New Head of OECD's Global Tax Forum Announced

The OECD has announced the appointment of Ms Monica Bhatia as new Head of the OECD's Global Tax Forum. She replaces Pascal Saint-Amans, who now leads the OECD's tax department CTPA. Regrettably, the latter has still not responded to the questions we raised here.

In the past, we have been critical of Global Tax Forum processes and policies and our latest assessment, due for publication on 6th March 2012 will not make for happy reading in and around Paris' 16eme arrondissement.

We hope the appointment of Ms Bhatia marks a new dawn for the Global Forum and its role in international tax cooperation. We wish her all the best for her new position.

FATCA: progress towards automatic information exchange

FATCA: From Unilateral to Bilateral Automatic Information Exchange
Guest blog by David Spencer

The U.S. Foreign Account Tax Compliance Act of 2010 (FATCA) will, when implemented in 2013, require foreign financial institutions (FFI) and other non-U.S. entities (such as hedge funds or other investment vehicles) to provide automatically to the U.S. Government information about U.S. persons who have direct or indirect interests in foreign financial accounts. It targets foreign entities because domestic entities are already subject to similar, though not identical, requirements. FATCA builds on the existing, though flawed, “Qualified Intermediary” (QI) Program, to create a substantially stronger, though still flawed, piece of legislation. (Read more about the QI Program and FATCA here.)

FFIs and other foreign entities which do not comply with FATCA would generally be subject to U.S. withholding taxes on their income, if that income comes from a U.S. source. If FFIs want to continue to have access to U.S. financial markets, then they must comply with FATCA.

FATCA raised two main problems.

First, it is unilateral: the U.S. Government would require FFI’s and other foreign entities to provide automatically to the U.S. Government information about foreign financial accounts. But FATCA would not require the U.S. Government to provide to foreign governments information about financial accounts in the United States held by residents of those foreign countries. When FATCA was enacted in March 2010 the U.S. Government apparently expected that some foreign governments would also enact FATCA-type legislation, but that did not happen. (The U.S. Government Accountability Office issued a report in September 2011 indicating that the U.S. Government already exchanged information automatically with twenty-five (unidentified) income tax treaty partners, though this information exchange does not cover bank deposit interest nor income covered by the U.S. Qualified Intermediary Program).

Second, the proposed regulations under FATCA are very complex, and FFIs and the respective foreign governments objected to the administrative burden and complained that they could not comply with it due to applicable local law restrictions.

The modus operandi of FATCA was changed substantially by a Joint Statement on February 8, 2012 by the Government of the United States, and five foreign governments (“FATCA Partners”): France, Germany, Italy, Spain and the United Kingdom. The Joint Statement said:

“FATCA, however, has raised a number of issues, including that FFIs established in these countries may not be able to comply with the reporting withholding and account closure requirements because of legal restrictions. An intergovernmental approach to FATCA implementation would address these legal impediments to compliance, simplify practical implementation, and reduce FFI costs. Because the policy objective of FATCA is to achieve reporting not to collect withholding tax, the United States is open to adopting an intergovernmental approach to implement FATCA and improve international tax compliance.

In this regard the United States is willing to reciprocate in collecting and exchanging on an automatic basis information on accounts held in US financial institutions by residents of France, Germany, Italy, Spain and the United Kingdom. The approach under discussion, therefore, would enhance compliance and facilitate enforcement to the benefit of all parties. The United States, France, Germany, Italy, Spain and the United Kingdom are cognizant of the need to keep compliance costs as low as possible for financial institutions and other stakeholders and are committed to working together over the longer term towards achieving common reporting and due diligence standards. In light of these considerations, 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.”

The Joint Statement indicates that the United States, France, Germany, Italy, Spain and the United Kingdom would commit to working with other FATCA partners, the OECD, and where appropriate the EU, on adapting FATCA in the medium term to a common model for automatic exchange of information, including the development of reporting and due diligence standards.

So the Joint Statement did two main things:

First, it changed the unilateral nature of FATCA, as the United States

“Commit to reciprocity [with those five FATCA partners] with respect to collecting and reporting on an automatic basis to the authorities of the FATCA partner information on the U.S. accounts of residents of the FATCA partner.”

With the Joint Statement, then, FATCA will become an instrument for U.S. bilateral automatic exchange of information. The Assistant Secretary for Tax Policy of the U.S. Treasury Department recently stressed the importance of reciprocity:

“The U.S. Treasury Department sees no principled basis on which to require that financial institutions based in other countries collect and provide us with information on U.S. taxpayers, if we take the position that our own institutions should be exempt from similar requirements. To the contrary, we believe that it will be critical to the success of our efforts to implement FATCA that we are able to reciprocate.”

Will the United States and other foreign governments enter into similar agreements?

Second, it simplified the administrative procedures for FATCA, so that FFI’s would provide to the respective foreign government the required information, and the respective foreign government would provide that information to the U.S. Government. In the Joint Agreement, the U.S. agreed to:

• Eliminate the obligation of each FFI established in the FATCA partner to enter into a separate comprehensive FFI agreement directly with the IRS, provided that each FFI is registered with the IRS or is excepted from registration under the agreement or under IRS guidance.
  
  
• Allow FFIs established in the FATCA partner to comply with their reporting obligations by reporting information to the FATCA partner rather than reporting it directly to the IRS.
  
  
• Eliminate U.S. withholding under FATCA on payments to FFIs established in the FATCA partner (i.e., by identifying all FFIs in the FATCA partner as participating FFIs or deemed-compliant FFIs, as appropriate);
  
  
• Identify in the agreement specific categories of FFIs established in the FATCA partner that would be treated, consistent with IRS guidelines, as deemed compliant or presenting a low risk of tax evasion;
  

The Joint Statement and the GAO Report are evidence that progress is being made toward automatic exchange of tax related information, on a step-by-step basis. This may be a more realistic approach than aiming for an immediate multilateral convention requiring automatic information exchange, which some have been calling for.

