Thursday, April 30, 2009

On tax, wealth and waste

From a letter in the Financial Times, entitled Don’t tell me the private sector hasn’t wasted my money. TJN doesn't generally take positions on tax rates like this, but this letter is worth reproducing in full:

"From Mr Simon Hallett.

Sir, Like Tim Elster (Letters, April 28), I am in line to pay the new 50 per cent rate of tax. I read that high earners are apparently depressed, demotivated and planning to leave the country. Public spending on health and education has apparently been worthless, while public sector workers are self-evidently overpaid by comparison with your earlier correspondent.

Then I think of the exhausted, heavily pregnant hospital doctor who saved my son’s life at 3am after 19 hours on duty. I also think of the nursery teacher at our village primary school who spends Sunday evening at school, unasked, lovingly preparing activities for the children.

I have been in the investment business for some 20 years, during which time I have seen just how many lunches, clay pigeon shoots, tickets to the rugby and nights at the opera come between the average pensioner and his pension, or between a charity and its investment income. Don’t tell me the private sector hasn't been wasting my money like it grew on trees.

Let’s get real about this: £150,000 is not a small amount of money. I would like to see the complainers explain exactly what items they will have to give up as the result of the 50 per cent tax band. Let's put them on the table and we can all have a good laugh.

Surely it’s time for a more grown-up attitude to this. Possession of large amounts of money doesn't allow people to cut themselves off from the rest of society. Society has a habit of paying you a call in one way or another, taxation being one of the more innocuous.

I will be interested to know where the emigrants are planning to end up, and whether they plan to remain perpetual outsiders in their host country.

Simon Hallett,
Peaslake, Surrey, UK"

Hat tip: Richard Murphy.

Read more here.

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TJN writes to the G20

The following letter has gone by post to the members of the G20 working group number two - the group working on secrecy jurisdictions - and to the list of members of the working group working on the G20 final report - and all the expert advisers of those groups. It focuses exclusively on the need for automatic information exchange, a much more effective deterrent than the "by request" approach adopted by the OECD.

28th April 2009

Dear X

Re: Automatic Exchange of Tax Information

The Statement Issued by the G20 Leaders, April 2, 2009, at the London Summit affirmed that “The era of banking secrecy is over”.

The G20, at its London Summit, called for greater international cooperation on exchange of information for tax purposes.

The Tax Justice Network believes that only automatic exchange of information between governments constitutes effective exchange of information which will deter tax evasion.

The European Union, in its Directive on the Taxation of Savings, has adopted automatic exchange of information for interest income, and has proposed that such Directive be expanded to cover the automatic exchange of information for other types of income.

The Commission of Experts of the President of the United Nations General Assembly on Reforms of the International Monetary and Financial System, chaired by Joseph Stiglitz, a Nobel Laureate in Economics, recommended in its report of March 19, 2009, automatic exchange of information:

“The effective implementation of national systems of taxation form a crucial part of domestic development finance. Measures must be taken to preserve national autonomy in the selection of sources and methods of government financing while ensuring that national differences do not create incentives to evade responsibility of contributors to the support of government policies. An efficient method of achieving this result would be the acceptance by all countries of an amendment of Article 26 of the United Nations Model Double Taxation Convention between Developed and Developing Countries to make the exchange of information automatic.”

Agustin Carstens, Finance Secretary of Mexico and formerly Deputy Managing Director of the International Monetary Fund, has requested, in a Letter of February 9, 2009 to U.S. Treasury Secretary Geither, that the United States exchange automatically with Mexico information about bank deposits held in the United States by Mexicans:

“In continuing these efforts, both fiscal and law enforcement, I believe that one of the key elements of information that Mexico and the United States should begin sharing is the one pertaining to interest paid by banks of one country to residents of the other. The [automatic] exchange of information on interest paid by banks will certainly provide us with a powerful tool to detect, prevent and combat tax evasion, money laundering, terrorist financing, drug trafficking and organized crime”.

The Declaration on Strengthening The Financial System-London Summit, 2 April 2009, stated:

We are committed to developing proposals, by end 2009, to make it easier for developing countries to secure the benefits of a new cooperative tax environment.

The way to implement that commitment, and to put an end to the era of bank secrecy, is by the automatic exchange of tax information between governments.

