The New Power Elite by Heather Gautney;

Author:Heather Gautney;
Language: eng
Format: epub
Publisher: Oxford University Press USA
Published: 2022-06-15T00:00:00+00:00

Tax Havens

In 2016 and 2017, two tranches of leaked documents—the Panama Papers and Paradise Papers—exposed the shady yet often legal means through which wealth management firms help an increasingly entrenched global aristocracy shield their money from taxation. Implicated in these massive tax avoidance schemes were characters of all stripes—baseball players, hedge funders, African diamond dealers, Chinese real estate speculators, Saudi petro-sheiks, Mexican drug lords, and more. In one case, a wealth manager sheltered a client’s $100 million-plus in seven banks in six countries through eight shell companies and a foundation.49 The leaked documents also exposed rampant tax evasion by corporate heads of household brands like Nike, Apple, Uber, and Facebook, in addition to some 120 politicians from 47 countries, and the British queen.

In 2021, an even larger tranche, the Pandora Papers—gleaned from fourteen different financial services entities across the globe covering more than 29,000 offshore accounts—implicated 130 billionaires and 330 public officials in more than 90 countries, as well as British prime minister Tony Blair, pop star Shakira, Russian oligarchs, and Saudi Arabian royals. Importantly, the Pandora Papers revealed how the world’s wealthy were moving their vast fortunes out of traditional tax havens and into U.S.-based trusts. An investigation into the papers by the International Consortium of Investigative Journalists cited over 200 U.S. trusts linked to forty-one countries, nearly thirty of them holding assets connected to individuals or corporate entities accused of crimes such as fraud, bribery, and human rights violations. The records also include memos and messages on how to defeat transparency laws and, oops, how to prevent leaks.50

Economist Gabriel Zucman estimated in 2015 that roughly 8 percent of the world’s wealth is held in tax havens.51 According to a 2020 Tax Justice Network report, instead of declaring profits where they are generated, each year multinational corporations shift their profits into such shelters, costing governments nearly $247 billion in lost revenue. An additional $182 billion is lost from wealthy individuals hiding undeclared assets offshore, for a total of $427 billion a year lost to tax abuse.52 As for the United States, 55 percent of foreign profits of U.S. firms are held in tax havens, where they pay an average tax rate of between 3 percent and 6.6 percent on their offshore profits, costing the U.S. government about $126 billion a year in lost revenue.53 Most Fortune 500 companies have offshore subsidiaries, with tech, pharmaceuticals, and health care alone accounting for half of the untaxed offshore profits.54

The first tax havens were operational in Switzerland in the 1920s, when countries with sizeable World War I debts taxed large fortunes to raise revenue; and they grew exponentially in the UK territories in the heyday of the Eurodollar.55 Today, the United Kingdom and Switzerland remain major players, as the majority (72 percent in 2020) of the world’s tax dodging takes place in the “axis of tax avoidance”: the United Kingdom, Switzerland, Luxembourg, and the Netherlands.56 Competition for billionaires’ and multinationals’ business has resulted in a race to the bottom of corporate tax rates worldwide, and increased specialization and division of labor of international wealth management.

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