Economic shibboleths: why Corporation tax cuts are insane

Just as the cuckoos herald spring's arrival in Britain, so the shrill calls for corporate tax cuts signal the imminence of an upcoming Budget. The lobbyists are in full voice. And their argument are, as usual, quite insane: divorced from all economic logic. (That doesn't stop the likes of the BBC routinely parroting this nonsense - voodoo economics - without balancing comment, or apparent thought.)

Last week we had a blog on the London School of Economics (LSE) site from Tim Knox of the Centre for Policy Studies (a Thatcherite think-tank) calling for the corporate tax rate in Britain to be cut from its current 26 per cent to 20 per cent, and then lower and lower. Yesterday we had several hundred business leaders signing up to a letter in The Telegraph calling for a cut in the top income tax rates to boost business and entrepreneurialism. And lurking in the background we have the Oxford Centre for Business (Non) Taxation with their cloud cuckoo notion that businesses shouldn't pay tax in the first place since they simply pass the cost on to consumers or workers (but never to shareholders, oh no!).

But is there any merit to these arguments?

In a riposte to Tim Knox posted on the LSE site, Nicholas Shaxson notes that corporations in Britain (and elsewhere) are sitting on record piles of unspent cash. The current shortfall of investment has nothing to do with high tax rates and everything to do with insufficient demand to meet potential supply. Cutting corporate taxes will simply make the situation worse as more wealth gushes upwards into the hands of the 1 per cent, and it goes to corporations that are letting it sit idle. As Shaxson points out, corporate tax cuts at this stage will be as effective as pushing on a piece of string:

"British corporations are awash with cash. According to Deloitte, non-financial companies held £731.4 billion in the third quarter of 2011 – the highest ever. Britain also faces soaring fiscal deficits – and the two issues are related, as Martin Wolf explains in the Financial Times: “If the fiscal deficit is to disappear, offsetting adjustments must occur, above all, in the foreign and corporate sectors.”

Corporations have all this cash because they are not investing: the opportunities are not there. They are hunkering down, spending less than they are earning, while the government is spending more than it is earning (and thus running deficits). How to shift this ugly picture? There are various ways – but cutting corporate tax rates – further pumping up those bloated and dormant corporate cash piles – clearly isn’t one of them."

Also responding to Tim Knox on the LSE blog, John Christensen referred back to the seductive ideas of Arthur Laffer, an American economist who theorised that a curve might exist which could demonstrate a relationship between government revenues raised and the nominal tax rate. Lowering tax rates would stimulate investment and therefore boost long-term revenue yields; wonderfully seductive stuff, but totally adrift from reality. As Christensen notes:

"I would hope that any university lecturer promoting the Laffer Curve to first year undergraduates would be quickly called to task. Embarrassingly for it proponents, empirical evidence for its existence remains elusive. Most accept that it is shifty, which limits its policy application. You might like to consult the FT’s Martin Wolf who has said: “the theory that cuts would pay for themselves has proved altogether wrong.” Or Greg Mankiw, chairman of the Council of Economic Advisers under George W. Bush no less, who described supporters of the idea to be 'charlatans and cranks.'"

Christensen also takes on the hardy perennial argument that high tax rates deter entrepreneurs from investing time, money and effort. The evidence for this deterrent effect was always scarce, and is getting scarcer. Tax rates have fallen significantly across Europe and North America, but there's little evidence of fresh innovation and job creation in productive industries. Too much of what has passed for entrepreneurialsim in the past 30 years has been rent-seeking activity, mergers and acquisitions and privatisation of natural monopolies. But, as John notes, tax cuts for the wealthy have merely served to feather their nests, rather than spurring them to greater effort:

"Way, way back, it might have been arguable that high marginal tax rates reduced rich people’s willingness to work. But the evidence was scarce even back in the 1970s, and more recent research suggests that lower tax rates for top earners do not stimulate output, kicking that particular argument into the long grass."

Just as pin-up minister Michael Heseltine was expert in finding the Conservative Party's clitoris in the 1980s, corporate lobbyists these days know that nothing gets the blood pumping faster within the Tory members in parliament than the idea of a good, meaty tax cut.

The economic shibboleths live on.

Links Mar 1

Switzerland: Heated debate delivers tax assistance law swissinfo
Feb 29 - "Swiss banking secrecy laws have been further eased, with parliament passing a law on tax cooperation and backing - in principle - a special deal with the United States."

At the LSE: cutting corporate taxes right now is insane Treasure Islands
Mar 1 - Nick Shaxson, invited to blog for the London School of Economics, on "The corporation tax is under attack. It must be defended."

EITI in the US: why only on federal lands? OpenOil
Feb 29 - "Better transparency in the regulation of extractive industries in federal areas is a good thing, to be sure. But it would be a shame if EITI implementation in the world’s third-leading oil supplier applied to only a minority of its production ..."

RTL at the heart of the brigade that seeks out tax evaders RTL France (In French)
Mar 1 - French arm of Luxembourg-based media group reports on the collaboration with police and tax officials to track down major tax evaders, focusing on those who use shell companies, secrecy jurisdictions and other opaque financial structures. Hat tip: Mathilde Dupré.

Force Canadian banks to disclose operations related to Africa Embassy
Feb 29 - "Canadian banks should disclose their operations involving private and public officials from Africa, and the Harper government should hold them accountable if they hide corrupt money" says Léonce Ndikumana. Hat tip: Jamie Kneen.

Some news via ATAF's Kodi Katika Afrika, hat tip: Sandra Kidwingira:

Tanzania Revenue Authority decries lack of awareness The Citizen
Feb 22 - "Lack of awareness on taxation matters is one of the major drawbacks to revenue collection in the country, according to the Tanzania Revenue Authority."

