Tax Havens have no Useful Economic Purpose: 300 Economists Tell World Leaders

*Experts including Thomas Piketty, Jeff Sachs, Nora Lustig and Angus Deaton call for more tax transparency.

 

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There is no economic justification for allowing tax havens to continue and there should be an end to offshore financial secrecy, opined over 300 eminent economists from 30 countries in a letter to world leaders.

The letter comes ahead of the UK Government’s summit on offshore corruption in London, which politicians from 40 countries as well as World Bank and IMF representatives are expected to attend. 

Signatories include Thomas Piketty, author of best-selling ‘Capital in the Twenty-First Century’; Angus Deaton, the current Nobel Prize-winner for Economics and Nora Lustig, professor of Latin American Economics at Tulane University, as well as influential experts with experience of advising governments and policymakers, such as Jeff Sachs, director of Columbia University’s Earth Institute and an adviser to UN Secretary General Ban Ki-moon, and Olivier Blanchard, former IMF chief economist.

The economists are calling for governments to agree new global rules requiring companies to publicly report taxable activities in every country they operate, and to ensure all territories publicly disclose information about the real owners of companies and trusts.

Besides, professors from the world’s top universities such as Harvard, Oxford and the Sorbonne and from countries have come together to warn global leaders that tax havens undermine countries’ ability to collect taxes. According to them the hardest hit due to this are poor countries. Although they have divergent views on tax levels, they all agree that territories allowing assets to be hidden in shell companies or which encourage profits to be booked by companies that do no business there are distorting the working of the global economy.

According to estimates, rich individuals and their families have as much as $32 trillion of hidden financial assets in offshore tax havens, representing up to $280bn in lost income tax revenues to various governments across the world.

In addition tax revenue that should be helping to fund public services like healthcare and education in poor countries is disappearing at an alarming rate. It’s estimated that Africa loses around $14 billion in tax revenues annually - enough money to pay for healthcare for mothers and children that could save four million children's lives a year and employ enough teachers to get every African child into school.

According to Jeff Sachs, “Tax havens do not just happen. The British Virgin Islands did not become a tax and secrecy haven through its own efforts. These havens are the deliberate choice of major governments, especially the United Kingdom and the United States, in partnership with major financial, accounting, and legal institutions that move the money.

“The abuses are not only shocking, but staring us directly in the face. We didn’t need the Panama Papers to know that global tax corruption through the havens is rampant, but we can say that this abusive global system needs to be brought to a rapid end. That is what is meant by good governance under the global commitment to sustainable development,” Jeff Sachs said.

The economists’ letter says that the UK is uniquely placed to take a lead in ending offshore secrecy as it has sovereignty over around a third of the world’s tax havens through its Overseas Territories and Crown Dependencies. More than half of the companies set up by Mossack Fonseca, the law firm in the Panama Papers leak, were incorporated in British Overseas Territories such as the British Virgin Islands.

Oxfam, which co-ordinated the letter, is calling for world leaders to agree plans to end offshore secrecy globally, so that closing loopholes in one haven doesn’t result in tax dodgers moving their business to another. 

Winnie Byanyima, Oxfam International Executive Director, said: “Millions of the world’s poorest people will continue to be the biggest victims of tax dodging until governments act together to tackle tax havens, by introducing public registers of who really owns companies and trusts as well as automatic tax information-sharing between countries.

*Based on Oxfam Report