Well, where are all those millions?
Rather trillion. Exactly 7.6 trillion. the end of 2013. This – according to my calculations – this part of the wealth of nations, which leaked from economic systems and is zabunkrowana in tax havens. The money had never seen any treasury. And if nothing changes, it’s never going to see them.
Please forgive the naivety, but going on so astronomical ceilings, lose a point of reference. And he do not know whether the 7.6 trillion is a lot or a little?
These 7.6 trillion. it’s still a fairly conservative estimate. Because only covers pure financial resources. And if so add the frozen money in tax havens in the form of works of art, jewelry or gold, this number should be further enhanced. I encountered many of the estimates reaching 8.5 trillion, even 32 trillion. But I can only vouch for its 7.6 trillion.
But I still do not understand whether it is big or small?
A lot. Some 8 percent. personal wealth across the globe. That the percentage is growing.
Fast growing?
Fast. What may be a surprise. Especially if we take into account the fact that for several years the fight against tax havens became very important. But the reality is that over the past 15 years the money in tax havens arrives. And this at a rate of several percent per year. I do not know if you remember that in 2009. G20 leaders announced defiantly end banking secrecy.
I remember. Nothing came of it.
On the contrary. Capital zabunkrowany in tax havens has grown during this time of … 15 percent.
And how did you even estimated
The biggest tax haven – ie Switzerland – itself provides the data for several years to the message. Hence, we know that in the local financial system lies some 2.4 trillion dollars.
But perhaps not all the money invested in foreign countries such as Switzerland are the result of escape from their home tax authorities?
Just in Switzerland, probably not. Because the fact is that from the perspective of many countries – especially developing – Swiss banking system offers stability and premium services that can not be uświadczyć at home. But on the other hand, it is not the Third World holds most capital in tax havens. Surely there would be a few cases of Russian and Latin billionaires. But the vast majority of zabunkrowanych there money falls on the rich countries of Europe and North America. And, let’s face it, whether French or German invest their money in Switzerland, because they feel that their home banking systems are unstable? It’s obvious. They invest their money there because they want to pay lower taxes. Switzerland and so is, however, among the tax havens exception.
Why?
Because just about the money we invested there quite a lot. What can not be said of the other tax havens. So – according to size – with Singapore, Hong Kong, Luxembourg, Jersey, the Cayman Islands, the Bahamas and Bermuda. In all these cases, reliable information is now much more difficult. But that does not mean that the phenomenon can not be estimated.
And how is it done?
In the end the money in tax havens hold mainly companies and rich individuals from Western countries. And they – they seek to legitimate business – must inevitably leave some traces. For example, we likely to say that approx. Of 20 percent. profits every year by American corporations lands immediately beyond the reach of the American Treasury. And tax authorities will not get them ever penny. Lost in this respect benefits for the budget of the United States, roughly one third of their annual revenues from CIT. In addition, the tax havens passes approx. 40 percent. of all foreign direct investment. Added to this is playing with the tax authorities of cat and mouse by private individuals. The richer the person, the more significant phenomenon. A certain level of personal wealth almost widespread. It all adds up to the 7.6 trillion.
All the time I wonder this number. How do you know that is true?
There is one clue. It is in international finance some unexplained mystery.
“Memories” sounds intriguing …
Keep more of 70s International Monetary Fund-change die how is it possible that the world as a whole is in debt. Only problem is that we do not know at whom.
How?
In a closed system – a the global economy is such a closed system – both sides should match the account. On the other side of each “guilty” must be some “no”. Meanwhile, it is not. About 20 percent. securities in international trade has no owner. Debt is. But no creditor. As if the planet earth a debt on Mars.
From what I know, Mars Earthlings rather reluctant to lend.
Exactly. Therefore, solutions should be sought on our own planet. In my opinion, this hole is the outcome of the existence of tax havens. I bleed them of money.
Can you describe how it works?
citizen of Great Britain using account in a Swiss bank acquired the shares of Google. What remains after such transaction in the international statistics? From the perspective of the United States, it looks that the foreign investor has bought American security. American statistics record so financial commitment the United States to foreign countries. Note that the Briton is wierzycielką Google, should appear in the data of the statistical office in London. But does not appear, because the British authorities are not examining the books of a Swiss bank. And from the perspective of the Swiss current account such transaction is not at all important. So I do not see it.