Ghana: Stability shields ...the uneven impact of new mining taxes Joy Online
Feb 21 - "Questions of equity are beginning to emerge over tax-hikes in the mining industry as companies wielding so-called stability agreements appear to be protected and less aggrieved."

South Africa: Tax dodgers watch out, SARS is after you Business Live
Feb 22 - "...the recent Voluntary Disclosure Programme has attracted around 18,000 applications and yielded almost one billion rand in additional tax, it has also provided insights into areas of non-compliance that will be receiving focused attention."

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Africa Tax Spotlight - 7th edition

The latest edition of Africa Tax Spotlight, writes Guest Editor Francis Mberere, includes feature articles on -

* the recent Oxfam report on mobilising domestic resources;

* the Mars Group's plans for strengthening democracy and accountability in Kenya;

* an exploration of the contradictory positions of Switzerland, a stable democracy which for many decades has provided a secure bolthole for dictators, kleptocrats and all sorts of bottom-feeders;

* an opinion piece on how strengthened tax regimes in a variety of African countries might yield long-term benefits to poorer households;

* an in-depth investigation into how development aid funding to Africa is routed through a variety of secrecy jurisdictions;

* a profile of the Southern and Eastern African Trade Information and Negotiation Institute (SEATINI);

* feedback from the following meetings:-

- a regional workshop on the financing of education in Bujumbura, Burundi, 11-15 July 2011;

- a roundtable discussion on harmful tax competition in East Africa, Nairobi, 27-28 July 2011;

- the first annual general meeting of TJN-Africa, Nairobi, 29 July 2011;

- a national conference on tax justice in Kenya, Nairobi, 23 August 2011.

You can download the 7th edition of Africa Tax Spotlight here.

Links Feb 29

UK urged to support Zambia's tax-raising from multinationals Guardian
Feb 29 - Zambian NGO Centre for Trade Policy and Development (CTPD) has urged the UK to continue its support for Zambia's tax authority to ensure that more revenue is raised from mining companies and other multinationals.

CNBC’s New Documentary ‘Filthy Rich’ Task Force Blog
Feb 24 - On the CNBC documentary, “Filthy Rich“, that featured Task Force Coordinating Committee members Global Witness and Transparency International and Task Force Allied Organization SHERPA.

The EU tax gap – new evidence shows there is €1 trillion of lost revenue to target to save our futures from despair Tax Research UK
Feb 29 - New report prepared by Richard Murphy for Group of the Progressive Alliance of Socialists & Democrats in the European Parliament. The report suggests that the EU tax gap is €1 trillion of which more than €850 billion is evasion.

10 Years Later, Tax Evasion Threatens to Undermine the Euro Task Force Blog
Feb 28 - Commentary on "the 10th anniversary of Euro as the zone’s single currency ... There are many reasons why the Eurozone is facing crisis. Here at the Task Force, we find it important to focus on one major component: tax evasion."

Romania Gets Tough On Tax Evasion Tax-News
Feb 28 - "Following hot on the heels of a recent announcement by Romania’s new Prime Minister Mihai-Razvan Ungureanu of plans to clamp down on rampant tax evasion in the country, around 30 individuals have been arrested on suspicion of tax avoidance amounting to an estimated EUR20m (USD27m)." Hat tip: Offshore Watch.

France excludes Costa Rica from tax-haven list tico times
Feb 29 - "According to a note signed by French Ambassador to Costa Rica Fabrice Delloye, 'Costa Rica no longer appears on the French list of uncooperative states and territories on tax matters," which is a big step for government efforts to achieve international standards in tax transparency'". Costa Rica ranks 41st on TJN's Financial Secrecy Index.

Evade tax, go to jail - Joint Tax Board warns Nigerian Tribune
Feb 29 - "The era of tax evasion by individuals and corporate organisations in Nigeria would soon be over, as the Joint Tax Board (JTB) has rolled out various penalties ranging from fines to outright imprisonment of defaulters."

UK: George Osborne drafts new law on corporate tax dodgers Guardian
Feb 28 - "A new law against corporate tax dodging will be announced in George Osborne's budget next month in the chancellor's latest effort to crack down on corporate tax avoidance after the Treasury shut down two schemes this week that Barclays used to avoid at least £500m of tax ... Richard Murphy, of the Tax Justice Network, derided the idea as "window dressing".

See also:
Barclays have made the case for full country-by-country reporting Tax Research UK
Feb 29 - Commentary following an editorial in The Guardian that states "The Barclays tale cries out for a sweeping response. Not merely the specific legislation to claw back the lost cash which is now on the way, but also a firm obligation on every company to publish what tax it pays where, as well as a full-blooded general anti-avoidance law, and not merely the heavily qualified alternative that is in the works..."

I can live with being in at number 13 on the twitter financial ranking Tax Research UK
Feb 29 - Welcome news that Richard Murphy has been ranked number 13 on the list of top financial influencers in the UK. The list has been prepared by new Institute of Chartered Accountants in England and Wales Economia.

Links Feb 28

Newsletter of Tax Justice Network - Latin America and Caribbean (In Spanish)
January 2012 edition. The home site for Red de Justicia Fiscal de América Latina y el Caribe can be accessed here.

Banks under seige swissinfo
Feb 10 - "Secrecy and profits take a beating from all sides." The report features TJN Director John Christensen.

Member states should demand more transparency not less Eurodad
Feb 22 - "EU Trade Ministers missed the opportunity to tackle tax dodging and corruption at EU’s Competitiveness Council on 20 February."

Tax Havens: The Netherlands, 20,000 mailbox companies, Facebook, Google and Bono FInFacts
Feb 27 - "The Netherlands competes with Ireland in offering corporate tax haven facilities." Hat tip: Offshore Watch.

