FICRY

Crack Down on Tax Incentives for Banking off the shore.

In the last year politicians have increasingly pushed for legislation that would limit off-shore banking. Even UK Prime Minister, Gordon Brown, among others has called for curbs on tax havens despite the fact that a great number of the countries that offer such tax incentives, including the Channel Islands, are British dependencies.  Their rhetoric is simple: off-shore banking provides criminals with the means to conceal money generated by illegal industries, such as drug trafficking and prostitution. As a senator, Obama was one of the signatories of the Stop Tax Haven Abuse Act, legislation put to Congress in 2007, which targeted the practice.  During his first 100 days the President introduced other laws as part of a wide-ranging revenue-raising and tax-reform package.

But what are these so-called “tax havens” and, if they are known hotbeds of illegal activity, why hasn’t the government shut them down?

Eamonn Butler, journalist for TimesOnline, argues tax havens are being targeted not because they allow for the laundering of black market funds, but because increased scrutiny has been placed on tax competition among nations. Tax havens are not seedy breeding grounds of laundered money and prostitution, but rather legitimate banking organizations that offer a legal way for clients to avoid taxes. Whereas tax evasion is illegally concealing income from the government, tax “avoidance” generally involves “claiming the full, legal deductions allowed by the tax authorities and moving money to a place where taxes are lower.”  A tax haven is simply a place where taxes are levied at a low rate or not at all. Bulter writes, “It’s avoiders, not evaders, who are the tax haven’s staple customers.” Because it is simply is too risky to move illegal money overseas, offshore havens do not attract drug lords and pimp kings. It is far easier for organized criminals to launder money domestically than to continuously  risk the making legal transfers with illegal funds.  Click here to read Brown’s Article.

Contributor for the Australian news source The Age.com, Sinclair Davidson, echos Brown’s claim by arguing that although tax competition and tax havens conjure up notions of  illegal activity, even the Australian Tax Office concedes that: “Most transactions between Australia and (other) tax havens are lawful.” To Read this article in full click here.

In The Introduction to Tolley’s International Initiatives Affecting Financial Havens (2001), at para 26.1, the assertion is made that the tax haven is, “a creature of the twentieth century, and began to be used extensively because of the high levels of tax which prevailed after the First World War.”  Off-shore banking was created out of necessity when taxes became so high that people sought out legitimate ways to avoid paying after a devastating war. What resulted was the offshore industry, which spread investments from global, economic, centers to banks around the globe.

As the crisis rages on however, politicians look to end a practice that moves European and American money out of the country. Will they succeed in exterminating the last vestige of a tax free world?

As the old adage goes, are taxes as certain as death?

By Cora Weiss, Editor-in-Chief, FICRY.com