U.S. Passes Cayman Islands to Become the 2nd Biggest Tax Haven

Doing more for the tax avoidance of the super rich isn’t something to be proud of. There’s also legislation already drafted that would end anonymous U.S. shell companies.

Proving its role in the global race to the bottom on tax avoidance and  contributing to a multitude of abuses around the world, the United States is now second-largest tax haven on the planet, according to an updated international index.

The Tax Justice Network found that the U.S. has surpassed the Cayman Islands as the number-two place where corporations can easily stash their money to avoid tax liabilities. Switzerland retained its top place on the list.

“Financial secrecy provided by the U.S. has caused untold harm to the ordinary citizens of foreign countries, whose elites have used the United States as a bolt-hole for looted wealth,” wrote the group in its Financial Secrecy Index.

“This is not a ranking in which the U.S. wants to be number one or even number two,” said Gary Kalman, executive director of the FACT Coalition, which advocates for policies to combat criminal activity in the financial system. “We have one of the strongest economies and one of the most secret. It’s a perfect recipe for attracting the proceeds of crime, corruption, and tax evasion. Internationally, this secrecy facilitates corruption that drains wealth from developing countries.”

The Index reports that shadowy shell companies in the U.S. were used to divert millions of dollars in international aid intended to improve the safety of former Soviet nuclear plants. Delaware, Wyoming, and Nevada were named as states with a multitude of “shell” companies, which allow hidden owners to store and launder money gathered via criminal activity.

“The opioid crisis and human trafficking are both on the rise with the help of anonymous shell companies to launder the proceeds,” said Kalman.

“Almost two million corporations and limited liability companies (LLCs) are formed in U.S. states each year, many by foreigners, without the states ever asking for the identity of the ultimate beneficial owners,” according to the report.

The U.S. now holds about 22 percent of the global market in offshore financial services, up from 14 percent in 2015, the last time the Index was updated.

The report notes that the U.S. government has been vigilant in protecting itself against citizens who might evade taxes by disguising as foreigners, while “preserving the U.S. as a secrecy jurisdiction for foreigners.”

“This report is the latest evidence that policymakers should move forward with sensible measures to end the abuse of anonymous shell companies, increase transparency around where multinational companies pay taxes, and engage constructively in international financial transparency initiatives,” Kalman said.

The U.S. — The World’s Preeminent New Tax Haven

Tax havens are a major factor (and consequence) of global inequality. There are enormous sums of money in offshore tax havens, and there are enormous needs for the many that could make good use of that money, but those two realities are rarely being brought together.

Seven years ago, the U.S. led an effort to address a problem facing governments everywhere. Each year, people manage to avoid paying an estimated $2.5 trillion in income tax — a giant sum that could be used to combat poverty, update infrastructure or lower tax rates for law-abiding citizens.

Now, however, the U.S. is becoming one of the world’s best places to hide money from the tax collector. It’s a distinction that the country would do well to shed.

In 2009, amid growing budget deficits and a tax-fraud scandal at Swiss bank UBS AG, the Group of 20 developed and developing nations came to an agreement: They would no longer tolerate the network of havens, shell companies and secret accounts that had long abetted tax evasion. A year later, the U.S. passed the Foreign Account Tax Compliance Act, which required foreign financial institutions to report the identities and assets of potential U.S. taxpayers to the Internal Revenue Service.

Under threat of losing access to the U.S. financial system, more than 100 countries — including such traditional havens as Bermuda and the Cayman Islands — are complying or have agreed to comply.

The U.S. was expected to reciprocate, by sharing data on the accounts of foreign taxpayers with their respective governments. Yet Congress rejected the Obama administration’s repeated requests to make the necessary changes to the tax code. As a result, the Treasury cannot compel U.S. banks to reveal information such as account balances and names of beneficial owners. The U.S. has also failed to adopt the so-called Common Reporting Standard, a global agreement under which more than 100 countries will automatically provide each other with even more data than FATCA requires.

While the rest of the world provides the transparency that the U.S. demanded, the U.S. is rapidly becoming the new Switzerland. Financial institutions catering to the global elite, such as Rothschild & Co. and Trident Trust Co., have moved accounts from offshore havens to Nevada, Wyoming and South Dakota. New York lawyers are actively marketing the country as a place to park assets. A Russian billionaire, for example, can put real-estate assets in a U.S. trust and rest assured that neither the U.S. tax authorities nor his home-country government will know anything about it. That’s a level of secrecy that not even Vanuatu can offer.

