Overview: war on tax havens

Overview: war on tax havens

Prospects: Obama will add weight to the war on tax havens

Cayman Islands

Cayman Islands

As the politics of the credit crunch work themselves out, one issue is taking
increasing prominence. Just what will happen to tax havens?

Nicolas Sarkozy is hot under the collar, not least to highlight that he
thinks problems started elsewhere, and the Germans are supporting him, but one
political event dominates all others: the imminent election in the US of Barack
Obama.

What’s happened?

Obama has made his position on tax havens very clear: he signed the US’s Stop
Tax Havens Abuse Act. The act outlined a series of measures to crack down on
offshore jurisdictions.

‘This is a basic issue of fairness and integrity,’ he said when it was
introduced in February of last year. ‘We need to crack down on individuals and
businesses that abuse our tax laws so that those who work hard and play by the
rules aren’t disadvantaged.’

Since then, others have, rightly or wrongly, seen tax havens as having
facilitated the development of opaque structures that permitted banks to become
over-leveraged.

Sarkozy wants to launch attacks on the havens, the Germans want to target
Switzerland in particular, and seemingly only one major country ­ Britain, led
by Gordon Brown, a politician who in opposition made his name pledging to crack
down on tax avoidance ­ is standing in the way.

What’s going to happen?

Tax campaigner Richard Murphy says there are some clear practical steps that
could be taken to deal with havens, which are, after all, sovereign states and
free to set up whatever tax rates they like.

‘Tax is not the issue,’ Murphy says, insisting that it is more a question of
secrecy. He refers to havens rather as ‘secrecy jurisdictions’.

He says these jurisdictions have to provide better information sharing
arrangements; the current ones being ineffective.

And if they don’t, larger countries could withhold tax at source.

Equally, companies who decide to situate intellectual property abroad ­
putting a brand name in a company in the British Virgin Islands, for example,
and getting UK-based companies to pay a fee to that company for the use of it ­
could end up finding that fee is not tax deductible against their UK profits.

A better list of jurisdictions needs to be drawn up, and it is possible a UN
tax committee, rather than the OECD, could take on responsibility for the
issues.

Not only that, but the big countries may have to change some of their own
rules to avoid charges of hypocrisy.

Whatever happens, 4 November could be the biggest day in the tax world this
year.

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