Tax Justice Network

Petition the UK government over its proposed new tax loopholes for big business

2012-02-15T00:37:00.002-08:00

Our friends at Action Aid have launched an urgent petition against the UK government's plans to allow big businesses to dodge even more tax through tax havens.

The government plans to open a new tax loophole, making it much easier for big businesses to dodge their taxes. This could cost poor countries £4 billion and the Treasury’s own estimates put the loss to the UK at £1 billion.

You can stop a new tax loophole costing poor countries billions if you take urgent action before the UK budget is announced on 21 March.

Because when companies pay less, ordinary people around the world pay more.

The new loophole will be debated in parliament, which means that your MP has a key role to play in making the government change its plans. Petition your MP here.

HMV gets the tax justice bug

2012-02-15T00:13:00.000-08:00

There's an article on the website of the computer and video games site MCV which is short, and well worth reading in full. It says:

"It is ‘absolutely nuts’ online retailers can avoid tax so easily, says HMV. The Government is closing down the Channel Island tax loophole from April, but HMV CEO Simon Fox says this doesn’t go far enough.
. . .
“It can’t be helpful to have your VAT rate as a determinant of where you put your warehouse. It’s a basic distortion to fair competition. The closing of LVCR rules is a good thing, but the way it has been implemented doesn’t necessarily solve anything.

“[The situation] is absolutely nuts. Just as it’s nuts for digital service providers – like iTunes and Amazon Kindle – to be located in low tax locations.

“Unfortunately, all of the high growth digital markets are not delivering the Government tax revenue. It is absolutely idiotic.”

Well said that man (hat tip: GFI). And there's more - read the whole interview. It follows statements from others such as those of GlaxoSmithKline boss Andrew Witty last year, in a similar vein:

I really believe one of the reasons we've seen an erosion of trust , broadly, in big companies is they've allowed themselves to be seen as detached from society, and they will float in and out of societies according to what the tax regime is.
. . .
While the chief executive of the company could move, maybe the top 20 directors could move, what about the 16,000 people who work for us? Its completely wrong, I think, to play fast and loose with your connections with society in that way."

(And there's much more along those lines in that interview.) Both these will go on our quotations page.

Business, and even big business, is getting it. Tax justice has gone mainstream, and it's getting stronger by the day, and spreading around the globe. (note that we reported this, only yesterday.) Why, even Harry Potter is on board, it seems.

But we're under no illusions: we face truly formidable enemies. There's a very, very long way to go.

Links Feb 14

2012-02-14T09:50:00.001-08:00

Analysis: India struggles to contain seismic corruption and rampant tax evasion The Bureau of Investigative Journalism
Feb 14 - Great piece by Nick Mathiason. India’s top corruption official, AP Singh "stated that Indians illegally deposit $500 billion in tax havens ... We find that money is taken to Dubai/Singapore/Mauritius from where it goes to Switzerland and then British Virgin Island/Cayman Islands and other such tax havens ..."

New India deal to fight tax evasion Macau Daily Times
Feb 14 - "Macau and India will cooperate on fighting tax evasion, after a new agreement came into effect earlier this month." - but it's bilateral . See some TJN commentary on India's moves towards a multilateral approach here.

Diamonds: A Good Deal for Zimbabwe? Global Witness
Feb 13 - New report raises concerns that diamond purchases may help fund the Zimbabwean military, and reveals diamond business being conducted through an opaque corporate structure operating via a web of entities based in secrecy jurisdictions.

See also:

Tracking diamond profits The Mercury
Feb 14 - "Most of the revenue from Zimbabwe’s controversial Marange diamond fields is being laundered through front companies and tax havens to top members of the security forces and foreign entrepreneurs, leaving almost nothing for Zimbabwe’s treasury."

Kazakh president accused of money laundering swissinfo
Feb 13 - "Nazarbaev is accused of being the beneficiary of some $100 million that was allegedly laundered via a third party and deposited into a Credit Suisse account in Zurich."

Europe can't cut and grow Guardian
Feb 6 - "The EU needs a growth compact, not a fiscal one. Swift action on tax and jobs is the way out of the crisis" - the piece speaks some common sense on tax justice issues.

PWC: New US tax law to have big impact on Bermuda’s financial services sector The Royal Gazette
Feb 14 - Commentary in the Bermuda press on FATCA.

See also:
Bahamas: FATCA more trouble than it's worth, accountant warns Nassau Guardian
Feb 14 - Observing on disclosure: "the country's financial institutions must now provide the necessary information to its clients and leave the decision to the individual account holders and institutions themselves".

"Filthy Rich" CNBC
Feb 13 - "CNBC investigations inc. follows the trail of international corruption and money laundering to a shocking tax haven…the United States".

Tax Havens: Ugland House, Grand Cayman - - home to almost 19,000 companies, offshore funds and financial entities Finfacts
Feb 13 - Nice little summary of some Cayman facts. The piece observes: "it's argued that the common use of tax havens is making the concept of the nation-state itself a very pliant one for certain actors in society, be they corporations or the very wealthy." Hat tip: Offshore Watch.

Austria approaches Switzerland to snare tax fugitives Austrian Independent
Feb 13 - "Austrian People’s Party (ÖVP) Finance Minister Maria Fekter said Austrians may hoard up to 20 billion Euros in the neighbouring country which is famous for its strict banking secrecy." Interesting developments - see commentary on Austria's role in Europe here and within FSI ranking here.

Facebook is doing a Double Irish Tax Research UK
Feb 12 - Richard Murphy on Facebook's tax dodging. See also our recent blog Petition: pay your taxes, Facebook.

Tax Justice in Australia: Ready, Steady, GO

2012-02-14T03:53:00.003-08:00

Steps are underway to launch a Tax Justice Network in Australia. The following meetings have been convened in Melbourne and Sydney to get things underway:

• In Melbourne the meeting is: 10 am – 12 pm, Friday 24 February including a light lunch at the end at the ACTU, 365 Queens Street, Melbourne (near Queen Victoria Market) go to level 4, meeting room 4.1 (Bob Hawke Room).

• In Sydney the meeting is at: 10 am – 12 pm, Tuesday 28 February including a light lunch at the end at the Uniting Church Building, Meeting Room 5, Level 2, 222 Pitt Street, Sydney.

• Contact: Marylou Dellosa, Social Justice Admin Officer, t (03) 9251 5271 | f (03) 9251 5241 e Marylou.Dellosa@victas.uca.org.au to RSVP. Places are limited.

Background: Tax Justice Network Australia

The global Tax Justice Network is keen to facilitate the establishment of an arm in Australia.

The Tax Justice Network aims to:
(a) promote sustainable finance for development;
(b) promote international co-operation on tax regulation and tax related crimes;
(c) oppose tax havens;
(d) promote progressive and equitable taxation;
(e) promote corporate responsibility and accountability; and
(f) promote tax compliance and a culture of responsibility

The Tax Justice Network Australia (TJNA) would focus on measures that have international implications. There would be a particular focus on the role Australia can play in stemming illicit financial flows, especially from tax evasion, across the globe. Such measures benefit both Australia and developing countries. The Network will complement, not duplicate, the work of bodies like the Community Tax Forum (which has a focus on domestic tax reform). Some of its work will support measures being called for by other campaigns, such as country-by-country reporting on tax and revenue by extractive industries.

TJNA will also aim to change Australians’ perceptions corruption is a developing country problem, to seeing corruption as a global problem that requires actions by all countries. It will aim to make Australians aware of the efforts of developing country governments and civil society to stem illicit financial flows and the barriers and challenges such efforts face.

It will have a focus on grassroots action, seeking wide support for the campaign goals of the TJNA from members of the community.

What’s the issue?

Taxation plays a vital role in ensuring a just society and a just world. Money lost by developing countries from ‘illicit financial flows’ is vast. It is lost mainly through tax evasion and tax avoidance[1], but includes other forms of corruption and crime. Anti-corruption non-government organisation, Global Financial Integrity, estimated collectively developing countries lost US$1,264 billion in illicit financial flows in 2008, much of this money laundered through secrecy jurisdictions. Africa lost US$64 billion in illicit flows, while the Philippines lost US$16.4 billion, India US$21.5 billion and Indonesia US$16.5 billion. Globally overseas aid in 2009 was only US$120 billion.

In 2008, international management consultancy Oliver Wyman estimated that there was $10 trillion of assets deposited in tax havens around the world. With so much tax revenue lost due to international evasion and avoidance by large companies and wealthy individuals, governments are forced to either reduce public spending and/or increase taxation on less mobile, small companies or poorer individuals.

Australia is not immune from losing tax revenue to tax evasion and tax avoidance by wealthy individuals and multinational companies. The Christian Aid commissioned calculations also found that Australia lost 1.1 billion euros in tax revenue through trade mispricing to the EU in the period 2005 – 2007 and US$1.5 billion in tax revenue through trade mispricing to the US in the same period.

Why Now?

Since the global financial crisis the international community has recognised the need to deal with tax evasion, tax havens and corruption to a greater extent than in the past. The G20 has been moving to act on a number of measures that the TJN, and other NGOs, have been calling for to address these issues. The Financial Action Task Force, the international body that sets the rules on combating money laundering, is in the process of making recommendations to tighten up the rules to deal with tax evasion and government officials stealing public funds and attempting to hide them offshore.

The US Government introduced the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires companies in the oil, gas and mining sector listed on the US Securities and Exchange Commission to have to report on their revenues, profits and taxes and royalties paid to governments on a country-by-country basis. It has also been taking legal action against Swiss bankers who have been assisting US tax evaders.

India has demanded the global rules on dealing with tax information exchange be altered to assist developing countries in combating illicit financial outflows.

Within the Australian Government there is greater support for addressing tax evasion and the role tax havens play in all illicit financial flows.

As a member of the G20 Australia has a role to play at the global level to combat illicit financial flows. Project Wickenby, which aims to combat tax evasion from Australia through tax havens, has provided a multi-agency example other countries could follow.

What will the TJNA ask for?

Organisations joining the TJNA will have a say in what the campaign asks for, provided it falls within the mandate of the global TJN as outlined above. It also makes sense for TJNA to adopt a number of the campaign asks of TJN, these being:

Objective 1.Automatic Tax Information Exchange
Establishment of an international agreement that would require tax authorities to automatically share information in relation to individuals and corporations, with appropriate safeguards on privacy. Such a system already exists in Europe, and is reported to work well in reducing tax evasion by European citizens.[5]

Objective 2. Country by Country Reporting
Introduction of legislation requiring oil, gas and extractive industry companies to report publicly their revenue, profits and taxes and royalties paid on a country-by-country basis.

Objective 3. Better disclosure of ownership and know your customer rules for financial institutions
There is a need for transparency of beneficial ownership of trusts and companies to combat corruption and tax evasion and enhanced ‘know your customer’ rules by financial institutions on government officials and politicians (known as Politically Exposed Persons). Countries, including Australia, should create mandatory national level registers or any other structure that discloses the beneficial ownership of companies and the beneficiary of trusts.

Corporate tax avoidance: where are the worst offenders?

2012-02-13T23:12:00.000-08:00

There are many ways to slice and dice the data to answer the question in our headline, but here's one particular way of doing it. Take a look at this table, from the U.S. researcher Kimberly Clausing. It demonstrates which countries are working hardest to wage economic warfare on the United States (and, by extension, on other countries,) via the global tax system.

The picture is self-explanatory, and it comes alongside a really useful story, which we linked to yesterday but is worth pointing to again.

FACT Coalition Letter to President Obama on Corporate Tax Reform

2012-02-13T08:30:00.001-08:00

The FACT Coalition has issued a letter to President Obama ahead of today's ahead of today's budget announcement. The letter is available for download here.

We will be watching for more tax information to come later this month from the U.S. President.

February 10, 2012
The President of the United States
The White House

Dear President Obama,

As you prepare to address the urgent issue of corporate tax reform, the Financial Accountability and Corporate Transparency (FACT) coalition and undersigned organizations urge you to address serious inequities created by the U.S. corporate income tax code.

We urge you to recommend a corporate tax overhaul that closes tax loopholes and to reject any proposal to effectively exempt U.S. corporations’ offshore profits from U.S. taxes either temporarily (with a repatriation tax holiday) or permanently (with a territorial tax system). Many profitable Fortune 500 companies pay no federal income tax at all – yet some members of Congress are pushing for further cuts to corporate income taxes.

We support proposals such as those included in the recently introduced Cut Unjustified Tax Loopholes Act or ‘‘CUT Loopholes Act,” which would put new restrictions on the use of offshore tax havens to avoid and evade federal taxes as well as close other corporate tax loopholes. The bill would address some key offshore tax loopholes by:

Taxing foreign corporations that are managed and controlled in the U.S. as domestic corporations;
Greatly reducing the tax incentives for corporations to move operations and profits offshore;
Increasing reporting requirements for foreign banks, governments and U.S. taxpayers on offshore accounts.

As a Senator, candidate, and as President, you've supported many of the provisions of the CUT Loopholes Act. Some key figures to consider when forming corporate tax reform proposals include:

12%: average corporate tax rate on domestic profits (the lowest in decades) according to the Congressional Budget Office, far from the statutory rate of 35%;
87%: those individuals surveyed in the Des Moines Register’s Iowa Caucus poll who said corporate tax loopholes should be closed so that every U.S. business pays some taxes;
91%: small businesses surveyed that agree that U.S. multinational corporations’ use of accounting loopholes to shift their U.S. profits to their offshore subsidiaries to avoid taxes is a problem, and
$100 billion: revenues lost each year due to tax haven use according to the Senate’s Permanent Subcommittee on Investigations.

The Administration and Congress should focus on creating jobs and keeping revenues in the U.S. Unfortunately many corporate tax proposals discussed in recent months would result in job loss and decrease the amount of revenue available to make vital public investments in the U.S. by increasing incentives to move jobs and profits offshore.

A “territorial” tax system would reduce revenue and jobs because it would increase the incentives for U.S. corporations to shift profits and jobs overseas. U.S. corporations are allowed to “defer” U.S. taxes on their foreign profits until those profits are brought to the U.S. (until those profits are “repatriated”). As a result, U.S. corporations have a powerful incentive to move operations and jobs offshore or just disguise their U.S. earnings as “foreign” profits by shifting them to an offshore tax haven. Under a territorial tax system, U.S. corporations would never pay U.S. taxes on their foreign profits, which would further encourage these abuses. The sensible alternative is for Congress to repeal “deferral” so that corporations are not rewarded for shifting jobs and profits offshore.

A repatriation amnesty for offshore corporate profits would also reduce revenue and jobs by encouraging U.S. corporations to shift more profits and jobs overseas. Some corporations argue that if they cannot convince Congress to exempt their offshore profits from U.S. taxes on a permanent basis (through adoption of a “territorial” system) then Congress should instead eliminate most U.S. taxes on their offshore profits on a temporary basis by enacting a tax holiday for repatriated offshore profits.

Congress enacted a repatriation amnesty in 2004, and the benefits went to dividend payments for corporate shareholders rather than job creation, according to the nonpartisan Congressional Research Service. Many of the corporations that benefited actually reduced their U.S. workforce. The repatriation amnesty proposals being discussed now are very similar to the 2004 measure.

The Joint Committee on Taxation concluded that a repeat of the 2004 measure would cost $79 billion over ten years. One reason for the projected revenue loss is that
Congress will have signaled its willingness to eliminate most U.S. taxes on offshore corporate profits every seven years or so. This will encourage U.S. multinational corporations to shift even more profits and investments offshore and then simply wait for the next repatriation amnesty before bringing the profits back to the U.S.

Cutting loopholes that allow large corporations and high wealth individuals to avoid taxes that are “revenue positive” are needed to address issues that are important to a broad range of taxpayers. The undersigned support tax reform with an interest in seeing the loopholes closed due to their impact on – among other things – jobs, critical programs, small businesses, developing countries, communities, public schools, human rights, corruption, climate finance, deficit reduction, markets and national security.

Before considering cuts to federal spending for public services and investments that businesses and working families rely on, Congress and the Administration should address the tax loopholes that allow profitable corporations and high wealth individuals to avoid federal taxes.

Some corporate leaders complain about the 35 percent corporate income tax rate but fail to mention that the percentage of profits their companies actually pay in taxes is much lower because of the loopholes they enjoy. A recent Congressional Budget Office report indicated that the average corporate tax rate is at 12.1%, and in many cases, we’ve learned that many organizations, such as Exxon Mobil, Google and General Electric pay little or no taxes in any given year. In fact, a 2007 report from the Treasury Department found “the United States takes a below-average share of corporate income in taxes” compared to other developed countries.

We urge you to look at egregious corporate tax loopholes that reward companies that shift profits and jobs offshore. And we hope you and your team will reject proposals that make the system worse and even more unfair for taxpayers.

Sincerely,
Action Aid USA
Alliance for a Just Society
American Federation of Labor and Congress of Industrial Organizations (AFL-CIO)
Americans for Democratic Action
American Sustainable Business Council
Business for Shared Prosperity
Campaign for America’s Future
Citizens for Tax Justice
Financial Accountability and Corporate Transparency Coalition
Friends of the Earth
Global Financial Integrity
Jubilee USA
Main Street Alliance
Missionary Oblates U.S.
National Education Association
New Rules for Global Finance
Sisters of Charity of Saint Elizabeth, NJ
South Carolina Small Business Chamber of Commerce
Tax Justice Network USA
U.S. Public Interest Research Group
US UNCUT
Wealth for the Common Good
For full list of members, please visit FACT Coalition at
http://www.tjn-usa.org/current-campaigns

Links Feb 13

2012-02-13T08:00:00.000-08:00

Don’t ask, won’t tell Economist
Feb 10 - "Governments once turned a blind eye to their wealthy citizens’ offshore tax acrobatics. Now they are strapped for cash and hungrily hunt every penny in tax revenue. So a cold war on banking secrecy is turning hot."

Swiss banks seen as victims of own tradition swissinfo
Feb - Interesting commentary on status of banking secrecy. "Security, quality and trust… and banking secrecy. These are the qualities that have made the Swiss financial centre so successful. But it’s this very banking secrecy that is threatening the future of Swiss banks..."

Swiss banks involved in Greek Scandal Handelszeitung (In German)
Feb 8 - Reporting that over EUR 120 million has flowed to Swiss bank accounts from the two failed Greek Power companies Hellas Power and Energa. A rough Google translation to English is here. Hat tip: James S. Henry.

See also:
Energa and Hellas Power counterattack GR Reporter
Feb 11 - Background on the reported murky dealings of the Greek energy companies - "the two companies received money for the supply of electricity, but instead of giving it to the State Electricity Company (DEI) and the Hellenic transmission system operator (DESMIE), the money reached bank accounts in Switzerland."

Without new negotiations, there will be no "Rubik" agreement Le Temps (In French, subscription required)
Feb 9 - Interview with Heiko Geue, State Secretary, on opposition in Germany to the Swiss tax deal. Hat tip: Bruno Gurtner.

Daniel Radcliffe: Rich Should Subsidize Poorer People Working 'Just As Hard' Huffington Post
Feb 6 - "The actor, best known for his starring role as Harry Potter and worth an estimated $47,448,000, said ... 'I think, if you make a lot more money than most people -- like I do -- you should pay more tax and subsidise people who work just as hard as you, but don't earn as much.' " Hat tip: Maylis Labusquiere.

Spain: 86% of companies on the Ibex operate in tax havens EL PAIS (In Spanish)
Feb 11 - Reporting on a study by the Observatorio de Responsabilidad Social Corporativa. "Without tax harmonisation at the European level, it is difficult to change the trend." Hat tip" Jorge Gaggero. See TJN's Archives - 'companies and corporations' - for resources on similar reports.

U.S.: Why We Need A Minimum Tax on U.S. Corporations’ Foreign Profits Center for American Progress
Feb 10 - U.S. multinationals claim extraordinary levels of profitability in low-tax countries ... "It is clear from the observable measures of economic activity—location of customers, employees, tangible assets—that most of these profits aren’t actually being earned in these small countries in any meaningful sense. The obvious explanation is that they are moved there on paper for tax-motivated reasons."

The transparent hypocrisy of big oil Oxfam
Feb 10 - "The oil and gas industry loves to trumpet their support of international transparency initiatives and their tax contributions to the U.S. government, but when a new law requires them to tell the public exactly how much gets paid to whom around the world, they bring out the lobbyists and lawyers ..."

Ireland: Finance Bill will include tax breaks to lure top earners here Irish Times
Feb 8 - "Tax incentives aimed at luring senior multinational executives to Ireland, in a bid to boost job creation, will feature in the Finance Bill" - race to the bottom continues.

AIG: the black hole of London and ... Delaware Treasure Islands
Feb 10 - Nick Shaxson on some fascinating and worrying stories of the murky side of dealings in international finance.

Vatican Besieged by Leaks, Conspiracies abc news
Feb 11 - Commentary on the Vatican's "reputation as a scandal-plagued, secrecy-obsessed tax haven."

Liechtenstein royals to veto campaign to remove their veto Treasure Islands
Feb 13 - "Liechtenstein’s royal family has indicated it would veto the results of any referendum that removed the prince’s power to veto the results of referendums." Note: Liechtenstein ranks towards the top end of TJN's Financial Secrecy Index.

Don’t call Monaco or Jersey tax havens. It hurts their feelings Treasure Islands
Feb 9 - On an article published by Nick Shaxson in the UK's Independent, and political capture of "tax haven" jurisdictions by the offshore financial services industry.

Students say no to tax dodging beer

2012-02-13T04:11:00.000-08:00

Posted by guest blogger Chris Jordan

Last night, the University of Edinburgh Students Union became the first union in the UK to ban all SABMiller beers, including Grolsch and Peroni, from union outlets.

This unprecedented move follows extensive campaigning from the ActionAid student group against the multinational beer giant, which avoids paying its fair share of tax in developing countries.

ActionAid research has shown how SABMiller avoids millions in tax by shifting profits out of Africa and into tax havens like Switzerland, depriving the world’s poorest countries of funds that could be used to invest in vital public services. An estimated 250,000 additional African children could get an education if SABMiller stopped dodging its tax in poor countries.

The action taken in by Edinburgh University students sends a powerful message to SABMiller that people think tax avoidance by multinational companies is no longer acceptable.

As recent press reports have shown, systematic tax avoidance by multinationals is a very real and growing reputational risk. Companies like SABMiller need to need to have a serious rethink about the way they do business.

It’s no longer viable for multinationals to divorce their tax practices from their approach to corporate responsibility. Companies must develop an ethical dimension to their tax practices.

The public no longer believes that bending the rules is acceptable.

Petition: pay your taxes, Facebook

2012-02-10T01:55:00.001-08:00

Citizens for Tax Justice has a great article looking at outrageous tax dodging by Facebook. And the New York Times quotes Senator Carl Levin:

"Facebook may not pay any corporate income taxes on its profits for a generation"

Now sign the petition: Pay Your Taxes, Facebook

Time for the Cut Unjustified Loopholes (CUT) Act.

New York Times demands no compromise in battle against Swiss banks

2012-02-09T23:57:00.001-08:00

In its editorial today the New York Times demands that the US government pushes ahead with its battle to bring tax evaders to court. While the British and German governments plough on with their shabby deals with the Swiss government, the US has been pushing Swiss banks to reveal data about US criminals hiding behind Swiss banking secrecy laws, and although the banks are trying to find wriggle room, the NYT sees no room for compromise:

"Almost three years after UBS, Switzerland’s biggest bank, paid a $780 million fine for helping Americans evade taxes and agreed to hand over the names of more than 4,500 American account holders, the Swiss banking industry refuses to exit the business of tax evasion. And the Swiss government still insists on protecting it from scrutiny. The United States should not compromise in pursuing the data it needs on American tax cheats."

