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Tax avoidance/Off-shoring – Ukraine in the global scheme of things

July 26, 2012

Tax avoidance seems to be a national pass time in many nations.  So much so that it appears that national governments lose out on their share of tax on anywhere between $21 – $32 trillion that manages to beat their tax systems.

That said, it is national governments that write the tax laws.  They are responsible for the loopholes through which this staggering amount of money escapes any domestic economy.  It should also be recognised that there are certainly a fair number of politicians past and present who willfully jump through the tax loopholes they write for themselves, not to mention a number of very wealthy like-minded political donors.

But the fact is that it is really not hard to do.  For Euro 4000, a quick call to a Greek Cypriot chap I know and within a week I have a registered Cypriot company with Cypriot bank account, stamps, seals and a massive degree of protection from both Ukrainian and British tax inspectors.  How do I know this?  I know a number of his affluent Ukrainian customers and thus he is tried and tested, and even recommended.

So how much is or has been sneaked away from Ukraine?  From what I can see from this report, it appears to be about $168 billion over the period of time it considers.  A huge amount of money – or is it?

It is a huge amount of money in comparison to the annual Ukrainian budget for example.  It is an enormous amount of money compared to the annual tax revenues of Ukraine.  But when I last checked $1 trillion is $1 billion x 1000 – and we are talking globally of $21 – $32 trillion.  That makes the Ukrainian $168 billion appear like a small accounting error in the global scheme of tax evasion.

I have only ever seen $1 million in cash a few times.  I have never seen $1 billion in cash and I cannot even imagine what $1 trillion looks like.

Now I suppose I am what can be considered a “solid citizen”.  I have never avoided paying tax in the UK or Ukraine.  I owe nothing to, and am owed nothing by, either tax authority in either nation (at the time of writing).  I have never voted along partisan lines regardless of policy.  I am a floating voter who votes for who I think will be the best for the nation based on policy at any election.  I have indeed voted for all 3 major UK parties in my time.  I do not have a criminal record in any nation – not even a speeding ticket to declare when insuring a car.  As I said, a “solid citizen”.

But – I have also never had $ multiple millions laying around doing nothing waiting to be taxed.  If I had, would I have used the legally created loopholes to to move that money offshore to save it from taxes?  Would I be any less the “solid citizen” to use employ such loopholes?  After all, I am doing nothing illegal necessarily.  As and when I decide to spend my tax havened money, it necessarily enters into an economy and whether it is a black, grey or white economy, a large proportion of it will eventually end up back in the taxable economy as it works its way through numerous buyers and sellers.

That said, the same maybe said for the multiple billions relating to organised crime profits, black economies and money stashed under a bed.  Once you start to spend it, a large proportion of that cash will find its way into the white taxable economy sooner or later.

Is  it a question of morality verses legality?  Is it that clear cut?

I certainly don’t morally agree with the way some of my taxes are spent even though they are legally collected from me.  Alternatively, is removing a large sum from the tax pot underfunding things I morally believe the State should provide to all my fellow citizens going to sit well with me?

Whatever the case, whilst ever the legal tax loopholes exist and are exploited, then governments past and present have to shoulder a significant amount of blame for not closing them.

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