As World Leaders Call For Crackdown On Tax Havens, Will Some Of It End Up In Offshore Property?

April 2, 2009 - PRLog -- At the G20 summit this week, Gordon Brown has tried to garner support from the world’s leaders to expose and punish multinationals and individuals using offshore shelters, or tax havens, for tax avoidance and crime.

According to the British press, this move is has provoked near fury amongst business leaders where some companies operate offshore. City of London sources have indicated that the move was more “headline grabbing” than a serious attempt to tackle the economic crisis, but some countries involved have already moved to transparency in the midst of the furore.

It has been reported that tax havens are increasingly a large part of the world's economy, so much so that financial speculation that takes place within their respective realms are said to have been a major factor behind the global crisis. Some people have even estimated that as much as half of global trade passes through these shadowy financial systems.

For example, it is estimated that the Cayman Islands is home to some 10,000 hedge funds. However, dealing with the banks in this crisis has not been at all smooth sailing and many of the major banks have branches in these tax havens.

Meanwhile, governments of the G20 are perhaps nearing agreement on measures aimed at cracking these secretive tax havens wide open, but are divided over how best to do it and what levels of punishment should be meted out on those that won't cooperate.

Gordon Brown has asked G20 leaders to “spread the net” on transactions with tax-haven companies much more widely which would, in effect, be that these offshore shelters would be liable for charges. He also proposed that agencies such as the IMF should desist from making loans to them.

The sums involved are enormous. The Tax Justice Network, an international group that campaigns against tax avoidance, estimates that some $11.5 trillion is held in these havens, which amounts to an estimated aggregate of $250 billion in tax being “avoided” each year.

Brown is determined that the measures he is proposing would make tax havens unacceptable and too costly to operate. These measures are broadly supported by President Barack Obama, who last year sponsored the Stop Tax Haven Abuse Act in Washington.

However, the Cato Institute, an institution that seeks to promote public policy based on individual liberty, limited government, free markets, and peaceful international relations, says that: “if the government suddenly said you would incur more onerous and expensive tax regulations and reporting requirements if you moved your business to a low-tax state such as Texas or Florida from a high-tax state such as New York or California, you would be justifiably outraged.”
Now, if you were to substitute Switzerland and Panama for Texas and Florida, and Britain and Germany for New York and California, you'll begin to understand their point.

Proponents, like Messrs Brown, Obama and Sarkozy, say that measures are needed to catch tax cheats — but ignore the fact that most of the low-tax jurisdictions such as the Cayman Islands already have tax information exchange or tax withholding agreements with the West.

But aside from the claims of tax evasion, European leaders, including France's President Nicolas Sarkozy, have tried to scapegoat these low-tax jurisdictions as somehow being responsible for the global recession, which is of course nonsense when you consider the case of Bernie Madoff who was able to conduct the biggest ever Ponzi scheme right under the noses of the authorities.

Whatever the outcome of these measures, the accord has advanced further than many governments believed likely, and it reflects the hardening attitude of many governments toward tax havens, which they see as restricting revenue collection during this recession.

With the prospect of being blacklisted, and with ever harsher sentences being proposed so as to be backed by sanctions, it has already prompted Switzerland and at least nine other tax havens to relax their secrecy laws and to cooperate with foreign governments trying to chase down tax evaders and criminal gangs.

In the US, the Obama administration will soon propose much tougher reporting requirements for thousands of foreign banks that handle accounts for US clients, and has created a taskforce that is suggesting further methods of attacking offshore tax-avoidance.

Even if there is no G20 consensus, some governments are already preparing to draw up sanctions anyway. Germany, for example, plans to introduce legislation to increase pressure on tax havens and French budget minister Eric Woerth is said that his ministry is referring to prosecutors three cases of suspected money-laundering and tax evasion in Liechtenstein.

As the global financial crisis has suddenly brought tax havens into the equation, both US and European leaders are crying out for tighter regulation. Barack Obama only recently said there is “a building in the Cayman Islands that supposedly houses 12,000 corporations. That's either the biggest building in the world or the biggest tax scam in the world.”

Meanwhile, as President Nicolas Sarkozy presses for curbs for offshore tax havens, the French government has demanded tax fraud investigations into bank accounts. It has been reported that “large dossiers” have been passed to the prosecution service, concerning accounts allegedly held by “foundations” linked to the tyre giant Michelin, the sportswear company Adidas and the oil company Total.

These are indeed desperate days for the offshore financial centres. Never before have the world's most powerful countries been so united in their determination to expose the shadowy banking system that has mushroomed unchecked for the last fifteen years.

In recent months a surge of treaties have been signed by countries including Switzerland, Liechtenstein, Singapore, Austria, Andorra, Belgium, the Isle of Man, Jersey and Guernsey in an effort to abide by global protocols.

Of course, as countries sink trillions of dollars bailing out banks and running up huge deficits in the process, treasury ministers must be mindful of the $11.5 trillion that is thought to have been locked away in these tax havens, which could provide $250bn in taxable income if and when exposed.

The result of this opening up of the tax havens is not confined to the banking system, however. There must be thousands of shadowy individuals at large using these offshore havens for their ill-gotten wealth. It is not just tax avoidance or evasion that’s at stake here, but also the proceeds from theft and money laundering.

It seems likely that, with the tax havens capitulating into opening up their books, criminal elements will move their money out, and quickly. But where will they hole it up next: offshore real estate?

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