Nick Shaxson ■ 2008 – The Research edition
Tax Justice Focus – THE RESEARCH EDITION
From the Editors
July 18th, 2008
The Research Edition – click here
The second quarter 2008 edition of Tax Justice Focus is a special edition drawing on papers presented at the AABA/TJN research workshop held in Essex, UK, on July 3-4. It is edited by Nicholas Shaxson and John Christensen. (For access to all the papers at the Essex workshop, click here.)
In the editorial, Not On My Watch, Please, we focus on the key theme of this edition of Tax Justice Focus: the role that tax havens and tax and regulatory “competition” play in the current global financial crisis. We look at how tax havens have encouraged and allowed financial and other companies to roll back regulation, ushering in a period of dangerous indebtedness especially in the United States and Britain, the two countries at the forefront of financial “innovation” in recent years. Tax havens have also magnified two other major interrelated elements of the crisis: complexity in international finance, and secrecy.
In our lead article Shadow Regulation and the Shadow Banking System, JIM STEWART, Senior Lecturer in finance at Trinity College, Dublin, scrutinises the vast global “shadow banking” system that has emerged stealthily in recent years. He examines the specific case of how the International Financial Services Centre (IFSC) in Dublin enabled large institutions like the now-collapsed U.S. financial giant Bear Stearns to escape regulation and build up dangerously high levels of borrowing, where one dollar of equity financed $119 of gross assets. Stewart’s original workshop presentation can be downloaded here.
Stewart’s analysis is complemented by PHILIP SARRE’S article on page six, Global Financial Flows: the big picture, in which he examines the results of deregulation of global financial flows, which was supposed to promote efficient capital markets and make more capital available to developing countries. He finds the results disappointing: since 1971 annual net capital flows increased eightfold (while global GDP simply doubled) but open capital markets seem to have resulted in capital being concentrated in the wealthier countries, with only small and volatile flows going to poorer nations. He also identifies discrepancies in reported assets and liabilities adding up to six percent of global GDP. Sarre’s original workshop paper can be downloaded here.
The following article on page nine, In Need Of a Fix: double tax avoidance rules as the institutional foundation of tax competition by THOMAS RIXEN at the Social Science Research Centre in Berlin, powerfully argues that under current rules in international taxation countries seek to preserve sovereignty and to resist allowing international tax agreements to impinge on their domestic national tax systems. The result, he concludes, is counter-productive, since these rules then set in motion powerful international dynamics of tax competition which result in significant reductions of sovereignty, and erosion of democratic choice in the countries affected. He proposes a bold solution. Rixen’s original workshop paper can be downloaded here
The next article, Making The Link: tax, governance and civil society by OLIVIA McDONALD of Christian Aid, takes a different tack. Building on research and analysis by Alex Cobham, Mick Moore and Nardia Simpson in TJF vol. 3 Issue 2, into the links between taxation and political accountability and state-building in developing nations, she explores how Christian Aid is using its research strengths and wide networks on the ground in Africa and elsewhere to push this issue forwards. It will have major implications for Christian Aid’s lobbying and campaigning efforts.
Other key articles:
* JOHN CHRISTENSEN on page 13 looks at a series of submissions made by the Tax Justice Network and various others to the UK Treasury Committee, which has launched an inquiry into the role of tax havens. This is a crucial matter, as Britain is at the heart of the global offshore infrastructure. TJN’s submission to the Treasury Committee, Tax Havens: Creating Turmoil, was written primarily by TJN Senior Adviser Richard Murphy. It is available for download here.
* ATTIYA WARIS records a tax justice seminar in Amsterdam in May, organised by TJN-Netherlands to bring together tax practitioners, finance ministry officials, academics, journalists and non-governmental groups to look at the Netherlands’ role in international taxation as it relates to developing countries.
* SOL PICCIOTTO reviews an important new book on international taxation, International Tax as International Law: an analysis of the international tax regime by Reuven Avi-Yonah, a leading academic expert on international taxation. The review looks at some of the ways multinational companies abuse international taxation, and Picciotto finds himself in agreement with Thomas Rixen (above) as to possible solutions.
* JOHN CHRISTENSEN follows this with the more light-hearted The Language of Offshore which nevertheless examines a serious point: how language has been hi-jacked by the boosters of tax havens to lend support for their damaging world-view. The article contains a handy table, the “TJN Dictionary of Offshore Obfuscation” which unpacks some of the things the supporters of offshore say, to reveal what they really mean.
* SILKE ÖTSCH then complements John Christensen’s piece on the language of offshore with a look at the imagery of offshore, and announces a photo competition. The idea is to deconstruct common images of tax havens as sunny island paradises and paragons of freedom, and show them for what they really are.
The final item on page 18 is a calendar, which leads up to a key focus of TJN: the international summit meeting on finance for development to be held on November 29th to December 2 in Doha, Qatar.