Sun, Nov 12, 2017 - Page 7 News List

Britain cannot solve tax avoidance on its own

The revelations in the Paradise Papers have called attention to UK territories that are at the center of tax avoidance. However, efforts by Britain to rein in such islands have been ineffective and international action is needed

By Andrew Hammond

Illustration: Louise Ting

In the wake of this week’s “Paradise Papers” revelations, fresh attention is focusing on the vexed topic of global tax transparency. While the disclosures in the 13.4 million newly released documents are financial in nature, they have already had significant political ramifications, including in London and Washington, especially after the release of the Panama Papers last year.

The Paradise Papers have put new exposure on hundreds of high-net worth individuals and politicians across the world, as well as wide-ranging multinational firms. However, at the hearty of the affair are the internal workings of numerous UK territories.

During the process of decolonization, Britain held on to a global network of islands, which either voted to remain UK territories or have not chosen independence. Amongst these are the present-day 14 overseas territories and three British dependencies, and it is these remnants of empire that are amongst the world’s leading centers of international tax avoidance.

London has taken actions in previous years to ensure that these islands have fairer and more open tax systems, but this remains work in progress. On Tuesday, British Labour Party shadow chancellor of the exchequer John McDonnell described the Paradise Papers disclosures as the “biggest tax scandal of this generation” and called for a UK public enquiry.

British Prime Minister Theresa May has said she wants “greater transparency,” but has refused to commit to such a public probe.

Last year, after the Panama Papers releases, Labour leader Jeremy Corbyn proposed that the government impose direct rule on any of its territories if they do not conform fully to UK tax laws.

London has cracked down in the past in similar ways, so this is not inconceivable.

In 2009, it imposed direct rule on the Turks and Caicos after local officials were accused of selling government land for personal gain. The islands saw home rule restored only after the local government passed acts that mandated tax information-sharing with the British government.

Following the Panama Papers revelations last year, the UK government did not take any comparable measures for any of the territories that were named in them, but international and domestic pressure to act is mounting.

In Brussels, European Commissioner for Economic and Financial Affairs Pierre Moscovici has since the Paradise Papers disclosures promised to look into the matters swiftly and to potentially expedite an EU blacklist of offshore tax entities.

In Washington, Democrats have called for a probe into the Paradise Papers, including allegations of US Secretary of Commerce Wilbur Ross’ ties with Russian President Vladimir Putin’s son-in-law through a reported shipping venture in Russia.

US Senator Bernie Sanders has slammed what he believes is an “international oligarchy in which a handful of billionaires own and control a significant part of the global economy,” and has called for congressional consideration of US President Donald Trump’s proposed tax reforms to be halted.

Even further afield in the Asia-Pacific, the Australian Taxation Office has said it will investigate and work with partner agencies across the world following the Paradise Papers disclosures.

The Indian Board of Revenue confirmed it is already investigating numerous tax havens.

While the UK imposing direct rule on its territories is, in principle, a relatively straight-forward process, critics have said that a consequence of seeking to close down these centers of tax avoidance would be that people and firms would simply move their money from one jurisdiction to another where there might be even fewer tax regulations and less transparency.

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