tax haven tax shelter income tax offshore account

Tax Deal Signed between US and Swiss, UK and Liechtenstein
switzerland lichtenstein disclosure accounting

Tax Havens' Partisans Seek Safe Harbor

Who’s the cheater? The citizen who secrets his income or the state that uses coercion to claim it for whatever purpose? Why let some amass fortunes -- whether by hook or crook -- then demand a cut later, regardless of how it was amassed? If politicians quit taxing earnings, they’d have the right to abolish banker secrecy. Meanwhile, we trim, blend, and append three 2009 articles from: (1) The Los Angeles Times, Aug 13, on Swiss accounts by Burt Neuborne (at New York University); (2) Miller-McCune, July 23, on offshore accounts by Frank Nelson; and (3) BBC, Aug 11, on Liechtenstein.

by Burt Neuborne, by Frank Nelson, and by BBC

Put your money in a Swiss bank account and you can hide it from your government's tax collectors, inconvenient creditors, a prying spouse, or ex-spouse.

Why can’t countries, including the US, collect taxes from large numbers of cheats? How can petty tyrants plunder their nations' treasuries with impunity? Or drug lords launder their funds without fear of discovery? Or that terrorists can move funds around the world so easily? It's because Swiss bankers -- and their clones in Lichtenstein and other banking black holes -- refuse to make information about secret accounts available to government investigators.

When the European Union complained that tax evaders were using Swiss accounts to make a mockery of the income tax, the Swiss government agreed to have the banks make minimal lump-sum payments to European tax authorities rather than disclose the names of the depositors.

When Holocaust survivors complained that Swiss bank secrecy made it impossible to find thousands of bank accounts of deceased victims, Swiss banks settled the case in 1998 for $1.25 billion rather than allow the victims to inspect their books.

Now the Swiss government and the United States’ Internal Revenue Service's have settled their lawsuit to identify thousands of Americans with secret accounts at UBS.

JJS: Reformers need to shift their focus from accumulated wealth to the accumulation of wealth. Not caring how it got amassed, just demanding a cut later, that ain’t pretty. Pretty would be shifting from taxing income (very regressive) to recovering the commonwealth. Note: it’s by carving out undue portions of society’s surplus that one amasses a fortune in the first place.

Countless companies and corporations, plus well-heeled and well-connected individuals, have squirreled away an estimated $13 trillion in offshore accounts.

The US Government Accountability Office says 83 of the nation's 100 largest publicly traded corporations (by 2007 revenue) reported subsidiaries in tax havens or financial privacy jurisdictions; so too did 63 of the 100 largest federal contractors. Recipients of taxpayer-funded bailout money -- including corporate giants Citigroup, Bank of America, and Morgan Stanley -- all have scores of offshore subsidiaries.

Switzerland, Dubai, Hong Kong, Liechtenstein, Andorra, and Monaco are among an estimated 40 to 50 tax shelters worldwide. Corporate America prefers places closer to home, such as the Caymans, Bermuda, and the Bahamas.

Seeing which way the wind is blowing, multinationals are seeking new havens, such as Ireland, or renewing relationships with old ones, Switzerland. Google was recently criticized in the UK for spinning British earnings through the Irish tax system, paying 12.5% corporation tax instead of 28% in Britain.

US-based firms are already at a competitive tax disadvantage compared to firms based in other major trading nations. Today the combined US federal and state corporate tax of 39.25% is second only to Japan among the 30 countries in the Organization for Economic Cooperation and Development.

An even bigger benefit is accounting. A company's balance sheet shows the tax rate on worldwide income: the lower the tax, the higher the earnings-per-share and, usually, the higher the stock price.

Tax-deferred offshore earnings -- working a little like tax-free personal pension plans -- enable companies to plow unpaid taxes back into their businesses rather than handing it over to Uncle Sam.

JJS: Do they really re-invest the money or use it to pad their expense accounts, pay outrageous salaries, bonuses, donate to politicians, pay interest on debt, buy out the competition, etc? Whatever, now that politicians desperately seek new funds, the pendulum has swung and business must accommodate.

The UK has signed a breakthrough deal to recover lost tax from Britons holding bank accounts in Liechtenstein.

HM Revenue & Customs (HMRC) has agreed with the Alpine tax haven to start exchanging information.

Up to 5,000 British investors are thought to have an estimated £3bn in secret accounts in the country.

Investors will be offered the chance to volunteer details of their deposits in return for penalties, capped at 10% of tax evaded over the past 10 years. They will have to repay all the tax they should have paid in the first place, up to 10 years. And they will also have to pay interest, which could turn out to be worth far more than the formal penalty charge.

HMRC said that those who failed to make a full disclosure would have their accounts closed down and risk losing all their savings.

Pressure has mounted on tax havens to share information since April's G20 Summit and similar deals have already been struck with the US and Germany.

JJS: But once the recession’s over, will politicians go back to accommodating the very wealthy?


Jeffery J. Smith runs the Forum on Geonomics.

Also see:

US losing out on royalties -- GAO reports failure in collection ...

Usury, tax evasion, golden parachutes -- bankers go scot free

This period looks a lot like 1929-32

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