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The Guardian view on tax avoidance: Europe must take Luxembourg to task The Guardian view on tax avoidance: Europe must take Luxembourg to task
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The organograms are dizzying, and the make-money-disappear-by-lending-it-to-yourself wheezes leave the head spinning. But through all the many intricacies in the leaked 28,000 pages concerning corporate tax agreements with the Luxembourg authorities, two breathtakingly simple truths emerge. First, the tax-avoiding shenanigans that shamed internet giants Google and Amazon are in no sense an online preserve. The papers relate to 1,000-plus businesses, including vacuum manufacturer Dyson, a firm UK politicians routinely hold up as a model for putting something solid back into an economy that often seems to be melting into air. Second, the arrangements whose cost often comes in lost revenues for Luxembourg’s European partners are taking place not merely under the blind eye but with the active complicity of the Grand Principality. The organograms are dizzying, and the make-money-disappear-by-lending-it-to-yourself wheezes leave the head spinning. But through all the many intricacies in the leaked 28,000 pages concerning corporate tax agreements with the Luxembourg authorities, two breathtakingly simple truths emerge. First, the tax-avoiding shenanigans that shamed internet giants Google and Amazon are in no sense an online preserve. The papers relate to 1,000-plus businesses, including vacuum manufacturer Dyson, a firm UK politicians routinely hold up as a model for putting something solid back into an economy that often seems to be melting into air. Second, the arrangements whose cost often comes in lost revenues for Luxembourg’s European partners are taking place not merely under the blind eye but with the active complicity of the grand duchy.
A cash-strapped continent has reason to feel fury, but it must also acknowledge, too, that tax havens can only ever exist because the world declines to stop them: no island is an island. Very often in history, as in the Caymans and the Channel Isles, their security was underwritten by British force. In more recent times, malign neglect from Washington was the chief facilitator. In the first few years of this century, Bush administration officials would describe themselves as “amused” in response to revelations about a million undisclosed off-shore accounts. They would liken tax competition to economic competition of other sorts, disregarding the distinction between the race for industrial efficiency, which will in time enrich all, and a race to the bottom on taxes, in which wealthy shareholders are fated to be the only winners, while regular citizens are doomed to be the certain losers. That American attitude rendered it pointless for anyone else to do anything, since hot money can always answer unilateral action by finding a new haven. Besides, in these pre-crash years, intense relaxation about the filthy rich was the vogue in Europe as well as the US. A cash-strapped continent has reason to feel fury, but it must also acknowledge, too, that tax havens can only ever exist because the world declines to stop them: no island is an island. Very often in history, as in the Caymans and the Channel Islands, their security was underwritten by British force. In more recent times, malign neglect from Washington was the chief facilitator. In the first few years of this century, Bush administration officials would describe themselves as “amused” in response to revelations about a million undisclosed off-shore accounts. They would liken tax competition to economic competition of other sorts, disregarding the distinction between the race for industrial efficiency, which will in time enrich all, and a race to the bottom on taxes, in which wealthy shareholders are fated to be the only winners, while regular citizens are doomed to be the certain losers. That American attitude rendered it pointless for anyone else to do anything, since hot money can always answer unilateral action by finding a new haven. Besides, in these pre-crash years, intense relaxation about the filthy rich was the vogue in Europe as well as the US.
It is harder to fathom such practices coming to light in 2014. A president who condemned “brass plate” companies on his path to power is six years into office, while five years have passed since the crash galvanised the G20 to pledge to work together to force tax havens into the sunlight. The slow but abject injustice of forcing the poor to pay for the misdeeds of bailed-out bankers through austerity has brought many a city out on to the streets. Governments everywhere face miserable fiscal choices, with the result that – as the US midterms underlined – this is a dangerous time to be an incumbent. World leaders, then, should have every reason for working together to claim the revenue that is their due. Yet it is still not happening, or at least not with the intensity required – and not even within the EU, where there are more mechanisms to cooperate for the common good. It is harder to fathom such practices coming to light in 2014. A president who condemned “brass plate” companies on his path to power is six years into office, while five years have passed since the crash galvanised the G20 to pledge to work together to force tax havens into the sunlight. The slow but abject injustice of forcing the poor to pay for the misdeeds of bailed-out bankers through austerity has brought many a city out on to the streets. Governments everywhere face miserable fiscal choices, with the result that – as the US midterms underlined – this is a dangerous time to be an incumbent. World leaders, then, should have every reason for working together to claim the revenue that is their due. Yet it is still not happening, or at least not with the intensity required – and not even within the EU, where there are more mechanisms to cooperate for the common good.
Individual treasuries may always be tempted to cut cushy deals with companies to grab what they can at the expense of their counterparts, especially in states like Luxembourg, which have long paid their way in the world like this. But they will only act on this motive where they can do so with impunity, in the shadows cast by continuing secrecy and clever accountants. Europe needs to face up to its tax-avoidance problem before it can fix it, This means, first, the EU getting ahead of the OECD game by disclosing all that data on transnational profits in each jurisdiction that is already collected but then kept under wraps. Instead of leaving it to a cross-national team of journalists to explain who is dodging which tax and how, governments should get in on the naming and shaming directly. Every bit of pressure helps, because shrewd companies cannot remain indifferent to public opinion forever.Individual treasuries may always be tempted to cut cushy deals with companies to grab what they can at the expense of their counterparts, especially in states like Luxembourg, which have long paid their way in the world like this. But they will only act on this motive where they can do so with impunity, in the shadows cast by continuing secrecy and clever accountants. Europe needs to face up to its tax-avoidance problem before it can fix it, This means, first, the EU getting ahead of the OECD game by disclosing all that data on transnational profits in each jurisdiction that is already collected but then kept under wraps. Instead of leaving it to a cross-national team of journalists to explain who is dodging which tax and how, governments should get in on the naming and shaming directly. Every bit of pressure helps, because shrewd companies cannot remain indifferent to public opinion forever.
The ultimate goal should be international agreement to bar particular dodges – and ideally further tax harmonisation, to prevent countries undercutting each other. The realpolitik of Europe makes the latter a remote prospect for now. But then the realpolitik facing European leaders, who are as short of funds as they are affection, surely precludes doing nothing. They must crack down on a tiny partner that fills its coffers at the expense of the rest of the club. The ultimate goal should be international agreement to bar particular dodges – and ideally further tax harmonisation, to prevent countries undercutting each other. The realpolitik of Europe makes the latter a remote prospect for now. But then the realpolitik facing European leaders, who are as short of funds as they are affection, surely precludes doing nothing. They must crack down on a tiny partner that fills its coffers at the expense of the rest of the club.
•This article was amended on 7 November 2014. An earlier version described Luxembourg as “the Grand Principality” and referred to the Channel Islands and “the Channel Isles”.