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The happy Cayman Islanders do not pay income tax — or corporation tax, or taxes on capital gains, if they have any. A tariff on imports suffices for their government's modest needs. This idyllic existence is now under threat, as richer and more powerful countries declare war on tax havens, with our own government leading the charge.

For the Prime Minister, this was a topic his guests could agree on when he played host to the Group of Eight in July. The Chancellor followed up with the Group of 20 finance ministers, and a plan of campaign has been commissioned from the grandly named Organisation for Economic Co-operation and Development, representing 34 "advanced" economies, but not, of course, the Caymans.

The OECD is something of a tax haven itself. It lives in its own well-stocked chateau in Paris, and enjoys diplomatic status and the friendly tax regime that comes with this. Its member countries have their own embassies, with the same status. This survivor from the postwar years was originally set up to administer Marshall Aid. Later, Nigel Lawson complained that it had outlived its usefulness and that its ministerial meetings were a waste of time and money — but such institutions are bound to seek new ways to keep themselves financed and occupied. Going after tax havens is one of them. 

It plays well. Advanced economies can always use more of their taxpayers' money — we work for the chancellor until the end of May, and after that he borrows — so they are sensitive to the idea that some other economy may be undercutting  their tax base. This fear is sometimes voiced by the European Commission, which enjoys its own light tax regime but likes to prescribe to its members. It warns them against "harmful tax competition". 

To any cartel, competition is harmful, but that is not how the customers see it. Competition and choice, as they know, work in their favour and are the spurs to efficiency. Governments, and indeed the Commission, are quick to enforce competition on others, but they themselves exemplify Lord Mancroft's rule: monopolies (he said) are like babies — nobody likes them until they've got one of their own.

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Richard Collumbell
September 12th, 2013
12:09 PM
What happens to the money that is sheltered? Is it re-invested? Hoarded? Surely the transparent answer to that question had moral consequences.

Robert Dammers
September 6th, 2013
12:09 PM
Brown's merged Customs and Revenue organisation brings us dangerously closer to the US's IRS, an organisation that succeeded in damping a significant portion of new campaigning organisations in the run up to the last election: all of which would have supported Mr Obama's opponent. In a similarly close election, a politicised organisation could swing an election here too.

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