Treasure Islands - Nicholas Shaxson [91]
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 labor 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 specializes 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 a pure treaty-shopping treaty,” said David Rosenbloom, a U.S. tax expert. “Why do the Indians tolerate it? We, the United States, have a treaty with Bermuda, which is ridiculous: Bermuda doesn’t even have a tax system. Countries do bizarre things. A lot of it is political. It defies rational thought.”41
8
RESISTANCE
In Combat with the Ideological Warriors of Offshore
IN APRIL 1998 THE ORGANISATION FOR ECONOMIC Co-operation and Development, a club of rich countries that includes the world’s most important secrecy jurisdictions, made an astonishing admission: Tax havens cause great harm. Tax havens and associated offshore activities, an OECD report acknowledged, “erode the tax bases of other countries, distort trade and investment patterns and undermine the fairness, neutrality and broad social acceptance of tax systems generally. Such harmful tax competition diminishes global welfare and undermines taxpayer confidence in the integrity of tax systems.”1
Offshore is not only a place, a system, and a process, but it can also be considered as a collection of intellectual arguments. Through the OECD’s new project—the first serious and sustained intellectual assault on the secrecy jurisdictions in world history2—I will explore the main arguments made by the defenders of the offshore system.
At the time the OECD project got under way, worldwide protests were rampant against the obvious failures of globalization. Yet campaigners, who focused many of their arguments on trade, all but ignored the offshore system. The OECD’s new initiative, which contained a lot of baffling discussion about international tax, hardly registered on the protesters’ agendas.
The new report was allowed to emerge for several reasons. First, the evidence had become impossible to ignore: The use of tax havens was “large, and expanding at an exponential rate,” as the report put it. Second, the report was aimed mostly at small Caribbean islands that were not OECD members, and it glossed over the role of OECD countries in offshore.3 Also, several OECD countries that were not tax havens pushed the report hard inside the OECD. But there is another important reason why the OECD report got through: Tax havens are so steeped in indifference to big inter-governmental bodies that although the OECD had flagged the report for two years, almost nobody offshore had paid it enough attention to mount a serious effort to stop it from emerging.
John Christensen was in Jersey when the 1998