How does an offshore tax haven work

Tax havensHow the "offshore" principle endangers democracies

The small Swiss canton of Zug used to be a patch of earth for farmers. Rather poor than rich, a traditional rather than a swanky location for large financial transactions. Today Zug has the highest density of US dollar millionaires in Switzerland. An area in which 30,000 global companies are registered. But since most of these companies only need a local post office box, Zug doesn't look like Manhattan, Frankfurt or Singapore, but rather: like a small Swiss canton.

The Cayman Islands are a group of islands in the Caribbean, they are a few hundred kilometers from Cuba and together cover an area of ​​262 square kilometers. The archipelago has around 50,000 inhabitants, but has around 80,000 registered companies. So it happens that here, between exotic lizards, stingrays and turquoise blue bays, two trillion dollars of deposits are to be managed.

These are places where not much is produced. No metropolitan areas or metropolises. These are the retreats of globalization, places that the British sociology professor John Urry analyzes in his book "Unlimited Profit": "The state revenue of the Cayman Islands essentially consists of the administration fees for the registration of companies, with each company as a legal one Companies that are registered in the Cayman Islands are practically not subject to anyone, they can change their form at any time and are changeable, adaptable and highly flexible. Most companies pay no taxes on their income, their profits or their investment income, as long as they carry out their main activity abroad. "

Oases for billions of dollars far away from world events

"Unlimited Profit" is a special kind of travel guide, a book about those 60 to 70 tax havens that are sometimes islands, sometimes high valleys, sometimes big cities. Which has one thing in common: low or no taxes, few or no controls. No critical press and no citizens calling for tax justice. Instead: Safe havens for capital gains and inheritance, in which one does not need large office buildings and where no personal visits to the bank counter are necessary. Small oases for streams of billions, which are often no coincidence far from what is actually happening in the world.

"They are usually undemocratic, and the political system has the means and means to keep out those who are not wanted. Few residents will protest against the lax regulatory regime because they fear being ostracized in the small, manageable community. in which everyone knows everyone else.

According to Urry, more than a third of the world's wealth is "offshore" - this can definitely be called globalization: the offshore shift as a consequence of a theory of "comparative cost advantages", as a last resort for entrepreneurial action that could ultimately benefit everyone involved. However, this teaching does not work: Because there is neither a social nor economic benefit if profit margins increase thanks to a sophisticated offshore model, but this money is not reinvested. And if - as part of a global corporate strategy - jobs are transferred to low-wage countries despite the high profits.

Not only capital and people are being shifted, but also services

Urry, who works on a political science basis and does not travel to the mailboxes of the Caribbean as an investigative journalist, provides very good arguments with his book for all those who have long been calling for stricter controls. In this respect, his analysis is up-to-date: after thousands of documents showed at the end of last year how international corporations are saving billions in taxes in Luxembourg, criticism from their European neighbors rained down on them. And what did the Luxembourg finance minister say at the time that tax information about people and companies came out of the Grand Duchy? One is "very unhappy" about it.

Those who lure with special offers and mailboxes are reluctant to forego their privileges. It's not just about taxes. In the meantime, not only capital and people can be relocated, but also services:

"A widespread way of offshoring service activities is outsourcing them to so-called call centers, which means that instead of face-to-face advice is now" ear-to-ear ". In the past ten to 15 years, this area has expanded considerably; call centers have been established an important source of new jobs today, particularly in the financial services field. "

According to the author's research, the average length of stay of call center employees is just under a year. That says a lot about the sustainability of a modern relocation industry. And this not only sends money and work, but increasingly also garbage across the globe. Even here, the returns are higher if you bring it out of your own country and dispose of it in Eastern Europe or Africa. There should be around 15 million garbage sorters, especially in developing countries. Offshoring of those poisons that the rich countries can no longer use. Like in Guiyu on the coast of the South China Sea, a kind of world center for electronic waste. Four fifths of the computer scrap that is generated in the USA, writes Urry, is supposed to end up here, in one of the most toxic cities in the world. It is, so to speak, the dark back room of the clean, sterile flagship stores that California high-tech companies operate around the world.

Offshore industry: a lucrative business model

Of course, there is a separate offshore industry behind all of this. In the big investment banks of this world there are a lot of very well paid people who do nothing all day but think about this network. To design it, to maintain it, to adapt it again and again to new political and tax law realities. A lucrative business model:

"Fewer than 10 million people have a staggering $ 21 trillion in offshore wealth. This is the combined domestic product of the United States and Japan, the world's largest and third-largest economies."

At the beginning of his very readable book, the author quotes Warren Buffett, the god father of all investors. He said, "There is a class struggle, of course, and my class, the rich who lead it, are winning it." That is an interesting analysis, because it is very revealing. Now it would be interesting to know how Buffett's class is changing time to this fight introduces.

John Urry: Unlimited Profit. Economy in the gray area. Wagenbach Verlag, 224 pages 17.90 euros.