How Britain's remnants of empire lead the world in avoiding tax.
In the wake of last week's Paradise Papers revelations, there
is fresh attention on the vexed topic of global tax transparency. While
the disclosures in the 13.4 million documents are financial in nature,
they have already had significant political ramifications in London,
Washington and elsewhere, especially after the release of the Panama
Papers last year. The Paradise Papers have shone new light on hundreds
of high net worth politicians and other individuals across the world,
and many multinational companies. But it is actually the internal
workings of numerous UK territories that are at the heart of the affair.
During the process of decolonization, Britain held on to a global
network of islands, which either voted to remain UK territories or have
not chosen independence. Among these are 14 overseas territories and
three British dependencies, and it is these remnants of empire that are
among the world's leading centers of international tax avoidance.
London has taken action in previous years to ensure that these islands
have fairer and more open tax systems, but this remains a work in
progress. Last Tuesday, Labour Shadow Chancellor of the Exchequer John
McDonnell described the Paradise Papers disclosures as the "biggest
tax scandal of this generation" and called for a UK public inquiry.
Prime Minister Theresa May has insisted she wants "greater
transparency," but has refused to commit to such a public probe.
Last year, after the Panama Papers releases, Labour Party Leader Jeremy
Corbyn proposed that the government impose direct rule on any of its
territories that do not comply fully with UK tax laws. London has
cracked down in the past in similar ways, so this is not inconceivable.
In 2009, for instance, it imposed direct rule on the Turks and Caicos
after local officials were accused of selling government land for
personal gain. The islands had home rule restored only after the local
government enacted laws that required tax information to be shared with
the British government. After the Panama Papers revelations last year,
the UK government did not take any comparable measures for any of the
territories that have been named in them, but international and domestic
pressure to act is mounting. In Brussels, the European Commissioner for
Economic and Financial Affairs, Pierre Moscovici, has promised since the
Paradise Papers disclosures to look into the matters swiftly and
potentially expedite an EU blacklist of offshore tax entities. In
Washington, Democrats have called for an investigation into the Paradise
Papers, including allegations that the Commerce Secretary Wilbur Ross
has ties with Vladimir Putin's son-in-law through a shipping
venture in Russia. Sen. Bernie Sanders, the former contender for the US
Democratic presidential nomination, has attacked what he believes is an
"international oligarchy in which a handful of billionaires own and
control a significant part of the global economy" and has called
for congressional consideration of Donald Trump's proposed tax
reforms to be halted.
The Paradise Papers have shone a light into the murky financial
world of high net worth individuals and multinational companies, and
will intensify demands for greater transparency.
Even further afield, in the Asia-Pacific region, the Australian
tax office has said it will investigate and work with partner agencies
across the world after the Paradise Papers disclosures. And in India,
the tax department confirmed it is already investigating numerous
so-called tax havens. While the UK imposing direct rule on its
territories is, in principle, a relatively straightforward process,
critics have pointed out that a consequence of seeking to close down
these centers of tax avoidance would be that people and companies simply
move their money from one jurisdiction to another where there might be
even fewer tax regulations and less transparency. Many have therefore
argued that what is needed is greater harmonized global moves toward tax
transparency. In May 2017, the UK hosted an international
anti-corruption summit and has been at the forefront of recent global
debate on tackling international tax avoidance and evasion. The 2013 G8
summit in Northern Ireland, for instance, resulted in the Lough Erne
Declaration, which urged countries to "fight the scourge of tax
evasion." Leaders agreed, for instance, to measures that would
combat the illegal evasion of taxes, as well as the use of tax havens
and loopholes. And Britain was the first member of the G20 to establish
a public central registry of company beneficial ownership information.
It has also introduced some of the world's strictest legislation on
bribery, in 2010, making it for instance a criminal offense for a
company to fail to prevent a bribe being paid. Moreover, London also
co-chaired a UN panel that put tackling corruption at the heart of the
new UN Development Goals. Nonetheless, the Paradise Papers are
ratcheting up pressure further to increase tax transparency. While
dramatic action in coming days is unlikely, campaigning at national and
global levels for new measures to tackle this issue are likely to
intensify as new revelations continue to surface. * Andrew Hammond is an
associate at LSE IDEAS at the London School of Economics.
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