Who, apart from criminal tax evaders and the bankers who profit from flogging banking secrecy, would disagree? This is time for governments of all democratic countries to rid the world of banking secrecy. The US government should press home its advantage. As the NYT rightly points out, the Swiss banks are totally vulnerable here, and if they persist in defending the indefensible the US government can take strong counter-meaures:

"There is no need for the United States to accept this sort of arrangement. If Switzerland stonewalls, the Justice Department can indict banks that benefit from tax evasion and seize their assets in the United States, moves that could put them out of business. At some point, the Swiss government will find that result a lot more costly than handing over information on American tax cheats. "

Read the full editorial here.

The Economist is also running a good article about the travails of Swiss banking, citing TJN research and TJN staffers. Read all about it here.

One of the things The Economist notes is crucial: the chance in the public mood in Switzerland

When Philipp Hildebrand, the central-bank boss, resigned in January over a currency trade by his wife, public concern centred on his possible lapse of judgment, not the privacy breach that revealed it (the trade was leaked by an employee at a private bank). In years past, it would have been the other way round.

That is admittedly just an anecdote - but a telling and significant one. As we have taken to saying recently, the times they are a-changin'.

USA: Bill Introduced to Cut Tax Loopholes and Keep Profits, Jobs in the U.S.

2012-02-08T08:38:00.000-08:00

Press Release from the FACT Coalition:

Washington – With corporate tax rates at their lowest point in decades courtesy of legal tax loopholes, Senators Carl Levin (D-MI) and Kent Conrad (D-ND) have introduced a comprehensive bill to permanently close them and keep much-needed jobs and revenues here in the U.S.

The Cut Unjustified Tax Loopholes Act or ‘‘CUT Loopholes Act,” would put new restrictions on the use of offshore tax havens to avoid and evade federal taxes as well as close other corporate tax loopholes. The bill would address some key offshore tax loopholes by:

Taxing foreign corporations that primarily do business in the U.S. as domestic corporations;
Greatly reducing the tax incentives for corporations to move operations and profits offshore;
Requiring annual country-by-country reporting by SEC-registered corporations related to their employees, sales, purchases, financing arrangements, and taxes; and,
Increasing reporting requirements for foreign banks and U.S. taxpayers on offshore accounts.

The bill would also close the loophole whereby taxpayers subsidize stock options for corporate executives.

For a full summary of the bill click here.

The CUT Loopholes Act is supported by the Financial Accountability and Corporate Transparency (FACT) coalition, which includes a broad range of small business, faith-based, labor union, anti-corruption, government transparency, tax policy and public interest organizations.

The Joint Committee on Taxation and the Office of Management & Budget estimate that the bill would result in an additional $155 billion in revenue over 10 years.

“This bill would assure that big corporations are no longer able to use loopholes to avoid taxes that small businesses have to pay. It would stop the awful practice of rewarding multinational companies that offshore profits and jobs over those who create jobs and invest in communities across America," said Scott Klinger, Director of Tax Policy for Business for Shared Prosperity.

The bill addresses many of the loopholes that provide an advantage to individuals and corporations with the ability to take advantage of offshore accounts. Some key figures driving support for this bill include:

12%: average corporate tax rate according to the Congressional Budget Office, far from the statutory rate of 35%;
87%: those individuals surveyed in the Des Moines Register’s Iowa Caucus poll who said corporate tax loopholes should be closed so that every U.S. business pays some taxes;
91%: small businesses surveyed in an independent poll that agree that U.S. multinational corporations’ use of accounting loopholes to shift their U.S. profits to their offshore subsidiaries to avoid taxes is a problem, and
$100 billion: revenues lost each year due to tax haven use according to the Senate’s Permanent Subcommittee on Investigations.

“As long as these loopholes exist, taxpayers will continue to pick up the tab for large corporations that clearly do not need our help,” adds Nicole Tichon, Director of Tax Justice Network USA and a founder of the FACT coalition.

###

For more information on the FACT coalition and its members, click here.

For a FACT sheet on tax haven abuse by the numbers, click here.

For a comprehensive report on corporate tax dodging by Citizen's for Tax Justice, click here.

CONTACT: Nicole Tichon

Executive Director

Tax Justice Network USA

nicole@tjn-usa.org

202-758-9552

CONTACT: Rebecca Wilkins

Senior Counsel, Federal Tax Policy

Citizens for Tax Justice

rwilkins@ctj.org

202-299-1066 x 32

Fair Tax Summit Planned for March 29 & 30 in Ottawa

2012-02-08T08:34:00.000-08:00

A Fair Tax Summit will take place March 29 and 30, 2012 at the Lord Elgin Hotel, in Ottawa. The conference aims to build a movement for progressive taxation in order to protect social programs and build a better Canada.

Canadians for Tax Fairness is organizing this conference for activists, researchers, labour and NGO leaders, students, environment group members, beneficiaries of social programs, journalists and elected officials in collaboration with the following co-sponsors: Canadian Labour Congress, Canadian Centre for Policy Alternatives, National Union of Public and General Employees, KAIROS, Citizens for Public Justice, Halifax Initiative, Inter Pares, and Canadian Health Coalition. (We expect more organizations to join us.)

The goals of the conference include:

facilitating a sharing of research and learnings from the experience of campaigns in other countries;
clarifying choices and policy options and developing a common platform for action on fair taxes; and,
developing public education, advocacy and action campaign plans including figuring out how best to communicate our message.

Simultaneous interpretation will be provided in French and English.

The program includes workshops on:

Fair taxes and the environment
Making taxes more progressive
How to make corporations pay for all the services they get
Getting value for your money
Reforming municipal taxes
How the tax system could help to reduce poverty and inequality,
Tackling tax havens, and
Provincial tax fairness campaigning.

Plenary sessions include:

Tax cutting and austerity budgets or tax fairness and better government services and social programs? The political and economic context for fair tax campaigning.
Framing the tax debate
Beyond our borders, learning from global tax justice campaigns
A call to action

The key note address will be by Linda McQuaig, well known author and journalist, who has most recently co-authored with Neil Brooks the best selling book, The Trouble with Billionaires. She will speak about Building a Better Canada.

Other confirmed speakers include:

John Christensen, Tax Justice Network International, UK
Alvin Sindiga Mosioma, Tax Justice Network - Africa
Neil Brooks, Professor, Osgoode Law School, York University
Armine Yalnizyan, Canadian Centre for Policy Alternatives
Toby Sanger, Canadian Union of Public Employees
Andrew Jackson, Canadian Labour Congress
Alain Deneault, Échec aux paradis fiscaux
Sheila Block, Wellesley Institute
Trish Hennessey, CCPA
Nicole Tichon, Tax Justice Network USA
Shannon Daub, CCPA BC Office
Laurel Rothman, Campaign 2000
Marc Lee, CCPA BC Office
Kathleen Lahey, Queen's University Faculty of Law
Nadia Lévesque, Public Service Union of Quebec

The event fees for the Fair Tax Summit are:

Regular (sponsored by an organization)$ 175.00Individual or small organization$ 75.00Student or unwaged$ 25.00

The conference will be held at the Lord Elgin Hotel in Ottawa. A block of rooms is being held at a special discounted rate of $144 a night.

The conference will be limited to 150 participants so register early to be sure to get a spot.

For more information contact Sofia Samper at: sofia.samper@taxfairness.ca

Links Feb 8

2012-02-08T08:22:00.000-08:00

Unsafe haven? New IFC tax haven policy questioned Bretton Woods Project
Feb 8 - Guest analysis by María José Romero, LATINDADD, on a new report that "finds widespread use of tax havens by clients of the World Bank’s private sector arm, the International Finance Corporation (IFC), while the new Bank policy is criticised for having major loopholes." Hat tip: Juan O'Farrell.

See also:
The World Bank and extractives: a rich seam of controversy Bretton Woods Project
Feb 7 - "As World Bank projects fail to reduce corruption in the mining sector in the Democratic Republic of Congo (DRC), International Finance Corporation (IFC) investments in extractive industries are provoking complaints and protests around the world."

Oil companies lobby for less transparency as Global Witness exposes the need for more Global Witness
Feb 8 - See the press release and read the report. "Despite ‘big oil’ calling for a global ‘level playing field’, it appears to be fervently undermining efforts to create just that – a new global standard for transparency of revenue payments."

Philippines: Taxing Corruption BusinessWorld
Feb 9 - "The term "ill-gotten wealth" has again become a buzzword in the recent days mainly due to the ongoing impeachment proceedings against the Chief Justice..."

Ghana Sets Up Team To Review, Re-Negotiate Agreements With Mining Firms Borneo Post
Feb 2 - “Given that the country’s mining sector consists mostly of gold mines, one would have expected a higher fiscal take by the government. Unfortunately, the phenomenal increase in gold price has not sufficiently benefited the people of Ghana.” Hat tip: Sandra Kidwingira.

Strengthening Sierra Leone’s revenue mobilization efforts for the good of its people Cocorioko
Feb 2 - "Another institution that also needs public support insofar as Sierra Leone’s development could be discussed is the National Revenue Authority. Not only public support ... the NRA should be constantly watched with close eyes by the government, because it is the life blood of the nation and no government will want to toy with that."

How to do business offshore in Mauritius The South African
Jan 31 - On new legislation that has " long been awaited by professionals in the funds industry ... General Partners have the ability to manage operations from locations other than Mauritius ... a Mauritian LP may hold a global business licence and may elect to be taxed in Mauritius and thus take advantage of the Mauritius tax treaty benefits."

United tax evasion defences start to crumble swissinfo
Feb 5 - “Most net new money growth has been generated in Asia and Latin America. Growth has been flat or slightly negative in Europe and the US.” As TJN asserts, global cooperation is crucial to redress tax injustice.

UK: Liechtenstein tax amnesty extended Financial Times
Feb 7 - The amnesty for UK tax dodgers for previously undeclared assets held in Liechtenstein has been extended for another year. Apparently, some "investors" have been sitting on the fence while waiting to see what happens with the shabby Swiss tax deal. Hat tip: Markus Meinzer.

Swiss Bank Wegelin Charged in U.S. With Aiding Tax Evasion Bloomberg Businessweek
Feb 8 - An update on this case linked several times recently. Note: "Prosecutors said that Wegelin and the three bankers wooed U.S. clients fleeing UBS AG, the largest Swiss bank."

UBS Employee Tax-Evasion Probe Dropped by German Prosecutors Bloomberg Businessweek
Feb 8 - "German prosecutors dropped a probe into three employees at UBS AG, Switzerland’s biggest bank, over allegations they helped clients evade taxes by hiding money in Switzerland."

Police raids highlight Italy's fight against tax evasion Reuters
Feb 6 - "The two-man workshop close to the Vatican had been busy when tax police raided it last week, seizing about a million religious articles and souvenirs ranging from rosaries to images of Pope John Paul II ..."

Big news on Fatca: multilateral automatic information exchange

2012-02-08T08:01:00.000-08:00

We don't have time to do this justice right now - but we will do when we have some time. This joint statement from the UK Treasury is a corker:

the United States, France, Germany, Italy, Spain and the United Kingdom wish to intensify their co-operation in combating international tax evasion.

What do they envisage?

"An intergovernmental approach to FATCA implementation . . . the United States, France, Germany, Italy, Spain and the United Kingdom have agreed to explore a common approach to FATCA implementation through domestic reporting and reciprocal automatic exchange and based on existing bilateral tax treaties."

We have written a fair bit about FATCA in the past - it's a major transparency initiative spearheaded by the U.S. We need to analyse the statement, and other things that have been happening with FATCA today (e.g. see here and here and here); we'll write more about this in due course.

Hat tip: David McNair

Council of Europe/OECD-Convention: New TJN briefing paper

2012-02-08T03:48:00.000-08:00

When the G20 signed the Convention on Mutual Administrative Assistance in Tax Matters in November 2011, amid great fanfare, the OECD, a club of wealthy countries, set out to promote it as the 'gold standard' of international tax cooperation. As is often the case (see here or here), the OECD's viewpoint is not quite the full story. While the Convention definitely provides various positive things -- most importantly a tacit assertion that automatic information exchange must be part of effective information exchange -- it also includes clear downsides.

Taken together, our fresh analysis provides no clear black or white recommendation to any interested party as to whether or not it is a good idea to push for and ratify this Convention.

The introduction notes:

4. The Convention embodies various legal improvements over Tax Information Exchange Agreements (TIEAs). Its multilateral nature is an important improvement over the bilateral processes that dominate the field of cross-border information exchange. It is also much broader than TIEAs: it provides differing mechanisms for exchanging information (‘on request’, ‘spontaneous’ and ‘automatic’ information exchange) and allows for joint tax audits of multinational corporations. This may be particularly useful for developing countries struggling to untangle complex multi-jurisdictional tax structures.

5. The Convention nonetheless has major weaknesses: secrecy jurisdictions face little or no incentive to adhere to it, and it is unclear whether the Convention will require secrecy jurisdictions to obtain the information that needs to be exchanged. Current signatories (let alone those that have actually ratified it; see Annex A) exclude secrecy jurisdictions such as Switzerland, Luxembourg and the Cayman Islands. In addition, there are no mechanisms for assessing how well the Convention is performing in practice*, and consequently no evidence as to how well it performs.

These risks are particularly relevant for developing countries deciding whether to commit scarce resources to it. Furthermore, unlike recent guidance issued by the UN, there is no provision to allow wealthier countries to bear more of the costs involved in complying with the Convention. The Convention also fails to refer to the UN as an appropriate forum for advancing international tax cooperation and instead jealously guards this role for the OECD and for parties to the Convention.

Read more here.

This paper will be permanently available on our "Information Exchange" webpage and on our "Briefing Papers" page.

The drafting of this briefing was a team effort and the author wishes to thank Eurodad, Martin Hearson (Action Aid), Sarah Knott, David McNair (Christian Aid), Sol Picciotto, Nicholas Shaxson, and David Spencer for valuable contributions.

* Such a mechanism is hardly ever available in the context of international conventions/treaties and represents a major obstacle in creating effective international cooperation. Such mechanisms should be developed.

C'est quoi, un paradis fiscal?

2012-02-07T09:58:00.000-08:00

C'est quoi, un paradis fiscaux? Good question. What exactly is a tax haven, and how do you explain their existence to young people who, quite reasonably assume that the grown-up world would protect its people from such predatory places?

In this new book (in French), professeur Gamberge explores the strange world of tax havens and answers some of the questions that might occur to children wanting to know what all the fuss is about:

Links Feb 7

2012-02-07T08:58:00.001-08:00

Kodi Katika Africa ATAF
A reminder to check into this newsletter that provides "a weekly news update on tax issues in Africa and beyond."

A fair economy is not radical – it’s common sense! New Internationalist
Feb 6 - Naomi Fowler explains why TJN's Taxcast is so important.

Treasure Islands at Guardian Open Weekend, London, Zurich Treasure Islands
Feb 6 - Nick Shaxson will be speaking in London and Zurich - check out this post for details.

The offshore banking nightmare Canadian Lawyer
February Edition cover story - A very useful article providing some classic examples of how "for those lawyers representing victims of fraud, offshore banking havens pose a legal nightmare."

Swiss Will Tighten Rules on Foreign Assets, SonntagsZeitung Says Bloomberg
Feb 5 - "Proposed regulations, to be put forward by Finance Minster Eveline Widmer-Schlumpf, will require banks to demand a declaration from non-Swiss clients that all their assets are properly taxed". See commentary on Tax Research UK: I guess the Swiss think we’re stupid.

Julius Baer expects to deliver client data in U.S. probe Reuters
Feb 6 - More erosion of the illusion of reliance on banking secrecy.

US moves are "aimed at tax cheats", not banks swissinfo
Feb 5 - Fulvio Pelli, the chairman of the Swiss centre right Radical Party is cited: " ... he accused the US of doublespeak, saying Delaware was an “oasis” for tax evaders, and Florida a “stomping ground” for money launderers and weapons dealers."

U.S. The Buffett Rule Is an Imperfect Form of Tax Justice, but an Important Step in the Right Direction Justia
Feb 3 - Another useful article debunking the arguments of those who argue for Romney and co to get special privilege.

Statistics of the day - U.S. small business owners

2012-02-07T06:34:00.000-08:00

Independent polling in the United States has an important new report out:

92% of U.S. small business owners surveyed agree that U.S. multinational corporations’ use of accounting loopholes to shift their U.S. profits to their offshore subsidiaries to avoid taxes is a problem.
81 percent of small business owners favor hedge fund managers paying taxes at the ordinary income tax rate, which currently tops out at 35 percent, rather than the 15 percent capital gains rate they pay now.

And much more. A most important piece of research. The summary is here; the full report is here. Hat tip: Nicole Tichon.

Bankers now saying banks should shun tax dodging, havens

2012-02-06T04:48:00.001-08:00

From the Treasure Islands blog

The UK's Telegraph has reported:
Bruce Packard, an analyst at Seymour Pierce, said Barclays risks "a fierce customer backlash" if it does not reduce its exposure to offshore tax havens or limit legitimate tax avoidance, and focus instead on service.

Now Seymour Pierce is an investment bank and stockbroker, and it's excellent to these hard-headed investors judging their peers like this.

Mr Packard said: "At Seymour Pierce we are rather sceptical of companies that operate in offshore tax havens, believing companies generate shareholder returns by performing services or making products their customers value, rather than through complicated financial structures."

Goodness gracious! Brilliant to see hardened bankers saying this: an idea that's straight out of Treasure Islands. Tax dodging has nothing to do with productive efficiency, and everything to do with transferring wealth away from shareholders. Not wealth creation, but wealth extraction. Not only that, but I have explained how I believe it highlights an entire management ethos - see my comments about the Vesteys and the internet giant Amazon here. Anyway, well said that man Packard.

In the interests of balance, of course, I should add this:

Barclays stressed that it has signed up to the UK code of practice on tax, is entirely transparent with HM Revenue & Customs, and pays "all the tax due in all the countries we operate".

Sigh. Now read the whole article and make your mind up. Or read this. Or this. Or this.

And on a related but important matter, the Telegraph provides a powerful argument in favour of country-by-country reporting:

In 2010, Barclays generated £591m of so-called "deferred tax assets" by making about £2bn of losses in subsidiaries in the UK, US and Spain, despite reporting £6bn of pre-tax profits at group level. The bank has declined to disclose where the losses were incurred.

Country-by-country reporting, if designed correctly for the financial sector, could bring that crucial information right out into the open.

Article hat tip: Chris Jordan.

Tax haven defender says senior citizens at the root of the crisis

2012-02-05T05:48:00.000-08:00

Veronique de Rugy is a prominent defender of tax havens - no less than a member of the board of directors (alongside our old friend and adversary Dan Mitchell) of the Center for Freedom and Prosperity, the world's most vocal defender of offshore secrecy and tax havens and so on. Before watching this interview, read the interviewee's background here.

Ecuador shows how tax justice promotes sustainable development

2012-02-05T03:48:00.000-08:00

We missed this comment when it was published by The Guardian last month (and hat tip to Michael Melville for drawing it to our attention), so here's a fascinating insight into how Ecuador - the classic banana republic - has re-cast its tax system to achieve pro-poor and sustainable development.

As Jayati Ghosh reports, a key part in the turnaround lies with the determination of President Rafael Correa (pictured) to capture a larger share of the rents from oil extraction, rather than allowing oil multinationals to walk away with super-high profits:

"Consider just some economic changes brought about in the past four years, beginning with the renegotiation of oil contracts with multinational companies. Ecuador is an oil exporter, but had benefited relatively little from this because of the high shares of oil sales that went to foreign oil companies. A new law in July 2010 dramatically changed the terms, increasing the government's share from 13% to 87% of gross oil revenues."

The successful renegotiations were an extraordinary achievement, not least since the negotiating team faced instransigent foreign operators who were eventually bid a polite adios. Companies including China's CNPC, Brazil's Petrobras, Korea's Canada Grande and the U.S. Bellwether, were amongst those who refused to accept the revised terms and were ushered to the exit. And, other developing countries please note, despite this departure of foreign "wealth-creators", the remarkable thing is that the country's public finances have strengthened and the President's approval ratings are in the region of 70 per cent. This is a powerful demonstration of how countries can free themselves from state capture by powerful foreign corporations

But the reforms went further than renegotiating oil contracts. President Correa's economics team set out to restore public finances by strengthening revenue collection while also increasing tax progressivity. This has largely focused on increasing direct tax collection through better enforcement, especially of corporate tax payments (remember this was a banana republic where rich people and powerful corporates felt themselves above paying tax). As Ghosh reports:

"Second, and possibly even more impressively, the government managed a dramatic increase in direct tax receipts. In fact, this has been even more important in revenue terms than oil receipts. Direct taxes (mainly corporation taxes) increased from around 35% of total taxes in 2006 to more than 40% in 2011. This was largely because of better enforcement, since the nexus between big business and the public tax administration was broken."

And it gets better still. While some countries - the United Kingdom being a sad example - frittered away their hydrocarbon wealth in tax breaks for powerful corporate interests and a 40 year orgy of consumerism, the Ecuadorian government has invested the additional public income in infrastructure and human capital:

"Third, these increased government revenues were put to good use in infrastructure investment and social spending. Ecuador now has the highest proportion of public investment to GDP (10%) in Latin America and the Caribbean. In addition, social spending has doubled since 2006. This has enabled real progress towards the constitutional goals of free education at all levels, and access to free healthcare for all citizens. Significant increases in public housing have followed the constitution's affirmation of the right of all citizens to dignified housing with proper amenities."

This blogger has warm memories of visiting Ecuador in the 1980s and these reforms sound too good to be true (especially for those of us living in a Europe currently gripped both by freezing temperatures and unimaginative austerity programmes which demonstrate that our politicians have learnt nothing from the Latin America experience of financial crises). As Ghosh herself concludes:

". . . what is happening in Ecuador provides inspiration and even guidance. The rest of the world has much to learn from this ongoing radical experiment."

Read the full article here.

Links Feb 3

2012-02-03T08:52:00.001-08:00

Swiss Bank Wegelin Charged With Helping U.S. Clients Evade Taxes Bloomberg Businessweek
Feb 2 - “It’s symbolic in that the United States is saying that if a Swiss bank doesn’t cooperate, it will be indicted. It puts pressure on other Swiss banks to cooperate.” This development is exceedingly important, in the context that in the world of private banking such activity is considered normal. Not a big criminal heist - just normal, in serving your client - so this case helps towards a possible shift in culture.

See also:
Swiss Bank Indicted on U.S. Tax Charges The U.S. Department of Justice
Feb 2 - "IRS Commissioner Douglas Shulman said, ' ...Through our efforts, we are gaining access to more and more information on institutions and individuals involved in offshore tax evasion, and you can expect us to pursue all avenues to stop this abuse.” Hat tip: Lucy Komisar.

See also:
Wegelin charged with aiding tax evasion Financial Times
Feb 3 - " Prosecutors allege the bankers took unusual steps to hide transfers ..." Er, no. As we note above, such efforts to serve the client are not unusual in the world of private banking - as explained in Nick Shaxson's Treasure Islands.

Australia: Turning the tax haven tide Australian Financial Review (Subscription needed)
Feb 3 - "For the first time since the multi-agency investigation into offshore tax havens, the $300 million Project Wickenby, was established in 2006, more illegal funds have flowed back into Australia than have moved overseas." See recent blog post on Project Wickenby here.

Austria hindered the fight against tax evasion Der Standard (In German)
Feb 2 - An interview with the EU Tax Commissioner, Algirdas Šemeta. He is cited as stating that Austria is blocking effective tax collection by EU states and that this is unacceptable. See references to Austria in earlier blogs here and here. Hat tip: Markus Meinzer.

Breaking the mould - How Latin America is coping with volatile capital flows TJN Latin America
Feb 2 - New report by LatinDADD and the Bretton Woods Project, available via this link in Spanish and English, on measures and techniques applied to regulate the flows of capital. The report concludes: "Greater regional coordination of these measures could boost their effectiveness while limiting unwanted side effects." Hat tip: Jorge Gaggero.

