Treasure Islands summary

What percentage of the world’s trade do you think passes through tax havens? The answer might surprise you: it’s actually more than half.

Multinational corporations can basically choose how they want their profits to be taxed. If you buy a coffee from Starbucks, for example, Starbucks profits. But who generated this profit, and who should get it? The individual café? The coffee plantation?

How can anyone possibly defend tax havens? People often claim that tax havens facilitate healthy tax competition, or that secrecy helps people protect their money from greedy autocrats.

These arguments are quite shallow.

Further defenses of tax havens only get more absurd. Tax haven apologists argue that secrecy protects powerless people against greedy big governments. This isn’t just wrong – it’s the opposite of what’s true.

Tax havens help elite foreigners, not ordinary citizens. They usually ring-fence their economies away from the services they offer, meaning they only provide low tax rates and secrecy to non-residents. Residents have to pay normal taxes similar to those of countries that aren’t tax havens.

In 2009, the Tax Justice Network published their Financial Secrecy Index for the first time. Some obvious candidates took the lead: the UK, Cayman Islands, Switzerland and Luxembourg were in the top five. But can you guess which country was considered the world’s most important secrecy jurisdiction? The United States!

The United States has a rather ambiguous stance on offshore tax avoidance. The Carter administration created the Gordon Report, which was the world’s first major survey on secrecy jurisdictions. It condemned tax havens and called on the United States to lead the world in a global crackdown.

The British Empire disintegrated throughout the twentieth century as its various colonies gained independence. Close political relationships remained, however, and in the second half of the twentieth century, these relationships formed a critical system of tax havens.

The British system of secrecy jurisdictions is a web with three layers.

Have you ever wondered why some developing countries get billions of dollars in aid but don’t seem to improve?

One reason for this is that corrupt politicians steal foreign aid using tax havens.