From a certain perspective, all this might look pretty smart: Shut down foreign tax havens and then steal their business. That would be the kind of thinking that’s undermining America’s standing in so many areas, from trade to climate change. Instead of using its power to establish an equitable system of global governance, it’s demanding a standard from the rest of the world that it refuses to apply to itself. That isn’t leadership.

Paradise Papers Release Shows Immense Wealth Hidden by World Elites in Offshore Tax Havens

The Paradise Papers show that the world is moving too quickly in the direction of what’s perhaps appropriately described as an international oligarchy controlled by billionaires and giant multinational corporations.

The world’s biggest businesses, heads of state and global figures in politics, entertainment and sport who have sheltered their wealth in secretive tax havens are being revealed this week in a major new investigation into Britain’s offshore empires.

The details come from a leak of 13.4m files that expose the global environments in which tax abuses can thrive – and the complex and seemingly artificial ways the wealthiest corporations can legally protect their wealth.

The material, which has come from two offshore service providers and the company registries of 19 tax havens, was obtained by the German newspaper Süddeutsche Zeitung and shared by the International Consortium of Investigative Journalists with partners including the Guardian, the BBC and the New York Times.

The project has been called the Paradise Papers. It reveals:

[…]

Meanwhile, multinational companies are shifting a growing share of profits offshore – €600bn in the last year alone – the leading economist Gabriel Zucman will reveal in a study to be published later this week.

“Tax havens are one of the key engines of the rise in global inequality,” he said. “As inequality rises, offshore tax evasion is becoming an elite sport.”

Considering Tax Havens Makes Inequality Look Worse

According to a new study, the super rich have been found to have the equivalent of 10% of world GDP (over $7 trillion) in tax havens that are often hidden offshore. With the consideration of these facts, economic inequality is actually worse than what a lot of the standard reporting suggests.

The Panama Papers and other major leaks from offshore tax havens have helped shed light on just how much money the world’s wealthiest individuals are parking in untaxed obscurity, away from the authorities and, importantly, economic researchers.

This new evidence has helped economists gain greater insight into just how steep disparities between the rich and poor have become, because having actual data on offshore holdings tends to widen wealth gaps considerably.

Three of these researchers have teamed up on two important papers that offer a more in-depth look at what the world’s worst tax-evading and -avoiding nations are, and find that the existence of tax havens makes inequality much worse than it appears with standard, publicly-available economic data.

[…]

“Because offshore wealth is very concentrated at the top, accounting for it increases the top 0.01% wealth share substantially in Europe, even in countries that do not use tax havens extensively. It has considerable effects in Russia, where the vast majority of wealth at the top is held offshore,” the authors write.

Around 60% of the wealth of Russia’s richest households is held offshore, the economists estimate.

Tax Haven Evasion

“More broadly, offshore wealth is likely to have major implications for the concentration of wealth in many of the world’s developing countries, hence for the world distribution of income and wealth.”

“These results highlight the importance of looking beyond tax and survey data to study wealth accumulation among the very rich in a globalized world,” they continue.

[…]

All the hidden cash means the problem of global income inequality within nations, already seen at critical and historical levels, is actually significantly more acute.

“Wealth concentration at the very top appears to have returned to its level of the 1950s, with a U-shaped evolution from the 1950s to today,” the authors write in the second new paper.

“Despite the more prevalent use of tax havens by continental European countries, we find that wealth is much more concentrated in the United States. In fact, the top 0.01% wealth share in the U.S. is as high as in early 20th century Europe.” (For the history fans, that’s before most of the continent was democratic, and right before two world wars. US inequality is now around the same levels where it stood during the Great Depression.)

U.S. & E.U. Inequality

But European inequality has worsened substantially as well, despite more ample social safety nets and worker-friendly regulations. That’s true even in countries seen as bastions of equality and generous social policy, like Sweden and Norway.

“When including offshore assets, we find that Scandinavia and other European countries have experienced very similar trends in wealth concentration at the top over the twentieth century,” the authors say. “We find that tax evasion rises sharply with wealth, a phenomenon random audits fail to capture.”