Franz Fayot, pictured, is a Luxembourg MP, member of the LSAP and lawyer working for FischFayot
Photo: Maison Moderne archives
The argument that tax rulings are legal, if not ethical or moral, is losing traction with the public. Sometimes, it seems, it takes a Shakira or a Lewis Hamilton to really get peoples’ blood boiling, writes Franz Fayot.
“Tax is what you pay for a civilized society”, so goes a quotation carved in the front of the U.S. Internal Revenue Service building in Washington D.C. and attributed to Justice Oliver Wendell Holmes Jr.
This quotation comes to mind following the latest revelations of the ICIJ’s “Paradise Papers” about tax optimisation schemes involving structures set up in Bermuda and the Cayman Islands, but also in European jurisdictions such as the Netherlands, Luxembourg and Belgium. Is it OK to avoid paying taxes in the country where you live and work, only because it is legal to do so, and because you don't like paying taxes? The disconnect between moral and legal is increasingly seen as problematic in a world of exploding income and wealth inequality, where normal people struggle to get by, while a very small minority is getting filthy rich, reaching levels of wealth concentration not seen since the nineeteenth century.
That people no longer accept the proposition that tax structuring is actually OK as long as it is legal, is a game changer. It took the shocking, and yes quite frankly disgusting, revelations about the tax optimisation schemes of yet another slate of international companies, but also heads of state, pop and sports stars earning obscene amounts of money, to prompt a moral outrage of the public opinion.
Sometimes, it seems, it takes a Shakira or a Lewis Hamilton to really get peoples’ blood boiling.
The evident conclusion that tax optimisation is not acceptable morally, and shouldn't be legally, is a step-up from even 3 years ago, when the Luxleaks were revealed. Remember: at the time the finance industry’s primary defence was that tax rulings were legal, even if not entirely ethical or moral, and that, also, everyone else was doing it. This is true, but the problem is that it is an opportunistic line of defence, which does not hold in the face of repeated revelations--Football leaks, Panama Papers, now Paradise Papers show the shocking tax avoidance practices of the world’s rich and super-rich and rightly prompt the outrage of the public. That Luxembourg has a large financial sector and also does a fair share of tax optimisation work in the consulting, law and accountancy firms of the country is hardly a justification. On a recent radio show at RTL the reporter told me that Luxembourgers would typically say: “Well, if they have to stash their money somewhere, let it just as well be here.” Really?
The Luxembourg financial sector has boomed, starting in the 1970s, and throughout the next decades, through acting as hideout for undeclared money of mostly European clients: the famous “Belgian dentist”, but also thousands of clients from France, Germany and many other countries used Luxembourg and its watertight bank secrecy as a “tax optimisation scheme” in the heart of Europe. Likewise, for well-off Luxembourg residents, it was common practice to own an account in Switzerland, or even to have your own off-shore Panama company, so as to pay zero tax on undeclared money. Every country was a tax haven for residents of other countries.
With the recent European and international crack-down on tax avoidance through profit shifting (the OECD and EU BEPS initiative), policy makers have signalled that it is not acceptable for multinational companies to pay near to zero tax through sophisticated tax structuring. Initiatives such as country-by-country reporting, exchange of information, disclosure of tax rulings and anti-abuse rules set the new standards in this beginning twenty-first century.
I like to think that the not so far away times are over where a neo-liberal finance minister of this country did everything he and his party could to stall European efforts for more tax transparency for the short-lived, and reputation-wise disastrous benefit of preserving the old private banking business.
But we cannot play a duplicitous game: we cannot have the cake and eat it. We cannot pretend to be at the forefront of tax transparency and equality, and at the same time slow it down, for instance by protecting local stock option schemes for high incomes and by questioning the taxation of global digital players. This government did a great job in promoting tax transparency and in getting rid of the stain of "tax haven". Let's not spoil this effort.
Remember: open, dynamic and reliable. Also on paying taxes. Let's make it happen!
Franz Fayot is an Luxembourg MP, member of the LSAP and lawyer working for FischFayot. Click here to read his blog.