Shareholders, Stakeholders and Tax Havens
Once again it’s that dreaded time of year for Americans: tax time. And the issue of tax havens has reared its ugly head quite a bit recently, both on a global level at the recent G20 summit, where world leaders agreed to name and shame countries that haven’t agreed to international reporting standards, and in the UK, where Barclays was in the news for attempting to keep details of its tax havens secret from The Guardian.
Tax havens are a major political issue. European countries particularly would like to see them more stringently regulated, but I don’t think any new international agreements will do much good. The reason? Tax havens cannot be dealt with on an international basis until they are resolved on a national basis. One only needs to look so far as the United States to see why – there are major tax havens in US states like Nevada, Delaware and Wyoming. Because so much of the money that corporations in these states make stays in the US, these American tax havens aren’t on the global radar, even though they create a major disadvantage for non-American companies. A particularly egregious example is Nevada, where it’s possible for private associations or partnerships to buy a house, and pretend to live there for a long enough period to get tax advantages not dissimilar to advantages in Monaco or Switzerland.
While tax havens may seem to be in shareholders best interests in the short term, in the long term they destroy shareholder value. Using tax havens is irresponsible because they benefit company shareholders at the expense of company stakeholders.
What are the responsibilities of a corporation? Of course, the first responsibility is to return shareholder value, but there’s also an important responsibility to return stakeholder value, a broader responsibility to municipality and country. Returns to shareholders and stakeholders should be done uniformly and fairly; when corporations are relying on state tax havens, they’re taking a very narrow, short-term approach to their value proposition.
One cannot deal with the tax haven issue outside the US without dealing with it inside of the US—and it doesn’t seem like this will happen any time soon, even as leaders call for greater regulation around the world as a result of the financial crisis.
If people are going to start a political movement against tax havens, let’s have corporations face up to their responsibilities to shareholders and stakeholders, for the dollars staying in the US and currencies everywhere worldwide.
