Tax Havens Push the Poorest Countries into Further Poverty
Byline: GEORGE HEPBURN
SYDNEY and I enjoyed an Italian meal so much that we almost missed the bus.
This particular bus was the Tax Justice bus, parked in Hexham a couple of weeks ago, on a seven-week nationwide tour sponsored by Christian Aid and Church Action on Poverty.
The case of Starbucks, highlighted in The Journal last week, is an example of 'transfer pricing' which is a main source of injustice.
Starbucks has not paid any UK tax since 2009. Multinational companies pay tax in those countries with the most favourable regimes and so avoid taxation in the country of origin or destination.
A banana grown in Honduras and purchased in a British supermarket may be sold by a company with a purchasing network in the Cayman Islands, financial services in Luxembourg, brand ownership in Ireland and a shipping arm in the Isle of Man. The financial transactions can be manipulated so that tax is avoided in both Honduras and the United Kingdom.
The three main producers of bananas all exploit the tax system in this way.
The net effect of this offshore industry is to deprive developing countries of potential tax revenues which Christian Aid estimates at $160bn a year or one and a half times the size of the international aid budget.
If the banana was taxed at source, the revenues would boost the economies of countries like Honduras and pull them out of the invidious position of being dependant on foreign aid.
Sydney and I slipped in late to the back of the meeting promoted by the churches in Hexham to discuss tax justice.
Nicholas Shaxson's expose of tax havens in his book Treasure Islands was mentioned and I confess to buying a copy from a well known mail order company that avoids UK tax by pretending to be based in Luxembourg.
The tax havens make 'transfer pricing' possible. Tax havens also provide a safe home for anyone wanting to avoid tax.
Shaxson reveals that one third of total global assets are held in tax havens and over half of world trade passes through them.
As Vince Cable said the other day, "nobody keeps their money in tax havens for the quality of their investment advice; these are sunny places for shady people."
Shaxson would say that the culture and practices of tax havens warrants much stronger language than that. My O-level geography syllabus didn't include the Cayman Islands, which has a population of 25,000, so I had not realised that it is a British dependency. My economics syllabus certainly should have studied the Caymans which is home to 800,000 companies and a central player in an undercover offshore system that distorts the global economy.
I had also thought that tax havens were all desert islands but when Barack Obama cited Ugland House in the Caymans, which houses over 12,000 corporations as "either the biggest building or the biggest tax scam on record", the chairman of Cayman Islands Financial Services Authority retorted that 1209 North Orange Street, Wilmington, Delaware houses 217,000 companies purely because the state of Delaware has passed legislation providing financial secrecy and low taxation.
The United States came top in a 2009 financial secrecy index followed by Luxembourg, Cayman Islands, Switzerland and the United Kingdom.
Over 30 tax havens are former members of the British Empire and the City of London sits proudly at the centre of a spider's web that channels money to and from these sandy shores. …