Money management and tax havens Photo: Wwarby/flickr CC
Managing money
Ray Robinson shares some thoughts on tax havens
Recently I have read Treasure Islands: Tax Havens and the Men Who Stole the World by Nicholas Shaxson. He defines a tax haven as ‘a place which seeks to attract business by offering political, stable facilities to help people or entities get around the rules, laws and regulations of jurisdictions elsewhere’. He also outlines ‘how the elites in developing countries can transfer their personal wealth to tax havens elsewhere thereby depriving their own countries of the tax which should be paid in them. More than half of world trade passes at least on paper through tax havens’. They offer secrecy in various forms, which allows criminal money to be incorporated into the system, and very low taxes, which attract money by letting people escape tax. The book is an illuminating and disturbing account of how the system works, but also has practical proposals for seeking to modify the many complexities of the powerful structures that have been built up over the years.
Tax evasion is illegal, whereas tax avoidance is the legal way to avoid paying tax by transferring money to tax havens in Europe, the USA and the City of London. While legal, it seems to me, in practice, to be a preoccupation with self interest and the wish to maximise one’s own finances while at the same time ignoring one’s responsibilities as a citizen of a country. Governments require public money from taxes and other sources to provide the basic infrastructure that society needs for its operation. However, some companies declare publicly that they have no option but to consider changing their location (for example, from the UK) if tax payments can be reduced by transfer elsewhere. Fortunately, not all business leaders think the same. The chief executive of Glaxo-Smith-Kline, Andrew Witty, has said: ‘I don’t buy that you can be this mid-Atlantic floating entity with no allegiance to any one except the lowest tax rate – I think that’s completely wrong’.
Companies are accountable to their shareholders, who are often interested primarily in the yearly dividends and not in a long-term commitment to the company. Not surprisingly, tax avoidance possibilities can be an important way of boosting profits. Certainly stewardship and long-term planning are not usually present in the thinking of hedge funds with their emphasis on short termism. Cadbury, in the past, was an excellent example of a company making profits, but also very aware of its responsibilities to its employees and to the wider community. This policy seems to have changed under Kraft (who purchased Cadbury), but it is perhaps fair to say that the jury is still out on the emerging outcome of their ownership.
There are many examples today of companies that successfully manage the balance between shareholder capitalism and stewardship (for example, John Lewis). There are also examples of smaller firms based on a cooperative model of operation.
Financial scandals have punctuated the history of this country and others for many years. Most dramatically, the financial crisis of 2007 nearly brought the world economy to its knees because the ‘banks were too big to fail’ and governments had to bail them out. Many countries, including ours, are still living with the consequences of this crisis. There have been other crises affecting smaller numbers of people: for example the mis-selling of pensions, payment protection insurance and transfers out of final-salary schemes have been highlighted this year. During the 1990s many building societies demutualised and became banks, which, subsequently, had to be bailed out in various ways. While it is true that individual members profited from the changes, more substantial gains were made by the executors who presided over the conversions. Building societies had been performing a useful service to customers so the question must arise: in whose interests did these changes take place?
All of this is not surprising when Mervyn King, governor of the Bank of England, in an interview with Charles Moore of the Daily Telegraph, is recorded as saying that too many in financial services have thought ‘if it is possible to make money out of gullible or unsuspecting customers, particularly institutional ones, that is perfectly acceptable’. Charles Moore states further that ‘in the governor’s mind this is not ultimately a technical but a moral question’.
Attempts to tackle these significant issues are not easy for many reasons:
• The sheer scale of tax avoidance.
• The resources devoted to tax avoidance by companies to minimise their obligations.
• The general refrain that attempts to reduce tax avoidance will lead companies to transfer their business elsewhere.
• The financial sector of our economy makes a significant contribution to our balance of payments and consequently to our standard of living.
Yet:
• There is a growing recognition that members of society have an obligation (legal and moral) to contribute according to fair criteria to the stability, infrastructure and everything that makes living in Britain great.
• Christian Aid is organising a campaign called ‘Trace the Tax’ that has received support from the Baptist Union of Great Britain and the Church of Scotland.
• Caroline Lucas (Green MP for Brighton Pavilion) has sought to introduce her Tax and Transparency Bill under the Private Member’s Bills arrangement, but has not been successful so far.
• Nicholas Shaxson, in his book, suggests a number of practical proposals that include; greater transparency in the financial information of multinationals, onshore tax reform – trying to define what is or is not appropriate tax avoidance, and re-thinking current definitions of corporate responsibility so that companies are not only responsible to shareholders but to the interests of society.
• The development of campaigning groups on this topic is encouraging because without a determined and prolonged will on the part of many it will not be easy to pass and enforce appropriate legislation in this complex area.
Quakers as a group:
• know that economic growth does not make people happy after basic needs have been met;
• are aware of the importance of simplicity in living;
• resist the desire to acquire possessions or income through unethical investment – Advices & Queries 1.02.39;
• have boycotted various companies after discernment over the years.
While Quakers are unlikely to use tax havens themselves, they may do business with some companies who view the issue differently. Has the time arrived when the criterion of tax havens should be included in any list of queries about dealing with companies?
Nicholas Shaxson says that ‘anyone who wants to understand the modern financial system must understand offshore (tax havens)’. It is an important subject with many ramifications for the country and ourselves when acting individually and corporately. It is pleasing that the subject is being taken more seriously as the financial crisis of 2007-08 was serious and devastating in its impact. Any action that seeks to understand and address some of the basic issues must be welcome.
