The main thing about money, Bud,” Hal Holbrook tells Charlie Sheen in the movie Wall Street, “is that it makes you do things that you don’t want to do.” The film was a morality play on greed and high finance; instead, it apparently became an unintended recruiting ad for the real-world Wall Street! So much for morality and finance. But as an international consortium of journalists unearths the “Pandora” list of secret stashes in tax havens, accountability becomes the call of the day. What we get instead is hypocrisy.
US President Joe Biden, addressing Congress, called out Switzerland, the Cayman Islands, and others for being tax havens. He forgot that secrecy- and tax-friendly US states like Delaware and South Dakota are the “new Switzerland”, while the original Switzerland has ended its banking secrecy for corrupt money. Indeed, the US has used the Foreign Account Tax Compliance Act to get other countries to report financial assets held by US citizens, while Washington refuses comparable compliance in return.
The UK’s overseas territories and crown dependencies, like Bermuda and the British Virgin Islands, are among the most important tax havens, and Britain is one of the biggest losers of tax revenue as a consequence. But even as Conservative and Labour politicians point fingers at each other for figuring on the Pandora lists, a new law to fix the tax havens remains in limbo. And a controversial Russian businessman seeking clearance for an energy link between the UK and France has donated money to every 10th Conservative MP.
India could teach them a thing or two: It has fixed the Mauritius tax hole, even as it declared illegal foreign funding of political parties to be kosher, post-facto. The electoral bonds scheme provides a neat side-step away from any need for disclosures, and there is no limit on how much parties can spend on elections.
People put money in tax havens for a variety of reasons — privacy, criminality, tax evasion or avoidance, estate planning through trusts, and as a safety net in the event of regime change in authoritarian countries. Some of this is legal though perhaps unethical, and sometimes you don’t need a tax haven — Amazon’s Jeff Bezos and Tesla’s Elon Musk paid little or no tax in some years. But corrective action has begun. Companies hiding in tax havens or low-tax entities like Ireland will have to reckon with the international move for a minimum corporate profit tax of 15 per cent (the original proposal was 21 per cent).
‘Money makes the world go round…’
What of the Indians on the list? Most of them are relatively small business fry (the A-listers are innocent or not yet unearthed) and have dealt in modest sums — a few million each. Quite a few say they have kept tax and monetary authorities in the picture. Many are non-residents and have violated no law. But a couple of well-known businessmen who have declared themselves bankrupt are shown owning large assets in tax havens. Perhaps more importantly, many thousands of newly wealthy Indians have taken non-resident status in recent years, and presumably taken at least some of their money with them to tax havens like Dubai. The grapevine says their reasons range from education and health care facilities to clean air and friendlier tax regimes.
If one gets away from morality, is all this significant in a macro-economic context? The money stashed away in tax havens is estimated at between $5.6 trillion and $32 trillion, numbers to make your eyes pop. An International Monetary Fund (IMF) paper some years ago quoted estimates of lost tax revenue at $500-700 billion. That is big, but less than 1 per cent of global GDP. And it would shrink further if the UK and US were to close their loopholes. Their tax regimes could become the biggest beneficiaries. But this is a rich man’s game, and rich country governments are its most willing participants. It’s as Liza Minelli and Joel Grey sang in the film Cabaret, set in the feverishness of Weimar Germany: “Money makes the world go round… that clinking, clanking sound.”
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