Sincerely,

John Christensen

Director
International Secretariat
Tax Justice Network

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Links - April 30

** Also see our searchable archive of past story summaries; and Offshore Watch **

EU unveils hedge fund regulation
April 29 (FT) - Angry criticism from all sides greeted EU proposals to regulate “alternative investment funds” Wednesday, with private equity and hedge fund managers claiming they would profoundly damage their industry and some politicians saying the proposed rules are too lax.

Firms Brace For Details Of Obama Tax Plan On Foreign Profits
April 29 (Dow Jones) - U.S. business groups are bracing for the release, slated for next week, of the Obama Administration's proposals to tax overseas profits. Treasury officials now believe repealing deferral would generate significantly more than that, business sources say, perhaps as much as $250 billion.

UK Revenue to pour quarter of its £4bn budget into battle against tax evasion
April 28 (Times) - HM Revenue & Customs is to spend £1 billion on enforcement and compliance this year to cut tax avoidance and evasion by £2.4 billion, Britain's most senior tax collector said last night.

Developing countries to benefit from tax haven crackdown
April 27 (Economy News) OECD head says a crackdown on tax havens and cross-border tax evasion will help developing countries to raise more revenues.

Switzerland offers US possible deal on tax
April 27 (The Times) Switzerland has offered to sign up to a new tax accord with the US if it drops a tax evasion case against UBS, the Swiss bank.

PM pledges to seek return of $100bn stashed abroad
April 27 (Guardian) India's prime minister, Manmohan Singh, has made an election campaign pledge to claw back more than $100bn (£68bn) of cash stashed abroad by the country's wealthy.

Swiss finance minister asks U.S. to drop tax cases with dual-tax pact: report
April 26 (Market Watch) Switzerland asked U.S. Treasury Secretary Timothy Geithner for criminal cases involving Swiss bank UBS AG

European Lawmakers Urge End To EU Tax Havens By 2014
April 24 (Nasdaq) Lawmakers at the European Parliament called Friday on all European Union governments to give up banking secrecy from 2014 at the latest.

IRS Wins a Battle in the War on Tax Havens
April 24 (CTJ) Tax Day marked a small victory for law-abiding taxpayers who are tired of subsidizing those who evade their taxes. On April 15, the U.S. District Court for the District of Colorado granted the government permission to serve a "John Doe" summons on First Data Corporation.

More offshore tax probes in works: NY's Morgenthau
April 24 (Reuters) New York investigators have launched more probes like the $350 million money laundering case against Lloyds and are also working to uncover wrongdoing in offshore tax havens.

Arbitration not litigation will solve transfer pricing wrangles
April 23 (Accountancy Age) The highly complex and divisive issue of transfer pricing the practice of pricing or handing goods or assets from one part of a company to another and the need for the transaction to be priced at arms length.
http://steuergerechtigkeit.blogspot.com/2009/04/tjn-direktor-auf-alpentour-osterreich.html

German cabinet backs bill to fight tax dodging
April 22 (Guardian) German Chancellor Angela Merkel's cabinet has approved a draft law that would give the government additional powers to oversee companies and individuals that do business in tax havens

New measures to curb evasion
April 22 ( FT) Britons who fail to report the full extent of their earnings are to be “named and shamed” by HM Revenue & Customs (HMRC) as another round of measures to curb tax evasion begins.

Tax Haven Questions Could Trip Up Panama Trade Pact
April 22 (WSJ) Questions about Panama's status as a tax haven have raised a new hurdle for U.S. approval of a free trade deal between the U.S. and the Central American nation.

Austria a top tax oasis, says expert
April 17 (Weiner Zeitung) Head of Tax Justice Network John Christensen included Austria along with the UK, Switzerland, Luxembourg and the US state of Delaware as among the top ten tax havens in the world

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Grimy Panama: new report

A new report from Public Citizen in the US makes some worrying statements about Panama and about US President Barack Obama's agenda towards the grubby little tax haven.

As the news release says:

"The new report details how Panama explicitly created an industrial policy designed to create a "comparative advantage" in tax-evasion and money-laundering services for entities such as the bailed-out American International Group (AIG) and Mexican and Colombian narcotraffickers."

and it notes that

"President Obama's ability to deliver on his campaign commitments to close tax loopholes that promote offshoring and re-regulate the financial sector would be dealt a sharp blow if the U.S.-Panama Free Trade Agreement (FTA) is passed."

