You published an article by Alicia Bárcena
, the executive secretary of the Economic Commission for Latin America and the Caribbean (ECLAC), which contains the most ignorant and one sided critique on the global financial system that I have ever seen.
Her article contains 14 references to tax evasion and tax havens, as if every dollar passing through (and I emphasise passing through) offshore banks, not only in so called tax havens but in many international financial centers, does so for tax evasion purposes. She suggests that “these practices take a heavy economic toll and their elimination would provide significant resources for funding the 2030 Agenda”.
In the first place, where are these assets held? They may be invested in US stocks and shares and government bonds or in US banks, for example. The origin of the funds may come from legitimate international business, over many, many years. If a tax on a foreign company or foreign trust, or foreign investment fund, is not collected in the USA for example as a withholding tax on income, where is the benefit in regulators getting the legal authority to check on any such legitimate transactions, where tax has already been collected?
In the second place, it is not illegal to give away assets. No doubt President-elect Trump, as well as many others, did so as part of their tax planning. Many wealthy people, appalled at the socialist government’s attempts to tax them as high as 60% of their well-earned sweat of the brow income, and even in England up to 90% of such income was collected by the Atlee Labour government forcing the likes of Lord Astor to emigrate.
Such gifts of wealth are being made every day. In most countries there is no gift tax, or a pro rate tax over a period of time, especially in cases where a death duty can be avoided entirely if a gift is made over seven years before a death. So in practice, every person is entitled to take steps to minimize his tax liability, and surely this will continue.
One such method used to protect the dissipation of family wealth by governments and by future heirs, has been the well trodden use of trusts. Such trusts are more usually formed in so called tax havens for obvious reasons. Well designed by the legal experts, they provide that either no beneficiary can benefit unless the trustees so decide, or that a limited and specific income is granted to deserving beneficiaries, again at the exclusive discretion of the trustees. Every legal gift must leave no power to the grantee or donor to recover or control the gifted assets. Otherwise the law provides that it is an incompleted gift, or no gift at all.
Charitable trusts are governed by similar rules and conditions. If a trust or foundation is entirely charitable, gifts to the charity are even granted tax exemptions to the donor. Some of the largest charities, like the Rotary International Foundation, celebrating its 100-year anniversary, have distributed $2 billion tax free donations over its history. All this funding was for the benefit of mankind, including the funding to end polio, now believed to have reached its goal with only 12 known cases this year throughout the world.
Combating tax evasion is going to be an enormous expense and an enormous number of new bureaucrats and regulators. Who will pay for this growing army? The taxpayers. And who will benefit the most? The bureaucrats. Are we not looking at a communist type regime, or at least a socialist global government that will take at least 30% of annual private production profits? That is why small businesses only deal in cash, and pay no taxes.
I can only see this tactic, of ECLAC and the 2030 Agenda, an excuse for the failings of the socialist governments of the Caribbean, and the world. And not the answer that is needed to promote jobs and benefits for the starving majority of the world, and the displaced persons running from war zones.
I suggest the better plan would include the following. The purpose here is to move economic activity from imposed government spending, to the freedom of the individual to develop economic activity. Don’t forget that $1 spent and moved several times a day creates more economic activity than $1 put in a bank savings account for the bank to sit on.
Similarly if government sits on the money (and how they can sit!), no economic activity is created by that tax dollar until it is used. The individual with more money to spend will increase productivity as opposed to governments using taxpayers' money to pay for things the government uses to keep them in office. Government is a very, very big business. Perhaps the biggest of any corporation, except perhaps J.P. Morgan Bank, whose income is over US$2 billion per annum, more than the total income of the whole Caribbean.
And apart from paying the salaries, pensions and expenses, and the upkeep or non-upkeep of government buildings, little is left to pay the socialist agenda for public health, provision of clean water, security in the form of police and fire brigades and the military and navy to protect all borders, and the prison system, to keep prisoners fed and housed at a cost of $18,000 per year for each inmate being punished. Are we all fooled by this?
