Tax havens may be ridiculed, but eradicating them will be difficult because they have become essential to the functioning of the global financial system, Franck Jovanovic shows in a new book Offshore Financial and Tax Havens: Legal or Illegal?. The only way to overcome this, he believes, is to start a real debate.
“If we manage to raise awareness and make the basics understandable [des paradis fiscaux] to a critical mass of people, well, the balance of power can change,” says Mr. Jovanovic, who is surprised that this burning issue was not the subject of serious discussion during the election campaign.
In his book, the TÉLUQ professor of economics and finance recalls that the conditions conducive to the development of tax havens emerged in the 1950s, when post-Suez British banks began lending American dollars to their non-resident clients Crisis.
These transactions, conducted in the UK but in a foreign currency, will largely escape the country’s regulations, creating “a new concept, offshore financing,” says Franck Jovanovic.
The City of London “has thus become the nerve center of a vast network of offshore jurisdictions dependent directly or indirectly on the UK,” he writes. We’re thinking of the Cayman Islands, Jersey, the Bahamas…
For this reason, several experts say that “offshore financing is a way for the UK to maintain its colonial empire, but in a new form,” notes Mr Jovanovic.
Warm hidden fortunes
Today it is estimated that more than 20% of all private wealth in the world is held in tax havens.
“Offshore finance is now largely confused with global finance,” the author coolly notes.
Result: The use of tax havens has become commonplace. Franck Jovanovic sees this when he acts as a consultant for companies or public organizations.
The phenomenon has been accentuated by accounting firms encouraging multinationals and the ultra-rich to protect their money from taxes, and by the desire of several small countries to develop by relying on the financial sector.
Banning tax havens “would require offering these countries other development opportunities,” argues Franck Jovanovic.
At the same time, offshore financing creates unfair competition between large and small companies, while encouraging states to lower their tax rates, thereby depriving them of significant revenues.
If everyone visited tax havens, we would likely witness a “systemic crisis,” notes Mr. Jovanovic.
“This is undoubtedly one of the greatest paradoxes of offshore finance: it remains profitable as long as few use it,” his book concludes.
The author emphasizes that the bribes paid by Alstom and SNC-Lavalin in known corruption cases were systematically channeled through corporations registered in tax havens. “When it’s illegal or bordering on the legal, companies often use tax havens to hide what they’re really doing,” he says.
In 2015, traders in Crickhowell, a small town in Wales, decided to mimic multinationals and set up branches in tax havens to lower their taxes. Their goal: to draw the attention of politicians to steering justice.
1. Cayman Islands
2. jersey
3. Bahamas
4. guernsey
5. Isle of Man
A year ago, the Supreme Court of Canada ruled in a separate judgment that the tax optimization program implemented by Alta Energy in Luxembourg was not abusive, saving the company tens of millions of dollars. “In other words, the use of offshore companies with no economic activity to minimize their taxes in Canada is perfectly acceptable,” regrets Mr. Jovanovic.
In 2007, two Guardian journalists showed that bananas consumed in the UK “pass through several tax havens on paper, such as the Cayman Islands, Bermuda, Luxembourg, Ireland, the Isle of Man and Jersey, before arriving at their destination,” writes he Frank Jovanovic. In the end, 13% of the selling price goes to the producing country, 47% to the tax haven and 40% to the consuming country.