“Tax havens on some tropical island” the writer Thomas
Frank said last week, “aren’t some sideshow to western capitalism; they are
a central reality. Those hidden billions are like an unseen planet whose
gravity is pulling our politics and our economy always in a certain direction.”
Looked at this way, tax havens are a permanent and
unalterable reminder of the impotence of governments in the face of footloose multinational
corporations and the 0.001 per cent. But, in reality, their very success may be
the ultimate undoing of the corporate system. They may make the creation of an
alternative economy unavoidable.
To captive governments, tax havens exhibit a ghastly allure
– if you aren’t in on the act, somebody else will be. To corporations in the US,
a country with the highest corporate tax rate in the developed world, Britain
is a tax haven. Hence, the problem of ‘inversion’ –
corporations deliberately re-locating where they are legally registered to take
advantage of the lower rate (currently 19% in the UK but soon to be lower). To
corporations in Britain, Ireland, with its 12.5% corporate tax rate, is a tax
haven. To corporations registered in Ireland, the Netherlands is a tax haven
because it allows profits to be transferred at negligible cost to zero tax Bermuda,
whereas Ireland imposes a high tax on such transfers.
The sobering reality is that Ireland used to have a
corporate tax rate of 50% buy it makes more revenue from the current rate of
12.5% than it did when the rate was four
times higher. This isn’t because the low rate is attracting actual business
investment – investment is at historically
low levels – but because it is stealing the tax revenue of other countries.
Many corporations are legally domiciled in Dublin and pay tax there but don’t
carry out any investments in Ireland.
Thus there is a competitive advantage to lowering your
corporate tax rate, even while the system as a whole is gradually strangling
government revenue and enshrining austerity as a permanent feature of political
life. It is estimated that EU loses €350
billion to multinational tax dodging every year, while in Britain the
figure is €12.7
billion; a little less than the £12 billion of social security cuts that the
May government inherited from George Osborne and is still implementing.
With Donald Trump about to reduce the headline US corporate
tax rate from 35% to 20% the race to the bottom will likely further intensify.
Rather than going through the motions of cracking down on
tax avoidance, governments could get serious. They could close down the tax
havens that are within their jurisdiction or the shell corporations that enable
profits to be funnelled tax-free out of the country. They could insist that
corporate tax equivalence is an integral part of any free trade deal – an
agreed international band of 30-33% for example. At present, the Eurozone, as
part of its Stability & Growth pact, mandates that government deficits
don’t exceed 3% of GDP, whereas it leaves corporate tax rates entirely at the
discretion of national governments. It’s no surprise, therefore, that six EU
countries – Luxembourg, Ireland, the Netherlands, Belgium, Malta and Cyprus –
are classed as tax havens.
But even if this happens, and that’s a mighty big ‘if’, it
probably won’t be sufficient. There will always be loopholes that teams of
lawyers can exploit and doubtless some ‘rogue states’ that will offer zero per
cent corporate taxation. Therefore, in the fullness of time, governments may
well be forced to consider the ultimate legal sanction – the withdrawal of
corporate status. The Achilles heel (and dirty secret) of seemingly invincible
multinational corporations is that they are entirely dependent – legally dependent – on the state. As
Joel Bakan writes in The Corporation, “The state is the
only institution in the world that can bring a corporation to life. It alone
grants corporations their essential rights, such as legal personhood and
limited liability, and it compels them to always put profits first … without
the state, the corporation is nothing. Literally nothing.”
It has been mooted that the threat of the withdrawal of
banking licenses should be invoked in order to deter major banks from
facilitating tax dodging. For major corporations who routinely engage in
massive tax avoidance (just look at the names
that crop up in the Paradise Papers) the threat of the withdrawal of
limited liability or corporate status in its entirety is probably the only
thing that would make them think twice.
It will be immediately objected – and with good reason –
that for the really big corporations – Facebook, Apple, Google – this is simply
inconceivable. They are too powerful, and just as importantly so integral to
people’s daily lives, that they are untouchable. Withdrawing Facebook’s
corporate status is probably the psychic equivalent of banning coffee.
Given the terrible bind that corporate tax avoidance places
governments – and by extension the public – in there is only one alternative.
Publicly owned, cooperatively-run companies need to be created to, in time,
compete with the behemoths. Companies that will, openly and willingly, pay
their taxes and whose very existence gives credibility to the threat of withdrawing
corporate status or limited liability from those that don’t.
The technologically know-how certainly exists in the public
sector – many of the breakthroughs that the tech giants rely on were hatched in
the public sector and gifted to them at no charge. There are already pioneers.
The New Economics Foundation is piloting a ‘mutually-owned, publicly regulated’
alternative
to Uber. At the last GE, the Labour party committed itself to the ‘right to
own’; giving employees the right of first refusal if the company they work for
is put up for sale. Community Interest Companies – for profit companies with an
asset lock that commits them to working in the public interest – are growing
following their creation more than a decade ago.
All this indicates that it is not utopian to think that, in
time, a publicly owned ‘shadow economy’ could be a viable alternative to the
corporations that dominate the intimate details of our lives. Given the
implications of tax havens, they may be the only hope for a liveable world.
