Last year, parliament passed a law requiring the UK’s overseas territories, including Bermuda, the Cayman Islands and the British Virgin Islands, to publish lists of the ‘beneficial owners’ of the companies registered in them.

The idea that you should lose your privacy because you could use it for wrong-doing is wholly inconsistent with the legal principles of the UK and other free societies.The sponsors of the law claimed it was a crime-fighting measure. For example, writing on, the Conservative MP Andrew Mitchell justified the law by claiming that “secrecy breeds wrongdoing. Transparency is central to exposing bad behaviour and preventing it.” The wrongdoing he had in mind is money laundering and tax evasion.

It’s hard to believe that this was the real reason Britain’s politicians were so keen on the law. After all, the overseas territories were already signed up to data sharing agreements with the UK authorities. If the police or Her Majesty’s Revenue and Customs suspect the beneficial owner of an overseas territories-registered company to be up to no good, their request for his identity will be provided within 24 hours. The beneficial owners of OT-registered companies were already exposed to the rule of law.

Instead, publication exposes the owners of these firms to the rule of the mob. Because these overseas territories impose no tax on corporate profits, people who register their companies there will be suspected of being ‘tax cheats’, denying other UK citizens to their ‘fair share’ of other people’s incomes. Let the vilification begin! In the UK, newspaper editors and politicians enjoy nothing more than whipping up a frenzy of moral indignation against the successful.

The prospect of public vilification increases the cost of registering companies in overseas territories. It should thereby reduce the number of UK citizens who do it. The EU is doing the same, applying various sanctions to firms registering in countries blacklisted as having ‘non-cooperative tax regimes’. A tax haven will be blacklisted if it allows companies to register in it when they have no substantial local business – a requirement no EU country applies to domestic company registrations.

This political hostility to tax havens is unsurprising. Corporate tax rates have been falling all around the world since the 1980s. That’s a good thing, because corporate taxation is one of the most inefficient ways of raising funds for government spending. The loss it causes to the population far exceeds the government revenue it raises. As the economist Christopher Chamley showed in an important 1986 article, it is far worse in this regard than land taxes, consumption taxes and taxes on income from labour. The optimal rate of corporate tax is zero. This is now the standard view within public finance theory (the branch of economics that deals with the welfare effects of taxation).

But corporate tax rates have not fallen because politicians have understood Chamley and seek the most efficient tax system. They have fallen because of tax competition from tax havens, which took off once capital controls began to be lifted from the 1970s. If politicians in large economies had not cut corporate tax rates, even more capital, and the taxable income that comes with it, would have flowed to tax havens.

Politicians seek votes, not economic efficiency, except insofar as it contributes to votes. And, from a vote-winning point of view, corporate tax is a winner. The median voter has no idea that corporation tax is unusually inefficient. On the contrary, he is all too ready to believe that the cost of it falls not on real people but on merely legal persons (companies). And it is a mistake that politicians are keen to encourage, as when Barack Obama complained about John McCain’s tax policy in the 2008 presidential election on the ground that it would give tax breaks to some of America’s “richest corporations”.

Politicians would rather end corporate tax competition than win it. Hence the war on tax havens, the OECD publications bemoaning “destructive tax competition”, and the EU’s abiding goal of tax harmonisation.

It’s a shame, and not only because it makes UK and EU citizens poorer. It encourages politicians to abandon principles that they would normally hold sacred. For example, there is a widely held presumption that UK citizens have a right to privacy provided the authorities have no particular reason to suspect them of a crime. But, when advocating the UK’s public registry imposition on OTs, the MP Andrew Mitchell explicitly rejected this presumption, claiming that “Secrecy breeds wrongdoing. Transparency is central to exposing bad behaviour and preventing it.”

Imagine this principle applied generally. The greatest source of privacy in modern societies is the family home. And this privacy is used for much wrongdoing: domestic violence, sexual crimes and drug taking, among much else. The privacy of the home is surely a cover for much more crime than offshore financial centres are. Well, then, shouldn’t this privacy be ended by compelling everyone to install cameras throughout their homes which stream to the internet for public inspection?

