I was slightly puzzled by what they meant by this, not least because according to some Finland is itself a tax haven, so it is difficult to see how it can become a tax haven-free zone. And Richard Murphy's explanation didn't shed any light. So I went hunting for an explanation of exactly what Helsinki had agreed to do, and in particular, what they meant by a tax haven.
The first thing I found was a press release, which among other things purports to include a link to the actual resolution. But as far as I can see it doesn't: the link is indeed to a list of Helsinki city council resolutions, but tax havens don't seem to be mentioned anywhere. However, the press release does define what it means by a tax haven:
Tax havens are either territories or countries whose authorities allow businesses or individuals to deposit their wealth at very low tax rates or, in some cases, pay no taxes at all..And it goes on to provide a link to the Tax Justice Network's list of the top 10 tax havens in the world. I shall discuss this list shortly, but first let's consider the definition of a tax haven according to that press release.
If low taxes alone were the sole reason for boycotting companies based in or linked to a country, that would undermine the right of sovereign states to define their own tax rates. In effect, a sovereign country that chose to operate very low tax rates in order to attract business would be regarded as criminal and subjected to international sanctions. But the fact is that we do not have international laws that define "acceptable" tax rates for sovereign states. Even cooperative groupings of countries such as the European Union (EU) do not have harmonised tax rates. In fact the EU includes several countries that meet the definition of "tax haven" according to that press release. As an EU member itself, Finland can't boycott them without falling foul of EU law, which allows companies to base themselves wherever they wish and trade wherever they wish without barriers. Clearly the press release is using the term "tax haven" much too loosely.
The OECD specifically rules out no or low taxes as a sufficient definition of a tax haven. It identifies four criteria (my emphasis):
Four key factors are used to determine whether a jurisdiction is a tax haven. The first is that the jurisdiction imposes no or only nominal taxes. The no or nominal tax criterion is not sufficient, by itself, to result in characterisation as a tax haven. The OECD recognises that every jurisdiction has a right to determine whether to impose direct taxes and, if so, to determine the appropriate tax rate. An analysis of the other key factors is needed for a jurisdiction to be considered a tax haven. The three other factors to be considered are:This is clearly a much more rigorous definition. In fact it is so rigorous that at the time of writing, NO country in the world meets these criteria. The OECD's "black list" of uncooperative low-tax jurisdictions currently has not a single member: the last three were removed in 2009. Even its "grey list" - those jurisdictions that have agreed to improve their transparency and reporting standards but haven't got round to doing anything about it yet - consists of only three tiny countries: Nauru, Niue and Guatemala. So if the OECD's definition of tax havens, and its assessment of countries according to that definition, are to be believed, what on earth is the fuss about - and where on earth is Finland boycotting?
Transparency ensures that there is an open and consistent application of tax laws among similarly situated taxpayers and that information needed by tax authorities to determine a taxpayer’s correct tax liability is available (e.g., accounting records and underlying documentation).
- Whether there is a lack of transparency
- Whether there are laws or administrative practices that prevent the effective exchange of information for tax purposes with other governments on taxpayers benefiting from the no or nominal taxation.
- Whether there is an absence of a requirement that the activity be substantial
The Tax Justice Network's Top 10 Tax Havens suggests that their definition is nothing like the OECD's - or, for that matter, the press release's. The list includes Germany (no.9), Japan (no.8), Singapore (no.6), the USA (no.5) and Hong Kong (no.4). None of these are known to have "no or nominal taxes" - in fact the USA has one of the highest corporation tax rates in the world, at 39%. A bit more digging reveals that these are the top ten countries on TJN's "Financial Secrecy Index", which lists 71 countries, of which 16 are European Union members (this excludes self-governing dependencies of the UK and the Netherlands). Yet almost none of these appear on the OECD's black or grey lists, even though the OECD has criteria for transparency and openness. Clearly what TJN means by a "Financial Secrecy" jurisdiction is far more wide-ranging than the OECD's definition of a tax haven.
So exactly what is TJN's definition of a tax haven? Well, it's not exactly clear. They have provided an explanation of their complex methodology. It's too long to reproduce here in full, but here are the key points as far as I understand them.
Loosely speaking, a secrecy jurisdiction provides facilities that enable people or entities escape or undermine the laws, rules and regulations of other jurisdictions elsewhere, using secrecy as a prime tool.
Loose it certainly is. Almost any country that aimed to entice business to its shores could find itself falling foul of some part of that definition. And in fact further down the page TJN comments that
"....every country in the world exhibits at least some elements of secrecy."
