Progress in flushing out tax dodgers
In a global news cycle that contains so much gloom, let’s pause to applaud the plodding efforts of bureaucrats to catch up with taxdodging criminals.
The reason for cheer is in a press statement issued this week by Revenue Minister Stuart Nash, which initially looked like one of those worthy things that governments are always doing but journalists don’t report because they’re boring.
In this case, New Zealand was expanding its ‘‘global ability to combat tax evasion by joining forces with authorities in 30 countries and jurisdictions’’.
Worthy enough. We already have such agreements with 60 other countries. So what?
And then you see the list: a veritable rogue’s gallery of the world’s tax havens.
There’s the royalty of banking secrecy and tax evasion, Switzerland, one of the world’s richest countries and home to the headquarters of many of the world’s most powerful international institutions.
This, despite its history of remaining neutral and open for business during two world wars while providing secret banking services to pretty much any despot or kleptomaniac who asked, including Nazi hoarders of stolen Jewish gold.
The list includes the most newly notorious tax haven: Panama, birthplace of the Panama Papers. Published by the International Committee of Investigative Journalists in 2015, the more than 11.5 million documents leaked from a single Panamanian law firm, Mossack Fonseca, exposed tax shenanigans that stretched from the Saudi royal family to a lawyer mate of former prime minister Sir John Key’s.
The Panama Papers helped give impetus to the glacial process of global tax treatywriting, which has produced a wave of tax information-sharing compliance from tax havens that was recently unthinkable.
‘‘Twenty years ago, the Swiss government was making speeches in international tax forums saying that banking secrecy was akin to a fundamental human right,’’ says University of Auckland Professor Michael Littlewood, an international tax law expert.
‘‘You don’t really hear anyone saying that these days.’’
Also on the list of countries now entering mandatory information-sharing arrangements is our own local bad boy: the Cook Islands.
Technically almost a part of New Zealand, the Cooks are still able to offer certain types of creative accounting despite all the scrutiny in the 1990s of Winston Peters’ ‘‘winebox’’.
There’s a long, predictable list of the small island tax havens of the Caribbean – St Kitts and Nevis, Antigua and Barbuda, Curacao, Grenada and the rest.
And there are some hangerson and wannabes, such as Vanuatu and Samoa, whose legal environments have been sliding towards assisting certain types of exotic financing.
Littlewood says the Panama Papers could still happen today. ‘‘But it is now much, much harder.’’ The capacity for mischief remains for two main reasons, he says.
First, there are still plenty of holes in the global patchwork of tax treaties. Many countries have no agreement of any kind with tax haven countries.
And second, there is variable compliance with the new regime, caused by a mixture of corruption, incompetence and, in some small tax haven nations, a workforce skills shortage that makes compliance difficult.
For example, the new regulations may require tax authorities in, say, Australia, to notify New Zealand’s Inland Revenue if they see large deposits suddenly appearing from New Zealand in an Australian bank account.
That is not exactly what tax haven bureaucracies have traditionally set out to achieve.
New IT systems and a workforce for monitoring need to be built from scratch, funded by a government that may not be all that keen to be quick about it.
Likewise, tax avoidance schemes – which are legal, unlike evasion – can still be peddled under these countries’ existing tax law. Wealthy New Zealanders and companies can keep structuring ‘‘tax-efficient’’ vehicles through tax havens without penalty. The difference is they’ll have to be happy that Inland Revenue could find out all about that as of right from a jurisdiction that previously guaranteed secrecy.
As Nash puts it: ‘‘It’s not illegal to have a bank account in the Bahamas or Switzerland. They just have to declare income earned from investments in those countries.’’
This week’s announcement is one step in a 30-odd-year effort co-ordinated by the rich countries’ club, the Organisation for Economic Co-operation and Development (OECD), to tackle global tax evasion.
The lesson is that it takes time and change does happen. However, there is a long road ahead, as shown by the slow progress of the OECD’S Beps programme to curtail base erosion and profit shifting.
That process is proving so slow at finding a way to tax stateless giants such as Facebook, Google and Amazon on revenue earned from New Zealand that the Government is following Australia and others with an interim tax based on those firms’ local turnover.
It’s not perfect or enough, but it’s a sign of the relentless determination of all governments to collect the revenue they need to fund the endless demands of citizens.
Technically almost a part of New Zealand, the Cooks are still able to offer certain types of creative accounting despite all the scrutiny in the 1990s of Winston Peters’ ‘winebox’.