Tax haven crackdown won’t go far

The tax haven crackdown is likely to peter out before it starts moving. Advocates of tough action on fiscal havens openly invite their multinationals going off-shore to scale down their tax bill.

Take for instance the US. It stands as a forerunner in enacting stiff rules making life miserable for foreign banks refusing to disclose its nationals’ holdings abroad. The FATCA Act has prompted others to enhance transparency committing themselves to exchange fiscal data with the US Inland Revenue administration. The Caribbean cosy bank secrecy will be dented just as the Swiss one. Further moves are expected from Luxembourg and the Channel Islands. You might rush in concluding that off-shore banking appears to be doomed in the coming years.

Yet, disclosing the accounts will not change the zero-rate taxes enjoyed by those lucky enough to anchor their business in these territories with the helping hand of their home Inland Revenue. The US one is casting a most generous appraisal on its own big companies.

Google has moved all its intangible assets to its Bermuda-based branch, thus significantly reducing its fiscal burden. Amazon applies a similar off-shore scheme for its core business. Apple’s recent 17 billion pay-out is to be financed by borrowing in the home market, thus avoiding the nagging prospect of paying taxes. Remunerating shareholders through increased liabilities may run contrary to sound accounting. But it does make sense when you hoard abroad up to 145 billion in tax-free liquid holdings. These examples show that when it comes to big money, the US administration pays lip service to its tax avoidance much heralded commitment.

The forthcoming G-8 is planning to unveil sweeping moves to curtail bank secrecy. But so long fiscal havens apply close to zero taxation, companies engaged in cross-border business will continue to profit from these favourable arrangements.

The US multinationals are by no means the only ones taking benefitting from a fiscal benign neglect. Just take a look at the IBEX-listed firms. On average they only pay a meagre 11% corporate tax. Deductions and credits add up to a sizeable amount. But drifting international operations through tax havens is behind their ability to escape from being charged the standard 30% tax rate. The excuse for allowing such massive elusion is based on the dubious need to ensure an even playing field with foreign competitors. No one seems to care that indulging is such loose practices entails distortions for home-based SME companies and higher than warranted fiscal pressure on ordinary citizens.

The crackdown on tax fraud will not bloat revenues as many in Europe seem to expect. Only tougher corporate fiscal rules enacted on a global basis could switch the current incentive to evade taxes. This prospect proving rather unlikely to materialize, less equipped taxpayers are bound to foot the bill as they have always done.