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Arguments against international finance centres are ‘flawed’, say academics

Populist headlines that inspire government action are based on poor data and analysis

16 June 2014

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Populist headlines that inspire government action are based on poor data and analysis

Allegations that international finance centres enable wealthy individuals and multinational companies to avoid paying a 'fair' amount of tax are inaccurate, according to research produced by two world-renowned academics.

The Tax Justice Network (TJN) claimed that because of tax havens, US$21-32tn of 'ill-gotten gains and wealth' remains hidden and untaxed, and that such abuse must be stopped through greater regulation.

A new report entitled Moving Money, published by Professor Andrew P Morriss of the University of Alabama School of Law and Professor Richard Gordon of Case Western Reserve University, says that arguments, such as the TJN's, "rest on poor data and analysis, and on mistakes about how financial transactions, international taxation, and anti-money laundering rules actually work".

It highlights the essential role that international financial centres play in helping to move funds across the global economy and in increasing international investment.

Geoff Cook, chief executive of Jersey Finance, said: "This report presents a much-needed balanced view of the role of international financial centres in facilitating cross-border finance, safeguarding investments, and contributing to the global economy.

"Public opinion around international finance is swayed by over-heated rhetoric and calculations often not based on fact, as rigorously demonstrated in this report."

The report authors argue that demands for more regulation without considering cost and effectiveness rely on a belief that international financial transactions are "assumed illegitimate unless tightly controlled, rather than primarily reflecting the normal, legitimate workings of an efficient market".

Moving Money concludes that reducing trading barriers is helping both developed and developing countries. The World Trade Organization (WTO) has found that the growth in trade has caused the doubling of income in ten developing countries with a total population of 1.5 billion, and that the overall annual growth in the world economy is primarily because of increased trade and global finance.

Cook added: "Some discussions around tax evasion distract from the crucial debate around tax policy and international business, which should be based on the economic underpinnings and not baseless arguments. Moving Money is an extremely important contribution to the global debate in this area."


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Tax & Wealth structuring