Tackling offshore – with a bias to developing countries

July 23rd, 2010

I have suggested that if we are to reform offshore we have to start at home, and have detailed a programme of reform that many governments would have to undertake. I have also suggested a programme of reform for secrecy jurisdictions. The next target for reform on my agenda of necessary change to transform the offshore world was the international arena after which I proposed necessary reform to the philosophy of property rights and obligations. That leaves one last agenda item: the presumption of a bias in favour of developing countries.

Developing countries face problems on many fronts, but one of the biggest is their struggle to develop into fully fledged nationhood in the face of almost insurmountable obstacles designed to prevent them doing so. Their natural resources are sold from under them; their tax revenues are stripped from their shores, their leaders have corrupt practices laid in their path by an army of corruption services providers operating from secrecy jurisdictions. Offshore secrecy jurisdictions play an enormous part in all these processes that undermine the developing nation state. If the problem of offshore is to be tackled then these issues have to be addressed.

There are three ways to do this in addition to the reforms already noted, many of which would themselves be of enormous benefit to developing countries. The first is that these countries must be supplied with the direct aid they need to create viable tax systems. This includes technical support, IT support and cash. The latter is needed to ensure that staff can be retained within the tax administrations of these countries and not be poached once fully trained by the big firms of accountants.

Second, these countries must be specifically encouraged to recover information from secrecy jurisdictions on the structures maintained by their citizens in those places, and be provided with all the technical assistance required to ensure that this data can be handled and used. This is vital if the curse of corruption and the abuse of the tax base of these countries is to be stopped.

Last, these countries must be allowed to develop tax systems that suit their particular needs. The IMF, World Bank and others argue that these states must have open tax systems that encourage trade and the free flow of capital, but the reality is that no state has come to maturity with such a tax system in place. These are tax systems that mature states can afford. Developing countries cannot afford VAT systems that assume literacy when that does not exist. Nor can they abandon tariffs when these are easily the most effective mechanisms, and the cheapest, for ensuring that tax is collected on the limited range of exported goods they have to offer that are vital to their state income. And they also need tariff barriers to protect fledgling enterprises. If these impede the flow of capital to offshore centres, so be it. That is a price well worth paying. Put simply, development comes before the ideology of free movement of capital that secrecy jurisdictions espouse on every occasion.

Written by Richard Murphy

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