THE HIDDEN WEALTH OF
NATIONS: The Scourge of Tax Havens
GABRIEL ZUCMAN
University of Chicago Press, 2015, 129 pages
Review by Phil Shannon
Criminal heists don’t come any bigger than the global theft every
year by the ultra-rich of around US$200 billion courtesy of the off-shore
tax-haven banking industry. In The Hidden Wealth of Nations, Gabriel
Zucman, economics professor at the London School of Economics and Political
Science, estimates that a staggering US$7.6 trillion, or 8% of the world’s entire
individual financial wealth, is held in the tax-shelter banks of Switzerland
and a handful of other countries.
There, it annually dodges some $190 billion in interest,
dividend and capital gains taxes on the income it generates, whilst also escaping
any wealth and inheritance taxes, which would otherwise be payable in the
depositors’ home countries should the owners of the hidden wealth, as 80% of
them do, choose not to declare these assets to their national tax collector.
Swiss bankers like to claim that their 1935 banking secrecy
law, which legalised the fabled, anonymous ‘Swiss numbered bank account’, originated
as a noble act to protect the savings of persecuted Jews in Germany. As Zucman shows, however, only 1.5% of non-Swiss
depositors who opened accounts between 1933 and 1945 were Nazi victims. Switzerland’s banking ‘big bang’ happened well
before Hitler took power, in the 1920s, with the biggest growth spurts fuelled
by wealthy French depositors following the years when France increased its top
marginal tax rate.
Swiss banks have continued their services for the world’s high-wealth
elite who want to cheat on their taxes.
Corrupt Russian oligarchs and African dictators are eager clients but Europe’s
wealthy lead the crime wave with US$80 billion in tax evaded through off-shore
tax hidey-holes.
The major method for disguising the true identity of the
wealth-owners these days is a devastatingly simple accounting sleight-of-hand. Sixty per cent of foreigners’ bank accounts
in Switzerland confer customer anonymity through de-identified shell companies,
trusts or foundations registered in the British Virgin Islands, the Cayman
Islands, Liechtenstein, Luxembourg, Bermuda, Jersey and other no-taxing micro-states. These empty financial fronts can be quickly set
up for a few hundred dollars, lickety-split, in bank offices in Berne or Zurich.
Many millionaires derive their wealth from their majority
shareholdings in multi-national corporations (their “ownership of the means of
production which leads to true economic and social power”, says Zucman). These companies often engage in the scam of profit-shifting
to low or zero tax jurisdictions. For
example, over half of the total overseas profits made by US multinationals (accounting
for 20% of total US corporate profits) takes refuge in tax-havens, avoiding US$130
billion dollars a year in corporate tax that would otherwise be payable at home.
Governments rhapsodising about tax fairness have ritually
pledged to deal with tax-havens by getting off-shore banks to report the
identity of their account-owners to the relevant national taxation agencies but,
as night follows day, weak, simplistic, partial and easily circumvented policies
have followed the rhetorical fanfare.
Procedural failure was built into a G20 scheme in 2009, for example, which
trumpeted an ‘end to banking secrecy’ but which impotently oversaw a 25% increase
in the wealth hidden in tax-havens.
New arrangements proclaimed by the G20 (now headed by the Australian
Government) have obtained pledges by most tax havens to cooperate from 2017-18
but defeat looks guaranteed here, too, because nowhere does the new protocol
deal with the identity-covering “opacity of financial intermediation chains” of
shell corporations and such-like, nor with verification procedures or penalties
for failure to comply.
Zucman proposes more radical measures. A global financial register of tax-haven
accounts, run by the International Monetary Fund, would identify (and therefore
make taxable) which of the tax-haven foreign clients own exactly what wealth,
tracked through all links in the pea-and-thimble wealth-hiding game. This would be backed by economic sanctions
such as customs duties and tariffs on non-cooperating banks. Profit-shifting by multinationals would also be
stymied by a sales-based formula which apportions global consolidated profits on
the basis of the country where each corporation does actual business rather
than the low-taxing country where it is formally headquartered.
Zucman desperately wants to tame the power of money, unlike
governments which, he notes with considerable understatement, “have not been
stellar in their boldness or determination” to tackle tax-haven theft. Zucman doesn’t ask why this is so, however.
Millionaires and corporations (including the tax-haven banks
which profit massively from wealth management fees) do not want to pay their
fair share of tax because this would cut into their wealth and profits. To their agreeable politicians - almost all
of whom are in the pockets of their corporate donors, or who (like Australia’s
Prime Minister, Malcolm Turnbull) are tax-sheltering multi-millionaires
themselves, or who share the political ideology of profit maximisation - a
genuine assault on tax havens is anti-capitalist heresy and therefore inconceivable.
The tax-defrauding capitalist class needs to be politically challenged
by those the working class taxpayers they regularly steal from. Don’t expect the world’s capitalist governments
to be leading that fight.