U.S. How We're Changing the Conversation on Corporate Taxes Across America Citizens for Tax Justice
Feb 2 - "Grassroots groups throughout the country have used Citizens for Tax Justice's report "Corporate Taxpayers & Tax Dodgers," to pressure lawmakers to clean up the tax code."

UK: IFS backs land value tax Guardian
Feb - "The idea is to cut income and business taxes while introducing a land value tax to end our obsession with property and to encourage paid work." Hat tip: Carol Wilcox, Labour Land Campaign. See Tax Justice Focus - Taxing Natural Rents edition.

UK: HMRC launches contractual disclosure facility Financial Times
Feb 2 - "Taxpayers who are not under investigation but want to admit to tax fraud can come clean in exchange for not being criminally investigated under a new HMRC arrangement which came into force this week."

Tide Turning In Italian Tax Evasion Fight Tax-News
Feb 3 - "It is foreseen that the greatest leap forward in the Agency’s combatting of tax evasion will arrive from the Agency’s new “redditometro”... The new system will, after it becomes operational before the middle of this year, be able to trace individuals' expenditure in more than 100 different categories to find disparities between spending and declared incomes."

Is Kim Kardashian Really Guilty of Tax Evasion? GoBankingRates
Feb 3 - Commentary on celebrity tax dodging. "Wealthy individuals have long been able to benefit from various tax loopholes that lower their liability — and it may seem like celebrities get all the special tax breaks due to their popularity in the public eye. But with a savvy financial consultant in their corner, just about any wealthy individual can navigate the fiscal landscape and pay a lower tax rate each year." But that's not fail-safe, as our links above help demonstrate.

Would You Cheat on Your Taxes? Motley Fool
Feb 2 - The author notes: "Last week, I cited IRS data and noted that tax evasion has likely added somewhere between $3 trillion and $5 trillion to the national debt over the last decade -- more than the Bush tax cuts, the wars in Iraq and Afghanistan, and the Obama stimulus combined." Check out the poll by the IRS Oversight Board asking taxpayers how they feel about tax evasion, and the author invites you to take the Motley poll ...

UK Channel 4 on the dog’s breakfast of the UK-Swiss tax deal

2012-02-03T00:39:00.000-08:00

From the Treasure Islands site:

Excellent report by Faisal Islam on Channel 4 last night on the UK-Swiss tax dispute, featuring yours truly, and questioning the fantasy numbers put out by the UK's tax authorities, HMRC.
Take a look.

In case you doubt my statements in this interview, take a look at the Tax Justice Network analysis of the Swiss-UK tax deal (of which I was the main author). Have a go and see if you can fault our analysis. We have sent this analysis to HMRC, to the Swiss authorities, to a number of private practitioners, and nobody - anywhere - has been able to knock down our numbers. The only responses we have had (apart from 'this looks solid to us') are along the lines of 'why would HMRC not want to do the right thing?' (pray, under the leadership of 'Handshake' Hartnett, would they ever do the wrong thing?)

We also asked HMRC to provide us with the basis of their calculations - they say the UK-Swiss tax deal will yield £4 - £7 bn, which understandably has got a number of politicians behind the deal. Our analysis of the original deal suggests they will be lucky to get ten percent of that. HMRC have refused our request for the calculations that back their £4 - £7 bn figure, and they even refused a Private Eye freedom of information request on this.

Now there's a newish wrinkle in all of this. Since the original deals were signed and our analysis done, the European Commission has intervened to say (as we predicted, see Section 4.4 in our analysis) that the deals conflict with European law and cannot go ahead. What is happening now is that the Swiss, the UK and the Germans (who have a similar deal with Switzerland) are trying to work out a fudge to find a way to carve out those bits of the deal that conflict with EU law, and still go ahead. I asked an EC spokeswoman for details of this on January 30th, and she replied as follows:

"There has certainly been very constructive engagement by DE and UK in resolving the problems that we have with these bilateral agreements, and they have agreed to carve out of the bilateral agreements the parts that are not in conformity with EU law. Commissioner Semeta met with Germany's Finance Miinsiter in the margins of the ECOFIN last week, and certainly there was consensus on what needs to be done for these agreements to be compliant."

The EC hasn't approved the deals - far from it. But the three parties think they can see a way to salvage something of them. What we now know - and I don't have time or space to go into it here - is that the bits that will have to be carved out are the bits that matter. The rest, if any deal does come to fruition, which is in serious doubt, will be a ridiculous and pointless dog's breakfast - great for tax advisers to cream off some fees for 'advice' - but particularly unpleasant for beleaguered UK (and EU) taxpayers.

In addition to all this, there is considerable resistance inside Germany to these deals, notably by the powerful SPD (Social Democratic Party) and even some opposition inside Switzerland (though it's the EC position that is the one that matters here). If some shabby deal (even shabbier than the one we analysed) were to be pushed through, it would be primarily pushed by the Swiss as part of a complex chess game to try and scupper some brilliant EU legislation that is coming through soon - which would enable the UK, Germany, and many other EU countries to get serious about tax evasion for the first time ever. And raise far more from Switzerland than these deals ever could. The TJN analysis contains some discussion of this political chess game, and there is more here and here.

The whole thing is a failure and a disgrace, from top to bottom. It's a zombie deal: in effect, it's already dead, but it still seems to be kicking and flailing around, at least for now.

Endnote 1: At one point, Islam said 'avoidance' when he ought to have said 'evasion.' This is quite common among journalists, and one of the biggest reasons is UK libel law. If you say 'evasion' then you're accusing someone of committing a crime, and if you say 'avoidance' you are much safer. Probably necessary in some stories, though not in this case. For information: evasion is by definition illegal, while avoidance is by definition not illegal (although it also by definition involves getting around the law). There's a huge grey area between the two poles.

Endnote 2: a couple of people have said that I looked cold while being interviewed. It was freezing. Brrrr!

Links Feb 2

2012-02-02T09:48:00.000-08:00

Money laundering - tax evasion as a predicate offense Handelszeitung (In German)
Feb 1 - Reporting on how the proposed revision of Financial Action Task Force (FATF) Recommendations for combating money laundering and terrorist financing will include tax evasion as a predicate offense for money laundering. This is an exceedingly important development. See here and here for responses by The Task Force on Financial Integrity and Economic Development to FATF Consultation Papers. Hat tip: Markus Meinzer.

See also:
Philippines: BIR: Tax evasion a money-laundering crime Business Mirror
Dec 2011 - An article from a few weeks back, but relevant to the story above: "If the Bureau of Internal Revenue (BIR) had its way, tax evasion would be among the “predicate crimes” punishable under the Anti-Money Laundering Act (Amla), alongside kidnapping for ransom, plunder and drug trafficking and others."

What Really Happened To The Oldest Bank in Switzerland? - Wegelin: Death Throes of Swiss Banking Secrecy & Asymmetric Risk to Swiss Banks mig2
Feb 2 - On the fire sale by Swizterland's oldest private banking institution further to investigations by U.S. authorities. Note: "Remarkably, Wegelin bank neither had offices nor employees in the United States. They were 100% Swiss, and violated no Swiss law whatsoever. However, this was not enough to protect them."

Court rules against stolen Swiss data use swissinfo
Feb 1 - "France’s top court has ruled that bank data taken from a Geneva branch of the HSBC bank was illegally obtained and could not be used in a crackdown on tax evaders."

Bank data sharing lands on cabinet agenda swissinfo
Feb 1 - "The Swiss cabinet has discussed a tax dispute with the United States and the handing over of bank data to US justice authorities at its latest meeting ...The spokesman for the cabinet said more information would not be given while discussions were underway, but he added that the government’s goal was to find a conclusive solution to the tax dispute."

Swiss “slow” to return Tunisia assets swissinfo
Feb 2 - "The Geneva lawyer heading attempts to recover Tunisian assets worldwide has said Switzerland is not acting quickly enough to deal with funds frozen in Swiss banks. Switzerland is holding onto SFr60 million ($65 million) belonging to former President Zine el-Abidine Ben Ali and his entourage."

Law firms announces Luxembourg expansion The BVI Beacon
Feb 1 - Interesting to read this view from the offshore industry - "The global recession has caused some major industrialised economies to label offshore financial centres like the Virgin Islands as “tax havens” while ramping up regulatory pressure against the financial services industry. That pressure and a desire to grow has led one offshore law firm with a VI presence to diversify the services it offers, opening an office in Luxembourg ..."

European Economic and Social Committee: Public hearing on Tax and financial havens: a threat to the EU's internal market

2012-02-01T08:27:00.000-08:00

Received via email:

The Section for the Single Market, Production and Consumption of the European Economic and Social Committee (EESC) is pleased to invite you to a

Public hearing on Tax and financial havens: a threat to the EU's internal market
21 March 2012 │ 9.30 – 13.00
European Economic and Social Committee
Room VM3
Rue Belliard 99 – 1040 Brussels

The hearing is organised in the framework of the elaboration of the related EESC own-initiative opinion. It will provide for an exchange of views with key players on the topic of financial and tax havens. The goal of European coordination must be to promote fairer tax systems including the shutting down of financial and tax havens. The European Parliament has already demonstrated its willingness to combat these havens and the EESC wants to make sure that organized civil society takes part in this discussion. We believe that this event will be an important occasion for an exchange of views between key stakeholders.

You will receive an invitation with a detailed programme in due course.
In the meantime, please save the date.
European Economic and Social Committee
www.eesc.europa.eu

Links Feb 1

2012-02-01T05:46:00.001-08:00

Building a Fair, Transparent and Inclusive Tax System in Sierra Leone Tax Justice Network - Africa
January 2012 - Read the latest version of the Sierra Leone country report on taxation here.

Sierra Leone: Standard Chartered wins most compliant large tax payer’ award at the National Revenue Awards 2011 Sierra Express Media
Jan 14 - "The National Revenue Authority Award acknowledges the rapidly transforming tax landscape in Sierra Leone by honouring tax compliance excellence, and by creating local visibility for the best practices in business." A point to note here is that the award demonstrates tax compliance being an important factor in corporate social responsibility.

Ghana: Govt Asked to Stop Revenue Loss Through Tax Laws Review allAfrica
Jan 23 - "Tax Justice Network (TJN) ... has called on government to review laws on tax exemptions in the extractive industry to halt the continual annual revenue loss ... These suggestions were made at a training programme organized by Christian Aid for trainers in tax justice in Accra last Wednesday. Participants were drawn from Ghana, Kenya, Sierra Leone, Nigeria and South Africa." Hat tip: Sandra Kidwingira.

New Mines Act should ensure Zambians benefit Zambia Daily Mail
Jan - "ZCTU secretary general Roy Mwaba said although there is a provision which allows the distribution of mining revenue to local communities, enforcement should be strengthened for Zambians to benefit from mining activities ... Mr Mwaba said transparency is important because it will bring an end to the culture of secrecy which surrounds the mining industry."

India: Tax heat on Mauritius shell firms The Telegraph
Jan 31 - On " 'an 'anti-abuse provision which disallows tax exemptions to shell companies set up merely to use provisions of the double taxation treaty to buy Indian assets but avoid tax payouts'. India has introduced such provisions in tax treaties with Singapore and the UAE."

Hogan fails in court battle to keep documents secret from Tax Office The Sydney Morning Herald
Jan 31 - Another story of international celebrity tax dodging - "The Crocodile Dundee star Paul Hogan has failed in his attempt to keep secret dozens of documents relating to his fight with the Australia Taxation Office over an alleged multimillion-dollar tax avoidance". See here for our earlier blog on the continuing successful efforts of Australian authorities to crack down on tax dodging.

U.S.: Is plan to tax global profits a campaign move? Politico
Jan 31 - “We are trying to discourage the race to the bottom,” explained White House economics adviser Gene Sperling. “We’re trying to discourage the notion that when somebody is thinking about where to locate production or services, that they should not believe that they can go to a tax haven as a way of having a tax advantage over a company that chose to stay in the United States.” The piece also cites Rebecca Wilkins of CTJ.

Romania: Emil Boc wants more measures to combat tax evasion The Diplomat - Bucharest
Feb 1 - "Emil Boc [Romanian Prime Minister] has asked the ministers of finance and the interior to come up with measures to combat tax evasion, focusing on high-level evasion and stepping up inspections by mixed teams made up of representatives of all institutions involved."

Swiss whistleblower Ruedi Elmer explains his motives

2012-02-01T00:32:00.000-08:00

International Tax Review is carrying an exclusive interview with whistleblower Ruedi Elmer in which he talks about his experiences as chief operating officer for Swiss bank Julius Bär at their Cayman Island office. Elmer was dismissed in 2002 after he challenged the bank's senior management over their failure to enforce normal compliance procedures.

In the interview Elmer talks about his bad treatment by his former employers:

“I was abused as a compliance officer and some criminal clients were not disclosed to me by the local management,” says Elmer. “I was threatened by management and told if I took the bank to court, the bank would ‘finish me’.”

Astonishingly, the Swiss government sided with Julius Bär in trying to suppress Elmer, and to their great discredit, various parts of the Swiss media also aligned with the bank. According to International Tax Review:

"Elmer believes that after the Swiss authorities ignored the abusive practices he had brought to their attention and put him in prison instead, a campaign was run against him in the Swiss media.

“They called me a mentally sick person being full of revenge,” he says."

Elmer's actions have involved him in huge personal costs, not least imprisonment in 2010. He nonetheless seems confident that this has been worthwhile, though talk about the end of banking secrecy remains just that, talk:

"While Pascal Saint-Amans, the incoming OECD head of tax policy and administration, has declared that banking secrecy is over, Elmer believes this will only be true if automatic information exchange becomes the global standard procedure among nations. Elmer does agree that it is important that individual privacy is protected through local data protection laws, but argues this cannot be based on secrecy laws because they are mainly abused by financial institutions, multinationals and the rich who use trusts and companies as vehicles in tax havens."

You can access the full interview Ruedi Elmer gave to International Tax Review's Salman Shaheen here.

Australian tax office pushing for enhanced powers to tackle tax evasion

2012-02-01T00:08:00.000-08:00

The Australian press is reporting today that the team behind Project Wickenby, an extended multi-agency crackdown on tax evasion, has called for fresh powers to combat abuse involving secrecy jurisdictions. These powers include enhanced information exchange, a wider definition of the range of predicate crimes defined under anti-money laundering laws, more extensive use of telecommunications interception powers, and stronger measures for international debt recovery.

Since being launched in 2006, Project Wickenby has investigated 62 cases involving serious tax avoidance, money laundering and fraud. Over A$1.18 billion of tax liabilities have been raised.

According to The Age, the Tax Office is now proposing to use the new measures to carry forward its anti-evasion drive beyond the scheduled completion of Project Wickenby in 2013, and the multi-agency approach is being sustained:
"The Tax Office has been working with the Australian Crime Commission, Australian Federal Police, Commonwealth Director of Public Prosecutions, the Australian Securities and Investments Commission, the anti-money laundering agency AUSTRAC and the departments of the Treasury, Attorney-General and Immigration and Citizenship to develop tax reform proposals."

The proposed new measures are expected to be considered by the federal government this year.

Hat tip: Dr Mark Zirnsak, Uniting Churches of Australia

See our recent blog post on Project Wickenby here.

Links Jan 31

2012-01-31T08:49:00.000-08:00

Bank client emails in the hands of US swissinfo
Jan 31 - The recent developments being reported here are very significant. The perpetuation of Swiss banking secrecy (and secrecy offered by other jurisdictions), has relied on an assumption of impenetrability which is now being eroded.

See also:
Sensitive Swiss bank data handed to US swissinfo
Jan 31 - "The Swiss finance ministry has confirmed that encrypted data relating to Swiss banks’ clients in the United States has been transmitted to the US tax authorities ... Full access to the information, with names of client advisors, will only be provided on a case-by-case basis or when a tax agreement is in place between the two countries, the ministry said."

See also:
Swiss banks hand over encrypted data in U.S. tax row Reuters
Jan 31 - "Switzerland has handed U.S. authorities encrypted data on bank employees who served American clients suspected of dodging taxes, and will only provide the key to decipher them once a tax row is settled, the finance minister said."

See also:
Secrecy hampers money laundering fight swissinfo
Jan 30 - "The Swiss Money Laundering Reporting Office (MROS) is obliged by law to hold back information from its foreign counterparts. The government has now come under international pressure to change this situation..."

And for another view of Swiss banking:
Clean Money Please swissinfo
Oct 2010 - See this video on an alternative bank that "sets high standards for sustainable and ethical business". A director of the bank, formerly with UBS, says: "It's also up to the client to check how precisely a bank defines its sustainable policy, to make sure it's not just a marketing tool." The piece observes how names of clients with loans and their purpose are published, that is, no secrecy.

Offshore Accounts: Insider’s Summary of FATCA and its Potential Future Social Science Research Network
Jan - An article written by one of the architects of FATCA. Note:"The long-term success of FATCA may depend upon whether the US can convince other countries to adopt a similar system, or better yet, join with the US in developing a multilateral FATCA system."

Argentina: Jorge Gaggero, "Tax reform requires great political conviction, strong reformist spirit and ability to develop broad social consensus." Interview with renowned economist of the Phoenix Plan. Initiativa
Jan 27 - "Before you ask, 'What reforms do we need?', we must ask 'why?'. First, to redress levels of inequality in our society, then to give resources to strategic stability and sustainability. Therefore the costs are to be financed with the resources collected." Hat tip: Bruno Gurtner. See also recent piublication by Jorge Gaggero with José Nun on Inequality and Taxes.

U.S. Introducing the `Pay A Fair Share Act’ Washington Post
Jan 31 - "[Sen.] Whitehouse clarified that the proposal — the first concrete legislative vehicle for implementing the “Buffett Rule” — will not tamper with existing tax rates. Instead, under the proposal, those making more than $1 million a year would be required to calculate their overall tax rate, taking into account all their income and the full sum of what they pay in taxes. If that amount adds up to less than 30 percent, they would be required to make up the difference."

Amazon, fast-growing bully Treasure Islands
Jan 31 - Nick Shaxson observes: "again and again throughout history, we find that the most aggressive players in the field of anti-competitive behaviour always seem to be the ones that work hardest to reduce their tax bills through offshore shenanigans."

Lord Ashcroft: BBC on new tax haven scandal Treasure Islands
Jan 30 - On a BBC Panorama programme, "featuring the Turks and Caicos Islands, that financially unclean British Overseas Territory which was taken over by the British government a couple of years ago when the corruption spilled just too far out of control, it is a good in-depth investigation into an episode that raises uncomfortable questions about British parliamentary democracy." Nick Shaxson speaks in the programme.

European Soccer Ruling Body Asks U.K. to Probe Funding of Porto Transfer Bloomberg
Jan 31 - "European soccer ruling body UEFA is asking U.K. authorities to investigate two so-called letterbox companies that helped Porto (FCP) fund a player transfer ... 'We are urging state authorities to look into it,' UEFA Secretary General Gianni Infantino said. 'Because we are a private company, an association, we cannot go to a company when it is a letter box saying ‘please tell us who you are and what you’re doing.’ They will tell us: ‘Who are you to ask me?’”

TJN's Taxcast is launched

2012-01-31T03:26:00.000-08:00

The TJN's new podcast service is 'live' and ready for download and posting anywhere and everywhere! We'd be grateful for your help is spreading this link as far and wise as possible - your website(s), local radio stations, blogs, on-line newspapers etc.

Here's a short summary of the round-up of events at the end of this month of January:

In our inaugural TaxCast, we discuss the implications of the Vodafone vs India landmark tax case, compare Bill Gates and Mitt Romney's attitudes to taxation and visit the Occupy camp outside St Paul's Cathedral in London.

The TAXCAST is now available for download here. Feel free to post this link anywhere you like.

Links Jan 30

2012-01-30T04:36:00.001-08:00

Petition of 84,000 signatures presented to the German Finance Minister protesting against the Swiss/German tax deal Tax Justice Network Germany blog:
Jan 26 - On the petition protesting the Swiss/German tax deal, organised by a civil society alliance including Tax Justice Network, . See here for a rough Google translation, and here for blog post for reporting on the petition in the Financial Times Germany.

Swiss min: Must tackle problem of tax dodgers-paper Reuters

Jan 28 - Swiss Economy Minister Johann Schneider-Amman is reported as saying: "The problem of untaxed wealth in Switzerland is a serious problem that we need to resolve. Not only with the USA but also with the Europeans - Banking secrecy wasn't invented to create an opportunity for doing business with untaxed money ... We must find a way of dealing with legacy wealth."

U.S.: Top Dem Offshoring Expert Smells Something Fishy In Romney’s Tax Code TPM
Jan 26 - Sen. Carl Levin observes: "There is no such thing as an ordinary Swiss bank account."

Secrecy key to offshore accounts linked to Hot Lotto case The Gazette
Jan 29 - A story with with bizarre twists - "The trust that held the ticket for a jackpot worth $7.5 million after taxes abandoned its claim this week after the Iowa Lottery refused to pay out without knowing who bought the ticket and who was behind the trust. Lottery officials said the would-be winner was a corporation in Belize ... 'known as one of those countries that won’t give information to the United States about its account holders.' "

U.S.: Senate Dems should force GOP to hold vote on Buffett Rule Washington Post
Jan 27 - "Picture this scenario. The Senate holds a high-profile vote on a proposal focused directly on implementing the Buffett Rule, one that would bring the current tax rate for millionaires paying lower rates on investments up to 30 percent. This, at at exactly the moment when the GOP is picking a nominee who is worth $250 million and is personally benefitting to an enormous degree from the current rate — one that’s lower than many middle class taxpayers pay ..."

See also:
CTJ Calculates Buffett Rule Would Raise $50 Billion in One Year and Affect Only the Richest 0.08 Percent of Taxpayers Citizens for Tax Justice
Jan 27 - "Citizens for Tax Justice has calculated that President Obama's "Buffett Rule" would, if in effect this year, raise $50 billion in a single year and affect only the richest 0.08 percent of taxpayers -- that's just eight percent of the richest one percent of taxpayers... "

See also:
But The Top 0.1 Percent Isn’t Diverse The New York Times
Jan 15 - "Basically, the top 0.1 percent is the corporate suits, with a few token sports and film stars thrown in."

Knowledge lies at the heart of western capitalism Financial Times
Jan 29 - Herbando de Soto notes a lot of useful points, including: "To regain its vitality, western capitalism must bring under the rule of law and public memory hundreds of trillions of dollars now swirling mindlessly out of control in the obscure world of financial innovation." - but he makes no mention at all of offshore!

Canadians for Tax Fairness: Tax Justice Newsletter http://www.taxfairness.ca/
Jan 2012 edition:

Included in this issue:

World Bank Reports, Hat tip: Bruno Gurtner:

Coordinating Tax Reforms in the Poorest Countries: Can Lost Tariffs Be Recouped? by Swarnim Wagle

"A revenue-neutral switch from trade taxes to domestic consumption taxes is fraught with implementation challenges in countries with a large informal sector."

Tax Morale and Compliance: Review of Evidence and Case Studies for Europe by Benno Torgler
"The overall findings show the importance of accountability, democratic governance, efficient, and transparent legal structures and therefore trust within the society to enforce tax compliance and tax morale."

Tax Morale, Eastern Europe and European Enlargement by Benno Torgler

This study tries to remedy the current lack of tax compliance research analyzing tax morale in 10 Eastern European countries that joined the European Union in 2004 or 2007. ... The author observes that events and processes at the country level are crucial to understanding tax morale. Factors such as perceived government quality and trust in the justice system and the government are positively correlated with tax morale in 2008."

