The Truth Will Out: Time Is Up For The Tax Justice Network

Published 29th August 2021- IFC Review

The Truth Will Out: Time Is Up For The Tax Justice Network

By Anthony Travers OBE, Senior Partner, Travers, Thorp Alberga, Cayman Islands

Whilst we can only surmise as to the precise reasons why founder and chairman, John Christensen and his high tax-campaigning colleague, Richard Murphy, have parted company with the Tax Justice Network (TJN), the disintegration of the organisation was simply a matter of time. Ironically, and much as predicted by informed observers, the introduction of transparency legislation consequent upon the 1998 OECD initiative on all crimes, anti-money laundering, and tax matters in the Cayman Islands and other Overseas Territories rendered the TJN anti “tax haven” narrative unsustainable. Many have been astonished that Christensen and Murphy had maintained their positions for quite so long.

One can extend a degree of sympathy to Christensen who had something of a short-lived career in the financial services private sector on the Island of Jersey in the days before tax transparency, and was no doubt exposed to a certain amount of simplistic tax evasion of the sort that was practised there before the 1998 transparency initiative. This may well have coloured his thinking but he remained rooted in those beliefs and it became increasingly clear that neither he nor Murphy had any experience or demonstrated any understanding of the way in which offshore financial centres, post the 2001 transparency commitment to the OECD, subsequently moved on to focus on the concept of tax neutrality. Nor, for deep rooted philosophical reasons driven by personal belief in the benefits of a high tax redistributive society, was it an understanding either wished to develop. Simply put, tax neutrality neither avoided nor evaded onshore tax. It relied upon the creation of state-of-the-art legislation in the offshore jurisdiction to create structures that pooled international investors’ monies with the intention that they were onward invested in onshore jurisdictions. There, the profits and gains on those investments were unquestionably subject to tax paid in the jurisdiction of investment. Nor did the TJN ever comprehend the effect of the introduction of FATCA and the Common Reporting Standard which ensured that distributions net of those onshore taxes paid to the investors would also be taxed in the jurisdiction of receipt. Neither Christensen nor Murphy understood or chose to understand this evolution and the inevitable consequence that jurisdictions like the Cayman Islands increased onshore tax revenues rather than decreased them. To them, the offshore financial centre remained branded with the simplistic tax evasion based on non- disclosure, of the 1970s and 1980s, and as a result, the TJN narrative became increasingly irrelevant and post 2000, completely so. There is a limit to the length of time that you can drive an organisation by only looking in the rear-view mirror.

In the light of these developments, the repetitive TJN narrative that monies were somehow secreted in a “black hole” or, to use the expression of an equally confused TJN advocate, Nicholas Shaxson, in his fanciful work Treasure Islands, “stuffed” in the Cayman Islands thereafter avoiding any form of onshore tax because they were “lost to the financial system”, defied logic and the law and became increasingly unsustainable. But what should have set alarm bells ringing within TJN years ago is that with the complete transparency available to the Internal Revenue Service and HMRC (and other tax authorities), the volume of Cayman Islands transactions significantly increased year on year. Nor was there any evidence that the transparency secured in the offshore financial centres by onshore tax authorities increased onshore tax revenues by any statistically relevant amount. No doubt Christensen and Murphy resigned from TJN in “frustration“ but we can more probably attribute that to the continually improving financial success of the Cayman Islands despite their best efforts.

In part, we can attribute the longevity of the TJN narrative to two additional factors. The lack of a coherent public relations campaign by the offshore jurisdictions themselves to counter the false TJN narrative contributed to its perpetuation. This was a consequence of the inability of the offshore jurisdictions to work together better to educate the public at large. A long-standing and self-inflicted weakness. Secondly, the TJN narrative was picked up by EU high tax campaigners, notably Thomas Piketty and Richard Zuckerman, both of whom were keen to align with the TJN and deliberately mischaracterise financial structuring in the modern offshore financial centre in a wholly negative manner, but for different reasons. These relate to the EU’s intention to substantially increase tax rates across the 27 Member States which we see evidenced in the political moves towards the Common Consolidated Corporate Tax Base and the EU’s philosophical hostility to small government low welfare benefit states and low tax rates.

EU Campaign To Increase Tax Revenues

Neither Christensen nor Murphy should feel their efforts were by any means a complete failure, as, however erroneous the narrative, their opinions and the repeated narrative about the “tax losses’’ caused by “tax havens’’ held sway with those in the media, particularly the BBC, whose hostility towards offshore financial centres remains palpable. And nor is the EU campaign against offshore financial centres, particularly, post Brexit, those centres likely to boost inward investment to the City, expected to end any time soon, rather the contrary. But the motivation of the EU is quite distinct. To the EU Tax Commissioners and the Code of Conduct Group, low or no tax jurisdictions (outside of the EU) which attract international capital flows are simply an embarrassment and a challenge to the EU which is fully aware that to meet its burgeoning welfare benefit obligations, tax rates must increase substantially and across the entire 27 Member States. The EU sees the success of the offshore financial centres as dangerous to its extra-territorial intentions to monopolise international capital flows which it believes, if captured, will increase its tax revenues. And so, the EU has its own reasons for mischaracterising the structuring in the offshore financial centre and of confusing tax neutrality with tax leakage. No doubt the lines of its narrative crossed with those of the TJN and each derived a degree of support from the other. But that narrative is evidently and manifestly false from whichever perspective.

The TJN will no doubt continue in some shape or form, producing its “Financial Secrecy Index”, but what this Index is supposed to mean, considering the unrestricted ability of onshore tax authorities and law enforcement to enquire into all financial transactions in the Overseas Territories and the Crown Dependencies, remains shrouded in a greater secrecy that which the TJN falsely attributed to Cayman Islands financial structuring. In the interest of concomitant transparency, perhaps the remaining staff at TJN would like to describe the methodology of the Index without which it should be taken with a large pinch of salt, a problem which Christensen and Murphy in criticising the emphasis placed by TJN on the Index no doubt discerned.

This leaves an interesting conundrum for the charities Christian Aid and Oxfam which have spent a good deal more of their charitable donations than they ought in pitching the same false TJN narrative about offshore financial centres. But neither of them can show how financial structuring in the Cayman Islands results in improper tax avoidance or tax evasion in the onshore jurisdiction. This may therefore be a good time for them to reassess how their hard-won charitable donations are spent. If what they really mean is that taxes in onshore jurisdictions should be increased as a redistributive mechanism with a view to increasing distributions to the poor, then they should simply say so. Offshore financial centres simply have nothing whatsoever to do with that debate. Save to say that the trillions of dollars of investments made, say, through Cayman Islands private equity and hedge fund structures into the United States, substantially increase not decrease tax revenues in that jurisdiction and that the Cayman Islands is therefore entirely aligned with whatever the redistributive policies of the United States may be about the relief of poverty. The perversity of the current Oxfam and Christian Aid narrative simply cannot be sustained either. As with all false narratives, as TJN have discovered, ultimately the truth will out.