And it has any meaning outside the statistical flavor
As long as tax havens were only interesting feature is available for a narrow group of international krezusów traveling between Monte Carlo, Aspen and Tokyo, actually it did not matter. But more or less from the 70s and 80s resort to them to zdemokratyzowało. It has become technically easier and more widespread. As a result, the hole of which I speak, began to grow. Today it is so big that it can not hide. And this is for me one piece of evidence that the problem of tax havens completely out of control.
Please then tell you where most leaks?
Unfortunately, in Europe. From my calculations, you can see that Europeans are hiding from the tax approx. 10 percent. his wealth. While for Americans it is only 4 percent.
Maybe it’s because in America have lower taxes?
That’s one interpretation, but I do not agree. First of all, because the relationship is exactly the opposite. In all western countries taxes since the 70s gradually decreased. At the same period, a phenomenon escapes to tax havens increased. What we have seen, it was a deadly race to the bottom. Because tax competition can not be won. There will always be someone who will lower the rate even more. A fiscal consequences will be catastrophic. We see it on the example of many countries that can not get out of sovereign debt trap.
So how do you explain the fact that statist Europeans are willing to play the treasury on the nose than the supposedly liberal Americans?
One of the reasons is the great temptation – and opportunities – to compete with the tax rates between the sovereign states of the Union. Can also be traced to differences in the level of social acceptance. In America, prominent lot easier behind bars for rocking the treasury than, say, France.
And some, like actor Gerard Depardieu, yet will the proud.
I have the impression that this type of stories in handy too much importance. Example Depardieu, who decided to emigrate to Russia because of too high – in his opinion – the tax burden, it was loud. But statistically quite marginal. Looking at the data, it is clear that the decision to tax exile is an option only really few and very privileged. From the point of view of efficiency of the whole system of fiscal completely the problem exists. The real threat is for it to leak money belonging to taxpayers PIT and CIT permanently residing in the country.
And where’s leaking the wealth of nations? After the PIT and CIT
It’s two separate stories. More important is probably the CIT.
Let’s start with him.
This system has about a hundred years old and appeared in most countries just before the First World War. As long as the item concerned the firms in a closed economy, everything was fine. CIT is in fact usually charged at a single rate, which makes it quite clear.
I understand that the problems began when the game came multinationals.
The problem was noticed already in the 20s’ Cause let’s say that the American industrialist establishes a factory of coffee in Brazil. Does this mean that it has to pay on its profits double tax in the Americas? Industrialists wanted at all costs to avoid. To the extent that the subject came up in the League of Nations (predecessor of the United Nations before the war – ed.), Who asked a group of economists to invent a way out of this entanglement. It was then established three basic principles which govern the taxation of today international corporations.
What are the rules?
The first is that the tax should be paid at source. That is, in our case in Brazil. But unfortunately this did not solve the problem. Because what if the Brazilian factory is just a subsidiary of the American company? A bulk of the profits of the company appears only in the United States, where coffee is imported and sold? Is the tax should go to Brazil? Governments of developed countries felt that not. And yet they were handing out cards. Pushed through a rule so that the subsidiary and the parent company are counting their profits separately. As if they were separate companies. If the coffee goes from Brazil to the panel, it must be officially “bought” from the subsidiary. A transaction posted on a commercial basis. Of course, nothing anybody League of Nations could not impose. I well knew that. It was decided, therefore sober to rule number three. Stating that it is the sovereign countries get along with each other about how to levy taxes from multinational corporations. It was created out of the thicket of regulations and bilateral agreements. And corporations have learned in this thicket move very smoothly. Sometimes too smoothly. The result is that global corporations usually act in accordance with the letter of the tax law. But its spirit not necessarily. A good example is the famous “double sandwich Dutch-Irish.”
Recall what it was, because I can not remember everyone.
It is a strategy used, for example. by the company Google. For her “cook” the need for the two Irish companies and sandwiched between the Dutch company not blown. The first company Ireland Ltd. is the holder of all of Google’s technology for Europe, Middle East and Africa. And this example. Google France pays her for the opportunity to use and sell these technologies. But let it be that Google paid 12.5 percent. CIT in Ireland. Where there. A large part of the profit goes to Google Holding, which is registered in Bermuda, where the tax rate is 0 percent. Of course, Google can not send them money directly, because the Irish government banned such practices. Ireland Ltd. forwards so the profits to the Netherlands. What is perfectly legal, because both countries belong to the EU. And from the perspective of the Dutch Google Holding is an Irish company, so there is no trouble to money diverted from Bermuda. With the help of these tricks effective tax rate paid by Google outside the USA is some 2-8 per cent. There are estimates showing that similar patterns apply half of American companies.
sandwich is probably not the only way to leakage of capital?