IPPR proposes tax reforms to make globalisation work for the 99 percent

2012-01-30T03:33:00.000-08:00

The London-based Institute for Public Policy research produced a report on globalisation last week. Written by Will Straw and Alex Glennie, the report is especially strong on the need for corporate tax reform. Having noted that profits are rising as a trend it also notes there is a steady fall in corporate tax receipts as a proportion of profits and realises this is an issue that has to be addressed. It dismisses the alternative to corporate tax proposed by Oxford University and Mirrlees, which is a form of Value Added Tax. As the report rightly notes there is no doubt this would be regressive and hence unacceptable. Instead it suggests five reforms, as follows:

First, the European Union should implement the Common Consolidated Corporate Tax Base (CCCTB). Under the current tax regime, multinationals file separate accounts for each country in which they operate; under the CCCTB, each company would compute only its EU-wide consolidated profit, on a common definition of the tax base. This profit would be allocated to member states on the basis of an apportionment formula containing factors such as shares in employment, payroll, assets and sales. Each member state would retain autonomy to tax its allocated share of profits at its own tax rate. This approach would allow countries to retain their own tax rate and pursue healthy tax competition. But within the EU, companies would have to actually move their staff and physical capital to the lower-tax regimes, rather than relying on the accounting mechanisms outlined above. In time, other jurisdictions could be encouraged to join, paving the way for an eventual global consolidated tax base.

Second, the EU and its member states should begin discussions with the International Accounting Standards Board to introduce a requirement that all multinational corporations report sales, profits and taxes paid in all jurisdictions in their audited annual reports and tax returns in what is known as country-by-country reporting. Country-by-country reporting discloses the profits that companies record in each jurisdiction in which they operate and the taxes that they pay on them. This means that they can be held accountable for what they do and do not pay. The requirement would complement the CCCTB by providing simple transparency on the activities of multinational companies in jurisdictions outside the EU.

Third, other jurisdictions should be encouraged to adopt the EU Savings Taxation Directive as a means of creating an automatic exchange of taxation information. Since 2005, the directive has ensured that paying agents either report interest income received by taxpayers resident in other EU member states or levy a withholding tax on the interest income received. In Cannes, Indian prime minister Manmohan Singh called for the G20 to take a lead on the issue ‘in the spirit of our [2009] London Summit that [said] “the era of bank secrecy is over”’ . But the communiqué only committed to ‘consider exchanging information automatically on a voluntary basis as appropriate’. The EU should also adopt an amendment to the savings directive which would close existing loopholes and prevent tax evasion by stopping taxpayers from channelling interest payments through trusts and intermediate tax-exempted structures.

Fourth, as the Financial Action Task Force has already recommended, the beneficial ownership of companies, trusts and foundations should be on the public record. This would prevent multinational corporations from using networks of international subsidiaries to transfer profits and reduce their tax liability. This reform would also have the added benefit of making money laundering and the handling of illicit funds more difficult.

Fifth, bilateral and multilateral donors should support developing countries in building their tax collection and enforcement agencies.

Taken together, these measures will act to reduce the power of tax competition and lower the incentives on companies to execute tax arbitrage strategies.

The tide is turning: the merit of international cooperation on tax is becoming apparent. It will help get us out of the mess we’re in: that’s now indisputable by all those except the governments of those states that promote tax evasion and those who benefit from it.

(This is a shortened version of a blog posted by Richard Murphy at Tax Research. We blog with his approval).

Mexico Hemorrhages US$872 Billion to Crime, Corruption, Tax Evasion from 1970-2010

2012-01-30T02:26:00.000-08:00

Illicit Financial Outflows Average Over 5% of GDP, Driven by Underground Economy, Spiked in Wake of NAFTA

Study Recommends Policies Be Implemented to Address Trade Mispricing, Money Laundering, Tax Evasion

January 29, 2012 at 13:01 CST / 14:01 EST / 19:01 GMT

MEXICO CITY / WASHINGTON, DC – Crime, corruption and tax evasion cost the Mexican economy US$872 billion between 1970 and 2010 according to a new report from Global Financial Integrity (GFI), a Washington, DC-based research and advocacy organization. The illicit financial outflows, which averaged a massive 5.2% of GDP, grew significantly over the 41-year period studied from just US$1 billion in 1970 to US$68.5 billion in 2010.

“This is a devastatingly large amount of money for any developing country to lose,” said Raymond W. Baker, director of GFI. “$872 billion is gone, which could have been used to develop the Mexican economy, to invest in education, to build roads, or to fight the drug cartels. The negative ramifications are huge for everyday Mexicans.”

The study, which was authored by Dr. Dev Kar, GFI lead economist, saw illicit outflows explode from an annual average of US$3.0 billion in the 1970s, to US$10.4 billion in the 1980s, to US$17.4 billion in the 1990s, and US$49.6 billion in the decade ending 2009.

Underground Economy

Moreover, illicit outflows were found to drive the domestic underground economy, which includes—among other things—drug smuggling, arms trafficking and human trafficking. Thus, illegal capital flight was found to contribute to a deterioration in governance. Likewise, growth in the underground economy was also shown to drive illicit flows, creating “a snowballing effect whereby both the underground economy and illicit flows continue to grow at an increasing rate unless policy measures and institutions intervene,” according to Dr. Kar, who worked as a senior economist at the International Monetary Fund before joining GFI.

Trade Mispricing and NAFTA

The report concluded that policymakers should focus on measures to curtail trade mispricing, a form of trade based money-laundering, which skyrocketed in the years after NAFTA came into effect and which was shown to account for 73.7% of total illicit financial outflows over the 41-year time period.

The study recommends three policy measures to reduce trade mispricing:

· Require the utilization of computer software to detect export and import prices that are clearly out of line with international norms; (49)

· Require that the parties conducting a sale of goods or services in a cross-border transaction sign a statement in the commercial invoice certifying that no trade mispricing has taken place in an attempt to avoid duties or taxes and that the transaction is priced using the OECD arms-length principle; (51) and

· Undertake additional measures to curb abusive transfer pricing. (51)

Further Policy Recommendations

In addition to recommending policies to curtail trade mispricing, the report recommends four additional policy actions to reduce illegal capital flight from Mexico:

· Expand double tax avoidance agreements with other jurisdictions; (53)

· Require automatic cross-border exchange of tax information with other jurisdictions on personal and business accounts; (54)

· Maintain macroeconomic stability, which includes maintaining low budget deficits, low external debt levels, and low and stable inflation rates; (56) and

· Take steps to reign in the role of offshore financial centers (OFCs) and banks. (59)

Destination of Illicit Outflows

While the report cannot specifically breakdown into which jurisdictions illicit outflows from Mexico are deposited, the study does indicate that a majority of Mexican capital outflows, which include both licit and illicit capital, end up in U.S. banks. The large spike in illicit outflows following the implementation of NAFTA would imply that much of those outflows were indeed headed for the United States. This suggests that U.S. policymakers have a significant role to play in curtailing the flow of illicit money out of their southern neighbor.

In addition to the U.S., tax havens in the Caribbean and Europe were the second and third largest recipients of Mexican capital outflows.

Drug Cartels and National Security Risk

A large portion of drug cartel activity is conducted in cash, and none of those cash transactions are detected in GFI’s data, which is one of the reasons why the organization believes its figures to be extremely conservative. That said, drug cartels like many criminal enterprises also utilize legitimate commercial transactions to launder their profits. In fact, the Los Angeles Times reported last month that Mexican drug cartels were utilizing trade-based money laundering techniques to move their money across the U.S.-Mexico border. Those kinds of business transactions would show up in the organizations data, however it cannot be determined exactly how much of the trade mispricing in GFI’s report is attributable to the activities of drug cartels.

As such, the organization believes that this has serious implications for national security.

“The ease with which money can be laundered across the U.S.-Mexico border via trade mispricing poses a major national security risk to both the United States and Mexico,” said Mr. Baker. “Drug traffickers, like kleptocrats, terrorists and tax dodgers, all gain from anonymous shell companies, tax haven secrecy, and nefarious trade mispricing tactics. Taking steps to address these issues would curtail a number of societal ills.”

###

Notes to Editors:

· Download an embargoed full copy of the report in English here and in Spanish here.

· Press briefings will be held in Mexico City and in Washington, DC on Monday January 30, 2012. The Mexico City press briefing will take place at the Hilton Mexico City Reforma Hotel on Monday, January 30, 2012 at 11am CST. To RSVP for the Mexico City press briefing, contact Clark Gascoigne at cgascoigne@gfintegrity.org. The Washington, DC briefing event will take place at 1319 18th Street NW, Suite 200, Washington, DC at 10am EST on Monday January 30, 2012. To RSVP for the Washington, DC launch event, contact EJ Fagan at efagan@gfintegrity.org.

Contact:

English:

Mexico City/Washington, DC:

Clark Gascoigne
cgascoigne@gfintegrity.org
+1 202 293 0740 x222 (office)
+1 216 538 0157 (mobile)

Washington, DC:

EJ Fagan
efagan@gfintegrity.org
+1 202 293 0740 x227

En español:

Mexico City:

Emilene Martínez
emilene17@gmail.com
+52 1 55 6010 0835

The Vodafone India decision – and what we can learn from it

2012-01-30T00:20:00.000-08:00

Following our earlier blog, a useful article from Tax Research, here.

Quote of the day - state capture

2012-01-30T00:16:00.001-08:00

From the UK parliament:

Our newspapers, reflecting the reality that most-with some honourable exceptions-are owned and run by non-UK taxpaying moguls who live all over the place but not the UK, probably do not want to run too many stories about UK tax dodgers. They prefer benefit fraud, as in the Daily Mail. That is a much more attractive story

This is from a much longer and widely ranging discussion of tax avoidance led by Lord Dykes, which is well worth reading in full: stuffed with other quotable quotes.

Links Jan 27

2012-01-27T07:40:00.000-08:00

Pariah regimes play cat and mouse with financial watchdogs Reuters
Jan 27 - " 'Our current arrangements for the creation of trusts and the setting up of companies anonymously have created an environment which is permitting kleptocrats to move their loot around (and commit) tax evasion on a monstrous scale,' said Anthea Lawson, head of the Banks and Corruption Campaign at Global Witness" - " 'It is so easy for extended families or powerful people with tame lawyers to set up fronts which make it immensely difficult to find (them) out,' said John Christensen" - TJN Director.

US tax scandal brings down Wegelin swissinfo
Jan 27 - "Wegelin is the first standalone Swiss bank to sell its operations in Switzerland as a result of US efforts to catch clients who used Swiss banks to evade the taxman ... Banks being probed by US authorities are worried that clients, even in their non-US operations, will pull their money out because of the investigations."

Switzerland, U.S. Aim to Conclude Tax Talks by End of 2012 Bloomberg
Jan 26 - “ 'We’ve said that at the end of 2012 we want to end these negotiations,' Swiss Finance Minister Eveline Widmer-Schlumpf told reporters today in Davos after a meeting with her U.S. counterpart Timothy Geithner ...'Our aim, and he agreed, is to find a solution where we won’t be confronted with a question about the past every year. '” See TJN comment on the U.S. position here.

US Treasury Aims To Lower FATCA Burdens Tax-News
Jan 27 - "The Treasury and the IRS believe that their efforts “to implement FATCA and to resolve the challenges it poses can and should serve as precursors to a more comprehensive multilateral approach to information exchange. For that reason, we believe that FATCA – if implemented appropriately – can serve as a catalyst for further advances in the global effort to improve transparency and combat tax evasion.”

India joins multilateral forum to curb tax evasion Economic Times
Jan 27 - "'By signing the convention, India and the other 31 signatories encourage more countries to join, sending a strong signal that countries are acting together to ensure that individuals and multinational enterprises pay the right amount of tax, at the right time and in the right place,' the finance ministry said." See TJN comment on India and the multilateral convention here.

Greece: The adventures of of Nikos Kassimatis Global Post
Jan 26 - On "The man who owes $1.23 billion to the Greek government".

Hollande Pledges to Rein In France's Banks Wall Street Journal
Jan 26 - On a statement by François Hollande, the opposition Socialist presidential candidate and opinion-poll leader. "To bring the financial sector back under control, Mr. Hollande also said he would forbid banks from doing business in tax havens and raise taxes on their profits."

Russia Reviews Eurobond Tax Rules as Claims Raise Concerns Bloomberg
Jan 6 - "Coupon payments made to foreign debt holders through offshore special purpose vehicles, known as SPVs, are taxable under the current law, although the rules haven’t often been enforced ... 'All we are saying is there’s a law,' Shatalov [Deputy Finance Minister] said ... 'Maybe it’s not good, maybe it’s bad, maybe somebody doesn’t like it, but it should be obeyed.' Read Treasure Islands for an explanation of Eurobonds and their role in the offshore financial system.

See also:
Russia: the taxman targets eurobonds Financial Times
Jan 26 - "This is seen as part of a government assault on offshore tax havens".

A taxing, troubling situation in Ukraine KyivPost
Jan 26 - Ukraine has one of the most onerous and complex tax systems in the world, yet many of the nation's richest people avoid taxes through offshore havens."

U.S.:The President's Speech: Right about Stopping Offshore Tax Dodgers, Wrong about Cutting Taxes for Other Corporations Citizens for Tax Justice
Jan 26 - "During his State of the Union address, President Obama said that 'no American company should be able to avoid paying its fair share of taxes by moving jobs and profits overseas.' ... However, his proposed solutions, which the administration fleshed out with a fact sheet on Wednesday, fail to raise revenue, retain and expand the loopholes that allow corporations to avoid taxes, and mark a further retreat from earlier, stronger proposals"

UK: FSA in crackdown on offshore advice role in listed firms FT Adviser
Jan 26 - "The Financial Services Authority has proposed changes to the requirements for companies to be listed in the UK, including a tightening of the rules around listings for companies managed offshore."

Swiss ink tax deal with Ireland The Local
Jan 27 - "With regard to tracking cases of tax evasion, the agreement “contains provisions on the exchange of information in accordance with the international standards applicable at present,” the Swiss finance department said. The standards referred to are those established by the OECD (Organization for Economic Co-operation and Development)." Read on the flawed OECD standards here.

At Davos, Debating Capitalism’s Future New York Times
Jan 27 - Op-Ed by Ed Miliband, leader of the UK's Labour Party. "Tax authorities need to know about income and wealth hidden behind front companies, trusts and other complex financial products. If these rules cannot be changed by international agreement, progressive governments should go ahead and do it themselves."

Links Jan 26

2012-01-26T08:16:00.001-08:00

India: Black money: India signs multilateral agreement Economic Times
Jan 26 - "Taking another step towards combating blackmoney, India has signed a multi-lateral agreement with economic powers like France and Germany to check both tax evasion and avoidance. See TJN comment on India and the multilateral convention here.

India: Tax information exchange pact signed with Macau The Hindu Business Line
Jan 25 - "India will soon be able to get banking information from Macau for tax administration purposes. A tax information exchange agreement to this effect was recently signed with Macau ... one of the most well-known offshore financial centres and tax havens."

Sweden: Swedfund sets investment conditions Financial News
Jan 26 - "Sweden’s development finance institution, Swedfund, will make commitments to private equity only on condition that funds are domiciled in their home market, according to its new chief executive. The comments come after the firm ceased making third-party fund commitments three years ago following concerns about the tax treatment of funds offshore."

France: This money which corrupts Libération (In French)
Jan 25 - "Finally, there will be no effective fight against dirty money without suspension of any financial relationship with non-cooperative offshore centres ... the new mayor of Seoul and Bogota have been designated to embody the general interest because they have been tireless advocates in the fight against corruption. In India, Brazil and Mexico, civil society is working to restore public credibility. France can, too, lead by example as a force within Europe."

Liechtenstein Has ‘Long Way’ to Shed Tax Image, Bank Chief Says Bloomberg BusinessWeek
Jan 25 - “The world has changed very quickly and massively in the last few years,” Tribelhorn [Liechtenstein Bankers Association Director] said in an interview in Berlin. “For the customer as well as the financial intermediary, undeclared assets have no future.” The article also cites TJN's view on the UK and German Swiss deals.

Austria: Idea to name and shame tax fraudsters met with scepticism Austrian Independent
Jan 26 - The Association of Austrian Taxpayers has spoken out against the creation of a list of tax dodgers ... AK President Herbert Tumpel refused to disclose whether he backed the appeal by fellow AK members but said finance ministry officials should make the names of the Austrian tax dodgers found on a data disc provided by a banker based in Liechtenstein."

Gibralter not by any measure a ‘tax haven’ Picardo tells Miliband Gibralter Chronicle
Jan 26 - "Following Mr Milliband’s [UK Labour Party Leader] recent remarks about 'Tax Havens', the Chief Minister and Mr Licudi briefed Mr Miliband on ... the work of the finance centre as a fully compliant EU financial services hub that operates entirely in keeping with EU directives and regulations, fully compliant with OECD rules also and therefore not by any measure a 'Tax Haven'”. See here for a TJN view on such claims.

U.S.: Business Leaders Agree With President: End Millionaire Tax Breaks and Stop Rewarding Companies That Move Jobs and Profits Abroad Business for Shared Prosperity
Jan 25 - “It’s wrong for millionaires to pay less than middle-class Americans and wrong for multinational corporations to pay less than small businesses,” said Scott Klinger, tax policy director of Business for Shared Prosperity. ... If we want an economy with 21st Century infrastructure, jobs, education, research and economic development, we have to pay for it.”

U.S.: Wealthy tax cheats Asheville's Citizen-Times
Jan 25 - Tax systems that heavily tax the rich are asking for trouble — or so the politicians who cater to the 1 percent incessantly argue. The higher the tax rate on high incomes, their argument goes, the greater the incentive the rich have to waste time and energy figuring out ways to pay less ... these cuts should have boosted tax compliance.Instead, tax evasion actually increased, rising to $385 billion in 2006 from $290 billion five years earlier, according to a new IRS study."

U.S. poised to soften offshore tax crackdown Global and Mail
Jan 25 - U.S. Treasury Department officials are looking at relieving some of the “administrative burden” of the Foreign Account Tax Compliance Act. Hat tip: Offshore Watch.

The World's Next Top (Economic) Model Huffington Post
Jan 24 - On the World Economic Forum in Davos, Sharan Burrow, General Secretary, International Trade Union Confederation observes: "Fair and progressive taxation - it is time to repair the balance sheets of governments through a fair contribution from those that can afford to pay: through making corporations pay their fair share". Hat tip: Liz Nelson.

Exclusive: Senate investigating HSBC for money laundering Reuters
Jan 25 - "HSBC Holdings PLC is under investigation by a Senate panel in a money-laundering inquiry, the latest step in a long-running U.S. effort to halt shadowy money flows through global banks."

Besieged bankers look for signs of hope at Davos Reuters
Jan 26 - "Each one of us is made for goodness, even bankers," Desmond Tutu told the Davos meeting."

Occupy London comment article in FT, seeks tax justice

2012-01-26T07:45:00.000-08:00

Occupy London - those protesters who have been sneered at and smeared as being a bunch marginalised, bearded, out of touch anti-capitalists - have a full comment article in the capitalists' newspaper of choice, the Financial Times. That, in itself, is a very fine thing.

And we are delighted to see them wading in in an area that is very dear to our hearts, tax justice.

First, tax avoidance is endemic in the UK. Companies use complicated structures to hide their earnings from HM Revenue & Customs. Individuals stash money abroad while enjoying all the benefits of living in this country. Tax havens are used by 98 of the FTSE 100 companies, according to Action Aid. Sir Philip Green was reported to have avoided about £285m in tax and still he became a government adviser. In calling for Jersey, Guernsey and the Isle of Man to disclose those with financial affairs on the islands, Ed Miliband, the Labour party leader, is moving towards our position.

Adopting a system of “formulary apportionment” could stop corporations avoiding tax. It would create a tax base for UK companies aligned with a level of activity that actually occurs in this country rather than relative tax advantages."

Spot on (read more about that here.) And crucially important.

It goes right to the heart of two things that are very much a focus of the Occupy movement more generally: the corruption of capitalism, and inequality. More on this later (time has run out for today's blogger.)

Now read on.

IMF: race to the bottom on tax in developing world

2012-01-26T00:29:00.000-08:00

From the IMF:

"This paper assembles a new dataset on corporate income tax regimes in 50 emerging and developing economies over 1996-2007 and analyzes their impact on corporate tax revenues and domestic and foreign investment. It computes effective tax rates to take account of complicated special regimes, such as partial tax holidays, temporarily reduced rates and increased investment allowances. There is evidence of a partial race to the bottom: countries have been under pressure to lower tax rates in order to lure and boost investment.

In the case of standard tax systems (i.e. tax rules applying under normal circumstances), the effective tax rate reductions have not been larger than those witnessed in advanced economies, and revenues have held up well over the sample period. However, a race to the bottom is evident among special regimes, most notably in the case of Africa, creating effectively a parallel tax system where rates have fallen to almost zero. Regression analysis reveals higher tax rates adversely affect domestic investment and FDI, but do raise revenues in the short-run."

Note that amid the 'race to the bottom' on tax, even if revenues hold up, the structure of tax systems will inevitably become more regressive than they would otherwise have been - since tax rates on flighty mobile forms of capital (the forms that benefit the wealthiest sections of society) will tend to fall, while taxes on less mobile forms of capital will often rise to compensate.

Read more about this broad area here. In particular, see this post How tax competition harms developing countries, looking at earlier IMF research on this subject.

Still, this has just come out and we haven't had a chance to read it properly yet. More on this soon.

Links Jan 25

2012-01-25T08:24:00.001-08:00

Kenya: Treasury Eyes Tax Reforms to Net Higher Revenues allAfrica.com
Jan 24 - "The Treasury will seal loopholes in tax collections as it seeks to hold government expenditure flat in the transitional budget to be unveiled late next month ... the government expects to net at least Sh100 billion by scrapping a number of exemption schemes and zero-rated goods that it currently extends to attract investment, boost exports and lower cost of essential goods."

Korea, Bermuda to exchange tax info The Korea Herald
Jan 24 - "Korea signed a bilateral agreement Monday with Bermuda on the exchange of tax information ... it is expected to provide the two nations with significant opportunities for mutual direct investment." Some bilateral agreements do sometimes include terms other than tax concerns - and read here why bilateral agreements are ineffective.

Debt-ridden Italy's tax fraud crackdown yields 50 billion euros The Economic Times
Jan 23 - "Heavily indebted Italy uncovered more than 50 billion euros ($65 billion) in undeclared revenues last year after cracking down on tax cheats ... Prime Minister Mario Monti came to power in November calling for a radical change to defend "honest taxpayers".

Italian cardinal brands tax evasion a sin Guardian
Jan 24 - "It has long been regarded as more of a national sport than a misdemeanour. And it has long benefited from the seemingly boundless indulgence of the Italian Roman Catholic church. But now the head of the Italian bishops' conference, Cardinal Angelo Bagnasco, has unambiguously declared that "evading taxes is a sin". He called for "serious, effective and relentless" action against tax dodgers."

Cyprus: Probe launched against Tax Council chief Cyprus Mail
Jan 25 - "The chairman of the Tax Council is himself facing charges of tax evasion ... the Attorney-general has given the green light for the prosecution of the chairman, following an investigation by the Inland Revenue Department."

Austria: SPÖ suggests 'list of tax evasion shame' Austrian Independent
Jan 25 - "Social Democratic (SPÖ) General Secretary Günther Kräuter has said the possible publication of a 'list of disgrace' to increase the pressure on tax dodgers has his party's unequivocal support ... Austria should follow the example of Greece in creating and publishing a list of names of people who evaded taxes in the past years."

USA: Mitt Romney's Bermuda (tax) holiday Politico
Jan 20 - From Dietlind Lerner and E.J. Fagan of the Task Force on Financial Integrity and Economic Development:"As international financial crises threaten governments in Europe and Africa, and Occupy Wall Street protests continue in cities around the country, the measure of a future president should not be that he took advantage of a great business deal. Rather should be that, if elected, he could be trusted to put an end to this entire process of legally sanctioned tax avoidance which is so harmful to our country."

