Taxes and the Rich: Britain May Name and Shame Biggest Tax Avoiders

A new study (PDF) has found that the world’s wealthiest individuals are holding at least $21 trillion in off-shore tax havens.

That’s equivalent to the gross domestic product of the United States and Japan combined.

The report, by a campaign group called the Tax Justice Network, says the three private banks handling the most offshore assets for the global super-rich are UBS, Credit Suisse and Goldman Sachs.

Britain said Wednesday it would toughen up oversight of tax avoidance schemes. This could see the government naming those who try to aggressively reduce their tax bills.

Tax avoidance is not illegal, but Prime Minister David Cameron, says it’s “morally wrong”. The crime is tax evasion. The British government hopes wealthy individuals will be forced into paying a fairer share.

Anchor Aaron Schachter speaks with London-based business reporter, Tim Jenkins.

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Aaron Schachter: Another issue in the election campaign has been Romney’s tax status. The Democrats have accused him of hiding his income in foreign accounts. Tax avoidance isn’t illegal but a new report says it’s very costly. The report says the worlds wealthiest individuals are sheltering at least $21 trillion in offshore tax havens. That’s about the gross domestic product of the United States and Japan combined. The report is by the group Tax Justice Network. Report author James Henry told the BBC that their estimates are probably on the low side.

James Henry: We’ve left aside for example all of the real estate and art and yachts that are held through off shore havens. That’s not in these numbers. That would be in addition. So the $21 trillion is we think a conservative estimate.

Schachter: The British government said today it would toughen oversight of tax avoidance schemes. Last month British comedian Jimmy Carr admitted making a terrible error of judgment after it emerged that he’d been using a legal scheme to cut his tax bill. Carr sheltered nearly $5 million through an offshore account. Here he is getting grilled about it on his own comedy show.

Jimmy Carr: Shawn, Sarah, Georgie, anything caught your eye in the papers this week?

Male: Well Jimmy, we all like to put a bit of money away for a rainy day but I think you’re more prepared than Noah.

Schachter: Ouch. Well, London based business journalist Tim Jenkins is following the story. Tim, tax avoidance is not the same as tax evasion, correct?

Tim Jenkins: It isn’t and Jimmy Carrs, it was lovely watching him squirm by the way on that comedy show. He was really contrite. Basically his accountants got a little over keen. He wasn’t aware of the detail is his excuse as to what was going on. Because what those accountants were telling him was do you want to pay a little bit less tax? And let’s face it, who wants to pay more tax than they should? And then specifically what about individuals and companies that are maybe doing something good with the money that they make? Maybe they’re investing in a factory to produce more jobs for your local economy. In those circumstances governments around the world allow those individuals and companies to pay less tax so you want to pay the right level of tax. That is avoidance. That’s legal. That’s getting your tax bill right. But then of course it can get quite imaginative and then it can get into the illegal, the plainly illegal and that’s called evasion. Just remember the mighty Swiss bank UBS going to U.S. citizens and saying, ‘Hey, listen. Why don’t you hid your cash in Switzerland because you won’t have to declare it to your tax authorities at all.’ And that is quite clearly illegal, Aaron.

Schachter: Now, I have to imagine some of the very British authorities who are cracking down are themselves employing creative accountants for the very purpose that you just mentioned, the avoidance not the evasion.

Jenkins: I think some people wonder whether there’s a balance of brains on this one because the clever people are on the accountancy side of this game. Maybe the less well paid, the less well motivated, are on the side of the public. It has to be said this is a game that both sides know they play and for example, the tax authorities of the United Kingdom have quite willingly struck deals with large companies and said, ‘Okay, well listen. You pay this much tax. It’s probably less than you would normally pay if you paid your full desserts but if you pay this level at least we can be sure that we’re getting a substantial chunk of money out of you.’

Schachter: What is the justification then for the British government’s new measures? I mean they include naming and shaming, correct?

Jenkins: Yeah, that’s true. Don’t forget that all of this is driven by a need to raise tax revenue in very austere times. That’s why we’ve seen the United States too applying diplomatic pressure to the likes of the Cayman Islands, especially Switzerland. Just the other day Vatican City of all places was told, ‘Listen, be more transparent with your banking systems, where you’re sorting away your money.’

Schachter: Do you think British officials really expect to recover all that much at all? I mean it sounds like a nice political maneuver here.

Jenkins: On the back of public disdain and disgust from the start of the global financial crisis, governments have been able to use that pressure to get companies to be more honest. That’s happened. I suspect there’s a double, there’s another prong to this attack which is to get people to think about their behavior, to behave responsibly, and to act before they’re actually investigated or ratted out by some of their insiders.

Schachter: London based business reporter Tim Jenkins.

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