The weird existence of tax havens

Tax avoidance/evasion is in the news again, and once again I find my mind drifting back to that book Treasure Islands, which I read a year ago and stuck with me since. Because a lot of these issues of tax policy are inevitably messy and complicated, both ethically and as a matter of pragmatic policy; but there is one particular point I keep returning to.

Which is this: when you think about it, it’s a bit weird that tax havens are allowed to exist. Because all those ‘companies’ which are just a pigeonhole in a lawyer’s office in the Cayman Islands? The only reason they exist is for the explicit purpose of escaping the laws and regulations of another country.

That’s not intended to be a rhetorical flourish; it is, as far as I can tell, a simple statement of fact.

If a company does its business in the UK but has part of its corporate structure registered in the Cayman Islands*: they are trying to avoid laws passed by a legitimate democratic government. To get pompous for a moment, they are rejecting the democratically expressed will of the British people.

They might be doing it to avoid tax, they might be looking for lax financial regulation, they might be trying to disguise corporate fraud or launder the proceeds of organised crime. All you know for certain is that they intend  to avoid the law.

So why do we put up with this crap? The Caymans, the British Virgin Islands, the Turks and Caicos, Jersey, Bermuda, Guernsey, the Isle of Man, Luxembourg: it’s not a list of great global powers that we need to tread carefully around because of their terrifying military and economic influence.

The EU and the US could simply† refuse to recognise the legal validity of companies and trusts registered in these countries. No doubt clever accountants and lawyers would still find ways to avoid paying tax, and to launder money, including of course the most direct way of avoiding tax: lobbying politicians to change the tax code in your favour. But I don’t see why we should make it any easier for them than necessary.

* or a trust in the Turks and Caicos, or Guernsey, or whatever it might be.

† Well, OK, it might not actually be ‘simple’. But I’m sure we could come up with something.

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