Economist defends Bermuda in tax debate
A leading UK economist and columnist for the Financial Times has come to Bermuda’s defence in the growing tax avoidance debate.
Under the headline “Don’t blame the havens tax dodging is everyone else’s fault”, John Kay writes that the week’s Group of Eight meeting “produced denunciations of secrecy and tax havens”.
But, he writes in the article, “The sources of the problem are not to be found in Bermuda or the Channel Islands. The activities that escape taxation take place in the G8. The correct starting point is the flawed structure and implementation of corporation tax in the G8 itself.
“Corporation tax is a levy on the profit a company earns for its shareholders. It is therefore both a tax on corporate activity and on shareholders, and it is not well designed to achieve either purpose. It is not robust administratively or economically. Complex and vulnerable to avoidance, it produces major distortions of both investment and financial decisions of companies.”
He goes on to write that “opportunities for tax avoidance are everywhere and always the consequence of rules that treat economically similar transactions differently”.
“It follows that there is generally alignment rather than conflict between the objectives of promoting economic efficiency and establishing administrative structures robust to avoidance. The present structure of company tax achieves neither.”
He concludes: “A serious reform agenda would involve a principled reappraisal of the basis for taxing corporations both nationally and globally, and a strategy for effective enforcement of existing rules. Such a strategy would make clear that executives of companies which present accounts to tax authorities that are essentially false, and the accountants who support them, will in future run serious risks. The door they hear closing behind them might be the door of a prison cell rather than the door of 10 Downing Street.”