TAX HAVENS AND THE FINANCIAL CRISIS
GEOFFREY LOOMER AND GIORGIA MAFFINI, RESEARCH FELLOWS, OXFORD UNIVERSITY CENTRE FOR BUSINESS TAXATION APRIL 2009 Recent policy statements and media reports would lead one to believe that there is some connection between ‘tax havens’ and the global financial crisis. Unfortunately that connection is rarely explained. Offshore financial centres (OFCs) are certainly relevant to the discredited international financial system, but their role tends to be exaggerated or misconstrued. The G20 Communiqué issued at the London 2009 Summit stated that ‘major failures in the financial sector and in financial regulation and supervision’ were fundamental causes of the financial crisis, and few informed observers would disagree. As one aspect of their commitment to strengthen financial regulation and supervision, the G20 leaders agreed that they would: … take action against non-cooperative jurisdictions, including tax havens. We stand ready to deploy sanctions to protect our public finances and financial systems. The era of banking secrecy is over. We note that the OECD has today published a list of countries assessed by the Global Forum against the international standard for exchange of tax information. The Organisation for Economic Cooperation and Development (OECD) itself draws some connection between tax havens and the financial crisis when it states: ‘Removing practices that facilitate tax evasion is part of a broader drive to clean up one of the more controversial sides of a globalised economy’. But these statements leave unexplained the exact role, if any, of tax havens in the crisis. To understand this issue further one must distinguish among three concepts: tax evasion, tax avoidance, and financial regulation avoidance. OFCs have been popular with the financial industry in facilitating avoidance (and in some cases evasion) of both taxes and regulatory requirements of larger countries. TAX EVASION Tax evasion is criminal behaviour – for