UK: Barclays £500m tax loophole closed by Treasury in rare retrospective action Guardian
Feb 28 - "Legislation rushed through to close down two 'aggressive' tax avoidance schemes that high-street bank disclosed to HMRC".

See also:
Barclays tax could fund proper jobs for exploited youth Tax Research UK
Feb 28 - "The £500 million in avoided tax that Barclays will now have to pay could fund full-time jobs above the living wage for all the young people who have been working for free under a controversial government scheme".

Belgian development aid placed in tax havens rtbf (In French)
Feb 28 - "The Belgian Investment Company for Developing Countries (BIO SA), in which the Belgian state owns a 84%, has placed more than 150 million euros in investment funds located in the Bahamas, Guernsey and other tax havens." Hat tip: Mathilde Dupré.

2012 Tax and Transparency Forum, London, 2nd May

International Tax Review has just launched the programme for what will undoubtedly be one of the major tax conferences of 2012. The list of speakers, see below, includes some very well known names from all sides of the debate. In the year when TJN celebrates its tenth anniversary, this conference is a sure indication of how far we've moved the tax justice agenda from the shadows to the centre of discussion.


Speakers:
• Pascal Saint-Amans, Head of Tax Policy and Administration, OECD
• Clare Short, Chair, Extractive Industries Transparency Initiative
• Chris Lenon, Group Strategic Adviser, Tax Policy, Rio Tinto
• Stephen Blythe, Tax Director, BP
• Paul Morton, Head of Group Tax, Reed Elsevier
• Richard Murphy, Director, Tax Research
• David McNair, Principal Economic Justice Adviser, Christian Aid
• Martin Hearson, Policy Adviser, ActionAid
• John Christensen, Director, Tax Justice Network
• Joseph Andrus, Head of Transfer Pricing Unit, OECD

"The financial crisis has changed everything. Now governments desperate for revenue are looking to close loopholes and claw back as much money as they can from taxpayers, through settlement or in court.

Meanwhile, the public mood has turned against avoidance as people take to the street to demand companies pay their fare share of tax. Development agencies such as Christian Aid and ActionAid, which have long argued that poor countries lose more through tax avoidance than they receive in aid, are pushing for country-by-country reporting, a standard which is soon to become a reality for companies in the extractive industries like BP and Rio Tinto.

The NGOs argue that tax is not simply a legal issue, it is a moral one, and it is not enough that taxpayers remain within the letter of the law, rather they must adhere to its spirit. Most multinationals remain sceptical about country-by-country reporting, but where it was once a niche issue demanded only by hardened activists calling in from the cold, now it is something companies cannot afford to ignore.

Tax transparency, country-by-country reporting, information exchange and transfer pricing rules are becoming increasingly important issues for taxpayers to consider in terms of their investors, their reputation and their exposure to risk. The issue will only continue to grow in importance in the coming years and, as such, it will become an increasing concern for companies looking more nervously at their bottom lines.

International Tax Review has decided to place itself ahead of the curve and is inviting taxpayers and advisers to join this crucial debate.

Our inaugural Tax & Transparency Forum brings together the biggest names and most prominent voices on both sides of the argument.

• As the new head of the OECD’s Centre for Tax Policy and Administration, Pascal Saint-Amans is arguably the most important figure in global tax affairs. Before taking up the job, he led the Global Forum on Transparency and Exchange of Information for Tax Purposes where he gained extensive experience in bringing together corporates, governments and NGOs to tackle tax haven secrecy.

• Clare Short was a Member of Parliament for almost two decades, where she served as Secretary of State for International Development under Tony Blair, before resigning over the Iraq war. She now chairs the Extractive Industries Transparency Initiative, a position which places her at the cliff face of the work on country-by country reporting.

You will hear from both of these individuals alongside corporate taxpayers from Rio Tinto, BP and Reed Elsevier, leading tax advisers, NGOs and Richard Murphy, the accountant who invented country-bycountry reporting long before it became such a crucial topic of discussion at International Tax Review’s Tax & Transparency Forum.

Why attend?
• Find out how tax transparency will affect your bottom line and what it could mean for your
corporate reputation
• Understand how new reporting standards could mitigate risk and help your investors
• Get an update on the latest developments in country-by-country reporting, transfer pricing,
dispute resolution and disclosure facilities
• Hear from the OECD and authorities about what lies ahead
• Voice your opinions, engage in dialogue with NGOs and debate an issue that is becoming ever
more important for taxpayers

NOTE: This event is FREE to all development NGOs with an interest in tax justice. Register here."

General Electric: Not Quite a Model Citizen

For Immediate Release: February 27, 2012
Contact: Anne Singer, 202-299-1066, ext. 27

General Electric Paid Only 2.3 Percent Federal Income Tax Rate Over the Past Decade,
Citizens for Tax Justice Analysis Finds; Actual Payments Were Probably Lower

Washington, DC – General Electric’s (GE) annual SEC 10-K filing for 2011 (filed February 24, 2012) reveals that the company paid at most 2.3 percent of its $81.2 billion in U.S. pretax profits in federal income taxes over the last 10 years.

Following revelations in March 2011 that GE paid no federal income taxes in 2010 and in fact enjoyed $3 billion in net tax benefits, GE told AFP (3/29/2011), “GE did not pay US federal taxes last year because we did not owe any.” But don’t worry, GE told Dow Jones Newswires (3/28/2011), “our 2011 tax rate is slated to return to more normal levels with GE Capital’s recovery.”

As it turns out, however, in 2011 GE’s effective federal income tax rate was only 11.3 percent, less than a third the official 35 percent corporate tax rate.

“I don’t think most Americans would consider 11.3 percent, not to mention GE’s long-term effective rate of 2.3 percent, to be ‘normal,’ ” said Bob McIntyre, director of Citizens for Tax Justice. “But for GE, taxes are something to be avoided rather than paid.”

