The release of the Paradise Papers has thrust international tax planning back into the media spotlight just 18 months after the release of the Panama Papers.
This has further enraged many, with the leader of the UK Labour party, Jeremy Corbyn, summing up the general feeling with his comment that “a super-rich elite holds the taxation system and the rest of us in contempt”.
Whilst the outrage is understandable, the general debate around the Paradise Papers is flawed in two significant respects.
A broken system
Firstly, the majority of the financial arrangements revealed in the Paradise Papers were perfectly legal, as opposed to the Panama Papers, which concerned illegal tax evasion. Whilst this does evidence an inherent unfairness in favour of multinationals, which can afford to take and implement tax planning advice, it emphasises the inability of the current global tax system to deal with giant, stateless IT companies.
Take, for example, the furore in Britain in 2015 over the paltry amount of tax being paid by Google, leading to an enquiry by a Parliamentary Select Committee. The head of Google Europe was even told: “I think that you do evil” in response to their aggressive, but legal tax avoidance measures.
This led to Google agreeing to pay 130 million pounds in back taxes – but arbitrary one-off payments are hardly a basis for a sustainable and fair tax system.
Secondly, the government hypocrisy when discussing tax avoidance – particularly in the UK and the US – is staggering.
Ever wondered why London attracts so many wealthy foreign individuals? The UK currently offers one of the most attractive regimes in the world for wealthy ‘non-domiciled’ individuals to pay no tax on their overseas earnings.
The US, meanwhile, operates arguably the world’s largest ‘tax haven’ out of Delaware. Many remember Obama railing against the 19,000 companies listed at Ugland House in the Caymans. He neglected to mention the 285,000 companies registered at the CT Corporation building in Wilmington.
The wider malaise
There is no doubt that the Paradise Papers shed light on a tax system that favours multinationals and the global elite over the rest of us. However, that is also true of the global financial system in general.
Legal corporate tax avoidance, whilst ethically questionable, is a symptom of a much larger malaise.