UK: Properties Hidden In Tax Havens Property Mentor
Jan 14 - Helping property owners "to escape the cost of 5% stamp duties and inheritance tax (charged at 40%), in Central London alone £100bn worth of property is believed to be stored in offshore vehicles". The post notes that the trend is spreading.

UK: Harry Redknapp payment to offshore Monaco account 'disguised as loan' Guardian
Jan 24 - High profile football (soccer) manager faces allegations of cheating the public revenue by avoiding tax, having "feigned almost complete ignorance of its existence ... despite the fact he had flown to Monaco personally to open the account in 2002, and had named it Rosie 47 after his pet bulldog and the year of his birth."

Guest blog: VAT loophole abuse, for beginners

2012-01-25T02:00:00.001-08:00

For years UK tax havens such as Jersey have been making hay from an egregious tax loohole called Low Value Consignment Relief (LVCR.) In short, this loophole has enabled UK goods under the value of £18 to be sent in a circular route via the Channel Islands so that they can re-enter the UK from outside the EU free of VAT. It is an absolutely classic example of the way that tax havens can out-compete 'onshore' businesses on a factor that has nothing whatsoever to do with productive efficiency, and everything to do with sucking wealth away from taxpayers. UK Conservative peer Lord Ralph Lucas branded the LVCR loop as "a smuggling exercise... akin to baccy for the parson, brandy for the squire."

Richard Allen, a former businessman who lost his 'onshore' business as a result of this loophole has fought almost single-handedly against this offshore loophole. Richard has written us a short blog illustrating the problem.

Guest blog: LVCR abuse for beginners

There are five market stalls in front of the Houses of Parliament selling CDs. The first four stalls show clear individual prices for their CDs with a note that says “Our price includes VAT of 20% which goes to the UK Government.” The fifth stall shows the prices for the CDs that are displayed along with a note saying “Our price is always up to 20% cheaper than the prices on the other stalls”

A customer goes to the stall selling the cheaper CDs and decides to buy a CD. He pays the attendant who at this point replies “Let me just get this delivered for you with no extra charge”. The attendant puts the CD in a bag, gets into a nearby car with the bag and the CD and then drives to Portsmouth where he gets on a ferry to the Channel Islands. He arrives in Jersey gets off the ferry then hangs around for an hour or so before getting back on the Ferry to Portsmouth. When he arrives he orders a cab to the Houses of Parliament where he then gives the CD to waiting customer with receipt showing NO VAT APPLICABLE.

One year later.....

There are now only two stalls left. A huge crowd of people is gathered around the stall with the discounted prices. The other stall is empty with a sign on it that says “Prices include VAT of 20% which goes to the UK Government.” The nearby Evening Standard news board has the headlines “UK Unemployment up – UK taxes to be increased to account for shortfall”

The attendant for the discounted stall is so busy with orders he now has a lorry to take CDs on the same round trip. Nearby he has parked his brand new Ferrari with the number plate N0 VAT.

Endnote: The loophole has since been modified. As a direct result of the complaints, the UK has removed LVCR from CI mail order items completely as of 1st April 2012 and lowered threshold to £15 from all destinations into the UK.

Further reading on LVCR:

A history of the VAT loophole - LVCR site
Businessman's fight to stop tax loophole taken up by Lords - Telegraph

Tax justice is storming the United States

2012-01-25T01:09:00.000-08:00

At the top of the Financial Times website right now, an article headlined Obama puts tax at heart of election:

"Barack Obama laid down the battle lines for the presidential election Tuesday night as he promised a “fairer” tax regime on the day Mitt Romney, the leading Republican contender, revealed that he paid federal income taxes at an effective rate of just 13.9 per cent in 2010.
. . .
“You can call this class warfare all you want. But asking a billionaire to pay at least as much as his secretary in taxes? Most Americans would call that common sense,” he said."

If you've missed the Mitt Romney story, take a look here; Obama's address is here.

Take a look, if you haven't already, at the video pushing tax justice for the Institute for Policy Studies in Washington. Take a look at our new and invigorating TJN-USA. Take a look, when you can, at the new video We're not Broke. Take a look at the new Tackle Tax Havens project. Take a look at the surging profile of the veteran and excellent Citizens for Tax Justice, also in Washington, D.C. Take a look at the Boston Herald, in an article that pits TJN director John Christensen against Ayn Rand:

This type of aggressive tax avoidance is only available to a few elite who consider themselves above others, said John Christensen, an economist and director of London-based Tax Justice Network.

See Bill Gates of Microsoft fame, following the likes of Warren Buffett, saying he doesn't pay enough tax. "It's just justice." Take a look at Elizabeth Warren on the Daily Show, quoting research by our friends at Citizens for Tax Justice. See this article Business Leaders Agree With President: End Millionaire Tax Breaks. Now take a look at this interview with none other than David Stockman, Ronald Reagan's director of the Office of Management and Budget, tearing apart the business strategy of Mitt Romney's private equity industry. Most remarkable is that he spent years in the private equity industry himself.

"Romney was disingenous when said got grad education in company creation, job creation, growing economy as an LBO [leveraged buyout] artist. LBOS are just financial speculation – I was in the business for the same period of time. I won’t pretend that I learned anything during that tells me how to improve the U.S. economy or how to create jobs.

What I learned was how to strip-mine the cash out of a company to pay the debt. What I learned was how to powder up the pig to sell it in the quickest IPO. I made some very large gains in some cases; I had some bankruptcies in others. The point is: LBOs are not about growing an economy."

And read more about private equity, from an incontrovertible tax justice angle, here.

Not Broke, Just Twisted; USA Under Attack By Tax Havens

2012-01-25T00:48:00.000-08:00

For those who missed this video last time round, its worth seeing again in the context of President Obama's State of the Nation speech. Addressing the Union yesterday, Obama put tax justice firmly onto the agenda which will shape this year's presidential elections.

TJN adviser talks Romney, Cayman on Democracy Now

2012-01-24T11:16:00.000-08:00

TJN Senior Adviser Jack Blum talks on Democracy Now about the offshore escapades of US Republican candidate and private equity mogul Mitt Romney. Latest news: his tax returns reveal a Swiss bank account, albeit one that he's already closed, along with accounts in Cayman (which we recently blogged and in Bermuda.)

Blum also appears in "We’re Not Broke," a documentary that premiered at the Sundance Film Festival. The film examines widespread corporate tax evasion in the United States and the increasing role of offshore tax havens.

For more on Romney's private equity background, see our recent blog looking at the private equity industry.

Links Jan 24

2012-01-24T09:08:00.001-08:00

Singapore, a preferred tax haven The Hindu Business Line
Jan 24 - For India, Mauritius is falling somewhat out of favour following a number of scandals, and Singapore is picking up the slack. See recent TJN Blog on Tax Gateways to India .

USA: State Tax Hikes On Wealthy Proposed By California, Maryland Governors Huff Post Business
Jan 20 - "It's early, but there does seem to be a bit of an uptick in governors proposing tax increases on the rich," said Jon Schure, director of state fiscal strategies at the Center on Budget and Policy Priorities, a Washington think tank. "The public is more receptive to that idea now."

OECD: Using Tax Policy to Reduce Income Inequality, Boost Economic Growth TaxProf
Jan 24 - See the Chapter from the forthcoming Economic Policy Reforms 2012 - Going for Growth: Reducing Income Inequality While Boosting Economic Growth: Can It Be Done?. The answer is: Yes.

Why the OECD’s approach to transfer pricing is a joke Task Force Blog
Jan 17 - About a year ago TJN published two articles summarising longer papers in Tax Notes by Michael Durst, former head of the U.S. Internal Revenue Service (IRS) Advance Pricing program and a world authority on the subject. This blog is a reminder of those two important articles.

Occupy schedules 'flashmob' outside Park City bank Park Record
Jan 24 - People aligned with the Occupy Wall Street movement are planning a protest outside a Wells Fargo branch. The action is scheduled the day after the first showing of the documentary "We're Not Broke," at the Sundance Film Festival. TJN has participated in the making of the movie, and will be represented at Sundance by Jack Blum, VP of TJN-USA.

Greece publishes tax dodger list to name and shame Reuters
Jan 23 - "A famous singer and a retired basketball star were on a list of 4,000 top tax dodgers released by the Greek government as part of a name-and-shame policy to get evaders to pay up. Tax evasion is endemic in Greece and its international lenders, the EU and the IMF, have insisted Athens improve tax collection if they are to continue bankrolling the debt-laden country."

Dangerous Liaisons - Canada's shift towards becoming a tax haven The Dominion
Jan 23 - On how - "By radically integrating its own politics and financial institutions with those of tax shelter states, Canada has transformed itself, without ambiguity, into a tax haven."

Switzerland eyes tax deals, US talks 'not so easy' Reuters
Jan 12 - "Switzerland's long tradition of banking secrecy has allowed rich foreigners to park savings out of sight of their own tax authorities for decades and, for many foreigners, made Swiss bank accounts a byword for dodging taxes. But foreign governments, led by the United States, are forcing tax havens to reveal their secrets, emboldened by efforts to root out suspected terrorist funding and by a need to boost revenues depleted by the global economic crisis."

Switzerland: Banking lobby celebrates centenary swissinfo
Jan 23 - "The [Swiss Bankers] association - founded in Basel in 1912 to represent the interests of the banking industry – is proud of its record ... For years the association has had to devote a lot of energy to conflicts with tax authorities in France and the United States, although this has mainly occurred behind the scenes."

The 10 Cs of an efficient tax system Tax Research UK
Jan 24 - Richard Murphy explains how "An efficient taxation system has nine attributes with one over-riding characteristic to which they all contribute."

Five steps to end global tax evasion

2012-01-24T04:21:00.000-08:00

Nick Mathiason* has the following article on the Guardian's Comment is Free page. With Nick's approval the article is copied in full below:

"'The World Economic Forum helped to set the tone this month when it issued a chilling dystopian vision of mass youth unemployment, wholly inadequate elderly care provision and widening global inequality.'

World leaders are failing us in the face of crisis. A new age of financial transparency could help claw back $3.1tn of unpaid tax.

Rarely have politicians and business leaders met at Davos against such a gloomy backdrop. The World Economic Forum (WEF) helped to set the tone this month when it issued a chilling dystopian vision of mass youth unemployment, wholly inadequate elderly care provision and widening global inequality. WEF's global risks 2012 report suggested fresh economic turmoil and social upheaval could wipe out gains produced by globalisation. Nationalism, populism and protectionism threatened to take root, it warned.

The world is calling for a bold vision of economic justice to counter dislocation and austerity. But since the global economic crisis reasserted its icy grip after a brief Keynesian impasse, world leaders have failed to deliver one. The inability to articulate a narrative beyond a long, hard march out of economic malaise ultimately caused by politicians' and regulators' failure to adequately supervise the financial system is resulting in a widespread disillusionment with mainstream politics that threatens to undermine faith in democracy.

World leaders need to respond quickly, and business must play its role. A good place to start is talking up the idea that there are mechanisms beyond severe budget cuts to eliminate sovereign debt. There is money in the global financial system that, if accessed and used wisely, could go a long way to mop up deficits and reinvigorate the global economy.

That treasure trove is the $3.1tn of tax, equivalent to 5.1% of global GDP, which according to international campaign group Tax Justice Network is illegally evaded in 145 countries, covering 98.2% of the world's population. In December, Washington-based thinktank Global Financial Integrity confirmed the reality of vast sums of cash flowing freely through an unregulated financial system last month. Developing countries, it said, lost $903bn in illicit outflows during 2009 – a year when economic activity was severely constrained.

The majority of these flows are washed through tax havens. These secrecy jurisdictions act as cover from international tax authorities. Disturbingly, the obstacles placed by the global financial system that would allow individual countries to track down and repatriate this cash are prohibitively burdensome. This is why a new age of financial transparency and accountability is required. Five key reforms would lay the foundations for this:

1. The rapid introduction of multilateral automatic tax information exchange between tax agencies in every single jurisdiction. This would ensure money illegally held offshore was easily identified and accounted for.

2. The introduction of new levels of financial transparency requiring the public disclosure of the ultimate human beneficiaries of companies, trusts and foundations. This is needed to prevent the further subversion of countries' tax bases whether by high net worth individuals, businesses, corrupt politicians, criminals or terrorists. It is also required to restore faith in the rule of law and the democratic process as the current non-disclosure of beneficial ownership is corruption's best friend.

3. The global introduction of country-by-country reporting so that every company has to publicly state financial details relating to its turnover, profits, costs, employees and taxes in every jurisdiction it operates in where its revenues exceed $5m. It is astounding that in the 21st century, it is impossible for citizens in many resource-rich nations to establish whether their country has got a fair deal from its oil, gas or minerals.

4. Concerted international action needs to be taken to ensure the hundreds of billions of dollars lost to exchequers by companies artificially inflating their costs and deflating profits through intra-company transactions – known as transfer mispricing – is identified, contained and reduced.

5. The harmonisation and codification of money-laundering laws to a restrictive level. Even the City of London shows brazen disregard for rules to stop money laundering, according to a report last June by the UK's Financial Services Authority.

Together, these reforms would show that world leaders were acting in their citizens' best interests, and would go a long way to averting WEF's dystopian nightmare."

* Nick Mathiason is business correspondent at the Bureau of Investigative Journalism and also works with the Task Force on Financial Integrity and Economic Development. He was previously Business Correspondent at the Guardian and Observer newspapers for 10 years.

Links Jan 23

2012-01-23T08:22:00.000-08:00

Africa losing Billions in Tax Evasion Eurodad
Jan 23 - See the video: ‘Africa losing Billions in Tax Evasion’ based on a report by Eurodad members Forum Syd “Bringing the billions back: how Africa and Europe can end illicit capital flight” talking about transfer mispricing, with Attiya Waris, TJN vice-chair.

New report on tax havens: the case of Luxembourg and impacts on development Eurodad
Jan 7 - "Eurodad member ASTM and other Luxembourg groups within the Cercle de Coopération au Développement have released a new report on the role of Luxemburg as a tax haven and its development implications ... The full report (only in German) and the summary report (in English and French) can be downloaded here"

France: Surprise plan of Finance Ministry to combat tax evasion Les Echos (In French)
Jan 22 - "New measures against tax evasion will be included in the supplementary budget in February. Bercy will confiscate approximately 5% of assets hidden in foreign accounts and greatly increase the penalties for criminal offenses in a tax haven." Welcome developments - and we ask why the UK doesn't get serious on offshore accounts, maybe it's something to do with this.

City of London Corporation: tax havens a ‘core asset’ for the City Treasure Islands
Jan 22 - Nick Shaxson on a communiqué from the government of the Isle of Man ..."Indeed, just exactly as I have always been saying. Tax havens as gigantic, secrecy-suffused offshore conduits to the City of London."

How the bosses paid less tax than their cleaners Daily Mail
Jan 21 - "Multi-million-pound payouts became common in private equity during the boom years. But they are not taxed as income because they represent a rise in the capital value of the fund and are taxed as capital gains. Hat tip: Offshore Watch

Romney’s spox says Cayman isn’t a tax haven. If she believes it, I have a bridge to sell her Treasure Islands
Jan 20 - "They all deny it, because the term ‘tax haven’ conjures up all sorts of really bad images. And rightly so. Read Treasure Islands, and you’ll be left in no doubt as to just how bad it all is."

See also:
Romney’s in deep trouble in Cayman – and he’s not alone Tax Research UK
Jan 23 - Richard Murphy observes: "With the Primary race set to drag on long into the Spring, this renewed scrutiny of his tax affairs is the last thing Romney needs; with Romney’s team even denying the Cayman Islands are a tax haven and more scrutiny of how the murky offshore world works, tax could become a recurring problem for Team Romney."

See also:
More on Mitt Romney's Tax Returns TaxProf
Jan 20 - Nice reference source with a set of links on the Mitt Romney tax dodging shennanigans and implications.

Honey, they shrunk the IRS Reuters
Jan 17 - David Cay Johnston comments: "Congress will spend a trillion dollars more than it levies this year, so how do Washington’s politicians respond to the 11th consecutive year of federal budgets in red ink? They plan to shrink the IRS."

More About Corporate Taxes And The .01 Percent New York Times
Jan 20 - "When people raise questions about big tax cuts for corporations, we’re told not to worry, because corporate taxes mainly fall on labor, not on stockholders. When people raise questions about low taxes on the very rich, we’re told not to worry because once you include all the taxes corporations have paid on their behalf as stockholders, their taxes aren’t really that low." - Having your cake and eating it.

How Citizen’s United and Anonymous Corporations Distort U.S. Politics Task Force Blog
Jan 19 - On the beneficial ownership issue - "Any U.S. voter can go to OpenSecrets.org and see the names of donors to campaigns, political action committees and parties.The protection that disclosure provides breaks down, however, when anonymous, or shell, corporations enter the picture.

For more on beneficial ownership issues, see:
Land Registration etc. (Scotland) Bill and Beneficial Ownership Land Matters
Jan 12 - Interesting commentary on land registration, transparency, accountability and the collection of taxes. Hat tip Carol Wilcox.

One way to claw back HS2 cost Financial Times
Jan 12 - Letter from Carol Wilcox, Labour Land Campaign, observing "All good public infrastructure investment increases local land values", noting how costs of public infrastructure can be covered, and even exceeded, if the self-funding of public infrastructure by public collection of land rent is in place. See editorial by Carol Wilcox in the Taxing Natural Rents Edition of Tax Justice Focus here.

Swiss 'Rubik' deals are dead in the water

2012-01-23T00:44:00.000-08:00

Swiss Info is reporting that the uncertainty surrounding the dodgy and loophole-ridden "Rubik" bilateral deals that Switzerland has negotiated with Germany and Britain, providing immunity to criminal tax evaders in exchange for some secret tax payments, are unravelling under pressure from the EU:

"The tax deals which Switzerland reached last year with Britain and Germany could yet fail in the face of opposition in Europe and in the countries concerned."

This is exactly what we have argued all along (as well as arguing that these deals are not only immoral, and almost useless in terms of raising revenue - they will get thrown out by the EU.) We heard by word of mouth that a top Swiss banker said in the last few days that the deals would die anyway and should be scrapped.)

There's opposition, too, from amongst the Swiss political parties, with some on the Right concerned about the gradual erosion of banking secrecy, while those on the Left see a move towards enhanced information exchange (i.e. automatic information exchange on the EU model) as an inevitability.

As Swiss Info reports:

"It is now by no means certain that the two tax agreements will pass the hurdles of the Swiss parliament either.

The rightwing People’s Party says the negative aspects of the Rubik system outweigh the positive ones. And parties on the left of the political spectrum are in any case relatively sympathetic to EU demands for automatic exchange of information.

Some economists and tax experts have cast doubt on the effectiveness of Rubik. Sergio Rossi, a professor of economics at Fribourg University told Swiss radio and television that it was based on a philosophy that could have worked in the last century, when foreign capital “sat in Switzerland and did not move for decades".

But he sees things moving now in the direction of the automatic exchange of information".

The Swissinfo story isn't quite right, however: this particular story is not, at heart, about exchange of information but about withholding taxes. At the core of the EU objections is that, as we remarked recently:

"that the EU already has legislation regarding withholding taxes on interest. As EU legislation has primacy over bilateral agreements, no EU member State can enter into agreements that impinge on the EU savings tax.
. . .
The withholding taxes levied under the EUSD are merely advance payments against what would ultimately be owed by the taxpayer. Therefore Rubik cannot be regarded as a full and final settlement. The tax evader client can still be liable to penalties, etc. This defeats the one and only purpose of Rubik. Rubik is crippled."

In other words, the key selling point of Rubik is that it enables tax-evading criminals to get off the hook (while paying taxes and back taxes) - but the EU will ensure that even if they do pay those taxes, they are still on the hook. Switzerland has been trying to play some weird little gymnastics behind the scenes to try and get around the EU's objections - by excluding bank interest from the bilateral deals (story only available in German, here, with rough web translation here) - but these typically Alpine subterfuges don't appear to address the core problem here. The whole game is a nonsense.

TJN's position is unambiguous: these deals are weak, immoral, and even silly - and they undermine international attempts to tackle tax evasion. Both Germany and Britain should swallow their pride, withdraw from the deals, and put their diplomatic effort into pushing through the EU's enhanced Savings Tax Directive - suitably extended to Switzerland.

New Yorker, FT: the real problem with private equity

2012-01-22T23:44:00.000-08:00

Following our blog about US presidential candidate Mitt Romney, an excellent short article in The New Yorker explaining that the principal problem with private equity firms is not their effect on stripping jobs:

The real reason that we should be concerned about private equity’s expanding power lies in the way these firms have become increasingly adept at using financial gimmicks to line their pockets

And it goes on to explain concisely what the problem is. In essence, it's debt, as we've explained before. Buy a firm, load it with debt, and that leverage increases your returns.

"The rewards can be extraordinary: when Romney was at Bain, it supposedly earned eighty-eight per cent a year for its investors. But piles of debt also increase the risk that companies will go bust."

And it gets worse.

"In the past decade, though, that calculus changed. Having already piled companies high with debt in order to buy them, many private-equity funds had their companies borrow even more, and then used that money to pay themselves huge “special dividends.”

And from 2003 to 2007 private equity funds took over $70bn out of their companies. The New Yorker adds:

These dividends created no economic value—they just redistributed money from the company to the private-equity investors.

Indeed. And it goes on to explain how private equity firms can increasingly profit even if the companies they run go under—an outcome made much likelier by all that extra borrowing. It gives the example of a U.S. company that was bought and eventually went bankrupt, dumping its debts on society and wiping out its workers' pensions obligations - while making a 23 percent profit for the private equity firm (more examples of this, in an in-depth article in the New York Times here). A letter in the Financial Times from Professor Louis Brennan of Trinity College Dublin has more on this:

Private equity “works” not because of accountability but because of the ease with which implicit and explicit contracts may be broken – pension commitments, employee contracts, supplier contracts, and intellectual property stripped out and repackaged.

Private equity “works” not because of greater accountability but because of a reduced accountability that enables a minority to benefit at the expense of a majority. It is not even a zero-sum game but a game that involves both value shifting and value destruction.

(And see some Harvard research on this here.) here we get into an often overlooked aspect of tax havens. Tax havens create laws deliberately to help investors do this, under a veil of secrecy. No wonder Mitt Romney and his former company Bain Capital chose the Cayman Islands to locate their activities.

And all this is destabilising. Take a look, now, at Marty Sullivan's article on Romney, Bain, private equity and taxes, in the highbrow U.S. publication Taxanalysts.

"Bain profited from a dangerous flaw in our corporate tax that subsidizes destabilizing financial structures.
. . .
the tax incentive for leverage goes to the heart of the deal and can cause serious economic damage.
. . .
higher levels of debt threaten macroeconomic stability by leaving the economy more vulnerable to small contractions in business activity."

Now back to the New Yorker:

"That’s not exactly how capitalism is supposed to work."

You don't say. This is a classic example of the corruption of capitalism - which we believe is right at the core of what the Occupy protesters are angry about. Oh, and then there's the very closely related question of tax justice, and another example of this corruption:

"As if this weren’t galling enough, taxpayers are left on the hook. Interest payments on all that debt are tax-deductible; when pensions are dumped, a federal agency called the Pension Benefit Guaranty Corporation picks up the tab; and the money that the dealmakers earn is taxed at a much lower rate than normal income would be, thanks to the so-called “carried interest” loophole."

Ugh, ugh, and thrice ugh. And, to round the New Yorker article off:

"If private-equity firms are as good at remaking companies as they claim, they don’t need tax loopholes to make money."

