-OpEd-

PARIS — Public opinion was outraged, and rightly so, by revelations from the so-called Paradise Papers investigation and the publication, before that, of the Panama Papers. But no one ever questions the root causes of these tax scandals. It's not enough to complain and condemn. We must deal with the root causes of the problem if we are to solve it.

These scandals have three origins. The first is fiscal de-synchronization, and here, governments have the primary responsibility. If Ireland didn't have such a low corporate tax rate companies wouldn't choose to make the Emerald Isle their tax home. Tax dumping is the primary reason for tax evasion. If tax rates were harmonized between the different member countries of the Organization for Economic Co-operation and Development (OECD), no one would try to make a so-called "double Irish with a Dutch sandwich," or anything of the sort.

Therefore, we ought to harmonize tax rates so as to avoid the kinds of ludicrous tax arrangements put together by the GAFA (Google, Apple, Facebook, Amazon) giants and other companies taking advantage of those differences between countries. This tax war will only get worse with Trump's reforms. The United States will become a tax haven compared to other countries in the world. And it's got the European Union worried. But unless they work toward standardizing their tax policies, governments have only themselves to blame.

State representatives protesting tax evasion in Germany in light of the Paradise Papers — Photo: Jens BϋTtner/ZUMA

The second root cause of tax avoidance is that tax rates are often seen as confiscatory. If they were lower, the incentive to make such complex and costly tax optimization arrangements would likely be weaker. Politicians need to understand that beyond a certain level of taxation, taxpayers no longer want to play ball. They feel like the government is robbing them.

If we lower tax rates, there will be less fraud. The effect was visible, for example, when France lowered notary fees from 10% to 6%. As a result, backhanders have virtually disappeared. When taxation levels remain reasonable, they are better accepted. That is why the flat tax introduced by President Emmanuel Macron is an excellent thing. With a flat 30% tax rate on capital gains, there is no longer any interest in defrauding. But with a 60% tax, nobody wants to play the game anymore.

The third source of fraudulent fiscal behavior has to do with the value-added tax or VAT. Recent scandals have brought to light the alleged complicity of major French groups in these VAT frauds via the Isle of Man.

There's only one global solution.

By the way, why do Russian billionaires choose to register a number of structures on this British island? They say it's because they don't trust the reality of the rule of law in Russia. Is that true or false? I don't know, but it's worth asking ourselves the question. These oligarchs may not be as pure as the driven snow. But on the other hand, Russia isn't seen as a champion of the rule of law by the international community either.

The taxation of private aircraft is another case of fiscal nonsense. If you buy a tourist plane, the VAT rate is 10%. But if you declare that you're using it for business purposes, there is no VAT. And officially, it's the responsibility of the country in which the aircraft is registered to verify how you actually use it.

The overall point here is that the succession of tax scandals we've seen are the result of heterogeneous global taxation and of tax rates that are sometimes too high. To combat tax fraud and tax optimization, there's only one global solution: tax harmonization.


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