Gaming the system

An Oxfam America study released in April this year found that for each dollar America's 50 biggest companies paid in federal taxes between 2008 and 2014, they received $27 back in federal loans, loan guarantees and bailouts. The same report further said that each $1 the biggest companies spent on lobbying was associated with $130 in tax breaks and more than $4000 in federal loans, loan guarantees and bailouts.
Nicholas Kristof writing in International New York Times (The real welfare cheats-Friday April 15, 2016) quotes Ray Offenheiser, president of Oxfam America, as saying: 'The global economic system is becoming increasingly rigged' in ways that exacerbate inequality. Kristof says the Panama papers should be a wake-up call, shining a light on dysfunctional tax codes around the world. Among 500 corporations in the S&P 500 stock index 27 were both profitable in 2015 and paid no net income tax globally, according to an analysis by USA Today quoted by Kristof.
'American companies game the system in many ways, including shifting profits to overseas tax havens. In 2012, American companies reported more profit in low-tax Bermuda than in Japan, China, Germany and France combined, even though their employees in Bermuda account for less than one tenth of 1 per cent of their world-wide totals.'
Off shore companies help free banks from reserve requirements and other democratic restraints on their behaviour. The new British and American zones were increasingly about escaping financial regulation-though with plenty of tax evasion and criminal activity thrown in, of course.
The London-based Euromarkets, then the wider offshore world, provided the platform for US banks in particular to escape tight domestic constraints and grow larger again, 'setting the stage for the political capture of Washington by the financial services industry, and the emergence of too-big-to-fail banking giants, fed by the implicit subsidies of taxpayer guarantees, plus the explicit subsidies of offshore tax avoidance, that continue to hold western economies in their stranglehold today'-- TREASURE ISLANDS ( Book uncovering the Damage of Offshore Banking and Tax Havens) by Nicholas Shaxson.
According to Shaxson the old alliance between the Wall Street and the City of London, which collapsed after the Great Depression and the Second World War, had been resurrected.
'In reality the system was rarely adding value, but was instead redistributing wealth upward and risks downward, and creating a new global hothouse for crime. Under cover of this great misunderstanding, often artfully encouraged by those who wanted to conceal the true nature of the new financial revolution, the offshore system would play out in ways that would become increasingly significant in the 30 years to follow. The world's worst war for years has been the civil conflict in the Democratic Republic of Congo, which is tied in with the wholesale looting of its mineral resources-via tax havens.
'Nearly every effort to generate large flows of capital to developing countries since the 1980s has ended in crisis because the money has escaped offshore. The systematic looting of the former Soviet Union, and the merging of the nuclear-armed country's intelligence apparatus with organised crime, is substantially a story that unfolds in London and its offshore satellites.
'The political strength of Saddam Hussein had important offshore underpinnings, as does the power of North Korea's Kim Jong-Il today. Prime Minister Silvio Berlusconi's strangle hold over Italian politics is significantly an offshore story. The Elf affair which helped powerful French elites float above and out of reach of French democracy, had secrecy jurisdictions at its heart. Promoters of frauds such as "pump and dump" schemes to hype up stocks, then dump them on an unsuspecting public, always hide behind offshore entities.
'As of 2009 the biggest source of foreign investment into India, at over 43 percent of the total, is not the United States or Britain or China but the treaty haven of Mauritius, a rising star of the offshore system. And here lies another odd tale.
'Mauritius illustrates how the British spider web is no imperial relic but a modern and self-renewing system. Although French-speaking, the country has a long history of British colonial involvement.
'Mauritius set up its offshore centre in 1989 under the tutelage of experts mostly from the City of London, Jersey, and the Isle of Man. Major banks like Barclays and HSBC have built up major operations and multi-story buildings in Cyber City south of Port Louis [the capital]. Six years ago there were only five. Today, there are about 40.
'Though formally independent, Mauritius is a member of Britain's Commonwealth, and its final appeal court is the Privy Council in London. Having gotten over a shaky period in the 1980s, Mauritius is now politically stable and boasts a cheap, well-educated, and multilingual labour force, and it is in the perfect time zone to serve Europe, Asia, and Africa. With over 40 tax treaties with countries in those three continents, Mauritius is a fast-growing conduit haven for investment into India and for investment into Africa from China and the City of London.
'Mauritius also specialises in "round-tripping." In this practice a wealthy Indian, say, will send his money to Mauritius, where it is dressed up in a secrecy structure in order to disguise it as foreign investment before it is returned to India. Because of the treaty, the wealthy Indian can avoid Indian withholding taxes on local earnings and use the secrecy to do nefarious things-such as constructing a local market monopoly by disguising the fact that a seemingly diverse and unrelated array of competitors in a market is in fact controlled by the same interests. The construction of secret monopolies via offshore secrecy seems pervasive in certain sectors and goes some way toward explaining why, for example, mobile phone charges are so high in some developing countries. Local elites lobby for these treaties despite the harm they can cause. The India treaty with Mauritius is said to be a pure treaty-shopping treaty.
'The Netherlands, with a wide network of tax treaties, is a good example of a treaty haven. The two biggest sources of foreign investment into China in 2007 were not Japan or the United States or South Korea but Hong Kong and the British Virgin Islands.
'The narcotics industry alone generates some $500 billion in annual sales worldwide2: To put this into perspective, that is twice the value of Saudi Arabia's oil exports. 3: The profits made by those at the top of the trade find their way into the banking system, the asset markets, and the political process through offshore facilities. You can only fit about $1 million cash into a briefcase. Without offshore, the illegal drugs trade would be more like a cottage industry.'