I hope authoritarianism has not made so much progress that this proposal will still strike readers as reasonable. Liberal societies require privacy. You can give it up voluntarily, as when you reveal your life on Facebook, or you can have it removed against your will when you commit a crime. But the idea that you should lose your privacy because you could use it for wrongdoing is wholly inconsistent with the legal principles of the UK and other free societies.

Now consider the EU’s blacklist of ‘non-cooperative tax jurisdictions’. This violates the generally agreed principle that sovereign governments are free to design their own tax policies. The criteria for blacklisting make it clear that changing other countries’ tax policies is the goal. Three must be satisfied to avoid blacklisting:

Transparency: Countries must comply with international data sharing standards.

Fair Tax Competition: Countries should not violate the EU and OECD principles concerning tax competition. Or, more specifically: “Those that choose to have no or zero-rate corporate taxation should ensure that this does not encourage artificial offshore structures without real economic activity.”

BEPS implementation. Countries must implement the OECD’s Base Erosion and Profit Shifting (BEPS) minimum standards.

Most tax havens that are British Overseas Territories or Crown Dependencies pass the transparency and BEPS tests. It is the Fair Tax Competition criterion that is meant to catch them. It does this by specifying that a regime fails the test when a common feature of incorporation around the world – namely, that it need not be accompanied by ‘real economic activity’ by the company (or substance, as it is sometime known) – is combined with a particular tax policy: namely, no or zero-rate corporate tax. Every advanced economy would fail the test if it stopped taxing corporate profits: that is, if it pursued what standard economics deems to be a wise policy.

The Overseas Territories and Crown Dependencies are not rogue states. They are stable democracies committed to the rule of law. EU politicians have no proper business meddling in their domestic policies. Calling this interference colonialism may be overstating the case. But the interference displays a remarkable contempt for the sovereignty of their governments and a willingness to use force against legitimate and peaceful regimes.

The EU blacklist also violates the principle that justice is blind – or, in other words, that the same rules apply to everyone, regardless of who they are. The European Commission applies its criteria for blacklisting only to ‘third countries’, exempting EU countries from the same scrutiny and the possibility of being blacklisted. They justify this by saying that, within the EU, they use “different tools” to ensure fair and transparent tax.

Perhaps they do. But that is irrelevant. Let us suppose, though absurd, that sanctions are warranted by failing to meet the blacklisting criteria listed above. Why is membership of the EU exculpatory? The European Commission’s argument is preposterous. You might as well argue that the criminal law need not apply to members of the aristocracy, because aristocrats have other reasons for behaving well. There is no evading the fact that the EU applies standards to third countries that it does not apply to its own member countries.

The most important casualty of the war on tax avoidance, however, is the rule of law. In 2011, frustrated by legitimate tax avoidance schemes, George Osborne, then the UK’s Chancellor of the Exchequer, introduced a general anti-avoidance rule (GAAR). This allows Her Majesty’s Revenue and Customs to collect not the amount of tax you owe according to the letter of the law but according to the spirit of the law. Your tax arrangements, including those using offshore financial centres, may be entirely within the law. But that is no defence.

If HMRC deems your tax arrangements to be tax avoidance, then it can collect the amount of tax you would owe if you hadn’t made them.

If the difference between legitimate tax planning and tax avoidance were clear, this might not undermine the (degree of) legal certainty that is required for the rule of law. Alas, the distinction is not at all clear. More than 100 years of case law in New Zealand and Australia, which have the oldest GAARs, has failed to create a legally clear concept of tax avoidance. Since they are both English common law jurisdictions, there is no reason to believe the UK courts will be able to do any better. A GAAR simply introduces arbitrary power into tax collection.

Ignore the hifalutin talk about ‘fairness’ and ‘transparency’. Politicians like corporate taxation because, though it is economically damaging, it is politically efficient. They can use the revenue it raises to buy many more votes than the tax costs them. Hence their war on tax havens. And hence the absurdity of their moral posturing. It is not a war of principle; it is a war of predation.

Jamie Whyte is a freelance journalist and the author of several books, including ‘Bad Thoughts’, ‘Crimes Against Logic’, ‘Free Thoughts’, and ‘Quack Policy’.