Citizens for Tax Justice’s summary of GE’s federal income taxes over the past decade shows that:

■ From 2006 to 2011, GE’s net federal income taxes have been negative $2.7 billion, despite $39.2 billion in pretax U.S. profits over the six years.

■ Over the past decade, GE’s effective federal income tax rate on its $81.2 billion in pretax U.S. profits has been at most 2.3 percent.

McIntyre noted that GE has yet to pay even that paltry 2.3 percent. In fact, at the end of 2011, GE reports that it has claimed $3.9 billion in cumulative income tax reductions on its tax returns over the years that it has not reported in its shareholder reports — because it expects the IRS will not approve these “uncertain” tax breaks, and GE will have to give the money back.

GE is one of 280 profitable Fortune 500 companies profiled in “Corporate Taxpayers and Corporate Tax Dodgers, 2008-2010.” The report shows GE is one of 30 major U.S. corporations that paid zero – or less – in federal income taxes in the last three years. The full report, a joint project of Citizens for Tax Justice and the Institute on Taxation and Economic Policy, is at http://ctj.org/corporatetaxdodgers/. Page 24 of the report explains “uncertain” tax breaks.

###

Citizens for Tax Justice (CTJ), founded in 1979, is a 501 (c)(4) public interest research and advocacy organization focusing on federal, state and local tax policies and their impact upon our nation (www.ctj.org).

Founded in 1980, the Institute on Taxation and Economic Policy (ITEP) is a 501 (c)(3) non-profit, non-partisan research organization, based in Washington, DC, that focuses on federal and state tax policy. ITEP's mission is to inform policymakers and the public of the effects of current and proposed tax policies on tax fairness, government budgets, and sound economic policy (www.itepnet.org).

Swiss banker calls for automatic information exchange

Switzerland has been an intransigent fortress of financial secrecy for many decades. In the past couple of years, however, things have started to change a little.

The changes that allowing some encroachment on its banking secrecy are incremental, so far, though not insignificant. Quite a lot of it represents defensive tactics in the face of outside pressure on Swiss banks, in what has been described as a Swiss 'circle the wagons' approach to change, along endless delaying tactics, which have been quite effective in some cases.

Behind these incremental changes, however, the psychological sands are shifting in more fundamental ways. There is a growing acceptance in Switzerland that the world is changing profoundly, that there is far less tolerance for Swiss banking secrecy, and that there is no way back from here.

In this context, it is fascinating to see some new statements of Pierin Vincenz, the CEO of Raiffeisen Bank. We believe this is the first time a senior Swiss banker has called publicly for automatic tax information exchange. (Read an article in TagesAnzeiger, in German, here, and a further one here, with rough web translation here; hat tip to Mark Herkenrath.)

Reuters summarises his words:

"Pierin Vincenz, chief executive of Switzerland's third biggest bank Raiffeisen, said the country's strategy of seeking a separate tax deal with individual European partners could falter if it agrees to hand over large amounts of U.S. client data.

"If the Americans get thousands of client data, the Europeans will want that too," Vincenz told the Tages-Anzeiger newspaper in an interview.

Indeed - and European officials have been saying just that. For example, French MEP Catherine Trautmann argued this month that:

“the Union should follow the lead of the United States, which has forced Switzerland to transmit the bank data of presumed fraudsters”.

And Europolitics, reporting Trautmann's words, added:

"The Danish EU Presidency shares this view. In its recent note on the revision of EU rules on savings taxation ( Europolitics 4354), it points out that Berne has made a number of concessions to the US, including on grouped requests for information on presumed fraudsters. Copenhagen therefore considers that it is “important that all EU member states coordinate their positions so as to ensure that Switzerland treats its European partners at least as well if not better than the United States”."

Back to Vincenz, who got quite specific:

"We must finally show that Switzerland is serious with a 'clean money' strategy. And that will
in the end only be possible with an internationally supported strategy."

(In an op-ed in the most recent edition of the Swiss Sunday newspaper Sonntagszeitung, Vincenz apparently asked the Swiss government to immediately start negotiations with the EU about full automatic exchange of information in tax matters. We don't have the link, unfortunately.)

A common Swiss position these days is to argue that the solution is not information exchange but to apply withholding taxes to the appropriate accounts, while secrecy is preserved. Our response is: we do not object to the withholding taxes - but why preserve secrecy? Why not have both transparency and, if necessary, withholding taxes?

His words do signal a change in the mindset in Switzerland. In fact Tax Justice, as we noticed just yesterday, is breaking out all over the place.

Still, don't be fooled. These are at the end of the day words, not deeds. And there is still a very, very, very, very long way to go.

Big UK business body opposes tax avoidance, offshore abuse

The tax justice agenda has come a very long way in a very short time. We're delighted to see some highly welcome statements, from the UK's Confederation of British Industry (CBI.) From The Independent:

The Confederation of British Industry (CBI) has backed new powers for the Government to stamp out aggressive corporate tax avoidance schemes, which the employers' organisation admits seriously damage the reputation of British industry.

Yes. And:

"John Cridland, the CBI's director general, said he accepted it was time for his organisation to push harder for businesses that aggressively avoid tax, even if they do so in a technically legal manner, to be brought to book.

"Traditionally there has been two categories: legitimate tax management, which HMRC accept is legal, and tax evasion that we don't support," he said. "If we're going to be honest in this public debate, there is a middle ground, there's a third category."

This is quite true. And Cridland is quoted in the Guardian:

"Business should not engage in abusive tax arrangements."

Phew. From the CBI, that's quite something:

"It's the first time we've said it this directly. It's quite a statement by the CBI."

We will presumably have very different opinions to them, when it comes to deciding where to draw the line. And one of the things they advocate is a General Anti Avoidance Rule (GAAR), which TJN Senior Adviser Richard Murphy is quoted in the same article as saying doesn't go nearly far enough. He calls the CBI's chosen approach "window dressing" - read his analysis here. It is an important one, and takes a lot of the shine off the latest surprising CBI statements.

