In the previous two installments of this article we debunked the narrative portraying entrepreneurs and youtubers moving to Andorra as wealth creators whose departure would impoverish residents in their home countries, and that of its detractors who argue that taxes redistribute rents from capital to labor by compensating for the relative impoverishment of workers and peddle social spending as a defense of workers against capital instead of what it really is: a mutualization into the state of the overall costs of exploitation of labor. In this final installment, we will debunk both sides’ arguments about the so-called tax havens.
Are tax havens the result of fiscal oppression?
We are told of tax havens as a kind of small parasitic states stealing tax revenues from large states by eroding their revenue-raising capacity and social policies. Nothing could be more untrue. Tax havens were established as such as a result of the deliberate policies of large states, Germany, France, Great Britain, the USA… and Spain, whose relationship with Andorra and Gibraltar fits into that general pattern.
As we discussed in the previous installment, state hypertrophy appears historically in all modes of production when begin to enter into contradiction with the productive forces they had hitherto developed and become an obstacle to the development of mankind as a whole. In capitalism the history of this process is the history of the configuration of state capitalism. As we can see in the graph above, which describes the historical evolution of the tax burden in Switzerland, France, the USA and Great Britain, it occurred in parallel in virtually all states and during a relatively short period of time between the First World War and the 1950s of the last century.
Differences in the amount and concept of taxes immediately caused distortions in the capital market i.e., they suddenly made it attractive to place profits in some places that had not been especially appealing before.
The first of these was the canton of Zuch in Switzerland in 1920, a particularly poor county that attracted capital simply by making it easier to set up shell companies and considering the ownership of bank accounts as a commercial secret. It was followed, with even greater success, by neighboring Zurich and the nearby Principality of Liechtenstein, which, being formally an independent state, could give even more guarantees to German capital. In Liechtenstein – which adopted the Swiss franc as its currency – a new privileged social form was created that is still used by some of the big consulting firms. This form is equivalent to a non-profit foundation whose purpose is to preserve and increase an original capital. The new form enshrined what the Swiss already did in a bureaucratic but not yet in a legal sense: guaranteeing the anonymity of the partners regardless of their nationality.
The owners of the big German industrial groups, fearful of the revolution in Germany, were actually the major drivers of these developments. In less than a decade, the German border from Luxembourg to Liechtenstein became a large safe deposit box for an increasing amount of German and French capital unable to find a productive destination and seeking shelter from both the advances of the class struggle and the nibbles of the crisis.
Switzerland underwent a transformation and became the country we know today. The German cantons, hitherto secondary, came to play an increasingly decisive role, the bankers became the leading sector of the local ruling class. Acting as panic room for the German bourgeoisie was exalted as a national destiny, turning the idea of neutrality into a historical mission that would end up shaping even the typefaces.
And finally, the 1938 Bank Secrecy Act, which made it a criminal offense to investigate the ownership of accounts and deposits, gave constitutional status to the new mission of the highland national capitals. At the time when German imperialism was raising the banner of final unification, preparing the annexation of Austria, the Sudetenland, Danzig (=Gdansk) and any territory with German-speaking minorities, not even the most nationalistic Nazi dreamed for a moment of annexing the German-speaking cantons.
Switzerland, the first tax haven, proved during the war a new usefulness for this type of structures: to act as an interface in the relations and exchanges between the German capitals and their war antagonists for the joint businesses that were conducted during the carnage. Thanks to Swiss banking, cross-investments were maintained and with them the payment of dividends to enemy investors. Meanwhile, it also served to launder much of the spoils of war plundered throughout Europe by legally incorporating them into the circuit of international capital. Switzerland’s role during the second war left a lasting lesson: tax havens are born and exist in the interests of national capital, but to the extent that global capital forms a single worldwide network, they serve the system as a whole. They guarantee that not even a world war will break the global circuit of capital.
After the war, these lessons had become clear to British capital. The empire was being dismantled, the burden of war debt became suffocating, and the US was hoarding the gains of wartime triumph while pushing its allies to abandon their most profitable colonies as soon as possible. International capital no longer flowed so easily and the City of London, a state within a state, was no longer the world’s leading financial center.
Among the counter strategies – which included several wars – the British bourgeoisie devised a particularly clever one. A series of legal precedents from the 1920s and 1930s considered that activities and exchanges carried out beyond their shores (off-shore) by two companies that did not conduct business within the United Kingdom should not be taxed on British territory. So they developed a virtual residency formula to allow London banking to mediate such tax-free transactions. Then, the British bankers and imperial administrators themselves promoted, throughout their string of colonial enclaves, legislation that imposed different forms of banking secrecy and introduced legal forms of easy incorporation with anonymous shareholding. The first global network of tax havens was born, with its center in London, what a famous documentary has called the second British empire.
