficial owners are if enquiry is made of them Information won’t be publicly available Need more info in order to properly determine the tax due Developing countries must also benefit from automatic information exchange Many tax departments, including in the UK, are hugely under- resourced

17 nef (the new economics foundation) What can we do? Shut down British tax havens Push for country-by-country reporting to be incorporated into international accounting standards Properly fund Companies House and HMRC –Staff levels at HMRC fell from 97,073 in April 2005 to 66,992 in November 2010 as a result of spending reductions made by Labour –In 2010, Osborne announced that funding for HMRC would be reduced by 16.5 %, including 10,000 job cuts –By 2015, staffing levels will be at an all-time low of 56,100


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