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The revelations of the so-called Panama papers, comprising 11.5 million documents from the law firm Mossack Fonseca, have again brought to the fore the degree of corruption in certain countries and the problems generated by tax havens, some very close to Spain –in Europe itself–, and which neither the EU nor the world can manage to keep under control. This is not to say that this is solely a case of tax evasion, especially if accounts are declared, but as Gabriel Zucman researched for his book “La richesse cachée des nations. Enquête sur les paradis fiscaux” (published in 2013 and to be published in the US in 2015 by the University of Chicago Press as The Hidden Wealth of Nations: The Scourge of Tax Havens), 8% of world financial wealth is stashed away in tax havens, with an annual loss of tax revenue world-wide of around US$200 billion. It is not only a problem of the first-world’s wealth being leached but also, as revealed by the identities of those involved, of that of the third world: according to Zucman, 30% of the wealth generated in Africa and more than 50% of that of the oil-producing countries in the Middle East and Russia has found accommodation in tax havens.
The news on the Panama papers and the subsequent debate have come at the same time as the tough negotiations between Apple and the European Commission regarding where mega-enterprises (such as Amazon and Google) should pay taxes. Governments, including that of the US –where most of these new technological giants are based– are realising that they are beginning to have a substantial problem not just with evasion, but with tax avoidance, even in the EU itself, given the lower rates in, for instance, Ireland and Luxemburg. This has led to relentless arguments between the European Commissioner for Competition, Margrethe Vestager, and Apple executives –Tim Cook himself visited Vestager in January–, in what has become a further great obstacle to transatlantic relations. As pointed out by the Financial Times, if Brussels considers that Apple has benefitted from preferential treatment in Ireland in contravention of fair competition rules, then it may have to end up paying millions of euros to the Irish State.
With salaries on the decline and therefore lower contributions to social security, capital gains already exceeding them and major companies having sophisticated technological systems to pay less taxes, States –which are usually lagging behind as regards computer programmes for these purposes– are realising that it is not a matter of hiking-up the theoretical tax rate on capital or value-added gains but of collecting more if they wish to maintain a high enough volume of public income to cover their needs, including welfare services for their citizens. This is what is known in financial jargon as ‘Base Erosion and Profit Shifting’ (BEPS). Warren Buffet himself admitted not long ago that he ‘pays less tax than his secretary’.
This not only affects the most advanced economies, since the emerging or least developed economies are now aware that it is also their problem. For the first time, the issue has made an appearance at the G-20 meetings. The G-20 Ministers of Finance and Governors of Central Banks, convening in Shanghai (under Chinese chairmanship) in February, devoted some of their time to the matter. Point seven of their communiqué advocated the creation of a ‘fair and modern international tax system’ and supported the OECD’s efforts in this respect and the platform the latter is constituting jointly with the IMF, the UN and other institutions. In fact, in July the G-20 will hold a symposium on the issue. Meanwhile, the developing countries, who protest that tax regimes are forced on them by the big economies, want their opinions to be considered since they believe the measures implemented over the past three years have not helped them to collect sufficient corporate tax revenue, a claim supported by organisations such as Oxfam. Even China (some of whose elite also appear in the Panama papers) states in the G-20 communiqué that it will establish an international centre to study tax policies.
The world in general is starting to have a serious problem collecting tax revenue. The G-20 members are concerned about tax avoidance and its BEPS effects. This is not the same as tax evasion, about which the Group admits that illicit financial flows are having a significant impact on their economies, although some of the countries that complain, such as Barbados and the Seychelles, in addition to Panama and many others, play a key role precisely in facilitating such illicit flows. Little is done to counter them at a global level, which would be the appropriate and efficient scale at which to act. It should be borne in mind that in 2009 the G-20 proclaimed ‘the end of banking secrecy’, but, as noted by Zucman, since then the wealth managed by tax havens has increased by 25%. ‘Lost tax revenue is one consequence of this hidden system; even more dangerous is its deep damage to democratic rule and regional stability when corrupt politicians have a place to stash stolen national assets out of public view.’ as very rights noted by an editorial in the The New York Times.