Still, even if the CBI's chosen remedies are too timid by far, the words criticising offshore abuse are most welcome, and signal a profound shift in thinking that is going on in the UK. We like to think that we, along with others such as UK Uncut and Private Eye and several journalists, have done our bit to help shift the zeitgeist.

A tax that can curb corruption

. . . and achieve many other things too.

From the UK's Daily Mail, on a particular part of the Berkshire countryside:

Locally, an acre of productive farmland can be purchased for about £7000. Working a farm in West Berkshire turns a decent profit, and is a perfectly good business proposition. But land speculators bank on far richer rewards. If they can get planning permission to turn this acre into residential land, its value will shoot up to over £700,000.

A huge market distortion here. And with it, of course, risks and temptations:

To bring about this increase, a planning inspector has to sign a piece of paper. In the case of Sandleford Park, about 100 acres are scheduled for development, so if the inspector signs on the dotted line the landowners will make a profit in the region of £70 million. The word for this dramatic price increase is “value uplift”.

And the sharks are circling:

"Land speculation in the UK is now a globalised business. From Russian gangsters, African dictators and tax dodging Greeks, hot money is flooding onto the UK property market, as overseas speculators seek a safe haven for their fortunes; so much so that over half of office property in the City of London is owned abroad."

That last half-sentence is a bit speculative: we can't know exactly who owns many of these properties because they are hidden behind companies from the BVI and other tax havens. But still, lots of foreigners do own this property. And of course the result is one set of shiny rules for the global rich, and another, shabbier set for ordinary British people:

"The relationship is entirely parasitical: these speculators benefit from the protection of British law, but contribute not a penny in taxes towards the costs of maintaining such excellence."

(Let's not forget that this is a right-wing newspaper, while reading this. And good on 'em for this article.)

But now here is the point:

The profit from building houses is different from the profit from land speculation, and is a legitimate reward for business and enterprise. . . . . By contrast, the land speculator makes hugely inflated profits, and does nothing beyond influencing the right people for his own ends.

The former (building houses) is value creation, while the latter is value extraction. Economic rents, is how some describe this. And economists from Adam Smith onwards have said that the correct response to economic rents is to tax them, hard. And now we turn to the Financial Times, and an article from Samuel Brittan, entitled Tax England’s green and pleasant land.

He is talking about a Land Value Tax (LVT). This is a tax levied not on the value of a building, say, but on the value of the land underlying that building. Those in expensive areas will pay higher land value taxes: if set up correctly, it is potentially a highly progressive tax.

In fact, we dedicated a whole edition of Tax Justice Focus to this issue, and it's an incredibly important one. We wholeheartedly support this tax, and urge others to spread the message and badger their political representatives on it - in the UK and anywhere else. But there's a proviso here - unlike some LVT fanatics, who see this as some kind of tax nirvana, we see LVT as just one important part of a healthy tax system. Indeed, as Brittan says:

"A land tax is one of those subjects – basic income is another – which divides commentators into a great majority who never mention it, and a minority who talk of nothing else. The result is to give supporters a cranky appearance, while the eyes of chancellors of either main party glaze over if you as much as mention the subject."

Those of you who follow such things will probably know what we are talking about. (We like to think that we fall into the all-too-small, but happy, middle.) But Brittan notes that the case for a land tax is "one of the oldest and least disputed propositions in economic thought." Absolutely. It's the landed classes who hate them - and their influence spreads far and wide.

That luxury Mayfair penthouse owned by a BVI trust - a Land Value Tax would hit it just as hard as any other property. If designed correctly, it is offshore-proof. Brittan continues:

"The basic point is that the supply of land, with rare exceptions such as reclamation in the Netherlands, is fixed. But because of its scarcity owners can command an income over and above the normal return to the enterprises placed upon it. . . . There is one way in which the supply of usable land can increase. That is when land, previously off limits, is newly released by local authorities for development."

Which is just as the Daily Mail describes (the article goes on to describe the "Valentine’s day massacre of Sandleford," where the developers got their hooks in and made "huge tax free fortunes from the violation of our countryside."

The consequent increase in value from changing land from one use to another is, as some LVTers put it, is created by “the community” - and therefore that community is entitled to a big share of the increase. Absolutely. And that share would come about through a land value tax. It could transform the relative values of different kinds of land uses and - among many other things - curb market distortions and stem this kind of temptation for corruption.

One last thing. Brittan says this:

"Gross UK trading profits of non-financial and non-oil corporations are running at over £200bn per year or about 20 per cent of gross domestic output. Some part of this – we do not know how much – is not true profit but the return on land."

Well, indeed, and that's important - but he is selling this short. The financial sector makes a huge share of its profits through land-related businesses such as residential mortgages - all of which depend on land values. Tax this stuff, and you get to take a lot of hot (and poisonous) air out of a socially useless part of the financial sector. Collectively, neither Britons (nor anyone else) are better off from selling ever costlier property to each other. The only long-term beneficiaries from the UK housing bubble are bankers.

So this is a tax whose time has come. Crucially, there is no intellectual argument against this tax that can withstand any scrutiny. What is preventing it being put in place is the pure political power of those who don't want to be taxed - (combined with the ignorance of voters and politicians).

From #Occupy to those worried about inner city poverty to the Daily Mail, this valuable land tax can, and must, be supported.

Links Feb 24

London Conference on Somalia - Communique
Feb 23 - "We agreed on the importance of ... disrupting terrorist finances, and called on countries in the region to implement the Financial Action Task Force’s recommendations on combating money laundering and the financing of terrorism."

