Recomendaciones

leading transnational banks, without exception, play a major role in the offshore world. They also play a substantial role in the world of aggressive tax avoidance and evasion. In the official reports in the US that have criticised the roles of most of the major firms of

accountants in supplying abusive tax products many major banks were named for knowingly providing the funding to facilitate these transactions. Those named included Deutsche Bank which knowingly financed tax products produced by KPMG. JP Morgan Chase and Citigroup were also criticised in various ways for their role in the Enron debacle, including providing finance through offshore vehicles.

Without banking

secrecy the

administration of the

world’s tax system

would be substantially

cheaper and more

3.5 The transnational

companies

Transnational companies

deserve special mention amongst those who promote tax

injustice. They are, of course, taxpayers, but their role can be highlighted for several reasons:

they are, or should be, the largest taxpayers

they have greater opportunity to abuse the world’s tax systems within the letter of the law than any other taxpayer

when they transgress it is eventually very obvious, and imposes costs on a great many people

This gives transnational corporations a special responsibility to ensure that they pay the taxes they owe in the countries in which they make profits. There is however overwhelming evidence that this is not what they do. Instead in almost every case TNCs argue that:

tax is a cost

costs must be minimised

their duty to their

shareholders requires them to do this

they must in consequence avoid tax wherever possible This is a disingenuous argument.

First, tax is not a cost and accountants demonstrate this when they declare a pre-tax profit in the profit and loss account and subsequently show two distributions from that figure. The first distribution being tax and the second being dividends paid to shareholders. The tax due on a company’s profits is not described as a cost in any accepted accounting standard. Like dividends, it is a return to a stakeholder out of the surplus made by the company.

In that case it cannot follow that there is an obligation to

minimise the tax cost in a company because tax is not a cost. This statement is consis- tent with company law in most countries in the world. That law says, in most cases, that a company must be run for the benefit of the shareholders. In many cases that obligation is also qualified by a requirement to take the interests of other stakeholders into account. What is certain, however, is that company law does not require a company to:

operate outside the spirit of the law

take the risk of breaking the law

hide what it does from view (including that of the

undermine the tax systems which support the societies in which its stakeholders live by failing to make appropriate payment towards them Nor, unfortunately, is there evidence that TNCs or their tax advisers have consulted

shareholder views on this matter. It is fair to assume that many shareholders in pension funds, mutual funds and

structured savings schemes, who own - albeit indirectly - the shares in most transnational corporations, would not want a company to minimise its tax bill. They most certainly would not want it to do so if that involved risk of:

illegal action, as much tax planning does

underpayment to developing countries, as much transfer pricing does

the creation of artificially inflated short-term share prices which the

understatement of current tax liabilities usually will

higher taxes being paid by all other members of the community

3.6 Tax haven

jurisdictions

The tax havens and microstates listed in Box 2 carry a burden of

responsibility for the problem of tax injustice. All have

contributed in some way

towards creating a system which contributes to the imbalance of wealth distribution in the world, which hinders sustainable development.

Some of these microstates see no way out of the dilemma which they have created for themselves. In places like Cayman and Jersey more than 50 per cent of the economy is dependent upon the financial services industry. If tax haven activities were to stop the economy of the country would collapse in the short-term. However, these places are small and the cost of providing them with economic support during a transition to the creation of a more gainful economy is miniscule in proportion to the costs they currently impose upon the world economy. For countries such as Switzerland, the UK and Luxembourg, all major tax havens, the problem is one of political will. The OECD has tried to take action against some of the smaller states who have abused the world tax system through the use of harmful tax practices, including classic tax haven activities. The OECD and the EU have been less successful at bringing their own members to book when they have undertaken the same activities.

The OECD has tried