To hear politicians across the Atlantic tell it, the dark specter of Paradise is haunting the world. The Paradise Papers reveal precisely how wealthy individuals and corporations – including the Queen of England, U2’s sainted front man Bono, the less-than-saintly Madonna, and scores of others – have used offshore tax havens to limit their tax liability.
The papers, which were illegally obtained from Appleby law firm and released by the International Consortium of Investigative Journalists, include 13.4 million files dating from 1950 to last year, spanning a total of 1.4 terabytes. Apparently none of the transactions recorded is illegal. Yet they have made an impact large enough to ripple across the Atlantic Ocean.
The UK’s Labour Party leader Jeremy Corbyn said anyone who used an offshore tax haven should “not just apologise for it, [but] recognise what it does to our society” – something understood as implying that the Queen owed the British an apology.
U.S. Senator Bernie Sanders said the papers proved the existence of an “international oligarchy in which a handful of billionaires own and control a significant part of the global economy … and avoid paying their fair share of taxes.” He concluded, “We need to close these loopholes and demand a fair and progressive tax system.”
How should a person of faith look at the Paradise Papers and the proposed policies to limit tax havens?
Richard Teather, the senior lecturer in tax law at England’s Bournemouth University, brings his expertise to bear on the subject in a new essay for Religion & Liberty Transatlantic.
He notes that giving the money to the government is not necessarily the best use of resources. “I am sure that we have all seen enough incompetence in governments and enough examples of governments doing things that, to a Christian, are downright wrong to realise that giving governments more money is not always the best thing, or even necessarily a good thing,” he writes.
The complexity and ambiguity of the tax laws instituted by those governments creates the desire for tax havens, and makes their use a moral option, Teather writes.
Teather notes that, while there are numerous reasons to use havens such as the Cayman Islands, paying zero tax is not one of them. And if these havens did not exist, neither would the funds statists would like to tax:
The profits of the businesses the fund invests its clients’ money in remains subject to tax. The clients are still taxable on their investment income and gains from the fund. But a similar fund based in the UK would be taxed on its investment income and gains, commonly at 19 percent – and that extra tax charge doesn’t make sense. The fund is not making that income for itself, but for its clients, who are already taxable. What is the sense, or moral justification, for taxing the fund as well?
If large investors, such as the Duchy, did not use offshore funds, they would not use an investment fund at all; they would make their investments directly, and pay tax on their investment income, just as they do for offshore income. But there would be no other layer of tax, because that intermediate fund would not exist.
Teather then points out the unseen, positive effects of tax havens. Their existence generates additional jobs, development, entrepreneurship, and prosperity that never would have taken place otherwise:
The alternative to offshore funds is not for big investors to use onshore funds and pay an extra, unnecessary, level of tax. The alternative would be for less efficiency, less expertise, less variety in investment, less job creation and funding for human flourishing – and still no additional tax revenue.
What would we prefer – that big investors legally put money into offshore funds that help finance developing business sectors, or that they just stick it into the London property market?
Closing off access to these offshore funds would make it more difficult for businesses to access the capital they need to develop and grow, particularly niche businesses and firms in developing countries. That would make us all poorer, and it would not be an ethical approach.
(Photo credit: Lhb1239. CC BY-SA 3.0.)
