Oligarchy

Hello, and welcome to Oligarchy. We are tracking how Covid-19 and the world’s response to it is affecting the super-rich — and what that means for power and politics.

BEPS? IT’S INTERESTING, HONESTLY

I have a confession to make: whenever I see the words Base Erosion and Profit Shifting (BEPS), my eyes start closing by themselves. I can, with effort, make it through a page of writing about BEPS before falling asleep altogether but it takes significant effort. It is often claimed that admitting you have a problem is the first step towards solving that problem, and I hope that’s right, because BEPS is ruining the world, and I really need to stay awake for it.

BEPS is the process whereby multinational companies and wealthy individuals route their profits through offshore jurisdictions and – “whoops, butter fingers!” – end up paying almost no tax as a result. 

BEPS is depriving governments of the revenues they need to provide essential services, and enriching the already-mega-rich, who occasionally distribute a bit of philanthropy from their winnings, but basically keep the rest. It has a very boring name, but is exceptionally important.

It was bad before, but 2020 has made it disastrous. Governments need revenue more than ever, but shoppers are buying more online, where the biggest companies are highly skilled tax avoiders, although they say they’re not.

• “In the aftermath of the Covid-19 crisis, the public’s tolerance for tax evasion and tax avoidance is expected to reach historic lows,” said a report from the Organization for Security and Cooperation in Europe (OECD) this month, when it gathered to discuss what to do about it.

So what did they agree to? 

In their announcement on Monday, they said they would recommend “digitally-intensive or consumer-facing Multinational Enterprises” (i.e. online mega-platforms like Amazon) will pay more tax in the countries where they earn their profits, rather than in the countries to which their highly skilled accountants magically shift them. And they agreed to discuss establishing a global minimum tax, which would at least set a floor beneath which corporate taxes couldn’t sink.

According to the OECD, these two approaches would result in an extra $200 billion in global tax revenues each year, which sounds like a lot, but isn’t. That is significantly less than just the U.K. on its own has borrowed this year to battle Covid-19, and thus nowhere near enough to avoid the public anger that is already bubbling up about the tiny group of individuals that has profiteered so well from this pandemic, not least because the world’s total annual tax loss was already more than double that.

We can be sympathetic to the OECD, which is trying to reconcile the irreconcilable desires of multinational companies not to pay any tax, the desire of poor countries to get what they’re owed, and the desire of rich countries not to give it to them. It is an almost impossibly complex problem further complicated by the fact that, if it ever were solved, and a globally harmonious system created, undermining that system would be instantly and incredibly profitable. 

International tax policy is constantly undermined by tax havens, who make a living by undercutting other countries and justifying their low taxes and minimal regulations with two arguments, which – when combined into a single interlocking whole – make sure the rich and powerful get to stay on top of the world in perpetuity.

• “If we didn’t do it, someone else would.”
• “We’ll stop doing it, when everyone else does.”

Since tax havens are sovereign, it is extremely difficult to force them to take any action they don’t want to take, which dooms reform proposals like the OECD’s to being unambitious at best. 

It is time therefore to abandon the attempt to build an international consensus through the OECD and, instead, to press ahead with a coalition of countries that put the well-being of ordinary people above that of corporations and their owners.

• “With the OECD demonstrating today that it cannot lead a genuinely inclusive global process to achieve these aims, countries must take progressive, unilateral actions while moving forward together to establish a U.N. process to deliver the tax reforms the world urgently needs,” said Alex Cobham, chief executive at the Tax Justice Network.

The Independent Commission for the Reform of International Corporate Taxation (ICRICT), which groups progressive experts in tax policy from around the world, agreed. It said that the quest for agreement had run its course, and countries should move forward alone.

• “If global reforms are hard to come by, it is time for countries to move unilaterally or at regional level to introduce interim measures. This will both deliver desperately needed resources now and create the necessary pressure to force change,” said José Antonio Ocampo, Professor at Columbia University and ICRICT Chair.

HOORAY FOR BILLIONAIRES

We may not have needed a statistic to prove that we urgently need action to plug the tax free loopholes through which wealth is surging, but we got one anyway, thanks to global accountancy giant PwC and Swiss banking giant UBS.

• “Total billionaire wealth reached $10.2 trillion at the end of July 2020, touching a new high after the year’s V-shaped rebound in asset prices. This level surpasses the previous peak of $8.9 trillion, reached at the end of 2017. There are now 2,189 billionaires,” a report said.

And which kind of billionaires have done best this year? Tech billionaires came top: their wealth increased by 41.1% between April and July, thanks to all the online shopping we’ve been doing. Healthcare entrepreneurs came second, thanks to the rest of us needing medicine all of a sudden: their fortunes increased by 36.3%.

So far, so good. But could anything go wrong for the billionaires? The report warns that there could be problems ahead, and other years might not be quite as delightful as this one has been (for them). Among the problems is the possibility of having to pay tax, which UBS and PWC thinks would be – on balance – a bad thing.

• “While governments everywhere may be considering wealth taxes, they are often unpopular with the electorate and don’t raise significant amounts, as many politicians understand. Stealth taxes such as financial repression – keeping interest rates on savings below inflation – seem more effective, steadily repairing government finances,” the report’s authors announce.

Translated: between April and July, the collective wealth of the world’s 2,189 billionaires increased by a barely imaginable $2.2 trillion, largely thanks to the Covid-19 crisis. And yet, according to the authors of this report, it would be “more effective” for governments seeking revenue to let inflation erode what savings the rest of us have left, rather than tax this incredible windfall. 

If you wrote that sentence, please drop me a line, I would love to know what you’re thinking.

PASSPORT TO CORRUPTION

If you haven’t watched Al-Jazeera’s incredible undercover investigation into the Cypriot passport-for-sale industry, I can’t recommend it enough. If Cyprus follows through with its promise to now abolish the program in its current form, that would be an amazing result. Still, I’ll believe it when I see it.

WHAT I’M READING

I have finally got to William Dalrymple’s “The Anarchy,” which chronicles how the East India Company went from being a trading concern in a small building in the City of London to ruling an entire subcontinent. I’ve been reading Dalrymple’s books for years, and this one has his trademark wit and learning, all telling a tale laced with epic corruption, unimaginable cruelty, unlimited greed and some horrendous oligarchs. It’s extremely good, read it, it has lessons for today.

See you next Wednesday,

Oliver