Absolutely spot on. All you really need know about the private equity industry, in a single page.

If you want responsible capitalism, change the tax system

2012-01-22T02:37:00.000-08:00

The Observer's Heather Stewart has written an economics column which gets right to the heart of how and why Capitalism v.3 is so unfit for purpose: the tax incentives are completely askew, rewarding rent-seeking rather than genuinely productive activity.

Take the leverage buyouts that became the craze among private equity investors in the last decade: few if any of these deals made sense were it not for the debt relief offered on loan finance. As Stewart notes:

"The frenzy of private equity deals that swept through the (British) economy in the noughties was partly because interest rates were unusually low; but it also reflected the structure of the tax system. Companies can claim back debt repayments against their corporate tax bill. That means the 'leveraged buyout' - gobbling up a firm using a loan which the firm itself will then have to repay - has an inbuilt financial advantage over a straight takeover."

Exactly so, and over the years we've met many economists and tax officials who recognise the harmful distortion this creates but shrug their shoulder about the prospect for changing this situation since politicians have had no appetite for taking action. Why not? Well, a quick look at party political funding sources might give a clue.

But the favourable tax treatment given to private equity investors doesn't stop there. In order to encourage their 'wealth-creation', which frequently involves nothing more than debt leveraging companies to reckless levels, cutting staffing numbers, and stripping intellectual property rights to offshore companies, successive governments have allowed private equity managers to treat the bulk of their earnings as capital gains (taxed at 18 percent compared to 50 percent charged as income tax on top-earners).

As Stewart notes in her article, tax frames the way in which economies work. It also shapes the outcomes of economic activity. A well designed tax system will reward certain activities, including investment, and inhibit others (gambling, hydrocarbon abuse, etc). Taxes can also mitigate the harmful income and wealth inequalities that capitalism tends towards.

Any debate about how to reform capitalism must take account of perverse tax incentives at national and international levels. Tax havens are bang at the centre of the problem, as Americans are beginning to realise in the context of revelations about presidential candidate Mitt Romney's tax affairs, which have derailed his campaign in the past week.

Read Stewart's article here.

Vodafone defeats India in landmark $2.9bn tax case

2012-01-20T08:38:00.000-08:00

India's supreme court has found in favour of Vodafone in a landmark tax case, ruling that India can't levy capital gains on its 2007 purchase of Hutchison Whampoa’s India operations. Bloomberg explains:

Vodafone and Hutchison conducted their transaction offshore, with Vodafone’s Dutch subsidiary, Vodafone International Holdings BV, acquiring CGP Ltd., a Cayman Islands holding company controlled by Hong Kong-based Hutchison.

Essentially, the court ruled that India's government can’t levy a capital gains tax on the assets because the transaction occurred between foreign companies.

We'd make a couple of points here. First - while we won't comment on the legal technicalities as we don't have access to them - this means a transfer of wealth away from Indian taxpayers and towards, among others, Vodafone shareholders and top Vodafone executives (in the form of their stock options and other remuneration.)

Next, corporate executives have been lining up to congratulate the Indian courts (of course.) Aside from the question of whether the law is being upheld fairly or not, their loud claims that this ruling - and the more general trend of tax-cutting for corporations - is positive for India and encourage investment and economic growth in India are open to serious question. (Now this dispute was not really about tax rates - it was about tax loopholes - but the same basic calculus holds.

Even the IMF has recognised that lower corporation taxes and tax holidays may not boost growth. Think about it like this. Governments in oil-rich countries, for instance, levy extremely high tax rates - effective marginal tax rates of 90 percent or more are common enough - because investors know that the oil is there, and if they want it, that is where they have to go. Just because profits are reduced by tax doesn't mean there aren't profits. The oil companies will gnash their teeth and threaten to go to where there are more attractive tax regimes - but at the end of the day ExxonMobil knows that if it disinvests in a fit of pique because of high taxes, Sinopec will fill its shoes (and, probably fill its own boots.)

Now in the case of the Indian telecommunications market, a similar calculation applies. Corporate lobbyists will insist that if tax rates are too high they will go somewhere friendlier. But at the back of their minds they know that the Indian telecommunications market is a goldmine. And if they don't like the tax rate, others will be perfectly hard to put up with it.

It is important here not to take the perspective of the single investor (who may well make a risk and return calculation and opt to invest in another country) but to take the perspective of the country concerned. If one investor leaves, another will take its place. It's not quite as simple as this in the real world, of course - but the basic principle holds.

If India's supreme court had ruled that India should have been able to levy those taxes, the corporations would all have huffed and puffed about the investment climate, but at the end of the day they would still get their foreign investors slavering to be the investors to come in.

Finally, an absolutely fundamental principle of international tax was at stake here. As the International Chamber of Commerce said:

"Today’s judgment should be read as a clear endorsement of the view that countries don’t have jurisdiction to tax international transactions based on the location of underlying assets."

This is yet more evidence why the international system for taxing multinational corporations is broken. It needs a complete overhaul.

Broadly, there are two ways to tax multinational corporations. The predominant way, fiercely supported by the OECD and multinational corporations, is to tax them according to the strange legal contortions that their lawyers and accountants twist them into, stuffing profits into tax havens and costs into the high-tax countries. It is a system that uses OECD rules which, as one prominent tax expert recently noted:

“is based on a fundamental misunderstanding of practical economics.”

There is an alternative system, which a growing number of U.S. states are using: unitary taxation. Under such a system, you disregard all the corporate shenanigans and tax companies according to the real economic substance of what they do in the real world. Developing countries like India would do well to take a greater interest in this possibilities - and on others.

More on unitary tax on our transfer pricing page.

Conference - Fraud and Corruption

2012-01-20T08:14:00.000-08:00

The Observatory of Fraud in Economics and Management (OBEGEF) and the Faculty of Economics, University of Porto are co-organising an inter-disciplinary conference on fraud and corruption. The conference will be hosted by the faculty of economics at the University of Porto, and is scheduled for 14-15 September 2012.

The organisers have just issued the following call for papers with details of the keynote speakers and other contributors (including TJN's director John Christensen, who is an invited keynote speaker).

+++++++
The Observatory of Fraud in Economics and Management (OBEGEF) and the Faculty of Economics, University of Porto

1st OBEGEF conference – Interdisciplinary Insights on Fraud and Corruption

In September 14-15, 2012 it will be held at Faculdade de Economia da Universidade do Porto (FEP), the 1st OBEGEF conference – Interdisciplinary Insights on Fraud and Corruption. Please consider submitting an abstract, a poster or a thesis proposal for presentation.

The deadline for abstract/paper/proposal submission is April 9.

The aim of the conference is to study fraud and corruption in an integrated way, to prevent and combat them, comparing experiences from different countries and political and cultural spaces. It is intended as a forum for experts from different scientific areas, an interlacing of experience of businessmen, academics, politicians, policemen and other professionals who may intervene in the process of fighting and preventing; building an interdisciplinary, international and multidimensional perspective.

Topics of interest for the conference are related (but not limited) to:

§ Ethical education and fraud prevention

§ Shadow economy, fraud and money laundering

§ Crime, white-collar crime and fraud

§ Social, institutional and individual dynamic of fraud

§ Fraud: frameworks, types, procedures

§ State and corruption

§ Prevention and detection of fraud. Proof

§ Fraud by social sectors

§ Other aspects of fraud

The conference will assume various forms: plenary and specialized sessions, short courses, presentations of papers and posters, panel discussions and seminars.

Keynote speakers

§ Susan Rose-Ackerman (Professor at Henry R. Luce Professor of Jurisprudence, Law School and Department of Political Science, Yale Law School, USA)

§ John Christensen (CEO Tax Justice Network, UK)

§ Michael Levi (Professor of Criminology, Cardiff University, UK)

§ Friedrich Schneider (Professor of Economics, Chair of the Department of Economics, Johannes Kepler University of Linz, Austria)

Short courses/Master and PhD Tutorials in Forensic Accounting, Criminology and Anti-Fraud Research and Academic Integrity, led by renowned international professors and researchers will precede the conference.

Leading Professors

Forensic Accounting

§ Larry Crumbley (KPMG Endowed Professor, Department of Accounting, Louisiana State University, USA)

Academic Ethics

§ Donald L. McCabe (Professor, Management & Global Business, Rutgers Business School, USA)

§ Deborah C. Poff (President and Vice-Chancellor at Brandon University, Canada; Editor in chief on Journal of Academic Ethics and Editor of Journal of Business Ethics)

Important dates

Pre-conference (short-courses): 13rd September of 2012

Conference: 14th and 15th of September of 2012

Location: Porto, Portugal

Deadline for abstract/poster/proposals submission: 9th April of 2012

Deadline for full paper submission: 30th July of 201

Conference fee: 100 € (normal) / 50 € (students)

Papers will be published in Conference Proceedings with an ISBN number and will be considered for a publication in an edited volume.

Awards of 500€ will be attributed to the best paper, best poster and best thesis proposal.

Contacts

Email: I2FC@fep.up.pt

A Financial Transactions Tax: Inefficient or Needed Systemic Reform?

2012-01-20T07:58:00.000-08:00

That's the title of a new paper looking at the pros and cons of the European Union's efforts to get a financial transactions tax up and running. We haven't read the whole paper, but here's (a slightly shortened version of the abstract:

IMF staff reports . . . concluded that a tax would reduce the efficiency of capital markets, and raise the cost of capital. The efficiency frameworks used in the staff reviews were unduly narrow. Markets work best when there are strong links between market trading and real economic activity. Of late, these links have become increasingly tenuous and latent market and financial system risks are mounting. Carefully calibrated legal and tax responses are required to change market behaviour. Such a tax as part of an integrated policy framework would reduce short-term momentum trading and promote longer-term investment that would better reflect underlying economic fundamentals. So we argue the European Commission is correct in proposing to adopt such a tax.

In other words, an FTT seems like a good idea. Now take a look at that bit in bold. It's rather like something that John Maynard Keynes said a while ago, in his characteristically outdated but still eloquent prose. Compare the two bits in bold, and realise that the two sections are saying someting very similar:

"The divorce between ownership and the real responsibility of management is serious within a country when, as a result of joint-stock enterprise, ownership is broken up between innumerable individuals who buy their interest today and sell it tomorrow and lack altogether both knowledge and responsibility towards what they momentarily own.

But when the same principle is applied internationally, it is, in times of stress, intolerable - I am irresponsible towards what I own and those who operate what I own are irresponsible towards me. There may be some financial calculation which shows it to be advantageous that my savings should be invested in whatever quarter of the habitable globe shows the greatest marginal efficiency of capital or the highest rate of interest. But experience is accumulating that remoteness between ownership and operation is an evil in the relations between men, likely or certain in the long run to set up strains and enmities which will bring to nought the financial calculation."

And in light of all that's happened in the world in the last few years, who could argue?

Read a whole lot more about Keynes, in the context of tax, transparency, and 'remoteness between ownership and operation' here.

Links Jan 20

2012-01-20T04:20:00.000-08:00

Corporate anonymity - Ultimate Privilege The Economist
Jan 20 - A very important report. The piece points out the deficiencies in measures for increasing transparency, especially within the Financial Action Task Force (FATF), the world’s main anti-money-laundering body. "Anthea Lawson of Global Witness ... says that the result is 'carte blanche for tax-evaders, organised crime and the corrupt to carry on business as usual.'” Hat tip: Heather Lowe.

See also:
Incorporation with limited liability is a privilege. It should not include anonymity Tax Research UK
Jan 20 - Richard Murphy points out: " I am convinced legal limited liability is a privilege - after all, if people sign a piece of paper to form a company they no longer have to accept full responsibility for their debts ... like all responsibilities, this one comes at a price. The price is ... to disclose who really owns the company and who really runs it, as well as to say what you do i.e. to put true and fair accounts on public record."

Corporations, Taxes and Responsible Investors Huffington Post
Jan 19 - A piece by TJN Senior Adviser Rev. Séamus P. Finn, OMI. "Shareholders, and especially faith based and socially responsible investors, will need to consider how to engage companies that are identified as the most aggressive in developing legal strategies to either avoid or evade the payment of approved taxes."

Left Behind by the G20? How inequality and environmental degradation threaten to exclude poor people from the benefits of economic growth Oxfam
Jan 19 - Oxfam’s new report Left behind by the G20 reveals that it is falling behind on inequality, and inclusive and sustainable growth, with inequality having increased in 14 of the G20 countries since 1990 as economic growth has too often failed to benefit poor people.

Nepal: Compliance burden fuels tax evasion trend The Himalayan Times
Jan 20 - "Post-1990 movement, the private sector has come forward very actively and in many sectors led alone, without government’s support, but post-2007 movement, the private sector has been in news more all for the wrong reasons. “It’s a trend,” according to finance secretary Krishnahari Baskota, 'though such act will not benefit them in a long run.' "

USA: What the President's Council on Jobs and Competitiveness Got Wrong about Corporate Taxes Citizens for Tax Justice
Jan 18 - "President Obama’s jobs council has released a report full of recommendations, including somewhat misguided points on the federal corporate income tax. The report rightly points out that the corporate income tax is full of loopholes that should be closed, but fails to call for a reform that actually raises revenue to support under-funded public services and investments ..."

USA: IRS Called Easy on Criminal Tax Evaders in Watchdog’s Critique Bloomberg
Jan 20 - "Criminal tax evaders have an easier time coming clean with the Internal Revenue Service than those who didn’t intend to hide money from U.S. authorities, according to Nina Olson, the National Taxpayer Advocate."

Canada: Tax-dodging guru convicted on evasion charges CTV News
Jan 20 - "A B.C. man who earned a solid six-figure income teaching would-be tax dodgers a bogus scheme to evade the Canada Revenue Agency has been found guilty of tax evasion and counselling to commit fraud ... an advocate of the legally flawed "natural person" theory, which suggests that anyone can get out of paying taxes by declaring themselves a "natural person" rather than a taxpayer."

Switzerland: Tax amnesty pays off swissinfo
Jan 19 - Switzerland appears to, er, crack down on tax cheats? "An amnesty for repentant tax cheats in Switzerland brought millions of francs into the federal, cantonal and communal coffers in 2011."

Links Jan 19

2012-01-19T08:31:00.001-08:00

Outflows, Not Aid, Must Be Curtailed to Fight Poverty Huffington Post
Jan 11 - Raymond Baker comments, further to the new study from Global Financial Integrity.

Italy fights tax evasion Business Report
Jan 19 - "Italy's new prime minister has put his country on a strict austerity regime of spending cuts, tax hikes and tighter pensions. But Mario Monti still has one more card up his sleeve - the fight against tax evasion, another tool to cut down the debt mountain of the eurozone's third-largest economy."

Wegelin Bankers Indicted by U.S. in Tax Crackdown, Bank Says Bloomberg BusinessWeek
Jan 19 - " Switzerland’s Wegelin & Co. said three bankers were charged with conspiring to help U.S. clients hide more than $1.2 billion from American tax authorities ... The men told clients their undeclared accounts would stay hidden from the IRS because the bank “had a long tradition of bank secrecy, and, unlike UBS, did not have offices outside Switzerland.”

Swiss banks back Romney and Obama swissinfo
Jan 12 - "UBS and Credit Suisse are, as in the past, playing an important role in the financing of United States presidential campaigns, research has revealed."

USA: A corporate tax code for a different century Reuters
Jan 13 - David Cay Johnston observes: "Big business is lobbying for a major cut in the corporate income tax rate, and both President Barack Obama and key congressional leaders are on their side. But the evidence that a rate cut will boost the economy is weak. What’s needed is comprehensive reform that includes a simpler, fairer and more transparent corporate tax code..."

Nature of international business sector encourages tax accusations The Barbados Advocate
Jan 17 - "The international business sector has been described as a zero-sum game, where the gains in one jurisdictions can result in losses for another. According to Minister of Tourism, Richard Sealy, this outlook of the sector has caused many to make claims and accusations on the taxation structure of Barbados as going against international norms."

The Dirty Thirty: the most egregious corporate tax lobbyists / dodgers in the USA revealed

2012-01-19T02:24:00.001-08:00

In their new report on Representation without Taxation, our colleagues at Citizens for Tax Justice have revealed that two years on from a Supreme Court decision allowing corporations to provide unlimited funding to political candidates, corporate tax lobbying has allowed the Dirty Thirty biggest corporate tax lobbyists and tax dodgers to collect US$10.6 billion in tax rebates from the federal government over a three year period.

According to CTJ:

"These companies so deftly exploited carve outs and loopholes in the tax code that all but one of them enjoyed a negative tax rate over the three year period of the study, while spending nearly half a billion dollars to lobby Congress on issues including tax policy. Altogether they collected $10.6 billion in tax rebates from the federal government."

While this comes as no surprise to those of us engaged in monitoring the tax dodging industry and their clients, the sheer scale and cost to ordinary people is mind-boggling. Again, according to CTJ:

"Ordinary American taxpayers and small businesses must pick up the tab when major corporations avoid their taxes. Spread out over every individual tax filer in America, the taxes avoided by the Dirty Thirty break down to an average of $481 per taxpayer over the three years."

$481 for each and every taxpayer in the US gives some idea of the enormity of the tax injustice being foisted onto ordinary citizens by a tiny and privileged minority; but that's just the Dirty Thirty. Looking at all Fortune 500 companies, CTJ came up with this:

"A total 280 profitable Fortune 500 companies collectively paid an effective federal income tax rate of 18.5 percent, about half of the statutory 35 percent corporate tax rate, while receiving $223 billion in tax subsidies."

How do they get away with this? Well the answer largely lies here:

"These 280 companies spent a total of $2 billion lobbying on tax and other issues between 2008 and 2010."

And, of course, our offshore friends played a major role in foisting this outrage on ordinary people: "at least 22 of the Dirty Thirty reported subsidiaries in offshore tax havens like the Cayman Islands. Since profit artificially shifted offshore is often counted as 'foreign' profits, the data likely underestimates the amount lost due to tax havens."

What can be done about this massive corporate tax lobbying? CTJ proposes the following:

To limit corporate money in elections, lawmakers should:

Require full and honest disclosure – the public should know who is funding what candidates
Empower shareholders – the shareholders that own corporations should have a say in how corporations spend their money on elections
Reverse Citizens United

Read the CTJ report here.

Mitt Romney's Cayman Islands skeletons pop out

2012-01-19T00:26:00.000-08:00

ABC News has a nice little report that Bain capital, the vehicle that built much of the wealth of Republican presidential candidate Mitt Romney, has set up no less than 138 secretive offshore funds in the Cayman Islands. He has several of his own funds invested there too. It's a good bit of digging, and quotes a TJN senior adviser on Romney:

"His personal finances are a poster child of what's wrong with the American tax system," said Jack Blum, a Washington lawyer who is an authority on tax enforcement and offshore banking.

The ABC reporter goes to Romney's post box in the Cayman central post office - see the picture. (It's rather reminiscent of what the centre for Apple Itunes' European operations looks like, revealing of the sheer, bald artificiality of the whole offshore thing; take a look at this very short video, or this picture.)

They then film a hapless British official from the veteran Cayman company Walkers which provides the registered office for Bain (and which has in the past helped write Cayman laws). As ABC describe the encounter:

Asked if he could confirm the existence of the Bain accounts, David Byrne, the chief marketing officer for the law firm Walkers, listed on documents as Bain's Caymans' representative, said he could not. "No, I can't at all," said Byrne. "Unfortunately, I can't comment at all on that."

It's hardly surprising he's so reticent. Cayman's Confidential Relationships (Preservation) Law - its secrecy law - is ferocious. Take a look at this wording:

5. (1)
Subject to section 3(2), whoever-
(a) being in possession of confidential information however obtained-
(i) divulges it; or (ii) attempts, offers or threatens to divulge it; or
(b) wilfully obtains or attempts to obtain confidential information,

is guilty of an offence and liable on summary conviction to a fine of five thousand dollars and to imprisonment for two years.

Our emphasis added. In other words, you can go to prison in Cayman not only for revealing information - but merely for asking for it too! (We've had complaints in person about this very aspect of the law from Cayman private practitioners.)

Romney, it has been reported, pays a lower tax rate than his secretary. Now take a look at his top campaign contributors. That's quite a shocking list: nearly 94 percent of those contributions come from the financial sector or companies (law, accountancy firms) involved in complex (and often offshore-focused) tax avoidance.

The whole thing stinks. Romney's bad enough - but he's part of a much bigger and far nastier global scandal. Romney says he follows all tax laws, which may be true. But what Cayman provides, Blum notes, is that it helps him "avoid a whole series of small traps in the tax code that ordinary people would face if they paid tax on an onshore basis." (Slightly separately, take a look at Robert Reich, for instance, on the Romney Tax Loophole.) One set of rules for the wealthy; another for the rest of us.

Let's not forget, too, that companies routinely defer their taxes by parking them offshore, tax free. They say they will pay those taxes when they 'bring the money home' - but often they do not. This helps them grow faster than their smaller, onshore-based competitors for reasons that have nothing at all to do with productive efficiency and everything to do with transferring wealth away from ordinary taxpayers. These are, in effect, untargeted subsidies, and they have the same stultifying effect on growth and efficiency. Once again: one set of rules for the big players, and another for the rest of us.

There will be many Republicans of course who support Romney's unfortunate Cayman espapades. But we would bet that there are many, many right-thinking Republicans and potential Republican voters who are uncomfortable with the way that tax havens have distorted global markets, have created a playing field that is skewed towards some and against others, and which provide a secrecy-clad hothouse for crime, insider trading and other kinds of fraud.

This is clearly the potential for a major division in the Republican Party here, especially if Romney wins the nomination. Let's see how far their opponents manage to exploit it.

The time is now for Australia and mining revenue transparency

2012-01-18T08:16:00.000-08:00

Time to level the playing field? - Mine site on Rapu-Rapu Island, the Philippines. Photo: Stuart Highton/ OxfamAUS

Guest blog from Claire Spoors, Publish What You Pay Australia Coordinator

Australia is a global mining giant. Our government and industry consider the country a leader in natural resource governance. However, with more and more Australian mining companies venturing overseas to countries vulnerable to the 'resource curse' – like the Democratic Republic of Congo, where immense natural resource wealth fuels a brutal conflict and most of its 70 million people survive on less than a dollar a day – this belief is being tested, particularly in relation to revenue transparency.

The Publish What You Pay Australia coalition is leading calls for Australia to live up to its self-proclaimed reputation as a world leader in good governance. As part of the global movement to tackle corruption in the extractives industries we are campaigning for the Australian Securities Exchange (ASX) to introduce payment disclosure rules that would require oil, gas and mining companies to publish what they pay governments on a country-by-country and project-by-project basis. This would align ASX requirements with the rules that are set to come in to force in the US as part of the Dodd-Frank Act and the EU through proposed amendments to the European Commission’s Accounting and Transparency Directives.

As part of our efforts we are working with investors who also want to see greater transparency in the extractives sector. By disclosing the size and nature of financial relationships with governments, companies can contribute to the global effort to end corruption and enable citizens of resource-rich countries to hold their governments to account for how resource revenues are spent. Companies benefit as improved disclosure will help mitigate the financial, political and reputational risks that threaten their long-term shareholder value.

The US and EU rules will apply to companies that make up around 55% of global market value of oil, gas and mining companies. The ASX represents a sizeable 5% of the global market, listing over 1,000 companies. Getting the ASX to bring in payment disclosure rules would help level the playing field for companies that act within the law and protect them from unfair competition and having their reputation tarnished by other companies’ which are complicit in corruption that contributes to conflict and poverty.

Publish What You Pay Australia is advocating for the ASX, which is currently consulting on reserves disclosure, to also consider greater revenue transparency in its review. As part of this effort we will draw on the findings of our recent report, The Australian Securities Exchange: extractive industry companies and payment disclosure, which examines the current level of disclosure by the top 100 extractive industry companies listed on the ASX.

