ITPA And The OECD Slug It Out In The FT

by Jeremy Hetherington-Gore, Tax-News.com, London

10 May 2001

Today's Financial Times carries a letter from Milton Grundy, head of the International Tax Planning Association (ITPA), in response to one last week from the OECD's Frances Horner defending the organisation's actions to restrain the illegitimate use of tax havens.

'Ms Frances Horner may be right when she says that the rich use tax havens to cheat the taxman,' writes Mr Grundy, 'But in 40 years' professional practice in this field, I have not actually encountered this. My experience is that the rich are in general more scrupulous about their tax affairs than the not-so-rich.'

'It is not that rich people are inherently more virtuous, but they have to employ lawyers and accountants to deal with their taxes, and even if they want to be dishonest their professional advisers are not going to allow them to be. And it is naive to suppose that someone who wants to cheat on his taxes needs to go to the Bahamas to do so. Quite the contrary: the way to evade tax is to deal in cash, and you can't do that across 4,000 miles. And if you want a foreign bank account that pays interest without deduction of tax, what is the matter with New York?

'It is unfortunate that the current debate about the future of the tax havens is simply a matter of assertion and counter-assertion: neither side has made any serious attempt to discover whether the offshore jurisdictions benefit the world economy or damage it. Until there is some credible evidence one way or the other, it is foolish to propose reform.'

Now the first thing to say about this exchange is that its two proponents are playing the parts assigned to them in life: Ms Horner is a regulator, while Mr Grundy is an eminent tax lawyer. They are natural enemies, or anyway opponents, though they are no doubt most polite to each other.

Mr Grundy asks an excellent question, but why does he only ask it about offshore jurisdictions? If it's legitimate to ask whether, for example, Bermuda benefits or damages the world economy on balance, why not ask the same question about his native country, the UK? That sounds faintly silly, doesn't it? It isn't normally something you ask of a nation state, to justify itself on the scales of morality, although there are examples in history (and now) of pariah nation states.

The normal yardstick for judging a country nowadays is its economy, through such measures as GDP per head. A country that delivers a high standard of living to its citizens is reckoned to be doing better than one that doesn't.

Well, yesterday it was reported that Bermuda has GDP per head of $44,000, the third highest in the world, while the UK is managing only $23,000 per head, the twenty-fifth highest in the world. So Bermuda is a 'better' country than the UK? Or is it Bermuda's 'fault' that the UK performs so sluggishly?

The truth of the matter is that countries compete, and this is a competition that Bermuda is winning. The only legitimate goal of international action in such a competition is to try to prevent countries from encouraging overtly criminal behaviour - and that doesn't include enforcing honesty between citizens and their governments. That's a domestic matter: no doubt it's desirable for citizens to be honest in their tax declarations, but the way to achieve that is to aim for a consensual relationship between the parties, backed up by domestic sanctions, not by attacking third parties who happen to be more successful than you are.

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