Tax-avoidance, Secrecy and Offshore Empires
Similar to the Panama Papers of 2015, the release of the Paradise Papers, have once again exposed how the global elite have been able to conceal their wealth through secret offshore companies. The documents have shed light on the role of tax havens as a means of tax avoidance in regions such as Bermuda, the Cayman Islands and the British Virgin Islands— which offer attractive tax incentives. Central to the revelations is Appleby, one of the largest offshore law firms who have assisted clients such as Glencore, HSBC, Goldman Sachs and Shell to set up offshore accounts.
Despite the release of the Panama Papers, there seems to have been little political appetite to review the realm of offshore finance. However, the release of the new documents have once again sparked debate regarding the role of offshore tax havens in tax dodging, calling for a wider investigation by the International Consortium for Investigative Journalists (ICIJ).
In light of the new documents, it has become increasingly evident that the current system is plagued with loopholes, allowing the wealthy few to secretly shelter their wealth through offshore companies. Perhaps more unsettling is that those implicated include some of the world’s largest businesses, figures in global politics as well as beloved musicians, movie stars and sports icons. Although the use of offshore businesses is legal, the industry’s role in allowing tax avoidance and secrecy has sparked public interest in the matter.
Among those involved in such practices is Alphabet, the parent company of Google. Less than a year before its initial public offering in 2004, Google transferred its search and advertising technology to “Google Holdings,” a holding company incorporated in Ireland but for Irish tax purposes, a resident of Bermuda. Profits generated through such technologies were funneled through to Bermuda, where the corporate tax rate is a mere 0%. In 2015 alone, Alphabet reported $15.5bn in profits in Bermuda. Such examples demonstrate that the main beneficiaries of tax havens are the shareholders of such companies who thrive off these practices. Some other notable examples include; U2 lead singer Bono’s investment decisions in Malta as well as Formula One Champion Lewis Hamilton, who avoided paying European tax on his private jet through a tax structure in Isle of Man.
Gabriel Zucman, economist and author of “The Hidden Wealth of Nations,” describes tax havens as one of the “key engines of the rise in global inequality.” For the most part, the low taxes offered by these territories impose huge costs on the economies of other countries and it is only the global elite who benefit from such low taxes. In the UK, Germany and France, about 30-40% of the wealth of the richest 0.01% of households is held abroad.
Wealth concealment through offshore companies deprives governments of nearly €155 bn a year in tax revenue. In Britain alone, annual revenue losses are €6bn, to which must be added to the €12.7 bn dodged by multinationals. Consider issues concerning an underfunded education system or poorly funded public healthcare, how they could have been ameliorated if tax dodging had not occurred. It is clear that offshore tax havens perpetuates existing inequalities. The global elite thrive off the services and the consumerism of the middle-class, however they do little to contribute toward the machinery that keeps the system running.
The findings of the Paradise Papers underscore the need to increase transparency into the offshore holdings of large companies. Greater transparency in this area would provide valuable information regarding the distribution of wealth, imperative in guiding policy and perhaps curtailing the structures which allow such practices to occur.