With political and investor support for more transparency in the extractive industries and the demand for universal rules requiring payment disclosure growing ever stronger, the time for Australia to act is now.

Another monster Vodafone tax dodge, via Switzerland, Jersey, Luxembourg

2012-01-18T06:31:00.000-08:00

The indefatigable Private Eye has dug up another monster tax dodging scheme by the telecommunications multinational Vodafone. This follows an earlier Private Eye investigation into a multi-billion pound Luxembourg-centred transfer pricing scandal, which was one of the inspirations for the emergence and growth of the campaigning group UK Uncut.

Whereas the previous scandal involved Vodafone’s €180bn takeover of the German group Mannesmann, this one involves:

"a 45 percent stake in US mobile operator Verizon Wireless, acquired in 1999 and held through a US company called Vodafone Holdings Inc and a Luxembourg company that has since “migrated” to Jersey."

The borrowings happened via a detour to Switzerland. As with the Mannesmann deal, it involves a classic transfer pricing arrangement: the 'onshore' part of the company borrows billions from the 'offshore' part, generating billions in interest charges. These charges are offset as costs against onshore taxes, and counted as income in the offshore jurisdictions, where they hardly get taxed at all.

Hey presto! Without producing anything new or better in the real world, Vodafone's tax planners have transferred billions away from hard-pressed taxpayers and into the stock options and bonuses of the company's executives. The artificiality of the arrangement isn't lost on Private Eye:

"By March 2011 the total earned in this way had hit $10.2bn and will by now be around $12.5bn, or £7.5bn. All earned by a company showing, in its latest accounts, a total wage bill of $8,000!"

And, as with the Mannesmann deal, it involves a complete cave-in by the (now beleaguered) Dave Hartnett of Her Majesty's Revenue and Custom's (HMRC.)

Quote of the day - financial liberalisation

2012-01-18T02:34:00.000-08:00

Quote of the day:

"financial liberalisation and financial crises go together like a horse and carriage."

From the Financial Times' chief economics commentator Martin Wolf, in a review in 2009 looking at Carmen Reinhart's and Kenneth Rogoff's historical overview of global financial crises.

No great surprise there, just a nice quote really, based on exhaustive research. But the review is informative.

Jersey's Geoff Cook issues misleading riposte to calls for clamp down on British tax havens

2012-01-18T01:28:00.000-08:00

Today's edition of the Financial Times carries a dreary letter from Geoffrey Cook, chief executive of Jersey Finance (an industry lobbying group supported by the island's government). The content is predictable: Ed Miliband (leader of the UK parliamentary opposition) is wrong to identify Jersey as a tax haven; Jersey is cooperative on tax matters, endorsed by OECD, blah, blah, blah.

In October 2011 we published a detailed assessment of the laws, regulations and international treaty arrangements of Jersey and 72 other countries and micro-jurisdictions. Jersey was assessed with a secrecy score of 78 points out of a potential 100, ranking the island seventh overall on the global index and placing it high in what we would call the danger zone of financial centres prone to attracting nefarious activity (and not just tax dodging).

Our assessment is clear and transparent. Its key findings are summarised as:

1. Jersey does not adequately curtail banking secrecy;
2. Jersey does not put details of trusts on public record;
3. Jersey does not maintain details of company ownership in official records;
4. Jersey only partly requires that ownership of companies is put on public record;
5. Jersey does not require that company accounts be available on public record;
6. Jersey does not require country-by-country financial reporting by companies;
7. Jersey does not require resident paying agents to tell the domestic tax authorities about payments to non-residents;
8. Jersey does not use appropriate tools for effectively analysing tax related information;
9. Jersey does not avoid promoting tax evasion via a tax credit system;
10. Jersey does allow harmful legal vehicles;
11. Jersey only partly complies with international anti-money laundering standards;
12. Jersey does not participate fully in Automatic Information Exchange;
13. Jersey signed a relatively large number of tax information sharing agreements complying with basic OECD requirements, (but these agreements are so weak and ineffective that they serve no purpose whatsoever)
14. Jersey has only partly ratified relevant international treaties relating to financial transparency;
15. Jersey only partly cooperates with other states on money laundering and other criminal issues.

I think you'll agree this is fairly damning. At the time we published the 2011 Financial Secrecy Index, Geoffrey Cook dismissed our findings as "nonsensical" and "contrived propaganda". We invited him to expand on the specifics. To date he hasn't replied, neither would he wish to since he knows our research is factually and analytically correct. That's why he - and representatives of other tax havens - resort to propaganda ("fully cooperative on tax matters", etc, etc) and smears ("the wildly inflated figures produced by self-appointed lobby groups such as the Tax Justice Network").

We stand by our assessment. Jersey is committed to maintaining its role as a secrecy jurisdiction. It refuses to cooperate with international initiatives to tackle tax evasion, e.g the automatic information exchange provisions of the EU's Savings Tax Directive, and its endorsement by the OECD, which white-listed Jersey in April 2009 merely reveals the latter organisation as weak and constrained by the strait-jacket of its membership.

Geoffrey Cook's letter to the FT can be read here. We're confident you'll agree that its nothing more than financial industry propaganda.

Iraq's first EITI report on its oil industry raises questions

2012-01-17T02:11:00.001-08:00

PwC has produced a first report for Iraq under the Extractive Industries Transparency Initiative (EITI,) breaking down some $41.3 billion of sales to 34 international companies in 2009. The report raises a number of questions. (EITI is a global initiative to get mineral-producing countries to be more transparent about their revenues.)

An analysis of the report by consultants OpenOil raises some worrying questions. Among others:

"The result is interesting reading but raises as many questions as it answers, about Iraq’s selling process and the various stages in it, why many company reports were submitted without executive sign-off, as stipulated in the process and, most curiously, why the Federal Reserve Bank of New York failed to send account statements for Iraqi oil receipts despite repeated requests over a period of many months."

Read Open Oil's full executive summary here.

Tax avoidance is rent seeking, not productive activity

2012-01-16T04:26:00.000-08:00

From the Treasure Islands blog:

It's a point I've made repeatedly, in Treasure Islands and elsewhere. But I just looked up 'rent seeking' and this is Wikipedia's contribution:

In economics, rent-seeking is an attempt to obtain economic rent by manipulating the social or political environment in which economic activities occur, rather than by creating new wealth . . . attempting to enrich oneself by increasing one's share of a fixed amount of wealth rather than trying to create wealth . . .the extraction of uncompensated value from others without making any contribution to productivity . . . people accused of rent seeking typically argue that they are indeed creating new wealth

Goodness me. Tax avoidance and evasion: doesn't the shoe just fit perfectly?

(And for those who aren't familiar with 'rent-seeking' - economists regard it unequivocally as a bad thing.)

UK Labour Party gives ultimatum on tax havens

2012-01-16T01:27:00.000-08:00

The Independent says of a speech by the UK Labour Party's leader:

Ed Miliband declares war today on the UK’s secretive offshore tax havens which he says could raise £2.4bn for the Exchequer and help to reduce the deficit.

and the UK's Observer has more:

Ed Miliband, the Labour leader, is to demand that the government forces Jersey, Guernsey and the Isle of Man to reveal the identity of British tax evaders with money hidden on the islands

We have had plenty of beefs with the UK's opposition Labour Party in the past, as we do with the current UK government - but it seems like two things are happening here.

1. The Labour Party is acquiring some backbone.
2. The Labour Party has understood the public mood and captured the spririt of the 99% - if you protest about the corruption of capitalism, you will carry the public with you. And there's nothing like tax havens to corrupt capitalism.

For more in-depth analysis on these welcome development, see TJN Senior Adviser Richard Murphy, who has been influential in this respect. See

What Labour has said on tax havens
Isle of Man 'not worried' about Labour threat
Ed Miliband’s giving an ultimatum to tax havens
Ed Miliband says it's time to come clean on UK tax havens
(slightly separately) KPMG in the Isle of Man admits the island may be used for egregious tax avoidance

More on this from TJN in due course. But taken at face value, this is a fantastic development.

See also Christian Aid's statement on the UK Labour Party, below.

16 January 2012

TAX HAVEN SECRECY IS A GLOBAL CURSE, CHRISTIAN AID URGES ED MILIBAND

Christian Aid welcomes Ed Miliband’s determination to tackle the tax havens which are harming UK public finances but it urges him to go further, because financial secrecy is a curse for poor countries too.

‘It’s great that Mr Miliband has recognised that tax haven secrecy is damaging people in the UK, by providing a cover for people and companies to hide their wealth and avoid paying the taxes that are so urgently needed,’ said Dr David McNair, Christian Aid’s Principal Adviser on Economic Justice.

‘But we hope the Labour leader will also recognise that financial secrecy has devastating effects on public services and people’s lives across the world, especially in poor countries.

‘Christian Aid estimates that tax dodging costs poor countries $160 billion a year, which is much more than they receive in aid. So they, too, need action to shed light on offshore accounts and other wealth which may be liable for tax.

‘This is an international problem and it demands international solutions, starting with a global end to tax haven secrecy.

‘It would be fantastic to see the Labour party join the campaign to End Tax Haven Secrecy, demanding that G20 countries commit to a global deal under which all tax havens have to reveal that information to all tax authorities. Only then will tax dodgers have nowhere to hide.’

In 2011, Christian Aid and its partners delivered a petition to G20 chair Nicolas Sarkozy, which was signed by 40,000 people, and 52 organisations from more than 20 countries.

Dr McNair added: ‘As a first step, we encourage Mr Miliband to doing all he can to reverse the UK’s shameful deal with Switzerland, one of the most globally harmful of all tax havens, which effectively rewards offshore tax evaders and undermines the global call for tax haven transparency.’

Ends

To arrange an interview with David McNair or for more information, please contact Rachel Baird on 0207 523 2446, 07545 501 749 or rbaird @ christian-aid.org

Links Jan 12

2012-01-12T05:38:00.001-08:00

IRS finds U.S. tax evasion $385 billion per year, suggesting Tax Justice Network numbers are right Tax Research UK
Jan - Richard Murphy reports on a piece by Kenneth Thomas, who writes the Middle Class Political Economist blog, and notes: "Time and again people tell me and the Tax Justice Network we get things wrong and time and again we’re proven to be right."

USA: I.R.S. Renews Disclosure Program for Offshore Assets New York Times
Jan 9 - " After collecting $4.4 billion in two previous so-called voluntary disclosure programs for offshore accounts, the Internal Revenue Service said Monday that it would revive the program. Participants will pay as much as 27.5 percent of their most valuable offshore assets or their biggest overseas bank account. They also must disclose the banks and advisers that helped them escape United Sates tax laws."

IRS watchdog accuses agency of "bait-and-switch" Reuters
Jan 12 - "The Internal Revenue Service has persuaded U.S. taxpayers to disclose hidden offshore bank accounts but then sometimes failed to cap the penalties, as promised, an agency watchdog said ... The IRS's offshore voluntary disclosure program bait and switch may undermine trust for the IRS and future compliance programs."

Domestic pressure in Switzerland to cooperate with Indian government in HSBC Geneva case The Financial Express
Jan 12 - "Switzerland’s Social Democratic Party (SDP), the second largest in the Swiss parliament, has proposed that the Swiss government cooperate with the Indian authorities for sharing tax information of more than 700 account holders at HSBC Geneva. Significantly, that the information was based on data theft may not impede exchange of tax information, it has said." Hat tip: Mark Herkenrath

See also:
Black Money: India to knock at Swiss door for details in HSBC Geneva accounts The Economic Times
Jan 12 - India will request Switzerland to provide details of all undisclosed accounts held by Indian nationals in HSBC, Geneva, as the investigation into tax evasion by rich Indian nationals becomes bigger.

Monti Seeks To Squash Italian Tax Evasion Culture Tax-News
Jan 12 - "The Italian tax authority has very publicly embarked on a raid of Cortina d'Ampezzo, one of Italy's most exclusive ski resorts, to demonstrate that Mario Monti's new government is taking a hard-line approach to tax evasion by actively challenging individuals and service sector companies that historically have significantly under-declared earned income."

The seriously rich regard tax as something only silly folk get stung for This is Money
Jan 10 - "Few of us resent high earnings for entrepreneurs who create jobs, and boardroom winners who make wealth trickle down.But when we see unbridled greed grip the entire corporate culture; and when the men in suits seem happy to keep driving their yachts full speed through seas bobbing with the human and financial wreckage of the European economic crisis, something must give."

Banks wary of drop in business swissinfo
Jan 10 - "Switzerland’s bankers are less optimistic about their business than they were a year ago according to accountancy firm Ernst & Young ... they say that revenue is shrinking. However, they are generally not concerned that clients will withdraw funds if new tax treaties are approved, even if banking secrecy suffers."

All you need to know about finance – in five sentences Treasure Islands
Jan 9 - Nicholas Shaxson on Michael Lewis’ The Big Short: Inside the Doomsday Machine, about some of the seeds of the latest global financial crisis. "It’s a brilliant book."

Portuguese angry about Dutch ‘tax haven' Radio Netherlands
Jan 9 - " A debate is raging in the media in Portugal about Portuguese multinational corporations which transfer their assets to accounts held in the Netherlands." Hat tip: Offshore Watch.

How companies avoid tax – a quick summary in 8,000 words Tax Research UK
Jan 6 - Richard Murphy: “I’ve been asked to give examples of how companies avoid tax. Now, that’s a mighty big subject. Can I start by suggesting you read Chapter 4, here?”. For more on corporate taxes, see also the TJN A-Z archive, a huge resource on this issue

City ‘to be offshore currency market for China’ BBC
Jan 11 - There are powerful political reasons why the Chinese would be reluctant to give the putative privilege to Wall Street, the City's closest rival." This is a very bad thing for the UK: it will mean financiers having an even greater stranglehold on British democracy, the further crowding out of alternative economic sectors, and the creation of few jobs. For a better appraisal, see this . (Hat tip: Offshore Watch.)

Global Corporate Taxation and Resources for Quality Public Services

2012-01-10T06:15:00.001-08:00

Education International, on behalf of the Council of Global Unions, has released a new publication Global Corporate Taxation and Resources for Quality Public Services. The report identifies the loopholes which global corporations use to avoid their taxation responsibilities

The report cites John Evans, General Secretary of the Trade Union Advisory Committee to the OECD, making important observations:

As the crisis enters a new and ever more dangerous phase – characterised by sovereign debt traps, capital flight and governments entrenching austerity policies as they try in vain to restore financial market “confidence” – the global trade union movement is calling for a radically different economic strategy that prioritises employment and social justice.

The bedrock for such a strategy is a sound tax system: one that finances the public goods and quality public services needed to stimulate inclusive growth and contributes
to reversing the rise in income inequality that has been the feature of the failed economic growth model of the past twenty years.

The tax reforms undertaken by many countries have shifted the focus of taxation away from corporations, capital and rich individuals who are internationally mobile, and on to the incomes and consumption of working families who are not.

On tax havens, he notes:

The explosion in the growth of off-shore tax havens has further weakened the ability of tax systems to collect tax revenue and further shifted the tax burden on to working
families. It has also produced gross economic distortions. Thanks to their tax haven status, Mauritius is the largest investor in India and the British Virgin Islands one of the largest investors in China. This shows where global corporations keep their money – not where they earn their money. Failure to clamp down on domestic tax evasion has also been revealed as a major governance failure – as today’s Greek tragedy shows only too clearly.

G20 Summits have made successive proclamations on ending bank secrecy and clamping down on tax havens. And OECD- based work on tax havens and money laundering is regularly heralded as a “breakthrough”. But the actions continue to fall short of the words.

His statement closes with the welcome words:

Working together with our civil society allies, the global trade union movement will continue to be at the forefront of public debate and action to restore justice and efficiency to public policy on tax.

Read the full report here.

Hat tip: Markus Meinzer.

India sticks to its guns on information exchange

2012-01-10T04:42:00.000-08:00

A year or so ago we wrote a blog entitled India: don't sign with Liechtenstein arguing that India should not sign an all-singing, all-dancing tax agreement with Liechtenstein. A much narrower tax information exchange agreement would be, while highly imperfect, a far less dangerous approach.

That's the general rule with tax havens: double tax agreements with tax havens open the doors to all sorts of murky shenanigans, while TIEAs open the doors to at least minimal flows of information. Well, we're delighted to see India sticking to its guns in this respect. From the Indian Express:

Liechtenstein, Panama, Seychelles and Bahrain have asked India for a double taxation avoidance treaty instead of tax information exchange arrangement.

Well, it seems, they can't have one. And an Indian official puts the case clearly:

“We don’t have much trade or transactions with these jurisdictions. So it will not be beneficial for us to enter into an arrangement which will lead to a Mauritius-like situation for us,” official sources told The Indian Express.

India wants more of an anti-money laundering treaty and not the one that leads to tax evasion, the official said.

On the other hand, the official added, “They will have more advantage while we would not gain anything apart from information exchange. To suffice our information sharing need, TIEA serves the purpose,” the official added.

Well said. Good to see this tax haven nonsense being resisted.

Tax Competition and Inequality - New Paper

2012-01-10T03:20:00.001-08:00

Thomas Rixen, a leading researcher in the field, has just published an important new paper looking at the subject of tax competition. It is called Tax Competition and Inequality - The Case for Global Tax Governance and its abstract says:

In this article I present the normative case for global tax governance. I argue that, contrary to an influential part of the literature, national tax policy choices cause significant externalities for other nation states. Focusing in business taxation, I show that tax competition undermines the integrity and distributive principles of domestic tax systems, and aggravates the inequality between developed and developing countries. Further, I demonstrate that the effects of international tax competition are unjust irrespective of whether a globalist or less demanding internationalist perspective on justice is adopted. The minimum requirement of justice is to devise global rules which ensure that national tax systems remain capable to implement distributive justice as they see fit. Finally, I present and discuss a concrete proposal for the global governance of business tax competition, namely, unitary taxation with formula apportionment.

The paper itself adds:

There are two reasons why global tax governance has hardly been considered. First, the power to tax is one of the central attributes of state sovereignty. Because of an entrenched belief that to share tax sovereignty internationally is to relinquish an essential part of “stateness,” proposals for global tax governance have been discredited as utopian and even undesirable. Second, an influential part of the political science literature on international taxation has argued that the externalities resulting from domestic tax policy choices on other nation-states are negligible. If this were correct, there would be no need for global tax governance. I show that the second view does not hold and, therefore, it is high time to overcome the first view.

By going it alone in a globalised world, you can actually see your sovereignty erode by the ongoing race to the bottom on tax (and other things); while by contrast, sharing sovereignty with other countries in negotiated arrangements can be a way to shore up that sovereignty. It seems paradoxical at first sight, but it is quite straightforward. And Rixen (pictured) goes on to elaborate on a point we've made before. In measuring the impact of tax competition,

the literature has focused on an inadequate indicator. I show that a significant part of tax competition is not about governments trying to attract real economic activity like direct investment and jobs, but about the assignment of paper profits irrespective of where real economic activity occurs.

and he gets to the nub of the problem here:

the adverse effects are strongest in developing countries. Second, in the industrialized world, the main effect is on the structure of tax systems. As I detail below, tax competition in its current form creates both domestic and international inequalities, and this is the reason why it should be addressed.

Solutions? Well, in a nutshell:

unitary taxation with formula apportionment (UT+FA).

We hate the ugly name, but love the concept. More on this in the paper itself, of course, but also on our Transfer Pricing page.

This is an extremely important contribution to the literature. We will make it a permanent item on our tax competition page.

2012 AABA/TJN Research Workshop - Call for Papers

2012-01-09T09:00:00.000-08:00

Call for Papers for a Workshop on

TAX AVOIDANCE, CORRUPTION AND CRISIS

Essex University, 5th-6th July 2012

The 2012 research workshop co-organised by the Association for Accountancy & Business Affairs and the Tax Justice Network, will explore connections between tax avoidance, corruption and crisis.

The themes that might be explored within this remit are wide, potentially including issues such as how tax avoidance harms progressive tax systems, distorts markets and infringes human rights; the role of financial professionals in promoting financial and legal secrecy; and how secrecy jurisdictions have contributed to economic, financial, political and social crises around the world.

Other related themes are likely to emerge as the workshop programme develops.

The aim of this workshop is to bring together researchers, academics, journalists, policy staff of civil society organisations, consultants and professionals, elected politicians and/or their researchers, and government or international organisation officials to explore issues on these and related themes. The purpose of the workshop is to facilitate research through open-minded debate and discussion, and to generate ideas and proposals to inform and shape the political initiatives and campaigns already under way.

There will be a small charge for attendance at the Workshop. Participants are usually expected to finance their own travel although applications from students and others with limited means for bursary support will be considered. Accommodation at Essex University will be available at modest cost.

Anyone interested in participating should provide details of the nature of their interest, affiliations and any relevant research or publications to: John Christensen, Tax Justice Network International Secretariat, john@taxjustice.net

Offers of papers are especially welcome and early submission is encouraged since applicants have exceeded available spaces in recent years. Any submissions will be actively considered by the organising committee which comprises:

• John Christensen (Tax Justice Network)
• Jo Marie Griesgraber (New Rules for Global Finance)
• Prem Sikka (Essex University)
• Richard Murphy (Tax Research LLP)
• Ronen Palan (Birmingham University)
• Sol Picciotto (Lancaster University)

Tax Freedom Day Comes Early For Belgium's Mega-Rich Residents

2012-01-06T01:01:00.000-08:00

This photo, just in from our colleagues in Brussels, was taken earlier this week when demonstrators took to the streets around the gated community of Square du Bois (locally known as Miljonairssquare - Millionaires Square).

The protest targeted rampant tax evasion, special tax treatments and unnecessary exemptions given to Mega-Rich people who pay no or virtually no tax, hence their Tax Freedom Day comes right at the start of the year while ordinary people end up paying close to half their total income in direct or indirect taxes and don't reach their Tax Freedom Day until approximately mid-year.

The concept of Tax Freedom Day goes way back to the late 1940s when anti-government groups in the United States started to calculate the first day in the calendar year when the federal government had received sufficient income from tax revenue to fund its budget. Every cent of official income is included, and every payment to the state - at federal, state or local levels - that is officially considered a tax is included.

Much has changed since the 1940s, but from a tax justice perspective the most important changes across the world include the regressive trend towards indirect taxation, the huge increase in the use of offshore facilities to evade and avoid tax, and the general increase in exemptions aimed at subsidising rich people, which has led to the outrageous situation in which the poorest people in many countries (Britain for example) pay more tax as a proportion of household income than the richest people pay. This is the point that the protesters in Brussels are seeking to highlight.

You can read more about the protest here.

Petition the UK Prime Minister about the Great British Tax Scandal

2012-01-06T00:44:00.000-08:00

Avaaz is running the following petition which they aim to present to Prime Minister David Cameron next week. Sign up here, and please, please pass the link on to your friends and colleagues: our politicians are very sensitive on this issue and petitions make a huge difference both in terms of generating pressure and raising public awareness.

+++++++

The Great British Tax Scandal

Our tax chief had secret lunches with Vodafone and Goldman Sachs and then handed them billions in tax breaks – while keeping Parliament in the dark!

MPs are outraged, claiming we are owed over 25 billion pounds in back taxes from these and similar dodgy deals. But the tax agency has blocked an inquiry into the scandal and refuses to release documents to shed light on why these tax breaks were ordered in the first place.

By acting together now we can ensure full transparency on the Goldman Sachs and Vodafone deals, and get them to pay the tax they owe. Let’s turn up the heat -- sign the petition to David Cameron for tax justice -- we’ll deliver it with a splash next week.

COMING SOON - WE'RE NOT BROKE: THE MOVIE

2012-01-05T03:45:00.001-08:00

TJN is proud to have been able to participate in the making of We're Not Broke, a new film about how corporate tax avoidance has depleted US tax revenues and contributed to the colossal economic stresses facing the United States.