The British network immediately had its echoes. Luxembourg became the official haven of what years later would become the EU, while France repeated the British scheme in some former colonies; Holland created its own havens in its West Indies and instruments to channel capital to the metropolis (the famous Dutch sandwich); the USA, whose states of New Jersey and Delaware had pioneered the creation of regional legislation for the rapid incorporation of companies (easy incorporation) turned Delaware into an American Luxembourg that does not tax companies on their intangibles and aims to capture capital on the run from all over South America, a policy later partially followed by Florida. … all the while guaranteeing havens in the Caribbean and nurturing the development of Panama as a safe haven for capital in need of laundering before being incorporated into the U.S. markets. Even Ireland eventually entered the competition to capture capital by plugging into the network and reforming its legislation to facilitate tax avoidance techniques such as the double Irish arrangement.
Do states combat tax havens?
As we have seen, tax havens are not born as a response to the alleged tax oppression exerted by states on the supposed creators of wealth. They are a deliberate product created and protected by those same states to serve as a refuge for a part of their own national capitals, to offer a safe connection with the rest and to serve as a way to capture capital flows for their own financial markets.
This last dimension, competition to attract capital, is the one that sometimes includes the laundering the money of criminal industries and offers refuge to tax evaders around the world. Its role is marginal to the whole, but it is against this that the famous international campaigns and agreements against tax havens/em> are directed.
If these campaigns do not succeed and only barely advance, it is because it is very difficult to do so without calling into question the rest of the tax havens’ goals. That is why, in the end, the famous EU list does not name Luxembourg or Gibraltar, blesses Switzerland, Bermuda, Jersey and the Caymans and is very concerned about Morocco which, obviously, does not seem to be the most fearsome financial hub on that list.
Is Andorra competing for rich people with Spain?
The history of Andorran banking is very revealing. Andorra began to receive certain volumes of capital during the Spanish Revolution. Small Catalan capitals took refuge in the tiny Pyrenean semi-state. The Andorra of the second half of the 1930s and 1940s is no Switzerland. Nor was the capital of the Catalan petty bourgeoisie that of the German industrialists. The ciutat only had a couple of exchange houses and the banking business was the legal monopoly of a rural savings bank.
This panorama does not change until the fifties, when the Catalan branch of the Spanish bourgeoisie is working hard to guide Franco towards what will later become the Stabilization Plan of 1959, making the peseta convertible and opening Spanish capital to global markets by integrating into the U.S. bloc with all the consequences.
In this framework, in 1951, with the acquiescence of the Spanish and French finance ministries and the impulse of a series of small Catalan capitals, partly linked to the ERC exile, the Andorran legislation is modified to abolish banking monopoly. From the beginning la Caixa, then a local savings bank limited in scope to Barcelona, is the new entity chosen to operate in the country. The choice gives a measure of the modesty of the prospects at the time. But above all, the creation of a small private banking business is organized to turn the country into a refuge for small industrial capital in the face of the expected instabilities.
From then on, Andorra flourished as a small tax haven in the always difficult balance of interests between the two neighboring states, the Vatican and the shenanigans of the Catalan industrial petty bourgeoisie. With the Spanish transitionand the 78 Constitution, the Catalan petty bourgeoisie and its political expressions -which already possessed a regional government- became more present. At the end of the eighties and beginning of the nineties the González government increasingly aligns itself with France in the EU. The way is opened for the political normalization of Andorra, which will eventually join the UN in 1994.
Andorra then consolidates itself as a tax haven of small dimensions, useful to the extent of the needs of the Catalan petty bourgeoisie and the networks of pujolism, becomes popular among the Spanish corporate bourgeoisie and opens offices in Madrid. But it remains too small to serve the large circuits of international capital in a relevant way. To get an idea, the total resources managed by Andorran private banking are today equivalent to the assets of CajaMar, the Spanish rural credit cooperative serving small farmers in Almería and Murcia. Attempts to overcome this provincial framework during the 1990s and 2000s and access new funds to manage (and launder) will lead to an existential crisis for Andorran business.
The new conditions imposed by the US after 9/11 to dismantle jihadist financing networks end up in a campaign against secrecy. Andorran banking takes a back seat while Spanish governments lend a hand in the search for alternative markets and begin to bring the Andorran government into their international networks, such as the Ibero-American Summits, which it joined in 2004.
But France is playing a different imperialist game and in 2009 Sarkozy pressures the Andorran bank to regularize itself by threatening to resign as co-prince. Finally, after quite a few tug-of-war, in 2015 under the direction of the U.S. Treasury Department, Spain intervened one of the main Andorran banks… the one that had covered for years the network of corruption and commissions of the party and family of the catalan president, Jordi Pujol. Andorra disciplines itself, becomes compliant with EU requirements and becomes a green dot on the Commission’s map. Spain continues to parade the government of the small mountain bankers all over South America and even has awarded it this year’s hosting of the Ibero-American Summit.
To think that Andorra, with almost a third of its residents holding Spanish nationality and such a glorious history is more independent from Spain than Gibraltar is from the UK, is either a joke or an exercise in misinformation. Moving to Andorra is not moving abroad as a tax refugee, it is moving to a Spanish region with tax advantages such as the Canary Islands, Melilla or Ceuta, all without having to leave the peninsula.