No safe haven, no place to hide
At last, Irish tax dodgers who salt away money in offshore accounts are being smoked out. About time, too, writes Simon O'Donovan
Published 29/08/2009 | 00:00
This week, it emerged that the Revenue Commissioners are to seek High Court orders compelling the Irish banks to disclose details of any dealings their customers have had with overseas banks or who have transferred money abroad.
This comes on top of a previous set of court orders, which forced the Irish banks to disclose details of accounts that any of their customers had with the overseas subsidiaries of the Irish banks.
The object of the latest set of court orders is to identify overseas bank accounts with foreign banks that weren't picked up in the earlier trawl.
If someone transferred money to or from one of these accounts through one of the Irish banks then they will have left an electronic and paper trail, meaning that they will almost certainly be caught in the taxman's net.
Is this latest move by the taxman some sort of quid pro quo for the recapitalisation of the banks and the unconditional guarantee of their deposits for the Government? Probably not. The State already had the legal power to demand this information, even before the banking crisis struck.
However, with all of the Irish-owned banks now completely beholden to the State, expect this latest demand for information to be fulfilled far more punctiliously than previous demands for customer details.
It may be no consolation to Irish tax-dodgers who have salted away money abroad, but they are not alone. All around the world, national governments are cracking down on the use of offshore tax havens to either dodge tax or conceal the proceeds of crime.
The beginning of the end for tax havens came in 1998 when the rich countries' club, the OECD, began a campaign against what it termed "harmful" tax competition. It threatened to publish a blacklist of tax havens that facilitated tax evasion or the laundering of the proceeds of crime.
Although they protested furiously at the time, all of the major tax havens were eventually forced to toe the OECD line.
In order to stay off the OECD blacklist, and avoid the crippling sanctions that such a move would trigger, most tax havens have now agreed to share information with the tax authorities of most developed countries.
Ireland is no exception. We already have tax information exchange agreements with Jersey, Gibraltar, the Isle of Man, Guernsey and Bermuda, while agreements are due shortly with several other tax havens, including Liechtenstein.
In practice, this means that if you use a country with which Ireland has a tax information agreement to hide undeclared income and the Revenue Commissioners come looking for you, there is no place to hide.
At the same time as the OECD has been tightening the screws on tax havens, some of the major industrialised countries have taken the gloves off in their ongoing struggle with offshore tax dodgers.
In February 2008, the German tax authorities announced that they had paid Liechtenstein bank official Heinrich Kieber €4.2m for a list of 1,250 tax dodgers and their bank account details. The Germans passed on the information to the American tax authorities, while the UK's Revenue & Customs Service offered Kieber a further £100,000 for the same information.
The Liechtensteiners went ballistic, accusing Germany of espionage. There were reports that at least one of the exposed tax dodgers had taken out a contract on Kieber's life.
For all the good it did. Sure, the Germans had played dirty, but with tax, as in love and war, all is fair. To the victor the spoils.
After the Kieber case, things could never be the same for tax havens again. If Liechtenstein, long regarded as one of the most impenetrable of tax havens, could be so spectacularly blasted open, then no tax haven anywhere was safe.
The willingness of the Germans to resort to such aggressive tactics when seeking to unlock Liechtenstein's tax secrets is testament to the huge sums believed to be hiding in offshore tax havens.
In 2007, the OECD estimated that there were assets of between $5 trillion and $7trn (€3.5trn and €5trn) being managed from offshore tax havens. That's the equivalent of somewhere between 25 and 35 times Ireland's total economic output for this year.
Until the early 1990s, most governments had been prepared to tolerate offshore tax havens. Indeed, there was a well-established pattern to the use of tax havens, with the British generally opting for the Isle of Man or the Channel Islands; the Germans preferring either Liechtenstein or Luxembourg; and the Americans choosing Bermuda or one of the Caribbean tax havens.
This tolerance began to disappear in the early 1990s when it became apparent that, as well as facilitating tax evasion, at least some tax havens were also turning a blind eye to the laundering of drug money and the proceeds of other types of crime. This made it much more difficult for tax havens to resist calls for disclosure.
In the ongoing battle against the tax havens there is one, Switzerland, which has traditionally towered over all of the others. Unlike most of its rivals, it attracted "hot" money from all over the world. That is almost certainly about to change.
Last year, the United States Internal Revenue Services (IRS) targeted giant Swiss bank UBS, which it alleged had been marketing wealth management schemes to Americans that allowed them to evade tax. The IRS demanded that UBS hand over the names of thousands of its US customers.
Initially, UBS and the Swiss government resisted the demands, citing Swiss banking secrecy laws. Uncle Sam was having none of it. With huge investment banking and commercial banking interests in the United States, UBS was in no position to resist when the Americans threatened to play hardball.
Last February, it pleaded guilty to criminal wrongdoing and agreed to pay a fine of $780m (€560m), while earlier this month it agreed to hand over the names of 4,450 account holders to the IRS.
The combination of the Kieber and UBS cases inflicted a hammer blow on tax havens everywhere. After all, what use is a tax haven if the tax authorities in your native country can find out all about it?
And the pressure on the tax havens is likely to intensify even further.
At the April G20 meeting of the heads of government of the world's 20 leading countries, it was agreed to further tighten up the OECD's campaign against tax havens.
Meanwhile, France and Germany have acted unilaterally, making it extremely difficult for companies and individuals in those countries to use offshore tax havens, even for legitimate tax avoidance purposes.
However, before anyone in this country gets over-excited at the prospect of the demise of the offshore tax havens, we would do well to remember that down in Dublin's docklands we have our own offshore tax haven -- the IFSC.
While the IFSC is aimed primarily at overseas rather than individual banks, and the Irish Government insists that it does not facilitate tax evasion or any other sort of illegal activity, that is a distinction that could well be lost in the tightening up of international banking regulation that is likely to be one result of the global financial meltdown.
Already, IFSC tax revenue to the Irish exchequer, which peaked at over €1bn in 2006 and 2007, has fallen to about €860m last year, with a further fall likely this year.
This is bad news for the more than 10,000 Irish people who work for IFSC companies.