Posted by John, April 5th, 2016 - under Tax, Tax avoidance, Tax evasion, Tax havens, Tax the rich.



Underhand, sneaky, illegal, criminal, tax evading, tax avoiding, filthy rich parasites. These are just some of the epithets that come to mind when I read reports in the mainstream media about the activities of the 14000 clients of Panama headquartered company Mossack Fonseca and the 220,000 shell companies it has set up for them.

This is not just the actions of a few bad apples. It is systemic. For a start the Australian Tax Office is investigating the activities of 800 Australian High Wealth Individuals (HWIs or ‘hewwies’). They are Australians with a net worth of more than $30 million. Hewwies is an appropriate term because, as the Panama Papers suggest, they hew away at the social fabric represented by the Australian tax system.

However the Panama Papers are not just about individuals. They also refer to a lot of companies. For example Australian banks and Australia’s (and the world’s?) biggest mining company BHP Billiton are mentioned among the 11.5 million documents.

Wilson Security, the company who guard the ATO at night and destroy the lives of asylum seekers at refugee detention centres, is also mentioned. The Wilson Security arrangements are a good example of one of the reasons rich people might use the services of Mossack Fonseca, among others. According to Four Corners, it looks as if Mossack Fonseca set up some shell companies to enable the Kwok brothers, two Hong Kong businessmen, to continue to run or control or profit from Wilson Security despite the fact they had resigned from the Board after being charged with serious crimes in Hong Kong. One of the brothers is now in jail and the other was found not guilty.

Such shell company arrangements may enable Wilson Security to slip under the due diligence radar when it is bidding for government contracts such as their role in providing guards to the ATO (and other government departments) and when it is subcontracted by Broadspectrum/Transfield to provide ‘security’ at offshore detention centres (i.e. policing asylum seekers and refugees.)

Politicians are in on it as well. From Pakistan, North Korea, Iceland, Russia, China, Syria and other places, they too appear to be using shell companies in tax havens to hide their wealth (how did they become that rich?) from the prying eyes of their public and from investigators. Why tax havens? The important thing here is not so much the low or no tax rate but the bank, company and tax secrecy these havens sell. But before we get too carried away with colonial outrage, remember that many tax havens exist today as outposts or former outposts of empire set up to hide the money of British colonialists and capital.

Indeed Nicholas Shaxson, author of Treasure Islands: tax havens and the men who stole the world, calls the City of London and other Western centres in the US, Ireland, Singapore, the Netherlands, Luxembourg and so on, the biggest tax havens because that is where much of the low or no tax money originates before sometimes finding its way to places like the British Virgin islands, Cayman Islands and Bermuda.

So the traditional view of tax havens as sunny places for shady people is actually not correct, unless climate change has turned the City of London into a tropical paradise.

Australia’s current Prime Minister Malcolm Turnbull, one of Australia’s richest men, has what appear to be high earning investments in or through the Cayman Islands. I am sure as he says he pays the correct amount of income tax in Australia. Given however the rotten smell of tax haven use that the Panama Papers have unleashed, why doesn’t he release details of his arrangements to satisfy us both that he has paid the correct amount, and just as importantly, that that amount of Australian tax is not a pittance but a full contribution to our coffers?

Nevertheless the Panama Papers can help us to begin to understand the intricate web of relationships between the bastions of capital and the secrecy jurisdictions. As an a side the OECD and others have pressured the 37 or so tax havens to enter into tax information exchange agreements (TIEAs) with the developed capitalist countries. There are a couple of problems with them. First they are lowest common denominator agreements, the low benchmark set by The Netherlands. Second the information requested has to be ‘foreseeably relevant to the administration and enforcement of the domestic laws of’ Australia or the other country. Australia has to know what it is looking for before it can ask for information. Catch 22 in many cases, and it is not clear the release of the information in the Panama Papers is enough to trigger a valid request, at least before the ATO digs into the information they have here in Australia. Third these agreements are bilateral rather than multilateral. Australia for example does not have a TIEA with Panama. Indeed, as far as I can tell Panama has only one TIEA – with the US.

One of the problems with all of this is that it relies on leaks. Mark Konza, the Deputy commissioner of Taxation in charge of, said on Four Corners last night words to the effect that the leak of the Mossack Fonseca materials shows that the ATO will eventually find you. How efficient is a system that relies on leaks? Shouldn’t this sort of information about the shell companies and other nefarious activities of the rich and powerful be available immediately? In an ideal world, yes. Unfortunately we live in a world of global capitalism where the rules are rigged to favour the rich and powerful. And remember, Mossack Fonseca is but one of a number of companies who provide these services to the rich and powerful. There are a lot of Mossack Fonsecas which are not leaking.

These revelations are the latest in a range of leaked and other information about the dark underside of capitalism. We have had the Luxembourg leaks, the Tax Justice Network report which estimated that individuals (not companies) held between US 21 trillion and $32 trillion offshore in havens (about twice US GDP and five times the wealth of the Australian economy), the TJN/United Voice report into tax avoidance by Australian companies and the possible shortfall of $8 billion a year (although their specific conclusions about this are flawed, in my opinion), and the ATO release recently of tax data of public and private big business companies which show that well over one third pay no income tax and the majority pay less than the statutory rate of 30%. Apart from a bit of huffing and puffing nothing has happened to address rampant tax avoidance by big business.

