Finished 10/05/2023
Treasure Islands
Found on Hacker News; people say it is a maddening yet gripping book, also recommended by the Guardian, about offshore abuses. Take it with a grain of salt.
The read is engaging; you can tell the writer is an investigative journalist, but it does not have a lot of data, just a few anonymous interviews and historical facts.
Notes
- Tax havens are jurisdictions dedicated to secrecy. They offer low or zero taxes and do not provide information on who holds accounts or companies there
- Transfer pricing is the principle behind these tactics. A multinational opens a subsidiary in a tax haven, then when it sells a product it books the profit where taxation is light, while it books the expenses in the country where it sells because those are deductible
- History of the main players, from the City of London to the Bahamas, Cayman, also Delaware and South Dakota, along with other places including Switzerland and Luxembourg. More or less all engaged in a race to the bottom to keep capital from leaving their turf
- A climate of omerta, especially in the Cayman Islands. It is a closed circle and no one can or wants to step out; hard to make sense of it. That chapter was bleak
- In the end this phenomenon harms both developing countries and us, since those taxes go unpaid and do not help the economy grow. Perhaps it helps explain the stagnation of some African countries. It also dismantles the arguments of proponents, who often look only at their own backyard and want absolute freedom without acknowledging that taxes help fund services for everyone
- LLPs. The story of this type of entity, which has tax benefits and limited responsibility if it fails (often loaded with debt and used for leveraged investments. If they fail, the government pays a lot, too big to fail). Created in Delaware and then exported elsewhere with the threat of leaving the country otherwise. Citi and JPMorgan. They also get these laws passed through heavy lobbying and tricks like adding 100 pages of technical language knowing few will understand it
- Auditing is often weak, especially among the Big Four. See Andersen with Enron. They should bear responsibility for the companies they audit, but when the issues are uncovered in other jurisdictions they are let off
- In the end, a solid proposal would be to tax using a formula based on how much revenue, staff, and goods there are in a given country, and tax accordingly. Hard in practice
- Overall, a good read, to be taken with a grain of salt and a bit vague