So to suggestions for a solution:
1. Reduction or elimination of withholding taxes on net income. The present system of taxing company profits, and then taxing dividends, and then paying another tax (VAT) on all receipts or services is double if not triple tax collection. Indeed a VAT tax of 7.5% or even 15% is in actual fact ending up at double these amounts, as it is being charged on each transaction for the same item, a tax that should be refunded, but is often not refundable. It is a vicious tax on the end consumer, leading to massive inflation.
2. Improve collection of existing taxes. Property taxes and national insurance payments should be charged quarterly, making budgeting for everyone easier. Then these and other taxes can be better collected if you need a tax certificate before you are allowed to leave the country. Trinidad used this method to check on income tax payers. What if the CEO of a company or a government employee cannot leave to go to a tax conference unless his company's and his own taxes are all paid up! Such a system would well pay for the reductions in withholding taxes.
3. Stop wastage and corruption.
4. Audit and reconciliation of all government bank accounts on a daily basis. If Individuals can do this to check on their finances, why cannot government?
5. Refund and pay all debts due by government within 30 days. Why should I wait 15 months and still waiting for a refund agreed due to me? Or is this due to corruption or fraud?
As long as taxes are excessive, people will try to avoid them.
I have deviated from the purpose of this letter, to criticize the 2030 Agenda of ECLAC.
What the writer has missed is the overall purpose of moving financial assets to a safe haven, rather than a tax haven. The USA and England have benefited enormously from this. Massive funds moved out of Russia and were invested in London properties, meaning that few English could afford to buy a London home. Similarly in the USA, scared or frightened money has flooded into the USA as a protection from political confiscation.
To say this is tax evasion is untrue. If taxes are not paid on such assets, or if their removal from a country is in breach of exchange control regulations, it is the banks and others who are guilty of cooperating in such moves. The country can still enforce its own laws. It is not the responsibility of the receiving country to breach its own laws and its reputation for confidentiality and bank secrecy. It is a simple matter to have an annual return, or affidavit, by each taxpayer to reveal any overseas assets on pain of severe penalties, and at the time he or she may wish to leave the country.
But ironically, and for the same reasons, people like to invest their savings in the safest places. Stock markets are well regulated. Public listed corporations produce quarterly reports. So even offshore trusts and investment funds invest their assets back into the well regulated and trusted USA or European stock markets. So the money is being used and spent in those jurisdictions, to the loss of the offshore jurisdictions whose only benefit is the small services fees and taxes paid in local currency, and the employment it provides.
In fact the losers in all this are the ECLAC countries. All the benefits are already accumulated in the USA and EU, and if anything they should pay ECLAC countries for all the support and benefits they receive. Like the human resources of well educated ECLAC persons, educated to high school level at the expense of the ECLAC governments, given scholarships by the ECLAC governments, and receiving no returns to ECLAC governments as over 50% never return to their native countries and work and pay taxes in the USA and EU. Are we being fooled?
Clearly there are other attempts to avoid taxes, especially by transfer pricing, over-invoicing, and the use of trade to move assets abroad. Some are diamonds and gems, jewelry, or even rare works of art and stamp collections.
A better way to deal with this is to give a reasonable allowance per annum, as The Bahamas has given to its residents to allow them $50,000 per annum in foreign exchange, and to enforce the disclosure at the exit border of any cash held above $10,000. Failure to report this results in discovery and the confiscation of the whole amount by the government. It's not that the government of the country can tax those sums, as they don’t have income tax or death taxes. So why the problem?
In times of war, people become desperate to save their assets, and move the asset in the form of gold or convertible cash, or even government bonds. As a result of the failure of governments to protect their citizens against terrorists destruction of cities and banks, as is the case in Iraq and Syria, how can ECLAC propose that all movements of assets are tax evasion, and who does one report one's hidden wealth to in such circumstances.
We need a much better alternative forum to discuss and make serious recommendations that are practical and beneficial to mankind, not just to governments and their minions.
With great respect,
Anthony J.R. Howorth, BA Juris New College, Oxford (1959)
Euro-Caribbean Management Services Limited