Tax sovereignty

Tim Worstall covers the efforts by Dan Mitchell to persuade the American government to step back from its efforts to clamp down on tax havens. This is picked up and expanded at Sounds in the Hickory Wind (nice blog, added to the blog roll).

I agree with a lot of this, as I have already posted. But I think some nuance is needed.

Where do you draw the line on honouring sovereign rights and encouraging tax competition, which I agree with, and preventing complicity in the sheltering of criminal proceeds? We are investing in Switzerland at the moment, and the tax position is one of the many attractions, but that is a legitimate transaction, which I feel no need to conceal. Is not some degree of international cooperation to deal with illicit transfers warranted, and would not some degree of transparency be a part of that?

For instance, should we be pushing for a system where a foreign government would present evidence of criminality to a court in a tax-haven country, and if the court were satisfied that the evidence did demonstrate criminality, details of that person's transactions would be provided to the petitioning government, who would be able to launch proceedings in the tax-haven's courts for recovery of the funds, on an agreed basis? Wouldn't some treaty to that effect respect sovereign rights sufficiently, but cut down the rampant laundering that is going on in some of these locations?



Thanks for dropping by the other day. This is more or less the response I posted to your comment at my place:

I agree that land Value Tax, in effect a wealth tax, but with your wealth determined by the state, more or less arbitarily, is not a solution. I didn't mean to agree with that part of the argument, just to suggest that many of the accepted attitudes to tax are wrong.

As you point out, in Spain land values are frequently and easily manipulated by local government, and a tax on the notional value of a property would have to be found, every year, in cash, which can cause severe difficulties for many people.

Possibly a flat tax, simple,transparent, reasonably fair and cheap to collect, on all primary income, would be better, and we must stop collecting tax on money every time it changes hands. (Many countries and regions have abolished death duties, for example). In answer to your other question, yes, I like the sound of the idea, to follow the proceeds of crime, if it were agreed in bilateral treaties passed by Parliament, rather than in some imternational forum with no Parliamentary scrutiny. I say this to provide some assurance that sovereignty will be respected, and that some attempt will be made to justify the underlying philosophy of tax. One problem, witnessed many times, is that powers created or ceded in order to tackle crime are used for other purposes of which the public would not have approved.

It is important to establish the principle that criminal activity may be pursued in this way, tracing the laundering of money earned through drug-dealing and so on, but it would be easy to criminalize discretion, tax planning and almost anything else.


I agree with your refinement on the tax question (yes, broader, simpler income tax, and fewer taxes on the income from that taxed income, although you probably have to have CGT to match income tax, to avoid massive evasion).

With regard to the second point, you are absolutely right that powers are frequently mis-used. But I think there are two safeguards in this case. Firstly, the discretion once implemented is mainly the courts', not the governments'. And secondly, it is for individual tax-haven governments to decide what offences they are willing to include within the treaty, so it doesn't matter what the laws in the supplicant country are, just what can be mutually agreed. One might rely on a balance of interests within the tax-haven country - they have an interest in not antagonizing external powers too much, but they also have an interest in attracting legitimate business through their low-tax regime.