Tax dodgers, the G8 and Dave.......

At the G8, Dave will be pushing for ‘transparency’, the current buzzword, to curb tax avoidance and money-laundering through off-shore vehicles. I wish him luck.

 

The main victims of the offshore tax avoidance industry are probably developing countries rather than Western tax-payers.

 

Capital outflow from Africa and other poor regions is colossal, much of it from siphoning off the loot from corruption or just plain theft. Some African leaders would be in the Guinness Book of Records for the sheer size of their thieving. Mobutu, for example, is reckoned to have purloined  every cent of American aid sent to the Congo on his watch. They are kleptocrats on an industrial scale.

 

But much of it is legitimate through transfer pricing. This is the shifting of money from one tax jurisdiction to another. Profits are moved from high tax regimes to low tax and vice versa for losses. There is little difficulty in posting losses due to massaged pricing of goods and services. Starbucks achieve this by charging a licence fee to its subsidiaries; Macquarie by hitting its M6 toll road subsidiary with interest no less than 16% on the money loaned to build the motorway.

 

It is estimated  that $1.35 trillion has been leached from Africa. It is about the equivalent of the whole of foreign aid.

 

So will Dave’s efforts bear fruit?

 

They will demand a huge data collection exercise in which countries will have to process information about company ownerships, and they will need to uncover the beneficial owners, as well as ‘legal’ ownership. This is not yet done in the UK, and the US Federal Government is hamstrung because jurisdiction belongs to the states, and there is no way that Delaware and Nevada are going to buy it.

 

Then the data will have to be shared with all the countries involved.

 

The law of unintended consequences may kick in here. The effect of cracking down on territories that rely almost entirely on off-shore banking may turn them into economic basket cases, leaving Britain to rescue the Caymans, BVI and others with UK taxpayers’ money. The banks themselves are likely to relocate to Singapore, Hong Kong, Korea, Panama and similar jurisdictions that already have well-established facilities and which will not play ball.

 

Of course, Dave might well lower his sights and start at home in the epicentre of tax-avoidance, the City of London. Floating a company with bearer shares is a simple way of hiding the stash. He could make these illegal, as is the case in that well-known tax-shelter, the Isle of Man. He could take a long hard look at limited liability partnerships which are a vehicle for abuse.

 

But then Dave never misses an opportunity to miss an opportunity.