Tax Avoidance & Evasion from the
Perspective of a Small International
Financial Services Centre
Dr Malcolm Couch
Isle of Man Assessor of Income Tax
Side Event to UN ECOSOC Meeting, Geneva, 23 July 2007
Introduction
All countries have people and businesses who
either fail to comply with tax law or in some
cases wilfully break it
Financial markets are increasingly globalised
Criminal activity has also become increasingly
multinational and resident to an extent within the
global financial market
Introduction (2)
“Dirty money” may account for $1 trillion of
cross-border capital flows each year (Raymond
Baker)
Sources are corruption, criminality and illicit
commerce
Any country can be part of the footprint of these
capital flows
Introduction (3)
As an example of the indiscriminate global
impact of dirty money, consider:
"Criminals seeking to launder money, evade
taxes or commit other crimes want to cloak their
actions in secrecy, and right now, that's exactly
what they get when they establish a US shell
company." (Carl Levin, US Senator)
Introduction (4)
Raymond Baker has called on the USA to state
that it “welcomes money that is legally earned
and transferred and that will be legally
employed, but it will not be a safe haven for dirty
money.”
Baker suggests eight measures should be taken
within the US jurisdiction to improve its financial
system
Introduction (5)
“The concern of national tax authorities to
ensure their ‘fair share’ of the tax base of
international business is also counterbalanced
by concerns to ensure their country maintains its
international competitiveness in attracting
investments and as a base for such business”
(Sol Picciotto)
Terminology
The debate about tax evasion and avoidance
almost always includes a focus on “tax havens”,
“offshore” and “offshore finance centres (OFCs)”
What do these terms mean?
There can’t be anything intrinsically wrong with
being a financial centre of excellence!
Terminology (2)
“A 1987 Report by the OECD recognised the
difficulties involved in providing an objective
definition of a tax haven. That Report concluded
that a good indicator that a country is playing the
role of a tax haven is where the country or
territory offers itself or is generally recognised as
a tax haven … this is known as the “reputation
test” (OECD)
Terminology (3)
“…there is no unanimity on what constitutes an
OFC. While authors have proposed various lists
of what they consider to be OFCs, an empirical
framework for uniform classification does not
exist.” (Ahmed Zoromé, IMF, April 2007)
“There does not exist a single, unambiguous
definition of a tax haven or an OFC.” (Tax
Justice Network, July 2007)
Terminology - Conclusion
If everyone knows that they cannot define a “tax
haven”, “offshore” or “OFC”, why do they bother
trying?
Stigmatisation serves a useful purpose – the
scapegoat carries the sins of others
OECD
“…some OFCs will have a secure future, not as
“concealment” centres, but as “service” centres
that have carved out niche markets in which
activities can thrive in a lightly regulated, taxneutral environment. Those that continue in the
old way of offering themselves up as places in
which home taxes can be avoided will, however,
in the author’s opinion, face extinction.” (Jeffrey
Owens, OECD, December 2006)
OECD (2)
Owens again (January 2007):
“…if you want to be a serious player in the
international environment – not going for sort of
the dark side of this game, the illegal activities,
the money laundering, the tax evasion – if you
want to be a serious offshore financial centre,
the key thing is reputation. And if you have a
reputation for being a place that’s a bit seedy,
without transparency, being prepared in fact to
take on illegitimate transactions, then what you’ll
find is that the legitimate business will not come
your way.”
UN
The UN Committee of Experts on International
Cooperation in Tax Matters considered at their
meeting in 2006 the possibility of a tax code of
conduct that might:
- set a moral tone for international tax
community…undermine the social acceptance of
international tax avoidance and evasion
UN(2)
Code of conduct concepts (continued)
- give moral support to governments that wish to
conform to international standards of conduct
- create a level playing field for low-tax countries
that are meeting their international obligations by
putting pressure on non-complying countries to
meet their own obligations
Summary
Global financial crime, including tax crime, is a
major problem running alongside the legitimate
international financial system
Ultimately, effective action to combat global
financial crime will be founded on international
cooperation, but may also require individual
countries to make domestic legislative changes
Summary (2)
Benchmark standards in international tax
cooperation should be developed by a broad
coalition of countries seeking to understand the
underlying problem areas and treating each
other with respect – UN sponsorship of such
work would give it great credibility
Standards should apply to all, and should define
the legitimate global economic community
Contact
Malcolm Couch can be contacted via:
e-mail at malcolm.couch@gov.im
phone on +44 (1624) 685355 (direct line)