Tax evasion part of corporate culture

Image representing Steve Jobs as depicted in C...

Image via CrunchBase

Most people would think that countries like Spain, Greece and Portugal would rank among the very top of countries for tax evasion schemes. But even though the US has a relative low tax rate the country tops the list of places where tax evasion seems to be part of corporate culture.

So how big a problem is tax evasion? Take a look at the table below from Tax Justice Network, a London-based watchdog that fights against tax havens and for more transparency.

America’s “black” or “shadow economy,” represents 8.6% of GDP, while the percentage is by far the smallest of any of the countries on the list it does represent a significant monetary post and represent roughly the GDP of Denmark the 32 biggest economy in the world according to the IMF.

How does the companies in the US manage to avoid tax? Well, one suggestion is that companies like Google, Apple and Amazon manage to cut their tax bill by one third through a series of moves that involves countries in Europe and in the Carrabin, a system is also used by big European companies to transfer funds to tax havens. My friend Sarah Wenger has created the infograph titled “The master of Tax Evasion” that explains how the system works.

Masters of Tax Evasion
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The Spanish decease

Mariano Rajoy en Bilbao. Imagen tomada por Ike...

Mariano Rajoy en Bilbao. Imagen tomada por Iker Parriza (Photo credit: Wikipedia)

What has the Spanish government done until now? Well on the 11th of July prime minister Rajoy announced the following steps with the endorsement of the IMF.

  • The standard VAT rate was raised from 18 to 21 percent and the reduced rate from 8 to 10 (the super-reduced rate was left unchanged at 4 percent). A number of products have also been moved from lower to higher rates. Other indirect taxes will also be raised.
  • The extra payment in December to civil servants was suspended for 2012 – equivalent to nearly a monthly wage.
  • The mortgage income tax deduction will be removed.
  • Unemployment benefit was reduced (with the replacement rate after six months falling from 60 to 50 percent).
  • Social security contributions are reduced by one percentage point in 2013 and a further point in 2014.

With a unemployment rate of 25% and 50% among the young there are plenty of issues to be confronted. However. There are little signs in the Spanish governments actions to suggest any efforts to stimulate new job creation or any investment that will take the country out of recession. It would seem that they only thing that they are capable of is digging the hole even deeper.

The Euro and None-Euro members who won?

via Flickr”]The powerful European Central Bank [ E C B ] i...

Should we keep the Euro or let it die a slow and painful death?

These days I think we should count our selves (the Danes) as lucky. In the financial turmoil in Europe we get to have the best of two world. We are linked very closely to a very big currency that is ‘still’ recognised as one of the worlds most powerful and second we do not have to participate and contribute when things starts to go down hill.

In a interview with Jean-Claude Trichet the European Central Bank all these benefits became very clear.  When asked about if the Euro was at the brink of an abyss

“But let me sum up some of my present observations. First, we have a credible single currency, which over the last 12 years has kept its value in terms of price stability in a remarkable way in comparison with the previous national currencies in the last 50 years. The solidity of the currency itself is not disputed and our fellow citizens all over Europe are calling on us to continue preserving price stability. Second, the euro area, taken as a whole, is in a better position from a fiscal standpoint than other economies. In 2011, the public finance deficit of the euro area should be around 4.5% of GDP, while in the United States or Japan it will be about 10% of GDP. But we had a very serious weakness in terms of economic and fiscal governance inside the euro area, which has been revealed by the global crisis.”

While these figures might be true and one have to remember that the deficit in Denmark was 2.9% well under the rest of the Euro countries and on top of that have a historical low unemployment rate. In Sweden who has made the choice to have their currency flow compared to the Euro actually had no budget deficit and a relative high growth rate. While it is at the expense of a high unemployment rate it does show that these is still some merit to having a independent economic policy.

One of the big issues we keep coming back to is the structural problems in Italy, Spain and Greece. In Italy the criticism from the ECB have sparked a uproar as it is seen as meddling in the country’s internal affairs.

“The view of the Governing Council was that the market turmoil at the beginning of the month required a message to be sent to the Italian government. We were seeing a progressive weakening of investor confidence and we felt it would be useful to share with the Italian authorities our thoughts on the most appropriate measures to help restore market confidence.” Jean-Claude Trichet replied.

Markets these days seem to be all about the lack of or the abundance of confidence and short-term investors are fleeing around the field as soon as somebody yells wolf. It is good to see that some of the institutional investors have kept their cool and have shown that they can remain loyal to their long-term strategies. However, there is no doubt that there are some structural unhealthy elements within the states in the EU and Euro counties but these are not unmanageable. They are difficult and will require a lot of political will and sacrifice in all of the countries but the issues are known even to the general population that have to pay the price of their governments lack of constant care in relation to the issues at hand.

All of the governments who said yes to the Euro knew that some of them had issues, which would not go away over night. Some of them did not even get close to meeting the targets for acceptance. But some of the politicians were so keen on getting the show on the rad that they forgot to do their due diligence and take a deep breath before committing themselves to a road that was very difficult to get of again.

Among the countries that did not put their economies in the hand of Italian, Spanish, Irish and Greek and Kosovo politicians were the Scandinavians and the British. While the UK governments have serious issues with unemployment and a banking sector in ruins it is nothing compared to the issues they would have had to face if they had to feed the poorly governed Euro countries. The Danes said no to the Euro not because their politicians said that they should but because they were sceptical about putting all their eggs in one basket together with countries that dwarfed their own economy. While the Swedes had the opportunity to enter the Euro when they joined the EU they said thanks but no thanks mainly due to the lessons learned through the 90’ties were they experienced a major economic crisis and had to let their kronor flow freely, something that they would not be allowed to if they adopted or linked their currency to close to the Euro.

In conclusion it look like that the countries outside the Euro will be better of having their independence but still able to take collective action through the EU. I do not see any reason why any country that is outside the Euro would join now or anytime in the near future. Joining would be like committing economic hara-kiri.. very noble and honourable but not very sane.