Thursday, April 21, 2016

The Panama Papers Explained with Piggy Banks

In Vox, a media website that explains the news and the world around us, published an interesting article 9 questions you were too embarrassed to ask about the Panama Papers   explaining the context of the Panama Papers and the meaning of tax havens. Also, instructive is another article in Vox:  The Panama Papers leak, explained with an adorable comic about piggy bank (click on above video.)

Although both articles are enlightening and instructive, they don't offer the full picture: yes, illegal tax avoidance should be punished, but what about tax planning for multinational companies, and also for private individuals, which is often allowed in nearly every developed economy? At what point is the use of tax planning and the ensuing legal tax structures unethical, and who determines that something is unethical?

Also, what about the need for competition among among free market economies: for example if a country like Japan, which has very few natural resources, wants to compete in the global economy by offering special investment and tax advantages to foreign investors, should that be stopped? This may be a necessary and postive way for Japan to compete in the global market place? Lastly, it's not always that simple to point to the supposed usual suspects when dealing with tax havens. For example, the Financial Secrecy Index, set up by the Tax Justice Network, ranks jurisdictions according to their secrecy and the scale of their offshore financial activities. The 2015 rankings show Switzerland (not surprising), Hong Kong (less unsurprising) and the US (quite surprising) ranked numbers one, two and three. Then, for example, followed by Germany as number 8, Japan number 12, Panama number 13, and the Netherlands - notwithstanding its image as tax haven for multinational companies - is only ranked 41. In short, the media, pundits and especially many politicians should do some more homework, before jumping to bold conclusions.

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