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Are tax havens responsible for the world economic crisis and the proliferating high risk money instruments? Or are they just loopholes through which taxpayers keep their money instead of pumping them into state treasuries?
Early April, the G20 leaders agreed during the London summit on a series of stringent decisions to curb these tax havens. But their goal was not to lift and weaken banking secrecy as much as it was to seize financial resources that would give the needed leverage to high expenditure economic stimulus plans.
Every accused country was apparently complying with the lifting of bank secrecy, within specific conditions that require legally proving incidences of tax evasion. Anything other than that remains within the banking standards in anti laundering measures against the proceeds derived from crime and smuggling.
In the opinion of the American expert Raymond Baker, tax havens get 5% of their resources from crime proceeds, 30% from corruption, while the remaining percentage comes from embezzlement, fraud and tax evasion. Hence, tax havens are not only open to outlaws and mafia gangs, but also to the elite and highly educated customers. Among them are the multinational high-income people who refuse to pay their due taxes and prefer that senior wage earners in their companies do so instead. From this standpoint, tax havens have been considered as tools that helped globalization in the expansion of inequality.
These havens, as experts estimate, incur every year around a billion dollars in lost tax revenues in Europe, or up to ten percent of all tax revenues. This is while these countries need to redress their budget deficits with at least a 3 % margin.
As a matter of fact, the rich resort to tax havens as a means to mask their income, whether it comes from wages or investments. To this end, they either settle into such havens or establish fake companies, where they keep their surplus income and revenues. They can also use them to keep the gains from matches or avoid paying inheritance taxes and alimony in case of divorce.
According to some reports, major international banks are the most prominent customers of tax havens, driven by their own interests, for tax purposes, or to offer services to their wealthy clients and institutions. Multinational corporations have also used tax havens in order to establish overseas branches investing in various parts of the world, or to intensify the low-tax high-profit intellectual property protection instruments – while branches in the countries of destination countries pay higher taxes. Companies also use tax havens as a means to hide actual figures from investors and to manipulate their budgets and statements of accounts.
Meanwhile, the OECD estimates that the 116-square-kilometer Jersey island attracts 500 billion dollars in assets of approximately 32 thousand companies, whose accounts are mostly mail boxes. Switzerland attracts 1,500 billion dollars, compared with 1,300 billion dollars for Britain, 740 billion dollars for Luxemburg, 670 billion dollars for the Caribbean and Central America, 370 billion dollars for Singapore, 370 billion dollars for the United States and 150 billion dollars for Hong Kong.
These tax havens seemed to be easy targets to save money. The massive aids to troubled banks, and the plans to cushion the impact of the financial crisis on economy and employment, all blow the budget deficits. For these reasons, the idea of recovering lost taxes appealed to the summit leaders.
This rush to monitor off shore financial centres is justified by the argument that they allow key financial players the full liberty to develop high risk insane and diversified activities and speculations. These havens did not cause the subprime mortgage crisis in America, but played a role that until now remained widely underestimated. A report by the Government Accountability Office in the U.S shows that part of the virtual offshore banking system was established by American banks in the Cayman Islands, in order for these offshore banks to promote on behalf of American banks complex money bonds, something that was the basis of the multidimensional crisis.
Whether it is about the failure of the British Northern Rock bank, the American Bear Stearns, the German Hypo Real Estate, the Icelandic banks, or the embezzlements by Bernard Madoff or Sir Allen Stanford, the main events of this crisis definitely pass through tax havens. For this reason, the decision to reorder these offshore centres came as a necessary condition to ensure effective reshuffling of the world monetary system.
However, the attack on safe havens does not put an end to the perversions of financial globalization, despite the stringent measures taken by central banks, which are now ready to monitor the mechanisms adopted when tackling risks, and to cater for the highly diversified money instruments.
The American Secretary of Treasury, Henry Morgenthau, said: “Taxes are what we pay for civilized society. Too many individuals, however, want the civilization at a discount.”
Will the world’s public finances regain what they lost to tax havens?