We're Not Broke gets its first public screening at the Sundance Festival later this month where it is entered in the US documentary section. TJN will be represented at Sundance by Jack Blum, VP of TJN-USA. Here is an interview with film makers Karin Hayes and Victoria Bruce:

We wish Karin, Victoria, Jack and Charles Davidson and the rest of the production team every success at Sundance.

More about We're Not Broke here.

A New Year message from the Bishop of Derby, England

2012-01-05T03:18:00.000-08:00

In his New Year 2012 message the Bishop of Derby, the Right Reverend Dr Alastair Redfern, outlines the importance of tax justice and calls on people of faith to enter dialogue with companies about the harmful impacts of tax avoidance (starts approximately two minutes 45 seconds into the interview):

Links Jan 4

2012-01-04T09:33:00.001-08:00

You can run, but fewer places to hide tax Sydney Morning Herald
Jan 5 - "It has been a long, expensive and occasionally brutal war but as Project Wickenby enters its sixth year there are signs the federal government's much-pilloried multi-agency taskforce investigating the abuse of tax havens by rich Australians is beginning to scare people straight." See more on Project Wickenby here.

If you don’t believe Tax Justice Network has changed the Isle of Man then read what they say Tax Research UK
Jan 4 - Richard Murphy on: "The Isle of Man News has a fascinating article asking whether the pressure has been taken off the Isle of Man now on tax matters", and he highlights how Tax Justice Network has generated change.

Philippines: Tax evaders, smugglers getting more sophisticated ABS CBN news
Jan 2 - "Topping the list of schemes used by corrupt officials is the formation of dummies.Often these individuals set up corporations, law offices and third persons for their properties so that they do not have to declare these properties in their statement of assets and liabilities management (SALM). The dummies become the owners on paper of land assets, vehicles, and other accumulated wealth instead of the individuals themselves"

Barclays 'risks backlash' unless tax affairs simplified The Telegraph
Jan 3 - Barclays has been warned that its reputation is being "tarnished" by the persistent use of "complicated financial structures" to boost profits. Hat tip: Offshore Watch.

Meet the 2012 Sundance Filmmakers #2: Karin Hayes and Victoria Bruce, 'We're Not Broke' Indie Wire
Jan 4 - " 'We're Not Broke' (competing in the U.S. Documentary Program) is a documentary from New York filmmakers Karin Hayes and Victoria Bruce, who initially wondered if anyone would ever want to watch a movie about corporate income tax." FACT Coalition members have been supporting this documentary film.

Corporations shouldn't be people - Congressmen and women should be Hattiesburg American
Jan 2 - On a "tenet that arises from a U.S. Supreme Court ruling ... individuals entitled to the same rights and privileges as you and I. If this is so, then perhaps Mr. General Electric and Mrs. Exxon Mobil could pay federal income taxes at least at the same rate as do retirees living on Social Security and pensions..."

THREE SWISS BANKERS CHARGED WITH CONSPIRING TO HIDE MORE THAN $1.2 BILLION IN US TAXPAYER ACCOUNTS FROM THE IRS

2012-01-04T08:05:00.000-08:00

While German and UK tax officials still toy with utterly useless and even counterproductive agreements with the Swiss government (see here, here and here), the Washington Post reports that indictments have been issued against three bankers (all Swiss residents) alleged to have been involved in conspiring with US citizens to hide assets offshore.

These indictments contrast starkly with the lily-livered way in which European governments have failed to tackle the criminality of social elites, which in turn contrasts with their aggressive stance on benefit fraudsters at the other end of the social spectrum. We applaud the clear message of these indictments: bankers engaged in encouraging and facilitating tax evasion are engaged in criminal activity, and should be treated accordingly.

Here is a copy of the indictment released by the Department of Justice:

United States Attorney Preet Bharara

Southern District of New York

_______________________________________

FOR IMMEDIATE RELEASE CONTACT: ELLEN DAVIS

TUESDAY, JANUARY 3, 2012 (212) 637-2600

WWW.JUSTICE.GOV/USAO/NYS

THREE SWISS BANKERS CHARGED WITH CONSPIRING TO HIDE MORE THAN $1.2 BILLION IN US TAXPAYER ACCOUNTS FROM THE IRS

NEW YORK – Three Swiss bankers Michael Berlinka, Urs Frei and Roger Keller were indicted today for conspiring with U.S. taxpayers and others to hide more than $1.2 billion in assets from the IRS, announced Preet Bharara, the U.S. Attorney for the Southern District of New York, and Charles R. Pine, the Special Agent-in-Charge of the New York Field Office of the Internal Revenue Service-Criminal Investigation (IRS-CI). These assets were hidden in undeclared accounts of U.S. taxpayers at the Swiss bank (Swiss Bank A) where Berlinka, Frei and Keller worked as client advisers. The case has been assigned to U.S. District Judge Jed S. Rakoff.

According to the indictment filed today in Manhattan federal court:

Berlinka, Frei and Keller worked as client advisers at the Zurich branch of Swiss Bank A, which provides private banking, asset management and other services to clients around the world. Berlinka, Frei and Keller began working at the bank in 2008, 2006 and 2007 respectively.

During their time at Swiss Bank A, Berlinka, Frei and Keller allegedly conspired with various U.S. taxpayers and others to hide from the IRS both the existence of certain Swiss bank accounts, as well as the income they generated. In particular, Berlinka, Frei and Keller opened and serviced dozens of undeclared accounts for U.S. taxpayers in 2008 and 2009, in an effort to capture business lost by UBS AG and another large international Swiss bank (Swiss Bank B) in the wake of widespread news reports that the IRS was investigating UBS for helping U.S. taxpayers evade taxes and hide assets in Swiss bank accounts. After the reports, both UBS and Swiss Bank B stopped servicing undeclared accounts for U.S. taxpayers.

To capitalize on the business lost by UBS and Swiss Bank B and to otherwise increase the assets under management at Swiss Bank A, and fees earned from those assets, Berlinka, Frei, Keller and other client advisers allegedly told various U.S. taxpayer-clients that their undeclared accounts at Swiss Bank A would not be disclosed to the U.S. authorities because Swiss Bank A had a long tradition of bank secrecy. The defendants and other client advisers at Swiss Bank A also told their U.S. taxpayer-clients that the bank was less vulnerable to United States law enforcement pressure because, unlike UBS, the bank did not have offices outside Switzerland. Members of Swiss Bank A’s senior management participated in some of these sales pitches to U.S. taxpayer-clients who were fleeing UBS. Additionally, to further the conspiracy, Berlinka, Frei, Keller and/or other client advisers allegedly took steps that included the following:

· They opened and serviced undeclared accounts for U.S. taxpayer-clients in the names of sham corporations and foundations formed under the laws of Liechtenstein, Panama, Hong Kong and other jurisdictions for the purpose of concealing the identities of the U.S. taxpayer-clients from the IRS;

· They received and retained at Swiss Bank A documents that falsely declared that the sham entities were the beneficial owners of certain accounts, when in fact, the accounts were owned by U.S. taxpayers;

· They permitted certain U.S. taxpayer-clients to open and maintain undeclared accounts at Swiss Bank A using code names and numbers to minimize references to the actual names of the U.S. taxpayers on Swiss bank documents;

· They ensured that account statements and other mail for U.S. taxpayer-clients were not mailed to them in the United States; and

· They sometimes communicated with U.S. taxpayer-clients using their personal email accounts to reduce the risk of detection by law enforcement.

U.S. taxpayers are required to report the existence of any foreign bank account on their federal income tax returns if it holds more than $10,000 at any time during a given year, as well as any income it earns. By 2010, the collective maximum value of the assets in undeclared accounts beneficially owned by U.S. taxpayer-clients of Berlinka, Frei, Keller and other client advisers at Swiss Bank A was more than $1.2 billion, with many accounts holding in excess of $10,000 in any one year.

Berlinka, Frei and Keller, 41, 51 and 47 respectively, reside in Switzerland. The defendants each face a maximum term of five years in prison, a maximum term of three years of supervised release, and a fine of the greatest of $250,000, or twice the gross gain derived from the offense or twice the gross loss to the victims.

U.S. Attorney Bharara praised the outstanding efforts of IRS-CI in the investigation, which he noted is ongoing. He also thanked U.S. Department of Justice’s Tax Division for their significant assistance in the investigation.

This case is being handled by the Office of U.S. Attorney’s Complex Frauds Unit. Assistant U.S. Attorneys David B. Massey, Daniel W. Levy and Jason H. Cowley are in charge of the prosecution.

The charges and allegations contained in the indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

###

Unlicensed football agent hides behind UK bearer share company

2012-01-03T01:15:00.000-08:00

In yet another example of how the UK operates as a secrecy jurisdiction, journalist David Leloup has revealed how a non-FIFA licensed football agent, Lucian D'Onofrio (pictured above) used a UK letterbox company with a single bearer share as a means of hiding his identity as recipient of a €1.5M commission on the transfers to FC Porto of French centre back Mangala and Belgian midfielder Steven Defour from Standard Liege last summer.

Bearer shares are simply a share document indicating that the person having possession of the document has title to the related shares. Bearer shares differ from normal share instruments in so far as there is no requirement for a record to be kept of who actually owns the shares or how and when they took possession of the shares.

This lack of records makes bearer shares anonymous and therefore useful for money-laundering, tax evasion, and other corrupt practices. Bearer shares have been banned by most jurisdictions, but their use is allowed under section 779 of the UK Companies Act 2006. This is one of the reasons why we consider the UK a secrecy jurisdiction.

Read more about David LeLoup's findings (in French) here.

The Great Corporate Tax Dodge - new website

2011-12-22T11:32:00.001-08:00

Bloomberg has a new and excellent-looking website, called The Great Corporate Tax Dodge, featuring Jesse Drucker. Enjoy.

We will post it as a permanent link on our Transfer Pricing webpage.

And, so as not to show favouritism between competing news agencies, we highlight two other important stories from Reuters in its excellent and important Shell Games series.

And a follow-up to an earlier Shell Games report: Exclusive: On the run, U.S. financier finds Spanish refuge.

We will located these Shell Games stories in our webpage The Mechanics of Secrecy.

TJN blogging will be pretty thin for the next little while, due to the Christmas Holidays

A merry Christmas to all from today's blogger, Nicholas Shaxson.

Guardian letter: reclaim the culture of upright taxpaying

2011-12-22T01:18:00.000-08:00

The Guardian is carrying a letter today co-signed by John Christensen, director and founder of TJN; Richard Murphy, Senior Adviser to TJN, and Nicholas Shaxson, TJN writer and author of the bestselling Treasure Islands. Here is the letter, entitled Tax avoidance must become taboo:

The public accounts committee's report into HMRC's tax settlements made for compelling reading (Revenue hid 'sweetheart' tax deals for big business, MPs say, 20 December). But more fascinating was the feeble response by HMRC and the striking lack of response from either Vodafone or Goldman Sachs.

Gone are the days when HMRC and Vodafone would come together as an unstoppable dream team proffering denials of tax avoidance as an "urban myth". Now, we see HMRC weakly saying the committee is misinformed and is basing its conclusions on partial information. We know that the committee did everything in its power to get to the truth, but HMRC obstructed the inquiry by using the veil of secrecy that is taxpayer confidentiality.

It is imperative that the UK's political and business culture changes so that rich individuals and corporations treat tax avoidance as taboo. It is also crucial that the culture at HMRC changes so that it clamps down on tax avoidance. If this were the norm, the UK could raise sufficient income to protect the services currently under threat from cuts, set an international standard for tax justice, and make progress towards achieving equality in the UK and around the world.

So while we support the efforts of the public accounts committee, we also support the action by UK Uncut Legal Action to challenge HMRC in the high court so that the decision to let Goldman Sachs off its unpaid tax is declared unlawful and the £20m is given back to the taxpayer. It is undeniably in the public interest that this case should go through the courts in order to ensure transparency, accountability and fairness.

Katy Clark MP, Virendra Sharma MP, Jeremy Corbyn MP, John McDonnell MP, Caroline Lucas MP Jonathan Edwards MP, Diane Abbott MP, Paul Kenny GMB, Mark Serwotka PCS, Christine Blower National Union of Teachers, Len McCluskey Unite, Nicholas Shaxson author of Treasure Islands: Tax Havens and the Men Who Stole the World, Richard Murphy, Tax Research, Clifford Singer False Economy, Neal Lawson Compass, Greg Muttitt War on Want, John Christensen Tax Justice Network

Guest blog: time for tax transparency

2011-12-21T08:34:00.000-08:00

Guest blog: Oliver Huitson, writing about the UK's widely reported Public Accounts Committee report on Her Majesty's Revenue & Customs (HMRC, the UK's tax authorities.) Cross-posted from the New Statesman, with permission (also see the Tackle Tax Havens blog.)

Another Public Accounts Committee report, another sad indictment of the probity of our governance… This time it was HMRC, who, by the sounds of it, appear to be publicly funded tax accountants working devilishly hard to minimise the contributions of our corporate giants. At this rate, the “Big 4” accountancy cartel will be suing the government for loss of earnings.
Perhaps, in a fit of Big Society zeal, George Osborne will simply outsource HMRC’s work to PwC and cut out the middle man. But there are other ways of approaching the “tax gap” problem than simply calling it a day over a glass of wine on the Goldman’s expenses card.
Both Prem Sikka and Richard Murphy argue for a simple yet effective measure to help stem the flow of lost tax: corporate tax returns should be made publicly available. Avoiding the privacy issues of individuals, there is little reason why this cannot be done as it already is in Scandinavia. As Murphy says, “such disclosure [should be] a corollary of the right to limited liability – which demands transparency in exchange for the privileges granted”. In unprecedented economic times it is no longer tenable that corporations can be protected from the full liabilities of their actions whilst simultaneously hiding their contributions; it’s all take and no give.
In his Code of Conduct for tax, republished today, Murphy makes a number of important suggestions as to what a sound, democratic tax structure should look like – a structure that would, for that very reason, be strongly resisted by both the City and the CBI. One of the key proposals is a lighter touch approach to auditing for those firms signing up to the code:
Any taxpayer or agent wishing to comply with the Code may do so. A State should presume that a person professing compliance with the Code has done so when dealing with any tax return they submit. In consequence the administrative burdens imposed upon that person should be reduced. In the event of evidence of non-compliance being found any consequential penalty imposed should be doubled… Those not signing up should expect the consequences.And we’d need to know who is who [my bolds]
Public information is the critical issue. Murphy cites the FT’s concerns over public disclosure of corporate returns, namely that due to the complexity of the issue public access may be ineffective. Firstly, the FT understate the growing resources of the public in holding firms to account, whether through UkUncut, Murphy’s own Tax Research UK site, the impact and popularity of Nick Shaxson’s Treasure Islands, and the recently formed Tackle Tax Havens project. The public is mobilizing, not just in the UK, but across the Western world. Online tax returns would not escape scrutiny.
But there is a limit to how far the general consumer will acquaint themselves with the returns published and the problem of “we need to know” would, to a lesser degree, still remain. What seems to be needed, in conjunction with public returns, is a simple, visible indicator of tax probity at the transaction level. The “green, amber, red” nutritional information provided on food packaging could potentially be adapted for tax purposes for all firms over a certain size and/or all publicly listed companies. If firms lack a physical good for packaging, they can be required to display their tax rating prominently on all literature and websites. We already have substantial amounts of compulsory information we require UK firms to provide. Costs of implementation, both to the state and the firm, would be relatively miniscule in comparison to the scale of tax lost – currently estimated at around £25bn a year, or around 15% of the deficit (the figure is just for avoidance, not evasion). There is no reason why only food producers should have to show consumers the information they would rather hide.
In the land of market efficiency knowledge is king, and those who purport to uphold free-market principles should recognise the importance of tax knowledge; consumers have a right to know who they are dealing with if they are to arrive at rational outcomes for their purchases. For we don’t simply rely on the goods and services we purchase, we rely also, to a great extent, on citizens and firms contributing to the collective costs of running a civilized society. More than ever, we need transparency and knowledge to empower the public to make the right choices on which firms to do business with.

Corporate tax: EU bears down on Switzerland

2011-12-21T00:19:00.000-08:00

Following our article about a month ago looking at European moves to challenge Swiss corporate tax policies, we are encouraged to see the normally well informed Europolitics, in an article headlined Corporate taxation: Union bares teeth, reporting that the European Union is moving forwards smartly with its plans.

We have already showed that the EU is likely to all but destroy Switzerland's immoral and useless, loophole-riddled Rubik deals with Germany and the UK in the area of personal taxation. Now this, in the field of corporate taxation:

In a report adopted on 19 December, the 27 member states make veiled threats of retaliation measures against Berne if the «dialogue» they wish to engage in on application of a code of conduct should fail to produce «satisfactory» results by next summer. . . . a clash looks inevitable, unless Switzerland makes concessions and acts quickly.

Note that the European Union has a lot of leverage over countries like Switzerland who aren't member states: it can deny access to its markets, and so on. The report that Europolitics describes is one that looks at the Code of Conduct on taxation that has been applied since 1998, and which it says has already obliged the 27 member states to dismantle around 100 tax schemes that encouraged company relocations. It's not clear if this number includes schemes such as this in Jersey (which is outside the European Union but has a special relationship with it.)

For more background on the Swiss-EU corporate tax dispute, see Thomas Cottier's article on p8 of our October 2010 edition of Tax Justice Focus, which also notes that not everyone in Switzerland is happy about what is happening at home, pointing out that "the Swiss public at large generally dislike tax privileges for the rich and wealthy."

Despite the turmoil in Europe, it is likely that the 27 member states will continue to fight to protect their sovereignty from these attacks mounted from the Alpine foothills of Geneva and Zurich.

Tweet of the day - UK Uncut

2011-12-20T01:04:00.000-08:00

Kind of speaks for itself.

@UKuncut
To think it all began with 40 people sitting in a Vodafone store on a rainy Wednesday morning in October 2010. People said we were mad...

If you don't know what this is all about, read this.

Note that UK Uncut Legal Action have launched legal proceedings against HMRC over the Goldman Sachs tax deal. Read it here.

The U.S. and the U.K. - poles apart on tackling tax abuse

2011-12-19T23:41:00.000-08:00

From Douglas H. Shulman, U.S. Commissioner of Internal Revenue, looking at how the I.R.S. has been going after offshore tax abuse:

"Our approach to offshore tax evasion follows a natural course. . .cleaning up the abuses of the past and then mining and leveraging the data we receive to mount a greater attack on the abuse.

Indeed, we have been scouring the vast quantity of data we received from all of our different offshore programs and other sources. This data mining has already proved invaluable in supplementing and corroborating prior leads, as well as developing new leads, involving numerous banks, advisors and promoters from around the world. I can tell you that we now have additional cases and banks in our sights."

The first paragraph kind of says it all. You find some crooks, put pressure on them and, crucially, on their bankers and other intermediaries - then you squeeze out information on others. The net widens. For all the faults of the I.R.S., this general approach marks a stunning contrast to the approach taken by the tax authorities in the U.K. which have instead of pursuing known criminals, have signed cosy sweetheart deals with Switzerland and other tax authorities.

In the U.S. you also have the Foreign Account Tax Compliance Act (FATCA) which is a ferocious and excellent device for rooting out offshore tax evasion, coming in soon. There have been a lot of screams about FATCA, mostly for illegitimate reasons, but some with arguably more reasonable objections that the reporting requirements are extremely complicated, especially for those less able to afford tax advisers to fill in their forms with them. Shulman notes that these concerns are being taken very seriously, and are being addressed.

Then there is corporation tax. The U.S. isn't particularly good at taxing corporations, it has to be admitted. But a damning new report out today from the British parliamentary Public Accounts Committee reveals just how bad the U.K. has been. The first words summarise it:

"This report is a damning indictment of HMRC and the way its senior officials handle tax disputes with large corporations. We uncovered both specific and systemic failures which must be addressed."

The release goes on. Just look at this, for instance:

"It is extremely disappointing that senior HMRC officials were not prepared to cooperate with our inquiry in a spirit of openness. We accept that there is a need for confidentiality to protect individual taxpayers, but this must not be used as a cloak to protect the Department from scrutiny.
. . .
It is absurd that we had to rely on the media and the actions of a whistleblower to find out about the details of individual settlements. Parliament and the public have legitimate concerns that large companies are being treated more favourably than ordinary taxpayers, whether they be small businesses or hard-working families."

And this:

"The Department's working practices must be seen by the taxpaying public to be absolutely impartial. The impression being given at the moment is quite the opposite, of far too cosy a relationship between HMRC and large companies."

Indeed - as TJN has been saying for some time, and as outlined in Treasure Islands. And then there is this disgrace, outlined by Richard Brooks in the UK parliament.

This is not to put the U.S. I.R.S. on a pedestal - far from it. But in the U.K., something has gone very, very badly wrong. It's good to see some proper light being shone on this subject at last. Credit to UK Uncut, Richard Brooks and others (including TJN) for bringing this tricky, worthwhile argument to national prominence.

Russia: companies urged to return from "offshore shadows

2011-12-19T23:16:00.000-08:00

From Reuters:

Prime Minister Vladimir Putin on Monday decried the illicit use of offshore structures by Russian state businesses to spirit cash out of the country and ordered them to return from the "offshore shadows".

The comments by Putin, who has launched a bid to return to the Kremlin next March, mark his clearest indication to date of concern that accelerating capital flight is being partly driven by corrupt schemes run.

Good to see the words. Now let's see the deeds. Nothing would do as much to mark seriousness in the fight against corruption than a crackdown on the use of offshore.

Now here are a couple of interesting statistics:

"Some 55 percent of accumulated foreign direct investment into Russia comes from companies registered in Cyprus or the Netherlands - some $70 billion in total. Most of that is believed to be money of Russian origin."

That latter sentence refers to so-called "round tripping." Now Reuters goes on:

The companies counter that they prefer to base themselves offshore because they cannot get adequate redress in the Russian courts and consider the protection of property rights at home to be inadequate.

Nonsense. It is one thing to put your money overseas. There are a range of reasons why one might do that, some more legitimate than others. But putting your money overseas doesn't mean you have to put it offshore through a mucky tax haven like Cyprus. Using Cyprus is usually not about investor protection, but about tax abuse or outright crime.

Next:

"Returning the Russian economy's strategic sectors from the offshore shadows to the national economy is our priority task for the next period," Putin said

Indeed. Mr. Putin's advisers might like to start, perhaps, by reading this, then this, then this, then this.

Hat tip: David McNair

UK banks ‘cheat’ Europe in €600m tax scheme

2011-12-19T00:20:00.001-08:00

From the Bureau of Investigative Journalism:

Some of the city of London’s biggest banks are behind a huge tax avoidance trade ‘cheating’ European countries of hundreds of millions of euros a year in a development that sheds fresh light on David Cameron’s decision to wield Britain’s EU veto to protect the Square Mile.

A two-month study by the Bureau has uncovered a discreet $102bn market in European shares whose ‘central’ purpose is tax avoidance. The Bureau’s analysis suggests the European tax loss – mainly to France, Germany and Italy – is up to €595m a year. The scale of tax avoidance will fuel further anger within the EU towards the Square Mile, where the vast majority of the trade known as dividend arbitrage is conducted.

And TJN's opinions are involved:

"Markus Meinzer, applied researcher and analyst at the Tax Justice Network, said: ’This issue highlights a structural flaw in our current international financial system. Governments refuse to institute robust transparency and cooperation mechanisms in view of aggressive financial sector lobbying and because of the bizarre, yet largely unchallenged view of alleged benefits flowing from competition between states.’ "

Well said. Now read on. And see Nick Mathiason's story in The Observer.

Oh, and then there's this, which was also in the UK news. Revealed: how City fees are eating into our pensions. Makes you love 'em even more . . .