Money doesn’t trickle down, it floods offshore

To IBIS it's rather simple: paying taxes is not just a personal expense, it is the moral thing to do. Getting people to pay it is the tricky part

Luxembourg made headlines last year when it was revealed that the small European state was ground-zero for tax avoidance. While the schemes were entirely legal, they were ethically dubious and sparked uproar across the continent.

Tax evasion is a hot topic, and was high on the agenda at the G20 Summit in Brisbane, Australia. NGOs are also increasingly focussing on taxes to resolve global issues. Among these NGOs is IBIS in Denmark, which campaigns for fairer taxation around the world.

“The reason why people like Obama and Cameron – who are hardly left wing revolutionaries –are talking about tax avoidance is because they can see that the public coffers are drying up, and that it is impacting people from Denmark to Zambia. Super rich corporations are running away from the bill of maintaining society, while the rest of us are left with the cost,” explains Lars Koch head of politics and campaigning for IBIS.

The organisation is located above a row of noisy bars just off the Town Hall Square. The flickering light show from the enormous glass-faced offices of the Confederation of Danish Industry, visible through Koch’s window. Their resources stand in stark contrast to Koch’s. As the interview starts, a young female intern interrupts us. She is the other half of IBIS’ tax unit.

A taxing inequality
IBIS recently launched the campaign Ingen skattekroner i skattely (No tax money in tax havens), which aims at put an end to both the illegal and legal ways companies use to avoid paying taxes.

According to IBIS, Denmark is losing out on between three to five billion kroner annually in tax fraud, which excludes the higher number lost to legal tax avoidance. The numbers for the developing world are much higher, however, with an estimated 900 billion in taxes being illegally syphoned out of their economies.

“Since we were founded almost fifty years ago, we have worked towards supporting the developing world, especially in the areas of education, as well as assisting with issues of poverty in general,” says Koch. “Over the last six years we have started focussing a lot on taxes because it’s the most sustainable way of improving conditions in the poorer parts of the planet.”

Koch argues that tax collection is directly related to worsening global inequality. According to IBIS, taxing the world’s billionaires a mere 1.5 percent since the start of the 2008 Great Recession could have saved the lives of around 23 million people.

“The debate about inequality, which has been rapidly increasing, is in many ways connected to the tax debate,” he says. “In recent years the number of dollar billionaires has quadrupled, and about one third of the world’s growth is going to the top of our societies. And these are not the people who are paying taxes, because they have ways of hiding their money away in tax havens. We have also seen that increased inequality does not promote growth like the market fundamentalists want to claim, but in fact directly harms it.”

An international problem
Globalised finance doesn’t make taxing companies any easier. Money slips in and out of markets so quickly that governments often have great difficulty pinning it down and taking their cut.

“Our tax minister has ramped up the fight against tax havens, but if you have countries within the EU like the UK, Ireland, Holland and Luxembourg that all have built in loopholes, then it is very limited what we can do on our own,” he says. ” If we are really going to address the issue then we will need a lot of international cooperation and effort.”

As the discussion of tax avoidance and tax havens increases, so have the efforts taken by governments to address the issue. Last year the G20 expressed explicit support for the OECD’s seven-point plan to tackle tax avoidance, which includes combating predatory tax competition between countries, and tougher rules on moving ‘intangible’ assets, such as intellectual property rights, to tax havens. While nation states have started to take the matter seriously, Koch believes that the issue is also having a negative effect on competition in the private sector by rewarding companies that aggressively utilise loopholes and tax havens, while punishing those that don’t.

“There was an article in Politken the other day about the company Saxo Books, which had moved its headquarters to Luxembourg, where Amazon is based. In Luxembourg the tax on selling books is only three percent, compared to the 25 percent here. They can therefore offer prices far below what the companies based in Denmark can, which gives them an unfair advantage on the competition, and hurts companies that are based here.”

The right thing to do
Those in support of tax competition argue that consumers are eventually rewarded through lower prices. But Koch argues that cheaper consumer products don’t make up for the damage caused by companies that refuse to participate in the societies whose markets they depend upon.

“I find it reprehensible that companies that use our roads, make money from selling their products here and employ our educated workforce refuse to take part in paying for our society,” he says. “An issue like tax avoidance has a lot to do with perspective, these companies and individuals see this from the point that this is legal, but does that mean it is moral?”

Koch wants companies to regard paying taxes as a social responsibility that they feel morally obligated to address, along the lines of civil liberties and the environment. And given the public support for fairer taxation, he believes that it is possible.

“There are some people out there that have extreme views, who feel that corporate taxes should just be abolished, and therefore don’t see this as a problem. But the smart people can see that the major corporations are paying less than small and medium sized ones, and that you and I are paying a higher percentage of our wages than the billionaires.”

With the world’s biggest and most powerful nations and organisations addressing the issue, it’s tempting to think a solution is well on its way. But Koch argues that while the technicalities might be simple, large political and economic interests remain a major challenge.

“If we really wanted to put an end to tax havens we could do it tomorrow. If big markets like the EU and the US would say to the Cayman Islands ‘if you don’t deliver information about our citizens, and if you don’t make sure that our citizens are paying taxes than we won’t cooperate with you anymore’. Then the Cayman Islands would cease to exist as a tax haven.” M

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By Elias Thorsson

Managing editor. @Eliasthorsson elias@murmur.dk

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