The current discussion on tax havens is missing the point - So what do we really need to do
The discussion is generating headlines but precious little in the way of tangible progress. This is a wasted opportunity a this political space is unlikely to open again and as William Buiter has sensibly remarked that it is better to over-regulate and then loosen up than to wait for the financial community to get back up and thwart any real efforts at change.
So what are the problems that Tax Havens contribute to?
Tax Evasion/Avoidance by OECD country citizens
Tax Evasion/Avoidance by Developing country citizens
Tax Evasion/Avoidance by Corporate Entities
Money Laundering etc
Of these the discussion on reducing (no one is eliminating bank secrecy) bank secrecy is likely to have a modest impact on Tax evasion by OECD country citizens and not much else. Precious little other change is being discussed.
The first problem is that the issues being discussed for change are bilateral tax information exchange treaties. One quick look and we realize that more than 18,000 of these would need to be negotiated in order for all countries to be covered. This is not only inefficient but is also something that will almost never happen. Developing countries in particular, which lose hundreds of billions every year to capital flight will continue to lose out as tax havens negotiate TIEA’s with select countries which belong to the OECD or G-20.