One-size-fits-all a terrible fit

Sustainable Tax Havens…

There is currently a somewhat insidious “tax transparency” take dressed up as “missing tax revenues” by outwardly multi-lateral bodies such as the OECD calling for mass publication of beneficial ownership of companies, particularly those based offshore.

There is no doubt that ensuring that illicit, covered-up funds do not reach those bona fide jurisdictions who are simply wishing to encourage valuable foreign direct investment (FDI) is a perfectly laudable cause.

However, there is a grave danger that moves towards an inappropriate, “one-size-fits-all” approach – so typical of global, multi-lateral, standard-setting bodies – could irreparably backfire and lead to the sorts of “unintended consequences” that reflect poorly thought through measures.

There is also a very major over-generalisation about efficient use of, and setting, of tax parameters. It is ironic that those in the EU and EU-backed OECD are so keen to promote the over-generalisation of “UK Tax Havens”. All the while when countries like Luxembourg, the Netherlands, Belgium, France, Malta, Cyprus and even Denmark – let alone whole host of Eastern European EU Member States – are busy setting up legitimate, but highly advantageous tax benefits for FDI.

In the most notorious example, the “LuxLeaks” scandal facilitated by then-Luxembourg Prime Minister, who remarkably went on to become EU Commission President, a certain Jean-Claude Juncker. Luxembourg masterminded a tax scheme whereby 546 international companies were allowed favourable tax rates for moving their business to Luxembourg – some at under 1%. This included Ikea, Skype, Pepsi and Disney.

It would therefore seem somewhat invidious and disingenuous that the back-slapping EU, so keen to promote its “transparency” and “harmonisation” credentials – very often in stark contrast to the harsh, real-time truths – should include smaller, tax-efficient jurisdictions on its, frankly, patronising list of “Blacklisted” jurisdictions – when it can barely monitor its own Member States.

As per 17 October 2019, the EU – itself the architect of numerous tax-efficient schemes, has listed some tiny, often economically-challenged jurisdictions as “non-cooperative jurisdictions for tax purposes”. A case of the kettle calling the pot black, perhaps? This includes American Samoa, Belize, Fiji, Guam, Oman, Samoa, Trinidad and Tobago, US Virgin Islands and Vanuatu.

Anyone with half an idea of the scope of US FATCA would be well aware that the US is perfectly well able to cover US dollar-denominated jurisdictions – such as American Samoa, Guam, US Virgin Islands. So quite why the EU need add in their own designations is somewhat bizarre. Just call up the US authorities if you need further information for truly meaningful reasons – it will all have to be declared anyway in the event of a major terrorist finance/AML investigation. Of course, there is a lack of reciprocity between FATCA and CRS, which has led many to treat the US as a tax haven – particularly as non-US can get away with hiding behind US state secrecy laws (Delaware, Nevada, South Dakota, Wyoming, for example). Hardly a level playing field.

Typically, the EU needs no invitation to “find fault” with “UK Tax Havens” such as Belize, Fiji, Samoa, Trinidad and Tobago. It is no secret that the EU’s European Council works very closely with the OECD – the author of the most comprehensive tax-grab, privacy & confidentiality invasion scheme ever conceived – otherwise known as “Common Reporting Standard”, or CRS. This clearly seeks full informational control of assets worldwide, for the nefarious purpose of exacting greater tax take on revenues which very often, frankly, have no place being re-patriated back to “home” jurisdictions.

And this – whilst others carry on with “tax-efficient” schemes, such as the Netherlands, Luxembourg, Belgium and the likes of France (who has been allowed to continue, disgracefully, its headline 33.33% corporation tax rate which belies the sub-10% effective rate so easily achievable via the numerous French tax allowances). This is the very same France which perennially criticises Ireland for its genuine, 12.5% corporation tax, whilst France allows its households to calculate income tax after dividing income by the number of dependants and parents – severely minimising the tax burden for French households. And yet the EU boasts of its attempts to achieve “tax harmonisation” in this most crooked of level playing fields, having just de-listed Albania and Serbia.

Where does this sanctimonious behaviour by the likes of the EU and the OECD leave bona fide, tax-efficient jurisdictions for whom FDI is such a crucial source of revenue? Often in desperately poor shape, in fact. Despite all the clamour and fanfare surrounding illicit finance, money laundering, terrorist financing, cyber crime and so on, the fact remains that global enforcement is failing to pick up even a fraction of global illicit crime.

Sadly, the policy thrust seems to be greater “transparency” and “disclosure” from the cynical, self-righteous OECD who seems intent on facilitating, potentially, full disclosure via widespread publication of beneficial ownership of company registers, and this could have major “unintended consequences”.

For a start, any jurisdiction where sovereign wealth and private wealth are blurred will be a nightmare to police – this includes all petro-driven economies where major families hold the balance of power. For multilateral bodies such as the EU and OECD (its FATF includes beneficial ownership and tax evasion in its 2012 List of Recommendations) to ask such jurisdictions to fully disclose potentially highly sensitive, strategic information is appalling. Nor should smaller, tax-efficient jurisdictions be expected to offer cynical tax-grabbing bodies the right to information which they have no right to where bona fide investors are involved.

One area which would be welcome – which would not put an immense regulatory burden on smaller jurisdictions, their non-financial, non-profit entities in particular, would be the discreet sharing of information with global crime (non-tax) enforcement authorities.

But this should not involve a free-for-all for tax authorities to involve themselves in extraneous information pilfering for nefarious ends. Tax avoidance and tax evasion need to remain distinct under the law, not blurred via deliberate political shenanigans. Efficient, legitimate tax policy helps fund public servant gold-plated pension packages, after all.

Smaller jurisdictions around the world should not risk impoverishment or excessive regulatory burden via the draconian standard setting of sanctimonious, multi-lateral global bodies. Information, privacy and confidentiality protections should be honoured and asset-holders treated as de facto bona fide, with the dictum “…innocent until proven guilty…” held as sacrosanct.

Of course illicit finance absolutely needs to be checked – but this should be managed via the proper channels with law enforcement experts – not the inappropriate and unseemly delegation of unprepared, poorly funded smaller jurisdictions who cannot be expected to provide high surveillance detail, massive security infrastructure and armies of top, globally-aware enforcement professionals in copious numbers.

Law enforcement should be able to engage and exchange appropriately and reasonably with all sovereign jurisdictions on matters of international public interest, or international crime. But the “tax/information grab” nonsense must stop. Enough is enough.