Tuesday, September 08, 2009

TJN letter to the Pittsburgh G-20 summit

With the Pittsburgh G-20 Summit rapidly approaching, our colleagues at Washington-based TJN-USA have submitted the following letter to the Co-Chairs of the G-20 Working Group Two (on reinforcing international cooperation and promoting integrity in financial markets).

For further info contact Sarah Lewis: sarah.lewis(at)taxjusticenetworkusa.org

September 2009

Mr. Alejandro Werner, Deputy Minister of Finance, Mexico

Mr. Jörg Asmussen, Ministerial Councilor/State Secretary,
German Federal Ministry of Finance

RE: Key Next Steps, Tax Justice and Secrecy Jurisdictions

We are writing to you on behalf of Tax Justice Network, a global coalition of experienced professionals, researchers, and activists that is concerned about the harmful impacts of tax havens, excessive tax competition, and so-called “offshore” secrecy.

In the course of the last year, we have been heartened by the new attention that the G-20 has given to these concerns. Your November 2008 Summit in Washington called for tax authorities to “continue efforts to promote tax information exchange and (address) the lack of transparency.” Your April 2009 Summit in London declared that “the era of bank secrecy is over,” and endorsed a new “toolbox of measures” to be used against jurisdictions that fail to comply with international standards of information exchange. The April Summit also promised that the G-20 would “develop proposals to help developing countries secure the benefits of a new cooperative tax environment” by the end of this year.

Perhaps most important, with all these actions, the G-20 has focused public attention on the central importance of the tax haven issue, giving it higher priority on the global agenda than ever before.


We applaud all these efforts, and encourage you to build on them at the upcoming Summit in Pittsburgh.

Specifically, we believe that the following issues deserve your immediate attention.

1. Automatic Information Exchange (AIE).

It is high time for the international system to move beyond the cumbersome, time-consuming “upon request” system of tax information exchange, for purposes of stronger collection, enforcement, and deterrence.

Wealthier countries have already made much progress in this direction. For example, in the late 1990s, the EU adopted a version of AIE for interest income. It has recently proposed to extend this to other income types. Bilateral automatic information exchange also already exists between the US and a handful of other OECD countries. Finally, the OECD has also invested heavily in developing the technical and administrative standards required to expand AE.

Now, under the impact of the recent financial crisis, there is a growing realization that soaring tax evasion and budget deficits are truly global problems. This has produced a chorus of support for extending AE much farther – not only to other First World countries, but also to the developing world. As the UN’s Stiglitz Commission recently noted,

“The effective implementation of national systems of taxation form a crucial part of domestic development finance. An efficient method of achieving this result would be the acceptance by all countries of an amendment of Article 26 of the UN Model Double Taxation Convention between Developed and Developing Countries to make the exchange of information automatic.”

Overall, therefore, we believe that a major AE initiative would be one of the very best ways for the G-20 to “to help developing countries secure the benefits of a new cooperative tax environment.”

2. Combating Global Corporate Tax “Avoision.”

Our latest research highlights the crucial role that aggressive corporate transfer pricing practices, coupled with all the loopholes in the global haven system, have played in fundamentally undermining tax justice. As the global haven network has matured, these practices have become one of the largest single sources of lost tax revenues for developed and developing countries alike.

To combat such practices, we recommend that the G-20 take a lead role in:

I. Insisting that international accounting standards are upgraded to require detailed, transparent “country-by-country” corporate reporting;
II. Encouraging governments to provide the tax and customs information needed to assess the economic basis and transparency of existing transfer pricing practices are made available to qualified public watchdogs; and
III. Encouraging efforts by the UN, the OECD, and other authorities to develop a unitary/ consolidated approach toward international corporate taxation.

3. Another Vital “Toolbox” -- the Global Haven Industry.

One of the key lessons that we’ve learned from decades of tax haven analysis is that most haven abuse is not just a matter of idiosyncratic behavior by a handful of dodgy, “non-cooperating” jurisdictions, nor is it a game played by amateurs. There is a huge, lucrative global industry at work here, staffed by many of the very best bankers, lawyers, accountants, and financial promoters that money can buy. Nor are we talking about millions of middle-class people distributed evenly all over the globe. This highly-paid industry is concentrated in less than a dozen mainly First World financial centers, in addition to the world’s 60-70 “offshore” havens; all told, it probably employees well under a half million people.

But this is an influential half million. To combat this global industry effectively, in short, we will need another new “toolbox.” This one must be filled with measures, not just to discipline non-cooperating jurisdictions, but to discipline non-cooperating law firms, accounting firms, financial intermediaries, and other key professional players of the “global tax injustice” industry.

Given all the resources at the disposal of the G-20, this might be done in many ways. But among the simplest might simply be to mandate strict codes of conduct for financial intermediaries, law firms, and accounting firms with respect to the promotion and facilitation of abusive tax avoidance.


This letter is necessarily just a brief summary of TJN’s thoughts and suggestions. We’d love to sit down with you and/or members of your staff to discuss them further and share our latest research.

Once again, we’re delighted at the progress that the G-20 has already made on tax havens, especially in its role in focusing public attention on these vital issues. We look forward to helping you build on this precious momentum.

Yours respectfully,

Jack Blum, Vice-President
Tax Justice Network USA

John Christensen, Director
Tax Justice Network International


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