DESPITE THE TAX CAPITULATION OF SWISS BANKS, THE DEMAND FOR LEGAL OFFSHORE HAVENS WILL GROW
by Q Wealth Contributor Nigel Bolton Shaw
In a recent article, CNN reports that some “tax dodgers can survive the Swiss bank bust … “ The story adds that Swiss bank holders “may choose to move funds to other offshore havens like Singapore or the Cook Islands.” However, most of the reporting focuses on a settlement between the US and Switzerland that is intended to induce more Swiss banks to turn over names of US clients.
The US has won this round, obviously. But what is left unsaid is that the US’s aggressiveness in pursuing citizens not just in Switzerland but around the world for tax dollars may only generate an increasing supply of offshore solutions. And given US actions – and generally the increasing enthusiasm of Western states when it comes to extracting taxes – the Swiss deal probably doesn’t mark the end of an era for offshore havens so much as the beginning of a new one.
When taxed immoderately or living in fear of unreasonable asset confiscation, people will react by protecting themselves as best they can. Throughout history, states that have tried to extract too much revenue from citizens have first become increasingly authoritarian and then eventually collapsed as citizens withdrew support
Rome of course suffered this fate. While there are many interpretations of Rome’s decline and fall, one of the most sensible ones is that the citizens simply withdrew their support for the state following generations of increasing military activity, central government corruption and relentless taxation. As people did so, Rome’s enemies grew more powerful and finally were able to invade the central state and the capitol city itself.
There is no question at this moment of the world’s greatest modern empire – the United States – being invaded, but the signs of social discord are surely increasing. Whether it is the Tea Party itself with its increasingly libertarian orientation or the war weariness being expressed in the current backlash against Syrian military action, factionalism in the US is expanding and solutions are hard to come by.
The problems are aggravated by the US’s posture regarding taxation abroad. The Swiss have born the brunt of much of the US’s aggressiveness abroad, and the CNN article delineates it. But the facts, show clearly the course on which the US has embarked.
Americans living and working in Switzerland aren’t feeling much joy these days on strolls along the Rue du Rhone in Geneva, where luxury watch shops and Gucci and Hermes boutiques nestle amid a clutch of private banks. Thanks to a landmark settlement last Friday between Switzerland and the U.S. designed to shut down tax evasion through secret accounts at Swiss banks, scores of expats say they’ve been unfairly branded as unsavory tax dodgers.
The picture for actual tax evaders through Swiss banks is even uglier. Under the terms of the deal, in which banks are required to disclose client data and pay fines totaling as much as $1 billion or more, such persons stand a greater chance than ever of being outed by their banks to the Internal Revenue Service and tax division of the Justice Department, where they face onerous fines and penalties, and, possibly, prosecution.
“Banks that come forward will be forced to provide a blueprint to the Justice Department, which will lead to the divulgence of countless undisclosed bank accounts,” said Jeffrey Neiman, a former federal prosecutor who once hunted Swiss bankers and now represents their tax-evading clients.
For the IRS, finding tax evaders “will now be like shooting fish in a barrel.” The settlement is unsettling to Switzerland, a complex, fiercely independent country that is home both to bank secrecy laws dating to the Middle Ages and a new drive-in sex facility in Zurich. Philip Hodgen, an American tax lawyer in Pasadena, Calif., with expatriate clients, called the settlement “21st century gunboat diplomacy” on the part of the U.S., and over the weekend Swiss newspapers called the deal “an organized surrender” akin to “swallowing toads.”
For Swiss banks, this settlement surely is “akin to swallowing toads,” but one can ask if the current emphasis on taxation is truly efficient and necessary. That goes for European powers as well as the US.
• In France, the pushback against the expanding taxation put in place by the current socialist administration has caused some £43.3bn to move out of the country, according to the Banque de France.
• The US, despite its international efforts, has trouble collecting taxes at home. The Tax Policy Centre said that in 2011 46.4% of people paid no federal income tax. And there have been estimates in tens of billions that the IRS is failing to obtain.
• Banks around the world are refusing to do business with US citizens because of the risk attached to non-compliance and the onerous paperwork involved in servicing US accounts.
The results are not merely lessened income for the state but eventually erosion of the social, political and economic fabric. In an article entitled “The Missing $20 Trillion,” The Economist magazine cites several ways that nation-states can generate more revenue with less enforcement. “Transparency” is one way – for both individuals and corporations. Lowering tax rates on individuals and corporations is likely to generate increased revenue
However, the basic problem with taxation in the modern age is twofold: 1) Government officials are spending too much money and 2) Increasingly, there is nothing to stop them from doing so.
It is in fact, the LACK of effective tax havens that is exacerbating the tax issue. Does anyone really believe that if governments could collect all the taxes due to them that tax rates would fall? People have indeed discovered they can vote themselves various benefits and that as they do so the price of living in the current demos continues to climb. The result is inevitably increased social discord and economic difficulty.
The US’s aggressive posture portends this. And those who understand it will do everything they can legally to diversify their assets and put some of their wealth beyond the reach of Western states that are increasingly voracious for revenue.
CNN mentions the viability of offshore environments such as Singapore and the Cook Islands; as Switzerland’s private banking system becomes increasingly a liability, there will be other regions and havens growing in importance as well. These areas will not advertise themselves to a wider public but will operate quietly, though presumably within legal boundaries.
The way to find out about them and what they offer will be via the alternative news media, often available on the ‘Net. As demand increases, so will supply. And prudent investors with even moderate wealth will surely want to seek out viable options when it comes to preserving capital in the face of increasing and even retroactive taxation and the specter of government confiscation, which has happened before.
Nigel Bolton Shaw specializes in international Austrian economic analysis and writes for numerous publications including Without Borders newsletter. Please see here: http://www.
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