Panama is an especially unpleasant secrecy jurisdiction. As one service provider boasts:

"According to a Panamanian law firm’s advertisement touting Panama’s lax standards: “Even Switzerland cooperates on income tax cases if the return is filed falsely like all income was not declared, things were omitted or so the complaining government says. Belize has tax treaties, as do most of the so-called ‘tax havens.’ There is no better jurisdiction than Panama today!!!!!!!”

Among other things, the report notes:
  • Some of the largest recipients of U.S. federal procurement contracts and money under the Troubled Asset Relief Program (TARP) – including Citigroup and AIG – have a combined dozens of subsidiaries in Panama that would be empowered with expansive new rights if the FTA is implemented. These firms have been among the top advocates for the Panama FTA.

  • Panama is one of only 13 countries – and the only current or prospective FTA partner – that is listed on all of the major tax-haven watchdog lists.

  • In the face of recent pressure to reform related to the G-20 Financial Crisis summit process, Panama wrote to the Organisation of Economic Cooperation and Development (OECD) defiantly outlining its refusal to adopt key reforms.

  • The OECD notes that Panama made a commitment in 2002 to conform to international tax norms but since has completed not a single agreement to implement its promise.

  • According to the U.S. Department of Justice and other entities, Panama is also a major financial conduit for Mexican and Colombian narcotraffickers’ money laundering activities.
As Todd Tucker, research director of Public Citizen’s Global Trade Watch division put it: at a time of massive public anger at Wall Street, the Panama FTA is the wrong handout for the wrong interests.

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Tax haven seeks taxpayer compliance

From the Nassau Guardian yesterday:

"Prime Minister Hubert Ingraham said the revenue shortfall experienced this fiscal year is so drastic that collecting "every dollar" that it is owed to the government will not be enough to remedy the situation."

The hard reality of revenue shortfalls is hitting this Caribbean tax haven hard, and it's having to borrow $200m from a consortium of banks:

"If you are not making the money, how else do you recoup it? By taxing you more? How else [do we] do it other than taxing you more?" Ingraham asked. "There are only (so many) ways to do it: Cut back on services, which means you cut back on people and the delivery of services; increase taxes; or borrow; or a combination of all three."

He might take a moment to consider the revenue costs that offshore centres like the Bahamas force on other developing countries. Then the newspaper reported this:

"According to the 2007 Auditor General Report tabled in Parliament earlier this year, the government is owed nearly $400 million in outstanding real property taxes, an amount which should be sufficient to compensate for revenue lost in the 2008-09 fiscal year. The report revealed that in total $563,261,853.75 in various taxes were owed to the government, an amount it labeled "exorbitant" . . . "We recommend that immediate measures be implemented, whereby delinquent taxpayers are made to settle their debts in an expeditious manner."


With a probably unintended twist of offshore irony, the newspaper also reported:

"However, the report did acknowledge that money might be hard to recoup."

A correspondent who pointed this out to us noted in her email:

"Wondering if some of those delinquent debtors to the Bahamian Treasury on their real property taxes include wealthy individuals who have bought their luxurious behind-locked-gates residences to acquire economic residency, in order to avoid paying taxes due to their original home state? Are there individuals double-dipping on the cheating? And what about the foreign owned banks and trust companies whose very existence there is to provide tax-cheat services? ... Do they have an obligation to pay taxes and are any delinquent?"

Well, well. An interesting set of questions indeed.

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Wednesday, April 29, 2009

Report from the Offshore Alert conference

Our colleague Sarah Lewis at TJN-USA has been blogging from the 7th Annual Offshore Alert Financial Due Diligence Conference in Miami. We are delighted to host her as part of our "Guest Blogger" series.

Congratulations to OffshoreAlert for bringing together policemen and practitioners of the tax evasion and avoidance industry, and for helping join the dots. There was record attendance: 263 delegates, one third of whom were lawyers. David Marchant, publisher of the Offshore Alert newsletter, takes no position on either side of the philosophical divide, and is adept at engaging the high profile speakers and panelists with incisive questions that generate energetic debate.

Keynote Speaker Jeffrey Owens, Director of the OECD's Center for Tax Policy and Administration, noted the links between tax non-compliance and perpetuating the suffering in developing nations. Unsurprisingly, there were practitioners for whom that did not appear to register as a priority consideration. Owens emphasized the current political sea change, speaking of how tax havens must recognize that this industry is becoming untenable.

