Panama’s Pull

In a previous iLaw column I wrote about the British window tax; which was a tax on large windows, and inadvertently has resulted in a many houses of the wealthy constructed in the 1700s with disproportionately small windows.
Since then there have been many other novel ways to levy tax and tax systems have become complex.  In a 2005 publication “Tax Simplification” I assisted in commenting on the taxation system in Australia as follows:
“Most Australian tax advisers believe that Australian tax, which includes Federal, State and Territory taxes, is hugely complex. In August 1998, the Government announced a tax reform package that was intended to simplify the tax system. Soon afterwards the New Business Tax System, was introduced, commencing with six tax Acts. However, the majority of the measures that were effected by July 2001 led to more complexity. … At the time of the November 2004 election, for example, the Chief Executive of the Australian Chamber of Commerce and Industry said that the biggest problem faced by business was the level of taxation, closely followed by the complexity of tax legislation.”
That is still true, but problem for the taxman is that the wealthy and even not so wealthy will still do whatever they can to reduce their tax bill; as we see in the wake of the Panama tax leak.
Panama does not even rank in the top ten tax havens around the world.  Tax havens have pulled in an estimated one sixth of the world’s private wealth.  Let me explain with one example; the relatively high U.S. corporate tax rate of 39% still makes it very attractive for U.S. corporations to denationalise to lower tax jurisdictions/tax havens.  Yes, corporate citizens will renounce their nationality to save tax!  One way to do so is a takeover of a foreign firm and then by ‘inversion’ to assume that firm’s nationality.  Another way to save tax is to re-direct profits.   And we all know about negative gearing and self managed superannuation.