Assets, logically, have to match liabilities; no one can
have a financial asset without someone else also having a corresponding
financial liability. If I lend my friend money she has a personal liability.
And her loan is my asset.
Let’s imagine a rich person living in the UK has money in a
secret bank account in the Bahamas. The money in the Bahamas account is used to
buy shares in a mutual investment fund based in the British Virgin Islands. And
let’s imagine this fund invests in European company shares. The shares rise in
value and the dividends are paid into the Bahamas bank account. The mutual fund
shares are picked up by local statisticians as financial liabilities for a
company registered in the British Virgin Islands. But the assets are not owned
by a British Virgin Islands resident, so they are ignored. These shares ought,
logically, to be recorded as an asset for the UK household sector since they
are owned by a rich person in Britain. But UK statisticians have no way of
picking up the asset’s existence. And the British Virgin Islands and the
Bahamas don’t, of course, inform our own tax authorities or the Office for
National Statistics (ONS).
The London School of Economics researcher Gabriel Zucman,
author of ‘The Hidden Wealth of Nations’ has carefully measured discrepancies
between global financial assets and liabilities – and he argues that the
discrepancy is a rough proxy for the value of all the funds held in offshore
tax havens. So what’s the answer? Zucman estimates that around 8 per cent of
global wealth is held offshore, roughly $7.6 trillion. That is a serious amount
of money, equivalent to around 10 per cent of the entire value of goods and
services produced each year in the global economy.
The ONS has reported a largely flat trend for UK wealth
inequality over the past decade – a trend which has prompted some to argue that
the rich are not, in fact, getting richer. Yet if one factors in off-shore
wealth the flat trend in rich countries such as the UK turn out to be an
illusion. Zucman estimates that value of offshore wealth has shot up by 25 per
cent in the past five years alone. Given that it is the wealthy who
predominantly use tax havens that will be the wealth of the very rich which has
grown so sharply. The elite’s share of wealth relative to those in the middle will
almost certainly be even higher. Zucman estimates that the share of total
wealth held by the top 0.1 per cent of Americans (those with £20m in net
wealth) rises from 21.5 per cent to 23.5 per cent once offshore assets are
factored in.
Not all the money held offshore is there to avoid or evade
tax. But it’s fair to assume that a very large chunk of it is. There are no
obvious advantages for most people to hold assets in different countries. For
those who want to minimise their tax bills or keep dirty money hidden from the
authorities the advantages are large. Estimates of foregone tax are inevitably
speculative, but for what it is worth Zucman thinks tax havens are responsible
for around $200bn of unpaid tax to national exchequers around the world – money
that is sorely missed at a time of austerity in many countries.
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