Pirates of the Caribbean, Part 1: Global Resistance to Tax Havens Grows

Published on Spiegel Online International, by , April 08, 2013 (Photo Gallery: Casting Light on a Shadowy World).

Tax havens cause hundreds of millions of euros in annual damage to national economies around the world and they create an uncontrollable parallel economy. The recent Offshore Leaks investigative reports are helping to fuel efforts in Europe and the US to have them eliminated.

What do a now-deceased German playboy and the daughter of the former Philippine dictator have in common? What connects a Russian oligarch and the former campaign manager of the French president?   

Gunter Sachs and Maria Imelda Marcos Manotoc, Mikhail Fridman and Jean-Jacques Augier have all parked assets in countries that expect little in taxes and guarantee absolute confidentiality. And they are not alone. More than 130,000 people do exactly the same thing, and those are only the ones whose names appear in a data set called “Offshore Leaks,” which was analyzed by a group of international media organizations.

But the real scandal is much bigger than that, namely that no one knows how much money is on deposit in anonymous bank accounts in countries that are euphemistically referred to as tax havens. Estimates by the non-governmental organization Tax Justice Network put the figure at about €16 to 25 trillion ($21 to 33 trillion). In this manner, the native countries of these individuals and companies are deprived of hundreds of millions in taxes, sometimes legally but often illegally.

The billions deposited in offshore accounts come from the United States and the rest of North America, and recently from emerging economies and the Third World, as well. Many Russian oligarchs manage their companies through offshore firms, while wealthy Southern Europeans use offshore accounts to protect their assets from a collapse of the euro — and from the taxman.

But it isn’t only tax fugitives who use the discreet services offered by these countries.

A Global Shadow Realm: … //

… The Kind of Tax Scam We Need to End: … //

… Tax Optimization, not Evasion:

In fact, businesses in all industries use tax havens to optimize their tax burdens within the letter of the law. “Of course banks advise their customers on setting up foundations and trust companies. As a rule, this is for purposes of tax optimization, not evasion,” says Christoph Kaserer, a professor of finance specializing in banking at the Technical University of Munich. Publicly traded companies that pay more taxes than necessary, he says, must justify their actions to their shareholders and, in extreme cases, make themselves liable to pay damages. Nevertheless, says Kaserer, publicly traded companies in Germany have an average tax burden of 30 percent.

Deutsche Bank also reports an average tax rate of this magnitude. Nevertheless, the company’s tax experts were recently called before the financial committee of the German parliament, the Bundestag, to justify their tax policy. The inquiry was triggered by a remark the bank had made in its annual report, stating that it partially attributes its tax rate to an “advantageous geographic distribution of consolidated profits.”

The lawmakers suspected that the bank was deliberately shifting profits to tax havens. “When a bank has more than 2,000 subsidiaries, with 500 of them in tax havens, it makes sense that there are tax reasons for that,” says Lothar Binding, a member of the center-left Social Democratic Party (SPD) on the Bundestag’s Finance Committee.

Critics find the industry’s claims that it doesn’t support tax evasion hard to believe. Although banks require their customers to certify in writing that they do not engage in tax evasion, there is reason to suspect that they do this primarily to cover their legal bases. “This formally legal pseudo-correctness should no longer be allowed,” says Binding.
He wants banks to have to take more responsibility for the questionable business dealings of their customers. “If banks were required to report such transactions in Germany, it would be easier to assess whether customers are truly acting within the law when it comes to taxes,” he says. Binding also believes that tougher sanctions are the right approach. “If banks don’t have to worry about losing their licenses, it will not be possible to effectively put a stop to questionable transactions.”

It is quite possible that Offshore Leaks will now give a boost to such efforts. The data will also have “political consequences,” says Kaserer. “If there are reactions directed against countries that have made tax optimization and evasion their business model, it’s to be welcomed.”
(full text).

Part 2: A Deterrent Effect.

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