There are two ways to deal with unpleasant truths. One is simply to deny them, the other is to subtly finesse them. Corporate officials at the Open Forum on tax competition and tax evasion used both techniques, and the results were surreal. The Thursday evening event was organized by the WEF and the development organization Bread for All, Switzerland.

Peter Athanas, CEO of Ernest &Young, Switzerland, won the Pinocchio prize for his disingenuous answers to virtually every question. He got serious, tough responses only from panel member Leonor M. Briones, co-convenor of Social Watch and former treasurer of the Philippines. And from the audience. Athanas's performance followed the simple tack of baldly denying provable facts. Claims that transfer pricing cheats countries of tax revenues are simply "not true," he said. And, "The tax haven issue is not that big an issue anymore." He thought the real problem is not tax shelters, but that developing countries "don't have well-trained tax administrators."
Finally, Athanas said, "There is not a direct link between tax competition and financing. MDG (Millennium Development Goal) countries have different priorities," he declared, though he didn't say what they were. Often, he put his hands in front of his face in a prayerful mode, perhaps making amends for his comments.

Briones resolutely knocked down his assertions. She said that tax competition severely diminishes the possibility of reducing world poverty. She calculated Philippine revenues lost in 1999 to be 126 billion pesos. ($1 equals 50 pesos). The deficit was 111 billion pesos. In 2000, the revenues lost were 151 billion, and the deficit 134 billion. In 2001, revenues lost were 154 billion and the deficit was 147 billion. Without tax competition, the deficit could be wiped out, she declared.

And the situation is worsening. She said, "Hong Kong, Cambodia, and Taiwan were cutting tax rates for multinationals. Our government is planning to lower tax rates to below those of Hong Kong." She said, "The tragedy is that countries are fighting each other to bring down the rate of taxation." And she added, "There is a strong shift to indirect taxes. This hits the poor." She said governments were "sacrificing the interests of their people," and she detailed the impact on the poor. She said, "We are supposed to have improving growth, but malnutrition is growing." And, "We have among the highest rates of maternal mortality and infant mortality in Asia. Social expenditure has gone down while payment for debt goes up." She noted, with a hint of irony, "The quality of life of the CEOs [in our countries] is excellent, but not the life of the poor." She marvelled at countries "glorying in their tax havens" while they take advantage of the poor.

Looking at Athanas, Briones reminded him that, "Our former dictator had his billions residing here [in Switzerland]." She said the same was true for "many other former dictators and generals." (Marcos is believed to have stolen US $10 billion. According to Marie-Gabrielle Koller, a former attorney with accounting firm KPMG in Zurich, after Ferdinand Marcos was overthrown
in 1986, KPMG secretly transferred $400 million from Credit Suisse Zurich to a Liechtenstein trust on the ex-dictator's behalf.)

Merrill Lynch's Henderson, who is chairman of the company's Global Public Sector Client Group, was smooth and subtle, avoiding crude and obvious lies. Asked where and why Merrill Lynch had offshore subsidiaries, he said they existed in Luxembourg, Switzerland and elsewhere. Its U.S. Securities and Exchange Commission filing for 2005 lists Merrill Lynch Credit Reinsurance
Limited, Bermuda; Merrill Lynch Investment Managers (Dublin) Limited, Ireland; Merrill Lynch Investment Managers (Isle of Man) Holdings Limited, Isle of Man; and Merrill Lynch Fund Managers (Isle of Man) Limited, Isle of Man. Bermuda is where insurance companies escape regulation and taxes; the Isle of Man is where profits are laundered.

Henderson noted that tax havens were legal and set up by sovereign countries. He said, "A company like ours with global business can't afford malfeasance as it relates to tax behavior." He said he'd be suspicious about a company with subsidiaries in such places as Cyprus, Liechtenstein or the Netherlands Antilles: "Responsible multinationals won't have Netherlands Antilles subsidiaries." How about the Isle of Man?

Astonishingly, Henderson said that there ought to be individual, not corporate responsibility on the matter of tax. Merrill Lynch's corporate responsibility is apparently of another kind. He noted, "We have a corporate responsibility program; we give money through a foundation." I love it when a company avoids paying millions in taxes that a government can use for social programs and then, to burnish its image, gives a few thousand to a dance company or a hospital. Not to say Merrill Lynch did that, but that's generally how it works.

And he acknowledged that Merrill Lynch private banks had accepted money from people who didn't declare tax in their home countries. "If we were to start moralizing everyone who walked in the door, I guess we might be out of business." (When Athanas was asked, "Is it possible for Ernest & Young to make money or even survive if it stops enabling tax cheating?" he became indignant.)

Lucy Komisar, Tax Justice Network, +41 (0)76 479 19 45