The current government trumpets its recent tax law amendments as showing how committed it is to tackling tax avoidance. They are mickey mouse changes. They won’t addres the web of lies the Panama Papers reveal. The Labor opposition has made suggestions for playing around a little bit with the thin capitalisation rules (debt to equity deduction ‘limits’.) Again these are mickey mouse efforts.

Further, this is the same ATO and government which under former KPMG tax partner Chris Jordan has got rid of 3000 tax office staff and is under way to get rid of another 1700. Imagine what almost 5000 staff committed to tackling the tax avoidance of the rich and powerful could achieve. But that I believe was the whole point of getting rid of them. This is the same Commissioner of Tax by the way who only a year ago was telling us that ‘the days of wealthy Australians hiding income in offshore tax evasion schemes are over.’ And a year before that ‘thousands were in the ATO sights over tax havens.’ That has turned out well hasn’t it? Then again these are the same people who assured us that cutting the ATO workforce by up to 20% would have no impact on tax collections.

Using tax havens and shell companies is part of a wider capitalist dynamic of hiding assets and arrangements from prying tax and other State body eyes. It reflects the business view that any profit is ‘theirs,’ rather than the reality that it arises from the unpaid labour of workers.

As Google Chair Eric Schmidt said about his company’s tax avoidance activities around the globe, activities which have seen it funnel almost $10 billion into Bermuda, saving $2 billion in taxes:

‘I am very proud of the structure that we set up. We did it based on the incentives that the governments offered us to operate.’

‘The company isn’t about to turn down big savings in taxes,’ he said.

‘It’s called capitalism,’ he said. ‘We are proudly capitalistic. I’m not confused about this.’

The problem of tax avoidance is systemic. It requires a systemic solution. Given the real systemic solution – a democratic and socialist revolution – is not on the agenda just yet, what can we do here an now?

Relying on the global community will not work. The US is not interested. One of its biggest taxpayers is Apple and rightly or wrongly the US state sees Apple’s low tax burden in the rest of the world (about 1% from memory) as resulting in the high tax it pays in the US, over $100 billion form memory or about the statutory rate of 35%.

:

Big business tax avoidance gives the lie to the Turnbull mantra that we have to live within our means. This mantra will be the justification for the ongoing cuts to public health and education,to public transport and to social welfare. There would be no budget crisis if we addressed big business tax avoidance. Our mantra in response to Turnbull should be to tax the rich.

I have a left field idea. How about a basics card for high wealth individuals to stop them hiding their money offshore? Employ some of the almost 5000 the ATO is getting rid of or has got rid of to enforce it, and to lead a serious attack by the ATO on tax avoidance and tax evasion, including the use of tax havens.

A minimum company tax, a net wealth tax on the top ten percent, a more progressive income tax system on those earning over $120,000 (roughly in my approximation where the last well paid workers are), abolishing the tax rorts for the rich like superannuation tax concessions, negative gearing and the capital gains discount. All of these would bring in enough money to wipe out the Budget deficit and fund better health and education spending, among other things.

As to tax havens, let’s impose a fee on their use. Indeed let’s impose a fee on business which operate in Australia, say of ten percent of gross revenue if that company is not paying an effective tax rate close to the statutory rate of 30%.

We can go further. Secrecy (including tax secrecy and commercial confidentiality) is a curse. It is a shield which big business and the ATO use to hide the rotten state of affairs of the tax avoiders, evaders and other shamans of capital. It allows big business to hide their affairs from public gaze. Open their books so we can judge their tax and other affairs to see what they are up to. On the Four Corners program on the Panama Papers for example, the allegation was that the ATO settled for about ten percent of a claimed $800 million in taxes and penalties in one case. Tax secrecy laws prevented the ATO from talking about that case and instead we got generalities about getting the appropriate tax paid. Ten percent ($8 million?) looks a long way from the $800 million claimed. I wish I could settle my tax affairs on such a basis. Then again I am not a member of the ruling class.

Let’s abolish the tax secrecy provisions for businesses with a turnover greater than say $20 million. Open their arrangements up to the sunlight of public scrutiny. Of course if business wanted to protect their arrangements them let them opt for an alternative route – pay tax of say ten percent of their gross revenue.

We could tax the rich to fund better services. None of the parties of neoliberalism – the Liberals and Nationals and the Labor Party – are going to really do that. At best they will offer mickey mouse changes as part of a smokescreen to give the impression of doing something without actually doing anything major to upset the rich and powerful, the capitalists, whose system drives them to avoid tax and hide their affairs in secrecy jurisdictions.

Now I know none of this will tax the rich stuff in reality get on the agenda willingly of the ALP. The answer is that when the current or future governments attack funding for workers or the poor, attack public schools, public hospitals and public universities, the fightback against those attacks has the potential, among other potentialities, to challenge the ruling class and its systemic tax avoidance and secrecy. To tax the rich build the fight against austerity.

John is a former Assistant Commissioner in the Australian Tax Office in charge of international tax reform.