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Morality, Hypocrisy or Just Envy? The Panama Papers

11/04/2016 14:27 | Updated 11 April 2016

Let's conduct a thought experiment. Imagine the government (of whichever country) introduced a tax break, or a tax loophole if you like, that if used, could benefit everyone irrespective of level or type of earnings. How many of us would refuse to use such a tax break because we felt that it was morally wrong to pay less tax when we could pay more? I may be totally wrong but I'm not imagining a long queue of people lining up to pay more tax.

The Panama Papers seem impossible to get off the front pages. They have launched a torrent of moralizing from all and sundry, not least opposition politicians - opportunists who see a chance to damage the Prime Minister - something he has proven perfectly capable of doing for himself without any help and assistance. But have the Panama Papers told us anything we did not already know? Individuals, families, corporations and financial institutions all try to minimize the tax that is paid. When appropriate they use offshore structures to do so. In the vast majority of cases they are doing so perfectly legally. In jurisdictions with sloppy standards and low transparency, structures can be used for illegal activity such as money laundering. How much of this did we not already know two weeks ago before the Panama papers were leaked?

Criminality is criminality and we need not address that further. But does legal tax avoidance represent the moral sewer that it is being painted as? Anyone who, in order to support public services, volunteers to pay a penny more in tax than is due by law, or who has never invested in a tax exempt pension scheme or ISA, or who has never bought a tax free item when traveling should now stand on the moral high horse and preach to the rest of us. Everyone else should just bottle the torrent of hypocrisy that is flooding the newspapers.

Here is the reality. In most countries the tax codes have become impossibly complex. Tax breaks and tax loopholes abound and are used by most of those to whom they apply. Globalisation of industry and finance has opened up the opportunity to shield (perfectly legally) billions from tax in any one jurisdiction. Those to whom such loopholes apply use them to their advantage to minimize their overall tax liability. Achieving co-operation between countries on tax matters has proven slow, difficult and maybe impossible as countries use, and have always used, tax as a way of creating competitive advantage. The UK, for instance, has one of the lowest levels of corporate taxes in the OECD for precisely this reason.

The problem does not lie with those who use legal tax loopholes. The problem lies with successive governments that continue to avoid simplifying tax rules to make them more transparent, who have persistently avoided eliminating the many loopholes that exist and who continue to refuse to co-operate in trans-national tax matters. It is true that, by their nature, many loopholes can only be used by the wealthy and those who own geographically mobile capital. Many consider this unfair and morally unjust. Others wrap envy in the clothing of morality when they do not find enough loopholes to benefit them - and then proceed to lobby intensively for tax breaks (or subsidies) that apply to their own particular situation But it is our elected representative who have constructed the system not the individuals and corporations who benefit from the existing rules.

International tax arbitrage has reached an industrial scale and is starting to have significant adverse social impact. It should be tackled as aggressively as possible. In a globalized world, this might mean re-thinking the very basis on which tax is levied - for instance, in the case of corporations, by tying tax liability, at least in part, to corporate revenues in any one country rather than the fiction that is accounting profit. But if there is any blame to put about it lies with successive governments of all colours who have enabled legal tax avoidance and who continue to do so. Everyone else, apart from the criminals, is merely doing what we all do - not paying a penny more in tax than is legally required.

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