See also:
Solving the Pirate Problem: Let’s Start with the Banks Task Force Blog
Jun 17, 2011 - "It is only by cutting off finances that we can hope to effectively root out piracy ... the Financial Action Task Force (FATF) needs to 'get serious about including piracy within its mission of highlighting how money launderers and terrorists raise and move funds'".

And on why all this matters:
Humanitarian Aid and Security In Somalia: Separate, But Still Unequal? Refugees International
Feb 23 - "Yet we are all aware that humanitarianism does not take place in a vacuum. Unless and until a political solution is found to the problems in Somalia, the humanitarian crisis will be never-ending."

And interesting to consider:
“Somalia has slightly higher standards than Wyoming and Nevada.” (Corporate Secrecy Edition) naked capitalism
June 2011 - Opening with "We’ve taken an interest in tax havens thanks to Nicholas Shaxson’s book Treasure Islands, which is a must read", this illuminating piece on corporate secrecy cites Jason Sharman observing a comparison on the standards of Somalia and the U.S. in corporate transparency.

Sierra Leone launches online mining database to increase transparency Guardian
Feb 1 - "By collecting, recording and publishing data on the country's extractive industry, the government hopes to combat corruption and malpractice". Hat tip: Sandra Kidwingira.

India: Vodafone moves HC against transfer pricing issue Zee News
Feb 23 - "UK-based telecom operator Vodafone on Thursday said it has filed a writ petition in the Bombay High Court challenging a tax demand made by the Income Tax Department." Hat tip: Offshore Watch. See earlier blog on the Vodafone case here.

Swiss Rubik tax deals are effectively defunct, but zombie refuses to die EU Observer
Feb 24 - See new blog by TJN's Nick Shaxson, for EU Observer.

Swiss ‘clean money’ strategy is lipstick on a pig Task Force Blog
Feb 24 - Updated and expanded blog, posted earlier on TJN site.

A welcome step by Obama towards ending corporate tax haven abuse Tax Research UK
Feb 24 - See Richard Murphy's comments on: "As FinFacts has reported in Ireland: "The Obama Administration has proposed a minimum tax on profits of US companies in foreign jurisdictions that if implemented will reduce the attraction of Ireland’s low-tax foreign direct investment regime and imperil the tax haven activities of high profile companies such as Microsoft, Google and Facebook..."

UK: Life imitates art, as Berkshire countryside inspiring Watership Down is threatened by developing zealots Daily Mail
Feb 22 - "To avoid UK taxes on the profits they make, they vest their land ownership in tax haven based “shell” companies." ... [Land speculators] are making huge tax free fortunes from the violation of our countryside." Hat tip: Carol Wilcox.

Quote of the day - on being "anti-business"

This quote is admittedly from one of our indefatigable Senior Advisers - but still, it's a good one. In The Guardian, in the context of talk from politicians in the UK who are arguing that if you are against the City of London's ability to pursue business as usual, you are somehow 'anti-business.'

"Those campaigners like the Tax Justice Network – who believe that being pro-business means being pro-transparency and accountability, being pro-everyone paying their tax and being anti-market abuse measures like tax havens and opacity – will continue to pursue their arguments. Because they're the real pro-wealth creators and real pro-free marketeers, when free means people have the information they need to make proper decisions freely available to them."
- Richard Murphy

Links Feb 23

99 to 1: How wealth Inequality is Wrecking the World and What we can Do About It Inequality.org
New book by Chuck Collins: "The focus of the worldwide Occupy protests is creating a world that works for 99% of people and businesses, not just the richest and most powerful 1%. But who are the 99%? Who are the 1%? How extensive and systemic is inequality in different areas of society? What are its causes and consequence? How is inequality changing in our world? And what can be done about it?"

Colombia, KRG, Peru: so where are those “published” Oil Contracts? OpenOil
Feb 21 - "There is an ever increasing level of interest in the debate around contract transparency in the global extractives industries, and a growing minority of jurisdictions which have agreed to publish contracts openly. However winning the argument is only the first chapter in the story as I discovered recently looking at Colombia, Peru and Iraqi Kurdistan. ..."

Greece: signs international tax agreement to tackle tax evasion OECD
Feb 22 - Greece has signed the Convention on Mutual Administrative Assistance in Tax Matters. See blog and TJN Briefing Paper on the Multilateral Convention here. Hat tip: Bruno Gurtner.

See also:
Greece is strengthening its tools against tax evasion Le Temps (In French, subscription required)
Feb 23 - "The "task force" appointed by the commission to help estimated uncollected taxes to be 60 billion euros".

See also:
Greek accounts are being frozen in Swiss banks Handelszeitung (In German)
Feb 22 - On the story of a money laundering investigation involving Swiss bank accounts belonging to former banker and businessman Lavrentis Lavrentiadis, now under investigation for fraud.

Apple Reports High Rate but Saves Billions on Taxes Tax.com
Feb 13 - Marty Sullivan reports: "By taking advantage of lax U.S. transfer pricing rules, Apple Inc., the world's most valuable company, cut its federal tax bill by billions of dollars in 2011. Moreover, by taking advantage of flexible accounting rules, the company masked its tax avoidance by reporting a relatively high effective tax rate ..." See Nick Shaxson's earlier observation on Apple here.

Income tax department asks for review of Vodafone tax ruling India Today
Feb 18 - The income tax department has filed a in the Supreme court challenging the January ruling that Vodafone should not have to pay capital gains tx avoided through tx havens. See story blogged earlier: Vodafone defeats India in landmark $2.9bn tax case.

France and Germany push for coordination Europolitics
Feb 17 - "France and Germany plan to spell out, at the Ecofin Council on 21 February, the work they have already carried out to strengthen their bilateral cooperation on corporate taxation. Their goal is not to short-circuit the EU’s debate on introducing a common consolidated corporate tax base (CCCTB), but on the contrary to help take it forward by presenting certain technical solutions to the problems involved."