Of course. Another strategy is the manipulation of transfer prices. So the settlement, which must be made between each subsidiary and headquarters. With their help, the corporation has virtually unlimited possibilities to decide which “appears” profit company. Which in practice means the ability to select the country in which the company pays taxes. And this in turn promotes screwing competition between host countries of who further lower taxes and throw business to the foot more privileges. This war has a tendency to samonakręcania. Countries that try to defend themselves, need to invest more and more in control of the tax measures, which in turn brings on the side of corporation further action. Suffice to say that companies such as General Electric already employ in their legal departments around. Thousand people. The effect is often such that the cost of their actions devours most of the gains that can be achieved with tax optimization.
Maybe from the logic of war tax is simply no escape?
It depends what you want to achieve. If you own a large corporation or work, whereas only its interests, its aim is rather to maintain the status quo. In this situation will be argued that nothing can be done. But it seems to me that most people have more interest in the wealth of nations would not fled to private accounts chosen few, but remained in the economic system, podbudzało demand and could be a source of meaningful budgetary spending on education or health care. Therefore, it seems more reasonable to look for ways to improve the situation. And do not complain that nothing can be done. Always possible to do something.
And what exactly?
Most of the proposals put forward by organizations such as the OECD goes towards progressive harmonization of tax laws. So that the companies had less opportunity to choose who will honor that will pay him taxes. This way makes sense, but too little ambitious.
And what is this ambitious?
Do you remember that the base philosophy of taxation of multinational corporations were created in times of the League of Nations? This means that they have almost a hundred years. So perhaps high time to refresh them. For example, the manipulation of transfer prices to move profits between branches of the same company operating in different countries. Would it not be more sensible to replace this system określanym top corporate income tax? It could be set based on a combination of factors such as the country gathered in the capital, employment and sales. And every year update. You can ask companies to pay taxes there, where the focus is their actual business. That is where you employ the most workers or where they sell their products. Finally, Starbucks can easily move its headquarters from Seattle to Dublin, but its American customers so easily not move. Far-reaching alternative is to turn downloading at levels not companies, but their owners. So shareholders. Such a possibility in 1920. Was not. But today you can easily identify the owners of the majority of corporations in the world. In terms of technology there is no obstacle to create a transparent register of ownership.
Lord mentor Thomas Piketty suggested something similar in relation to see who has what property.
Because it’s a reasonable solution. Also contribute to the promotion of democratic transparency. Which do not serve bunk ownership structures with numerous companies bushes registered in tax havens. The obvious reasons.
Long talk about CIT. Does this mean that the PIT-I escapes the wealth of nations?
Yes, escapes. And this is the problem. Although less – because of the sums far smaller than those with whom we deal in the case of companies. Although PIT payers today have great potential output of money from the system.
How is it done?
If American businessman does not want to pay taxes in his native Dallas, it does so: founds the bush in the Cayman Islands. Completely anonymously and without a problem. This company assumes a bank account in Hong Kong, where his troops have most of the international financial corporations. Belonging to our company from Dallas businessman signs a contract with a company kajmańską bush fictitious contract for the purchase of any service. Say consulting. Pay for it, pouring money into an account in Hong Kong. American earn double. Reduces the profits of your company in Dallas, so pay lower CIT. In turn, the money transferred to Hong Kong to escape the American PIT. Tax authorities in the United States put a hand on them, only if a businessman himself declares that he has invested funds in Asia. Well, unless you Hong Kong will report it to the USA. However, the chances of such turn of events are really small.
In this case, the global financial registry would actually help.
Sure, that would help. I’m not naive. I am perfectly aware that tax havens themselves voluntarily give up their role. Too good for this they earn. In 2008. Only in the Credit Suisse almost two thousand people took to service the accounts belonging to citizens of the United States. And I do not mean cashiers, but well-paid advisers who helped the Americans in the organization of safe escape from the tax. They do this voluntarily resign.
So you have to press them?
If Europe and the United States joined forces and focused on the construction of mechanisms, such as the global registry, nothing would stop them. It has not yet happened. But it does not mean that it will not happen. The political atmosphere around taxation may change. Especially if the debt problems of countries rich West will deepen.
Gabriel Zucman rising star of the French economy. He studied in Paris and Berkeley. The promoter of his dissertation was Thomas Piketty. Immediately afterwards Zucman was one of the youngest professors at the London School of Economics. In May, 2013. Published his noisiness “The Missing Wealth of Nations” (Lost wealth of nations), which is a pioneering attempt to estimate the global phenomenon of mass exodus from the tax.
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