Hooray! Another victory for the European Union. Three of the most notorious tax havens have been for...
Hooray! Another victory for the European Union. Three of the most notorious tax havens have been forced to bend to its mighty will and agree not only to removing ring fencing, but also to automatically exchange tax information with all the European countries.
Well, not quite. The EU Savings directive and the Code of Committee may have ruffled a few feathers, but the actual effect of the process has been to show the massive difficulties in the grand goal of unifying the financial regulation of the world.
Complaints from the G7 about unfair and predatory tax practices did not have the expected effect of getting every country's tax roughly in line. Instead, jurisdictions started a blanket reduction of tax. Ireland was one of those who started the tax race. In response to the looming end of the IFSC, all rates were slashed to 12.5% and the Isle of Man moved its rates in the same way. The financial services industry is not a heavy drain on a state's resources ' in fact it tends to contribute heavily, so small economies with large financial sectors can afford to undercut the tax system of any of the large countries. These moves have therefore done little but increase the competitiveness of those jurisdictions the EU and Organisation for Economic Co-operation and Development were so desperate to squash.
The information exchange issue is even more of a white elephant. No amount of international pressure will convince the government of a state to bankrupt itself and, quite rightly, the Isle of Man, Jersey and Guernsey have said they will only contribute to shared tax information if all their competitors do the same. But who are those competitors? Switzerland, for one. Luxembourg, Monaca, Liechtenstein, Singapore and Hong Kong to name a few more; and, of course there is the United States.
Imagine the logistical nightmare of a pan-European savings and investments database, with every person requiring individual identification and every transaction needing to be immediately updated for every participating member. Now imagine trying that on a global basis.
That doesn't even take into account the impossibility of getting so many countries to agree to a unified system, or agree at all. It's a gargantuan task.
In fact, the crown dependencies have played a canny game ' they have shown political commitment to the ideal of a shared tax system without exposing themselves to the financial risk of having to implement it.
And, if the seemingly-impossible ever happened, even then it wouldn't matter, because every one of their competitors would be suffering under the same regime.
When it comes down to it, without a single, international revenue service enforcing the same rules throughout the world, there will always be 'jurisdictional arbitrage.' Sophisticated advisers will discover the most efficient way of handling their clients' money.
International bodies will lose their credence the more it looks like they are simply covering up for the inefficiencies in the taxation systems of their most powerful members ' and all at the expense of taxpayers.
It can be hoped that soon that instead of being publicly reviled, effective tax planning will instead come to be admired.
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