Corruption must be stamped out but there is an economic and moral case for tax havens that is often, perhaps conveniently, overlooked, affirms the boss of one of the world’s largest independent financial advisory organisations.
The observation from Nigel Green, founder and CEO of deVere Group, comes as British Prime Minister, David Cameron, welcomes delegates from countries worldwide for a major anti-corruption summit in London. It follows last month’s leak of millions of the so-called Panama Papers from law firm, Mossack Fonseca.
Mr Green states: “In the run up to this summit there have been repeated calls to clamp down on, or indeed shut down, tax havens in a bid to fight global corruption.
“Of course, more must be done to stamp out corruption where it exists and, as the Panama Papers underscore, some offshore jurisdictions must do a lot more to prevent people and corporations secretly hiding assets derived from illegal activities from competent governments and legitimate agencies.
“We need a targeted, joined-up, global approach to combat corruption wherever it is flourishing. But we shouldn’t assume that all offshore financial centres are inherently corrupt. Indeed, most international financial hubs are now largely well-regulated, cooperative and transparent, plus there is both an economic and moral case for so-called tax havens that is often, perhaps conveniently, overlooked.”
He continues: “These international financial hubs are a vital component of the global economy in several key ways.
“Such centres allow companies to avoid double taxation on the same income. In addition, bank accounts in tax havens are convenient and reliable for globally mobile individuals, such as expats, because they offer centralised, safe, flexible and international access to their funds no matter where they live, and no matter to which country the individual moves to in the future.
“Offshore financial hubs also help facilitate optimum allocation of capital, they promote a culture of investment and saving, and due to their competitive tax regimes, it can be reasonably argued that they help promote lower tax policies in other parts of the world.
“This wider competition is beneficial as it promotes fiscal responsibility and allows citizens to keep more of what they earn and give less away to all-too-often wasteful governments. In turn, this encourages investment and saving.”
The deVere CEO goes on to say: “But the economic and financial plusses are only part of the story as to why tax havens should be defended. There is a moral aspect too.
“They offer financial refuge for those who live in nations where there is economic instability, leading to, for example, major currency volatility and out of control inflation; and/or where there is political unrest and persecution from government and the ruling classes.
“In such places, corruption is often widespread, crime is rampant, and expropriation is a regular occurrence.
“Those from political, ethnic, religious or sexual minorities – and arguably especially the wealthier ones – are, perhaps unsurprisingly, common targets of crimes, such as kidnap, and/or state-approved discrimination and persecution.
“Tax havens offer fiscal protection to these people by providing a secure place for their assets to help them avoid criminals and/or questionable political regimes. Understandably, they want to keep their assets in a safe and well-run jurisdiction.”
Nigel Green concludes: “Tax havens’ laws that are favoured by some for their tax efficiency are also used by others needing bona fide financial refuge and protection.
“And it is also worth remembering that tax havens aren’t just the often quoted ‘treasure islands’. The UK, for example, is a tax haven for Chinese and Russian nationals living in Britain.
“The London summit should serve to further enhance the effectiveness and credibility of these international financial centres and the sector. This is especially important as the industry is set to grow exponentially in the coming years as individuals and companies become ever more globalized
“Whilst corruption must be tackled, the vast majority of the offshore sector only provides services that are fully compliant and legal and they are used by law-abiding clients, who are simply looking for typically better returns, more investment options and greater flexibility.”