Our current economic system is not working either for the developing world or for ordinary people in the developed world.
Source: The GuardianIn 2011 I organised a protest at U2’s headline gig at Glastonbury. As Bono sang The Fly, a 9ft wide, 24ft high balloon was inflated at the front of the audience bearing the words U PAY TAX 2?. The protest was prompted by U2’s decision in 2006 to move their tax affairs from Ireland to the Netherlands, after the Irish government decided to cap the tax-free exemption on royalties at €225,000 (before this, artists in Ireland were not obliged to pay any tax on royalties). The aim of the action was to highlight the impact of transnational tax dodging on the developing world. In a chilling report, Christian Aid estimated that $160bn is lost to the developing world each year as profits made in poorer countries are shifted to wealthier tax havens.
A few days before the protest, the co-founder of Bono’s charity One, Jamie Drummond, telephoned me to try to persuade me to call off the action, citing worries that we might undermine Bono’s campaigning efforts. We had a long conversation in which I eventually suggested that, regardless of what we do, Bono’s tax affairs will inevitably cast a shadow over his campaigning. At this point Drummond became slightly aggressive, and insisted that it was our actions alone that were doing damage.
With the recent Paradise Papers revelations concerning Bono’s finances, it looks like my prediction has come to pass. Bono chose to invest in a company based in ultra-low tax Malta, which incorporated a Lithuanian company – in order to buy a shopping centre – which has paid no tax in Lithuania despite having made profits. The company was later transferred to zero-tax (on company profits) Guernsey. To be fair to Bono, he is not creating artificial structures in order to avoid paying tax on his income (the kind of practice adopted by some of the stars of Mrs Brown’s Boys). However, by making this investment, he supported ultra-low tax jurisdictions and elaborate structures for cheating tax. And it is these things which are so harmful, not only to ordinary people in developed countries but also to the developing world.
I am now a philosophy professor, using teaching and writing to campaign instead of massive balloons. And if anything, my research has shown how the harm caused to the developing world is now even more undeniable. Perhaps six years ago Bono could be forgiven for not accepting the message of our campaign. But in a dramatic turn around, even the Organisation for Economic Co-operation and Development is now warning of the damage to the developing world caused by profit shifting. Bono has responded by expressing horror that a company he has invested in has broken rules. However, it is at best naive not to assume that elaborate company structures involving low-tax jurisdictions are set up for the purpose of shifting profits.
Of course this is partly about regulation. The international tax rules were designed for an era before globalisation and technological advances made global profit-shifting possible, and they are no longer fit for purpose. But while lax regulation makes tax cheating possible, when wealthy individuals like Bono “shop around” different countries for the best tax deal they fan the flames of tax competition, putting ever more pressure on countries around the world to cut their tax rates.
This leads to a race to the bottom in which around the world there is ever less money for schools, hospitals and the public good. Tax competition also undermines democratic self-determination. It ought to be the prerogative of legitimate governments to decide on the appropriate level of tax. By creating the downward pressure of tax competition, wealthy individuals limit the choices of sovereign states.
The rallying cry for Brexit was to “take back control”. In fact, it is not the EU that is sapping our self-determination, but the wealthy individuals and transnational corporations that hold countries to ransom through the mechanism of tax competition. Bono and Drummond have good intentions. But what they can’t see is that our current economic system is not working either for the developing world or for ordinary people in the developed world. If we want to help the developing world, we need to oppose that system – not encourage it.
• Philip Goff is associate professor in philosophy at Central European University in Budapest