Tue
11-Oct-2005

tax justice

I've been reading stuff produced by the Tax Justice Network recently. The TJN is a coalition of researchers and activists with a shared concern about the negative impacts of tax avoidance, tax competition and tax havens. They are starting to become more prominent and active at the moment, and have published a really good report called Tax Us If You Can.

They generally make the case that a rising share of global wealth is being held in tax havens beyond the reach of national tax authorities and that this is a major cause of under-investment in infrastructure, education and health services across the South. Untaxed wealth effectively forms a vast shadow economy, operated from approximately 70 'offshore' tax havens. The scale of it is impressive - research findings published in March 2005 indicate that US$11.5 trillion of personal wealth was held offshore by rich individuals. If the income from this wealth was charged to tax in the countries where those rich individuals derived their wealth, the additional tax revenue available to fund public services around the world would be in the region of US$255 billion a year. Putting this in perspective, according to the UN, a tripling of the global aid budget to US$195 billion a year by 2015 would be enough to halve world poverty within a decade.

Though it is modern technological change and capital market liberalisation that has allowed rich individuals and transnational corporations to move their money with increasing speed and freedom around the world, tax injustice has interestingly deep historical roots. The British and the Swiss were major contributors - from the time of the French revolution when the Swiss developed the concept of banking secrecy, to the early twentieth century when wealthy British people started to use offshore trusts established in places like the Channel Islands to exploit the British phenomenon of the separation of taxation residence and domicile (legal residence). It is now perpetuated by an increasingly aggressive tax avoidance industry, led primarily by accountants, who seem to have been central to shaping the commercial and legal environment of tax injustice. It seems the big four accountancy firms - PricewaterhouseCoopers, Deloitte Touche Tohmatsu, KPMG and Ernst & Young - have a particular responsibility to bear. They dominate the worldwide accounting profession, heavily promote the cause of corporate social responsibility except in the area of tax avoidance, and bestow respectability and legitimacy on tax havens, which also provde a secure cover for laundering the proceeds of political corruption, fraud, illicit arms trading and the drug trade.

PWC, Ernst & Young and KPMG were heavily criticised in the US for promoting the sale of illegal 'tax products' in 2003. In January 2005, the European Court of Justice offered an opinion on a 'tax shelter' scheme being promoted by KPMG for avoiding VAT in the UK, concluding that this product was an "unacceptable" attempt to avoid VAT.

If all this just points to an intensification of the feeding frenzy of the rich that began in the early 1980s then there's an interesting angle to the tax justice issue today. What the Tax Justice Network is trying to do is make headway on the discursive terrain of public debate and education. The point about financial justice is that accountants and economists have successfully created a professional jargon that shields them from the public gaze. Public understanding of tax matters is a precondition for tax justice. There are signs of a shift. Just as campaigners have successfully turned debt from a dry economic issue to one of social justice over the last seven years, just as MAKEPOVERTYHISTORY has been trying to redefine the concept of poverty from something seemingly inevitable and immutable to something that has been created by human beings and similarly can be eradicated by human beings, so tax may be turning into an 'ethical' issue. Indeed, KPMG issued a report in 2004 saying that the public profile of tax has become "more conspicuous" and has "acquired moral, ethical and social dimensions" for the first time. "The business management issues associated with tax have become more complicated, more subtle, more steeped in risk and much more challenging," it went on to say. I think progressive organisations and campaigns do need to take on tax in a much more open way, particularly now the dirty arguments of 'flat taxes' are being bandied about. Tax is an integral, sexy, hip aspect of the social contract of modern nation states - vital for funding the physical and social infrastructure of civilised welfare states and for redistributing wealth from the rich to the poor to guarantee equity and security.