The furore over Jimmy Carr’s and Gary Barlow’s use of tax avoidance schemes is interesting on many levels. It is remarkable, for example, that it has taken the media this long to wake up to the fact that the huge tax avoidance industry in the advanced industrial economies is so pervasive. Tax shelter schemes like K2 as used by Carr have been aggressively marketed by the big accountancy firms, both to corporations and individuals for a very long time. When they first emerged in the US in the 1980s – as part of the general deregulation of finance – they were even more brazen than they are now. The schemes were given provocative acronyms such as “BOSS” (standing for Bond Options Sales Strategy) and (when that was closed down by the IRS) “Son of BOSS”, almost willing the authorities to shut them down. The FBI and IRS did indeed clamp down on the more obviously abusive schemes in the 1990s, but they were all simply amended, rebranded and relaunched ‘within’ the law. So, for example, ‘Son of BOSS’ describes a range of scheme that all, more or less, use a similar strategy to define the income of senior executives as something other than taxable assets – usually some form of bond option that can be sold by the recipient without incurring either income of capital gains tax. The IRS has recently lost an attempt through the US courts to close down Son of BOSS schemes, so it looks like they are here to stay.
In practice such schemes are impossible to get rid of because they take advantage of the very incomplete nature of the legal, economic and fiscal spaces we all inhabit. Creating and defining money has never been the sole preserve of nation-states, but since the wholesale deregulation of finance by the Reagan and Thatcher governments (and the tacit complicity in and extension of this deregulation by ALL governments ever since) it has become ever easier. Because of money’s intrinsically xenospatial nature, it can be legally ‘located’ anywhere. In the case of offshore centres (tax havens) this means finding or creating a ‘real’ legal territory somewhere (with low or no taxation) and channelling your income through it. Tax shelters such as K2 do this too, but more often redefine the money rather than its location. All governments everywhere allow certain things and entities to be exempted from tax. So all the lawyers and accountants have to do is to find a way of redefining your income as whatever that might be at any time or place (bonds, loans, trusts, etc.) and you are ‘sheltered’ from the tax authorities.
For most tax-payers whose income is derived from activities wholly within a particular fiscal regime (e.g. the UK economy) and who earn below a level whereby it would be profitable to use these schemes, the use of tax-shelters is simply not worth the hassle or the fees. However, as Carr and others discovered, once your income is internationalised in any way and once it gets to the sort of scale that catches the attention of the armies of ‘Financial Advisers’, their use is both easy and sufficiently profitable that the fees paid to the advisers more than pay for themselves. And this is very big business for the big parasitical accountancy firms and consultancies such as Cap Gemini, all of whom spend a great deal of time and effort analysing opportunities to provide financial services to the super-rich that will make them even richer.
One of the ironies of the current media outcry, and one that may come back to haunt some of them, is that the media itself has been actively complicit in creating these sorts of tax avoidance schemes. Journalist and interviewer David Frost used a partnership with a Bahamian firm as early as 1967 to keep his international earnings out of the reach of the UK Inland Revenue. Rupert Murdoch’s News Corp., which part-owns The Times which broke the Jimmy Carr story, has for many years channelled much of its global income through brass-plate companies in places like the Cayman Islands to avoid corporate taxation in the UK and the US. Murdoch himself has been one of the most successful pioneers of using the spatial anomalies of state jusrisdictions – and multiple ‘nationalities’ for himself and his companies, to minimize his tax exposure (all legal, of course). Many other media firms – including most of the big academic publishers – are now located in offshore centres with the result that they are among the world’s most profitable companies.
For all David Cameron’s hypocritical moralising about tax avoidance, he, like all his predecessors is caught in the same dilemma – states are actively complicit in creating these opportunities in the first place. They might seek to scale them back a bit (as in the David Frost case or, more recently, in relation to Son of BOSS in the US), but they maintain the systems that allow them in the first place. Both the Bahamas and the Cayman Islands are ‘sovereign’ UK territories – just only selectively subject to UK laws. The monetary xenospaces through which taxes are avoided by these individuals and companies are not, therefore, simply the product of moral lassitude on their part (however true that might also be) but, active, knowing, strategic state policy over many decades. In short, if they wanted to stop it, they could.