Out-Law News 2 min. read

'No economic justification' for tax havens, economists tell world leaders


So-called 'tax havens' which allow secret bank accounts or enable companies that do no business there to book profits "serve no useful economic purpose", according to 300 leading global economists.

In an open letter, coordinated by Oxfam, signatories called for world leaders to adopt "new global agreements" on tax transparency as part of this week's anti-corruption summit in London. The UK, which has sovereignty over many reputed tax havens, is "uniquely placed" to take the lead on these efforts, according to the letter.

"Whilst these jurisdictions undoubtedly benefit some rich individuals and multinational corporations, this benefit is at the expense of others, and they therefore serve to increase inequality," the letter said.

"As economists, we have very different views on the desirable levels of taxation, be they direct or indirect, personal or corporate. But we are agreed that territories allowing assets to be hidden in shell companies or which encourage profits to be booked by companies that do no business there, are distorting the working of the global economy. By hiding illicit activities and allowing rich individuals and multinational corporations to operate by different rules, they also threaten the rule of law that is a vital ingredient for economic success," the letter said.

Among the tax transparency reforms supported by the economists are new rules requiring multinational companies to report taxable profits and the taxes actually paid in every territory in which they operate, "including for tax havens"; and publicly available national registers of the beneficial owners of companies and trusts. Signatories of the letter included bestselling author Thomas Piketty; over 50 academics from leading international universities; and Angus Deaton, who was awarded the Nobel Prize for Economics in 2015.

UK prime minister David Cameron will host an international anti-corruption summit in London on Thursday, which is due to be attended by more than 40 world leaders as well as representatives from international businesses and campaigning groups. Speaking ahead of the summit, Cameron said that he wanted attendees to sign up to "the first ever global declaration against corruption", which would commit them to pursuing and punishing those who "perpetrate, facilitate or are complicit" in corruption as well as ensuring it has no place in government institutions.

Cameron said that he expected representatives from "a number" of the British Overseas Territories and Crown Dependencies with major financial centres to attend the summit, although so far these have not been confirmed. More than half of the companies set up by Mossack Fonseca, the Panamanian law firm at the centre of last month's 'Panama Papers' leak, were incorporated in the British Virgin Islands and other overseas territories, according to Oxfam.

Last month, the EU's five largest economies committed to automatically exchange information about who really owns and controls the companies and trusts registered in each of their jurisdictions. The UK, Germany, France, Italy and Spain have written to their colleagues in the G20 encouraging them to adopt the same measures. However, this 'beneficial ownership' information will not necessarily be made publicly available; something that the UK has committed to do as of June 2016.

The European Commission recently published a draft Directive which, if approved, would require large multinational corporations operating in the EU to make public disclosures of certain information about where they earn profits and where they pay tax in the EU on a country-by-country basis. Affected multinationals, defined in the draft as those with total consolidated group revenue exceeding €750 million, would also have to publish country-by-country figures for operations in tax havens, as well as aggregate figures for their operations elsewhere in the world.

The Organisation for Economic Cooperation and Development (OECD), which coordinates global economic policy, proposed country-by-country reporting as part of the recommendations of its base erosion and profit shifting (BEPS) project. All OECD countries have agreed to introduce this type of reporting starting from 2017/18, but this information will be collected and exchanged by national tax authorities and will not be made publicly available.

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