Treasure Islands - Nicholas Shaxson [27]
So as taxes rose across the wealthy nations amid the First World War, a new source of economic conflict emerged. Double taxation became a hot issue, and businesses began to complain and to mobilize. An International Chamber of Commerce was set up in 1920, with tax squarely on its agenda from the outset.15
From the beginning, the emerging multinationals stayed a few jumps ahead of tax collectors.
Just as the Vesteys and the U.S. meat packers used their market muscle to squeeze their competitors at both the producer end and the consumer end, so they also began to squeeze the tax authorities at both ends. The trick, once again, was the same “transfer pricing” principle used by the banana companies that I described in the last chapter. If you own the ranches, the cattle, the freezers, the docks, the ships, the insurers, the wholesalers, and the retailers, then you can, by adjusting the prices one subsidiary charges another for goods, drive the profits away from the producer and the consumer countries, and instead take your profits at the most convenient place down the line. “And the most convenient stage,” notes Knightley, “is naturally where you will pay the least taxation, preferably where you will pay none at all.”
By siphoning the profits to a holding company in a tax haven, explains tax expert Sol Picciotto, the multinationals had found a way to avoid being taxed anywhere. They could now out-compete, and grow faster than, smaller, purely national firms. A system designed to avoid double taxation had, via the use of tax havens, turned into one of double nontaxation. And through this basic formula, the offshore system has become one of the main foundations of the power of multinational corporations today.
William Vestey’s testimony to the official commission in 1920 reveals a man accustomed to getting his way. “If I kill a beast in the Argentine and sell the product of that beast in Spain, this country can get no tax on that business,” he said. “You may do what you like, but you cannot have it.”16 He wanted to live in Britain, without paying his way, demonstrating an arrogance that pervades the offshore system, underpinned by that same old argument that bankers and other owners of footloose capital wield against our democratic representatives today: don’t tax or regulate us too much, or we will move offshore.
Stung by the Vesteys’ lack of patriotism after a major war, the commissioners hit back. “Are you not to pay anything for the advantage of living here?” one asked. William Vestey refused to answer. “I should like to have an answer,” the commissioner continued. “It is one that has agitated me a good deal since the witness has been in the chair.” In the end, Britain refused to give in to the Vesteys. So they moved to the second stage of their plan, involving a more devious approach, something that helps us better understand the slippery world of offshore.
They set up a trust.
Many people think that the best way to achieve secrecy in your financial affairs is to shift your money to a country like Switzerland, with strong bank secrecy laws. But trusts are, in a sense, the Anglo-Saxon equivalent. They create forms of secrecy that can be harder to penetrate than the straightforward reticence of the Swiss variety. Trusts are powerful mechanisms, usually with no evidence of their existence on public record anywhere. They are secrets between lawyers and their clients.
Trusts emerged in the Middle Ages when knights leaving on the Crusades would leave their possessions in the hands of trusted stewards, who would look after them to provide benefits to the knights’ wives and children when they were away or if they never returned. These were three-way arrangements binding together the original owners of the properties (the knights), with the beneficiaries (their families), via an intermediary (the stewards, or trustees). Over the centuries bodies of law grew up to formalize these three-way arrangements,