The Panama Papers provide proof that many politicians, capitalists and members of royalty use overseas tax havens to escape paying tax on their activities in the countries where they reside.
What does the process involve and who benefits at whose expense?
The Australian Tax Office (ATO) makes it crystal clear that individuals and businesses are legally obliged to declare all their worldwide income to the ATO every year. “Their” income does not only mean payments received in their name personally, but also includes any kind of income in which they have a “beneficial interest”.
That means there is no excuse for non-declaration if assets or income are put in someone else's name or no name at all, because what counts is the substance of the ownership, not the legal form.
So the use of tax havens by anyone — individual or company — raises the suspicion, some would say the presumption, that the person is not fully declaring their income and assets to the ATO, and is therefore knowingly acting illegally.
The tax haven authorities point out that there is nothing illegal in the use of tax havens to store assets or income. That is true. The illegality consists in failing to declare their existence and the amounts to the ATO.
A tax haven is a country, usually a small one, which allows foreigners to register businesses, store money in bank accounts and create companies in any name they choose, so long as they pay the government an annual licence or registration fee.
Tax havens have low income tax — some as low as zero — no capital gains tax, no wealth or inheritance taxes and some have no GST equivalents either. Companies take advantage of this by using their tax haven subsidiaries to bill customers for work done, goods sold and services provided by the main operating company operating in a high tax place.
If, once in a blue moon, the auditors protest that it is misleading for such billing processes to occur as it is not the company making the sale that is doing the billing, the corporation will instead bill properly, but have the tax haven company charge it a hugely inflated amount when resources are moved from country to country.
Tax havens use a so-called “management fee” to ensure the profits stay in the tax haven just like under the fraudulent billing system. Neoliberals and their academic poodles justify such arrangements to minimise international tax obligations as acting in the best interests of shareholders to maximise their wealth.
This justification is tantamount to asserting it is not just ethical, but actually beneficial, to surreptitiously move resources from public to private ownership. That is what neoliberals claim to believe, but fail to add that the beneficiaries are a small handful of the very rich. The victims are the general public and the subversion of the democratic idea.
A company registering in a tax haven is usually under no obligation to prepare and file annual accounts in the haven, so there is no exposure to the public of any acts or profits of the company. The tax haven government only needs its annual fee. It is not interested in asking questions or passing company laws to require disclosure. To do that would deprive tax haven countries of their main income.
They say that if they did pass such laws, other tax havens would scoop up the business. Competition between jurisdictions that are accessories before and after the fact of fraud on their home country's public is thus justified by the existence of competition.
The top tax havens are British — the British Virgin Islands and the Cayman Islands. The places with the most advisors on using tax havens are also British, namely Hong Kong and Britain itself. Tax havens, like opium, sugar and slavery, are a legacy of Britain's period of world domination.
“Advisers”, in this context, are people who set up tax haven banks and companies for the big businesses that seek their services. They charge a fee comparable to a top corporate lawyer's fees, and they justify that on the basis that they save more in tax than they cost in fees. They also arrange bribes and facilitate payments in the all-too-many places, especially in western Asia, where it is hard to secure contracts without such payments.
Of course the US, EU and Britain, not to mention Australia, strictly and thoroughly ban their companies and citizens from making such payments, but one big service of advisors and intermediaries is to lay a trail so knotted and complex between the client and the official that governments rarely have either the will or the resources to prove any specific act of bribery has occurred.
China no longer shoots perpetrators of economic crimes and makes the family pay for the bullet. In the neoliberal world view the only economic crime is being found out. Thank goodness for the Panama Papers, Wikileaks and an increasing number of other agencies that make being found out a real possibility.
As for penalties, does anyone still think the perpetrator banksters and their accounting acolytes are too big to jail?