Tax evasion
The mega-haven
An index of financial secrecy highlights American hypocrisy
THE world is becoming less welcoming to tax dodgers. That is the conclusion of the latest Financial Secrecy Index, published every two years by the Tax Justice Network (TJN), an NGO. It looks at various measures of financial transparency and information-sharing in more than 90 countries, then weights them according to the level of financial services each country provides to non-residents.
Most countries’ scores have fallen since 2013, indicating greater transparency. Among the biggest improvers are the Cayman Islands, once a notorious tax haven, and Luxembourg, which tax campaigners used to call Europe’s “death star” of financial secrecy.
The reason for the shift is the global, austerity-era push for countries to share more information on tax arrangements. Under the fast-spreading, OECD-sponsored Common Reporting Standard, countries will routinely exchange data on each other’s citizens so they can be taxed appropriately in their home countries. Rules on the registration of corporate ownership are being tightened, too, in order to reduce opportunities to hide dirty money in anonymous shell companies.
But America, the country that has arm-twisted so many others to join the transparency revolution, is dragging its feet. It is now the third most secretive jurisdiction, behind Hong Kong and, inevitably, Switzerland (where rumours of the death of bank secrecy have been exaggerated).
America was in the vanguard in the fight against tax havens, first targeting the Swiss, then passing the Foreign Account Tax Compliance Act, or FATCA, which forces financial firms all over the world to spill the beans on their American clients. While demanding concessions from others, however, Washington has made few itself. It has, for instance, failed to engage with the OECD’s data-sharing scheme. Worse, anonymity-friendly incorporation regimes at the state level mean America is unmatched in corporate secrecy.
This matters, because America hosts a lot of offshore business—just ask a billionaire from Caracas or Cairo where he buys property or sets up the shell companies that hold it. The TJN offers a solution: it reckons Europe should mimic FATCA by imposing a stiff withholding tax (it suggests 35%) on payments from Europe to American financial institutions, until America gives as much data as it takes. That would induce wry smiles in Zurich.
Most countries’ scores have fallen since 2013, indicating greater transparency. Among the biggest improvers are the Cayman Islands, once a notorious tax haven, and Luxembourg, which tax campaigners used to call Europe’s “death star” of financial secrecy.
The reason for the shift is the global, austerity-era push for countries to share more information on tax arrangements. Under the fast-spreading, OECD-sponsored Common Reporting Standard, countries will routinely exchange data on each other’s citizens so they can be taxed appropriately in their home countries. Rules on the registration of corporate ownership are being tightened, too, in order to reduce opportunities to hide dirty money in anonymous shell companies.
But America, the country that has arm-twisted so many others to join the transparency revolution, is dragging its feet. It is now the third most secretive jurisdiction, behind Hong Kong and, inevitably, Switzerland (where rumours of the death of bank secrecy have been exaggerated).
America was in the vanguard in the fight against tax havens, first targeting the Swiss, then passing the Foreign Account Tax Compliance Act, or FATCA, which forces financial firms all over the world to spill the beans on their American clients. While demanding concessions from others, however, Washington has made few itself. It has, for instance, failed to engage with the OECD’s data-sharing scheme. Worse, anonymity-friendly incorporation regimes at the state level mean America is unmatched in corporate secrecy.
This matters, because America hosts a lot of offshore business—just ask a billionaire from Caracas or Cairo where he buys property or sets up the shell companies that hold it. The TJN offers a solution: it reckons Europe should mimic FATCA by imposing a stiff withholding tax (it suggests 35%) on payments from Europe to American financial institutions, until America gives as much data as it takes. That would induce wry smiles in Zurich.
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