Bank Accounts and Tax

Anyone who has tried in recent years to open a bank account has found that it takes about a month; ten years ago you could open a bank account in a week. Twenty years ago the process took half an hour. Today in the developed nations people need bank accounts far more than they did twenty years ago. The vast majority of payments are not made in cash but by bank transfer or credit card transactions. The reasons for this simple operation taking so long is modern days is given as the need to prevent money laundering. The reason given is not the whole truth.If the money laundering operations were created to prevent terrorism, then they have failed miserably; the rise of ISIS shows this. They may have some use in making life difficult for criminals involved in organised crime, but they have not prevent organised crime prospering. No, the real motivation was fiscal.

Across the developed nations revenue authorities have realised that the best way to control tax evasion and tax avoidance (the latter is still not a crime although it meets with moral equivalence of evasion) is through the recording of all transactions. It is easier for fiscal authorities to control an handful of banks in their jurisdictions than it is to control millions of taxpayers.

So the banks, when opening a new account, have to not only ensure that the proposed customer is not seeking to bank the proceeds of crime or the use the bank as a means of transferring money for terrorism, but also to ensure that the customer is not seeking to disguise the account from the taxman in his own country or in any other country which might have a claim on the customer’s tax.

Led by the United States, banks across the world have are are in the process of subscribing to obligations for the disclosure of information about customers to fiscal authorities in other countries. The old trick of opening a bank account in a no tax jurisdiction or placing assets out of the reach of the taxman will become redundant for most by 2018. Some former tax havens have become highly respectable in relation to tax and will no longer provide secrecy and confidentiality essential to those seeking to evade tax.

So far so good, I suppose. People are obliged to pay their taxes and it is their duty so to do. It is irrelevant whether their government wastes quite a lot of the money raised by taxations. All governments waste money and one person’s idea of waste may the another’s idea of social justice or proper defence expenditure or the building of projects for the glorification of political leaders.

However, you will observe that I qualified my statement earlier- some will be able to place their assets out of the reach of the taxman even after 2018. Those will not be individuals but multinationals like Starbucks, Amazon and Google. They will pay some modest tax in most jurisdictions but keep large assets in low tax jurisdictions like Luxembourg, using creative fictions (in my view) to transfer profits out of higher tax jurisdictions.

This process will only change if the nations all have more or less the same rates of tax and the same rules of tax. However this is unlikely because historically nations have always used tax rates and tax reliefs as a way of attracting businesses which will employ people grow the economy but pay very little in the way of taxation.

Ordinary people will find that their banks, doing what is required of them by the fiscal authorities, will become more bureaucratic, less trustworthy of confidences and more expensive. Someone, after all, has to pay for their new role in revenue enforcement.


One Response

  1. Just don’t shop at Amagoobucks etc.

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