Wed, Jun 24, 2015 - Page 9 News List

Follow the money: inside the world’s tax havens

There are many tricks used to shift money offshore, and a pinstriped army of accountants and lawyers to help people do it

By Nicholas Shaxson  /  The Guardian

Illustration: Mountain People

You, dear reader, are a prolific and casual user of offshore tax havens. I’m assuming you do not live in a cave or in a remote hunting community. Even if you did, though, you are probably a dabbler: You have little choice.

Many people, and perhaps you are one of them, share a queasy feeling that something has gone badly wrong with the world economy — but cannot quite put their finger on what the source of the trouble is. Once you understand the nature of offshore tax havens, you should feel closer to pinning down the answers.

Before I explain what they are, and why powerful governments do not just close them down, I want you to take part in a short challenge. See if you can dodge all my bear traps and declare yourself untainted by tax havens. If you succeed, you win my Hermit of the Year prize.

Do you celebrate Christmas? If you do (or even if you do not), did you buy any gifts on Amazon in December?

If so, then your goods were quite likely to have been routed through a byzantine world hosted — only on paper, you understand — by the Grand Duchy of Luxembourg, where Amazon has located its European headquarters, slashing its tax bills around the world.

In 2011, Amazon revealed that the US Internal Revenue Service was chasing it for US$1.5 billion in back taxes. More recently, Amazon has said it will stop routing its UK sales through Luxembourg.

Perhaps you shun Amazon. You buy only local products: good for you, but did you search for any gifts online? Did a company called Google play any role in this?

In 2011, Google shuffled four-fifths of its profits through a subsidiary in the tax haven of Bermuda, cutting its worldwide tax rate in half and its tax rate in some nations to nearly zero. Google executive chairman Eric Schmidt said in 2012 he was “very proud of the structure that we set up, it’s called capitalism.”

You have never used Google? OK, let us say you did all your shopping in the real world: traipsing around your local stores, picking up homemade wooden artefacts that you could weigh in your hands. Wonderful. You’re nearly there, but not quite.

Did you listen to any music on those days? Let us hope iTunes was not part of that picture.

The technology giant Apple achieved what Senator Carl Levin called, in 2013, the “holy grail” of tax avoidance, setting up offshore corporations legally incorporated in Ireland and the US — but for tax purposes, not resident anywhere. Apple shifted US$74 billion into one of these subsidiaries between 2009 and 2012, paying 2 percent tax on it.

Let us cut this challenge short. Did you at any point consume the services of any of these: AIG, Aviva, Barclays, Black & Decker, British American Tobacco, Burberry, Citigroup, Deutsche Bank, Facebook, FedEx, GlaxoSmithKline, IKEA, HSBC, JPMorgan, Microsoft, Pepsi, Skype, Starbucks, Vodafone or Walt Disney?

This is just my quirky personal selection from a list of more than 350 multinationals whose convoluted tax schemes were revealed in November last year by a whistle-blower working for one accountancy firm, PricewaterhouseCoopers (PwC), in one European tax haven, Luxembourg.

The revelation provoked a scandal that has become known as Luxleaks, involving tens of thousands of documents and a whole menagerie of Luxembourg-based tax schemes.

What happened, as a result?

Three people are currently being pursued by the courts, accused of violating trade secrecy: the main whistle-blower, a diffident and bespectacled 28-year-old Frenchman named Antoine Deltour; a second, anonymous whistle-blower; and a French journalist, Edouard Perrin, who first helped publicize the leaked data and is being pursued as an accomplice.

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