U.S.: What Is the Revenue-Maximizing Tax Rate? Social Science Research Network
Feb 20 - "Barack Obama has proposed raising taxes on the well-to-do, both for revenue and distributional reasons. This raises, anew, the question of what the revenue-maximizing top rate is. Conservatives continually assert that the United States is always on the wrong side of the "Laffer Curve," such that a tax rate reduction will increase revenues. A review of recent literature on this subject, however, indicates that the top tax rate could rise very substantially before a further increase would lead to lower revenues. Estimates suggest that this rate is at least 63 percent and probably much higher. "

Switzerland: Party ends for easy corporate tax relief swissinfo
Feb 20 - "The Federal Audit Office has denounced the generous tax breaks granted to companies up to 2007 under the pretext of aiding disadvantaged regions."

Switzerland Sets Tax, Secrecy Revamp Wall Street Journal
Feb 23 - On a story blogged here. "'The U.S. and the major European Union countries have made clear progress in recent weeks in regulating the exchange of [tax] information, and if Switzerland would give up its counterproductive resistance to such exchanges, it could help formulate future rules on cross-border banking business,' said EvB spokesman Andreas Missbach."

Cognitive dissonance: the Swiss want to clean up space Treasure Islands
Feb 19 - Nick Shaxson poses a question to people from Switzerland: “how do you reconcile the fact that Swiss people have a reputation for being among the world’s politest, tidiest, quietest, best-groomed, best-behaved and most apparently upstanding citizens – while at the same time their country has for decades had the reputation of being the gigantic sink for the world’s dirtiest loot?

Communiqué on the Inauguration of the High Level Panel on Illicit Financial Flows from Africa

UNITED NATIONS

ECONOMIC COMMISSION FOR AFRICA

Communiqué on the Inauguration of the High Level Panel on Illicit Financial Flows from Africa

Date: 18^th February 2012

Venue: Sandton Convention Centre, Johannesburg,

South Africa

The High Level Panel on Illicit Financial Flows from Africa, established by the United Nations Economic Commission for Africa (UNECA) was inaugurated on 18^th February 2012 at the Sandton Convention Centre, Johannesburg, South Africa. The Panel is chaired by H.E. Mr. Thabo Mbeki, former president of South Africa, and composed of nine other members both from within and outside the continent. The Panel Members are as follows:

1. Chair: H.E. Mr. Thabo Mbeki, former President of South Africa;

2. Vice Chair: Mr. Abdoulie Janneh, Under-Secretary General and Executive Secretary of ECA;

Other Members:

3. Amb. Olusegun Apata- Chairman, Coca Cola Bottling Company, Nigerria;

4. Mr. Raymond Baker- Director, Global Financial Integrity, Washington DC;

5. Dr. Zeinab Bashir el Bakri-former Vice President of the African Development Bank, Tunisia;

6. Mr. Abdoulaye Bio-Tchane-former Minister of Finance and Economy of Benin;

7. H.E. Mrs. Ingrid Fiskaa- State Secretary for Environment and International Development, Norway;

8. Prof. El Hadi Makboul- Director, National Centre for the Study and Analysis of Population and Development (CENEAP), Algeria;

9. Barrister Akere Muna- President, Pan-African Lawyers Union, President, ECOSOC, Member, Eminent Persons Panel of the APRM, and Vice President, Transparency International;

10. Ms. Irene Ovonji-Odida- Human rights lawyer and activist for over 21 years and elected member of the East African Regional Parliament for five years.

The establishment of the High Level Panel (HLP) follows a resolution of the 4^th Joint Annual Meetings of the ECA/AU Conference of Ministers of Finance, Planning and Economic Development in Africa in March 2011, which decided to address the debilitating problem of illicit financial outflows from Africa estimated at about $50 billion annually, in mandating the establishment of the Panel.

Illicit financial outflows constitute a major source of resource leakage from the continent draining foreign exchange reserves, reducing tax collection, dwindling investment inflows, and worsening poverty in Africa. The methods and channels of illicit financial outflows are many and varied including tax havens and secrecy jurisdictions, over-invoicing, under-pricing, and different money laundering strategies. This source of resource outflows is far bigger and higher in terms of scale and magnitude than the normal corruption channels, which are focused upon globally.

The panel will amongst others, determine the nature, pattern, scope and channels of illicit financial outflows from the continent; sensitize African governments, citizens, policy makers, political leaders and development partners to the problem; mobilize support for putting in place rules, regulations, and policies to curb illicit financial outflows; and influence national, regional and international policies and programmes on addressing the problem of illicit financial outflows from Africa.

The Panel at its first working session noted as follows:

§ Illicit financial flows are a major development challenge to Africa, which retards the progress of African countries;

§ There is need to upscale the policy research work on the subject matter especially from an African perspective;

§ Policy advocacy constitutes a major part of the work of the panel, which would prioritized in its work;

§ Coalition building and partnership from within and outside the continent is central to the success of the work of the Panel;

Decisions/Recommendations:

1. A communication strategy is to be developed by the Panel for the outreach and communication of its work;

2. A dedicated website on illicit financial outflows from Africa is to be established;

3. The Technical Committee based in ECA will undertake more technical work on the nature, scope, dimensions and impact on development of illicit financial flows from Africa and facilitate detailed documentation on the subject matter to be made available to the HLP;

4. The ECA is to report to the Conference of Ministers of Finance, Economic Development and Planning in March 2012 on the establishment of the Panel;

5. The HLP to meet in the next two months (Mid-April 2012) to review progress on technical work and the communication strategy of the Panel and also to meet in Mid-July 2012 to review the impact assessment study on illicit financial flows from Africa;

The Chair of the Panel, H.E. former President Thabo Mbeki thanked all members of the panel and affirmed their commitment and dedication in ensuring that the panel squarely addresses the problem of illicit financial flows from Africa.