The Tax Man Takes Aim At The World’s Wealthy
Sunday, January 6, 2013
As 2013 begins with wealthy Americans in line for bigger tax bills, they're not alone. Tax fairness takes the spotlight worldwide this year, as cash-strapped governments look to impose more of the burden on well-heeled companies, individuals and institutions, and to catch and punish tax cheaters.
This week, as the U.S. Congress averted a plunge off the fiscal precipice, British Prime Minister David Cameron sent a letter to leaders of the Group of Eight countries that make up about half of the world's economic output.
Cameron, the new head of the G-8, said no single country can tackle the problem of wealthy individuals and companies from exploiting laws that allow them to avoid paying taxes in countries with higher rates, as The Wall Street Journal reported.
Multinational corporations have defended themselves by pointing out that they're only taking advantage of international laws that allow them to look for "optimal" tax structures.
Google, for example, avoided about $2 billion in worldwide income taxes in 2011 by shifting $9.8 billion in revenue into a Bermuda shell company, Bloomberg recently reported.
"We did it based on the incentives that the governments offered us," Google Chairman Eric Schmidt told Bloomberg. Of course his company is going to take advantage of big tax savings, he said, "it's called capitalism."
But the global economic crisis has created enormous pressure for new revenue, and governments throughout Europe and other parts of the world are reconsidering sometimes century-old tax laws that haven't kept up with global economic changes. For example, officials in France, the U.K, Italy and Australia are investigating some of the largest multinational corporations' tax avoidance strategies, looking for ways to make them pay more.
European lawmakers howled at the end of last year, after Starbucks disclosed that it generated 398 million euros in sales in Britain in 2011, but paid no corporate tax for the third consecutive year.
When the company pointed out that its tax strategies were all within the law, government officials were not placated. Instead, they escalated their rhetorical indignation, calling them "immoral" business practices. Starbucks backpedaled and subsequently said that for the next two years, it would stop claiming deductions that helped bring its tax bill to zero for the past three years.
The Vatican also took aim at business practices that have exacerbated global conflict. In his New Year's Day address, the pope blamed a "selfish and individualistic mindset, which also finds expression in an unregulated financial capitalism" for tension and conflict caused by growing inequality between rich and poor.
The subject of taxes and money weighs heavily on the Holy See itself, as the economic crisis prompts a closer look at the finances of what was once considered an untouchable institution in some parts of Europe.
On Wednesday, Italy's central bank suspended credit and debit card payments and cash withdrawals in Vatican City, reportedly because the Vatican doesn't comply with international money-laundering rules, a Bank of Italy official told Bloomberg. That means thousands of pilgrims and tourists are forced to use cash only in museums and shops until the matter is cleared up.
The Catholic Church also has come under fire for its government subsidies and whether some of the deals struck generations ago between the church and governments in predominantly Catholic countries should be reconsidered.
As The Washington Post reported, Italian Prime Minister Mario Monti has called for a tax on church properties or on those portions of properties that have a commercial purpose. In Ireland, the minister of education is fighting to end church control of many of the country's primary schools, and the government has halved the grants it gives poor families for first Communions. More than half the city councils in Britain cut subsidies for transportation to faith-based schools, causing enrollments to drop precipitously.
In Spain, officials in one town outside Madrid are poised to send the Catholic Church a property tax bill for the first time. A city councilman told the Post, "We want to make a statement that the costs of the crisis should be borne equally by every person and institution."
The prospect of having to pay taxes when it never has before has enormous financial implications, at a time when the church has been getting less from collection plates and has not met international standards to prevent money-laundering.
The international search for tax dodgers is also turning on public officials. In Greece, as Joanna Kakissis tells NPR's Weekend Edition Saturday, investigators have reportedly found evidence confirming that many of the more than 2,200 prominent Greek business people and politicians may have hidden billions in Swiss bank accounts.
Greeks have protested new rounds of austerity measures, in which salaries and pensions have been slashed by up to 40 percent, taxes hiked and more than 1 million people have been left unemployed.
America's wealthiest are also under scrutiny, and dozens of financial institutions worldwide have been charged with helping them evade taxes.
Last week, the oldest bank in Switzerland was in Manhattan federal court to plead guilty to widespread tax evasion by U.S. citizens using its offshore accounts.
Wegelin was founded in 1741 and specialized in private banking and financial-management services for high-wealth individuals. It agreed to pay $57.8 million in fines and restitution and will shut down after it does.
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