The Institute of Economic Affairs has claimed that so-called "tax havens" are essential to the maintenance of a healthy economy, help to limit the overall tax burden, and improve efficiency in financial markets.
The free market think tank has published a new report that urges governments to recognize the benefits of tax havens. According to the author Jamie Collier, a lack of understanding characterizes the increasing vilification of the tax practices of multinational corporations. Worse still, the pronouncements of governments on this issue are labelled as hypocritical. In the case of the UK Government, Collier recommends that it "stop simultaneously talking about the need to encourage business whilst also deriding tax havens and companies that use existing tax rules to minimise their tax bill."
Among the report's conclusions is that big businesses would be forced to move away from the UK if tax havens were no longer available. A single rate of corporate tax would need to be set, and, if lowered too far, could cause the overall tax take to fall. If the rate was too high, on the other hand, businesses would simply head overseas.
The report contends that the UK has in fact done rather well through the existence of tax havens. They allow the UK to make the most of its financial services regime, by preventing incidences of double or triple taxation on investment returns. Both wealth and job creation have followed, as tax havens, together with a high mobility of capital, have meant that governments are constrained in the tax rates they could otherwise apply.
Commenting on the research, Professor Philip Booth, Editorial Director at the Institute of Economic Affairs, said: "The present furore about tax havens has generated more heat than light. Politicians of all stripes are playing a dangerous game vilifying businesses for taking advantage of the tax systems that they themselves designed. British politicians can therefore hardly complain when other countries do the same and when businesses take advantage of those rules."