Thursday, 2 April 2009

How to collar tax havens: follow the money

One of my fellow bloggers at the G20 Summit is Richard Murphy who, in many peoples' eyes, is the leading UK expert on how to clamp down on tax havens. I had the pleasure of interviewing him last night. Just two years ago he acknowledges that he was regarded as being on the mad fringe of this discussion, he is now beingseriously listened to by HM Treasury and elsewhere. This guy knows how we can prevent individuals and corporations from abusing tax havens to evade regulatory oversight and tax.

How do we do it? Follow the money. It is now the norm for large corporations to even register their logos as a company in a tax haven with its logos leased back. The most expansive use of tax havens by a corporate that Murphy has found is the Dutch bank,ING, which has 17,000 companies registered in tax havens. Well, if the International Accounting Standards Board (ironically located in a tax haven- Delaware) required that all subsidiaries of listed companies have to declare the names of the subsidiaries, where they are located, their sales, purchases, staff costs, profits, tax andintra-group trading, that abuse could be stopped.

He cited the Stop Tax Haven Abuse Act which is crawling through Congress in our interview. As similar legislation is seeking to do in Germany, this act will simply assume that you are trying to avoid tax if you use a tax haven. It seems that there is a likelihood of global accounting standards being included in the communique today. If the IASB doesn't play ball then it could be taken over by a state and/or become an inter-state agency.

The same could apply to regulation. Banks, hedge funds, private equity firms, will have to meet the same regulatory standards in tax havens as they do in London, New York or Frankfurt.

A key issue here is cash. Firstly, with fiscal deficits sky-rocketing the G20 has an incentive to act now. It has an incentive to act today in fact. And we are not talking about small pots of cash. Murphy has estimated that there is $400billion washing around every year of evaded taxation. We are talking £18billion in the UK alone. Even increased transfers to tax havens that are British dependent territories will be dwarfed by the increase in tax revenue by clamping down on these havens. So cash will force the hands of the G20 and major increases in revenues are the benefit.

I will be reading the communique closely to see what measures on tax havens will be agreed. China and the US- which under the Bush presidency blocked changes to tax havens for eight years- will have to move for a satisfactory outcome to be achieved. But we are beyond the point where this is tolerable. Action is needed- for financial stability, for fairness, for tax revenues, and public services- and it is needed now.

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