Investment Markets » Banking and Finance
Is There Any Merit In Tax Havens?
Foreign governments have come down hard on tiny Liechtenstein and its secretive banks. Were they right to do so?
Say what you like about Her Majesty's Revenue & Customs, but they certainly know how to cut a deal. The German secret service paid a Liechtenstein bank mole €4m to secure details of alleged tax cheats with secret accounts in the tiny principality; the British taxman got his hundred names for just £100,000. Now a host of other countries, including the US, France and Australia are investigating.
Liechtenstein's Crown Prince Alois, whose family controls the bank at the centre of the storm, LGT, has come out fighting. "Larger states think they live in an era where might makes right," Alois says, adding that Germany is guilty not just of running a campaign against Liechtenstein, but of trafficking "stolen goods".
The Swiss have complained that the activities of the German intelligence agency, BND, are reminiscent of the Gestapo. Would this be the same Gestapo that hoarded looted treasures in Swiss bank vaults during the war?
If this assault on Liechtenstein marks the beginning of a wider crackdown on tax havens, then bring it on. We can no longer turn a blind eye to places that specialise in stashing cash and fostering money laundering.
Germany's Chancellor Angela Merkel is threatening Liechtenstein with isolation. We should follow suit – and go further. World governments should agree a policy of slow suffocation across all jurisdictions that promote virtually non-existent taxation.
Tax evasion by the wealthy is reprehensible, but offshore banking has other important purposes. When a state becomes truly oppressive, it is an essential protection for savings. Indeed, given the lamentable record of governments, such accounts are an important civil liberty.
The secrecy principle established in the Swiss Banking Act of 1934 was a response to Nazi pressure for the names of account-holders threatened with execution for holding funds abroad. Less extreme examples abound: in Argentina, for example, the government has often expropriated middle-class savings.
Britain can hardly justify pursuing the offshore activities of its domiciled citizens so vigorously when it winks at itinerant foreigners by imposing no tax at all on their non-UK income.
That's the problem with tax havens: they are notoriously difficult to define. At what point does a country with a low tax regime become an offender?
You can't help but feel a flicker of sympathy for Liechtenstein. The clearest criminal activity we have seen so far has been on the part of the bank employee who sold the secrets, and arguably, on the part of governments which bought them.
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