Indeed they do. No country is going to reveal all its financial and tax affairs to the world while tax remains a source of competitive advantage. So every country in the world is a tax haven, really. Blimey.
Anyway, TJN then go on to provide a 2-page summary explaining this definition. It doesn't add much, frankly. But there are two features that I find simply nonsensical:
- They claim that a key feature of secrecy jurisdictions is "lack of democratic accountability". So every tin-pot dictatorship in the world is presumably on their list simply because it isn't a democracy? Then why isn't North Korea on the list - or China (except Hong Kong), for that matter? Actually, democracy has nothing to do with this. More than half the world isn't democratic in the Western sense - but that doesn't mean that more than half the world is a tax haven.
- They further claim that lax regulation in secrecy jurisdictions forces other countries to deregulate their economies too in order to "staunch the outflows of capital". This is extraordinary. Deregulation ENCOURAGES movements of capital, rather than staunching them. If countries want to staunch capital outflows, they either need to make their own regimes more attractive so the capital doesn't want to leave (perhaps that's what TJN mean by deregulation?), or they have to impose some form of capital controls. Neither of these necessarily involves dismantling essential regulation, though making the economy more attractive to investors might involve getting rid of unnecessary bureaucracy. Sadly TJN does not distinguish between beneficial regulation and harmful red tape.
Further down the article there is a list of the countries evaluated by TJN, each with a link to TJN's report. There are 73 countries listed here, though the "Financial Secrecy Index" itself omits France and Nauru - apparently for legal reasons. Hmm. But the most astounding comment in the whole piece - and the explanation for the inclusion of some of the largest economies in the world in TJN's Top 10 - is this (my emphasis):
The original 2009 FSI contained 60 jurisdictions (see our original methodology here) but we have expanded this to 73. We filled it out by ensuring that the updated list contains:So the countries with the largest financial services sectors are automatically assumed to be tax havens.
- All 20 jurisdictions with the highest share of financial services exports (so we have added France, Canada, Japan, Germany, Italy, Denmark, India, Korea)
- Countries not previously included but with known secrecy jurisdiction characteristics: Ghana, Botswana, Guatemala and San Marino.
I found this absolutely astonishing, so I looked back through the piece for an explanation for this extraordinary assumption. And here it is - from the introduction:
.....the illicit financial flows that keep developing nations poor are predominantly enabled by rich OECD member countries and their satellites, which are the main recipients of these illicit flows......
.....It is OECD countries, which receive these gigantic inflows, which set the rules of the game.So now we know. The OECD's definition of tax havens is inadequate because OECD countries have a vested interest in not defining them. And OECD countries benefit from capital inflows from poorer countries via tax havens. Citizens of rich OECD countries, you are all guilty. Oh, by the way, India, that includes you.
But this leaves a problem, doesn't it? After all, Helsinki's boycott of companies with links to tax havens is supposedly because
".... tax evasion [sic] undermines the capacity of municipalities to provide social services"Finland is a rich OECD country. As is France, which has also introduced local boycotts of companies with links to tax havens. So flows to tax havens, which according to TJN ultimately benefit rich OECD countries, are to be stopped because they prevent rich OECD countries from providing social services. You couldn't make it up.
But after all this investigation, I still don't know which definition of "tax haven" Finland is using for its boycott. Is it the OECD's grey list? Is it the list of 18 mainly Caribbean countries boycotted by the French administrative region Ile-de-France? Or is it TJN's Top 10 - or their whole list? Does anyone know?
And finally. The UK campaign group Ethical Consumer have produced procurement guidelines for UK local authorities which amount to a boycott of companies involved with tax havens. The proposed policy wording is as follows:
1. This authority will not make large (over £100,000) contracts for services with or make purchases from any company:
(a) registered in a country on our current list of tax havens
(b) which is part of a company group where the ultimate holding company is registered in a country on our current list of tax havens
2. Companies tendering for contracts will receive positive marks in our supplier ranking system if:"Our current list of tax havens" is TJN's Financial Secrecy Index. The UK is listed at number 13. So if they adopted this proposal, UK local authorities would boycott UK firms. You couldn't make that up, either.
(a) they are not part of a company group of more than one related company, or
(b) if they are part of a company group, no subsidiaries in that group are registered in a country on our current list of tax havens, or
(c) if they are part of a company group with subsidiary companies registered in tax havens they publish sales, profits and tax paid on a country-by-country basis.