Clearly, offshore centers feel under attack from the OECD and G20. Many practitioners see a finger of blame and shame pointed at them, and some who operate out of the smaller tax havens point a defensive finger in return, making much of transparency deficiencies within Delaware, Wyoming and Nevada, and the UK. TJN has no complaints about this latter point: as we keep saying, these large places are secrecy jurisdictions too; it is crucial to eliminate the misunderstanding that tax havens are only the small jurisdictions like Cayman or Jersey - the problem has metastatised deep into the world's biggest economies and is continuing to spread (see here for a most recent example).

I heard an interesting nuance: many offshore practitioners refer to the USA "Stop Tax Haven Act", instead of its full title Stop "Tax haven Abuse Act", so placing the emphasis on the national or jurisdictional element rather than the element of abusing tax and financial systems.

Fortunately a welcome redirection towards the real issues was provided by Bob Roach, Counsel and Chief Investigator of the US Permanent Subcommittee on Investigations, and by IRS specialists Daniel Reeves, John McDougal and Thomas Kelly. Roach, speaking at a session titled "Power Politics - The Attack on OFC's by the World's Major Countries," suggested that those putting up a challenge about the Delaware, Nevada, Wyoming issue should review and support the recently introduced Incorporation Transparency and Law Enforcement Assistance Act - the point being that measures are being take to address deficiencies in transparency and abuse of financial systems, regardless of their location. Daniel Reeves opened a session on IRS Offshore Enforcement Activities and Programs by clearly stating that their efforts are not directed at "tax havens", their efforts are aimed at taxpayers who evade and avoid due payment of their taxes and do not abide by the law.

Discussion of The UBS and LGT cases generated great interest, of course. As well as Bob Roach and the IRS specialists mentioned, discussion and panelists included lawyers who have represented high profile tax evaders including Igor Olenicoff of the UBS story. Daniel Reeves, a lead IRS agent in the UBS case, said that the IRS is planning to pursue John Doe summonses against other banks. "We have identified other offshore banks" that are expected to receive the summons, Mr. Reeves said. This hit the newswires immediately.

A number of unfortunate and hard-to-believe views were aired. For example, a representative for BVI stated that the volume of BVI business companies is not the aim and prerogative of the BVI government, rather, their intention has been to provide a "quality product that met the legitimate needs of the international community. He then acknowledged that over 50% of the BVI's revenue comes from company fees. A panel representative for Cayman stated that they have not used secrecy as a selling point for several years, it is, he said, because of the excellent service level they provide that brings in business. The BVI representative proudly cites a firm, Withers, as having just established a BVI office as the only onshore law firm with an offshore presence. To quote from the Withers site: "Increasingly international litigation, such as insolvency litigation, fraud and asset tracing, involves a BVI offshore component." Does that not infer that the BVI financial institutions and products are to a significant degree used for unscrupulous reasons? A Bermuda representative stated that a future growing business of offshore centers can be to protect the assets of the wealthy from suffering the worst effects of the economic crisis -- ignoring the fact that it was the use of offshore centers to book and disguise massive contingent liabilities that was a root cause of the crisis in the first place.

Wendy Warren, CEO and Executive Director of the Bahamas Financial Services Board, argued that it goes against the grain to to give up account information to tax authorities of governments where the data may be used for nefarious purposes. However, this alluring argument needs to be thought through. TJN is not aware of a single instance worldwide where offshore secrecy has been used successfully to protect a human rights activist, a victimised street protester, trade union official or anyone else fighting against genuine injustice. Rather, it is the people who oppress them - the wealthy dictators and army generals - who use the secrecy world to abuse their citizens and steal their national wealth. And the fact remains that a financial institution or offshore center government authority is providing for that client to avoid the legal requirements of their own country.

I came away from the conference with the impression of two broad categories of views and stances. First, the encouraging, forward-looking category: concerned about secrecy and abuse and the effect it has on developing countries in particular. Second, an approach of putting one's head in the sand, while simultaneously pointing fingers at non-transparent centers such as in the US and UK. Pointing fingers while your head is in the sand: that is quite an acrobatic feat.

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TJN website has changed slightly

We've slightly modified the TJN website. Take a look. It's mostly about the right-hand column, to which we've added some light shading, and our news highlights - previously a single long tail stretching down the page - is now split in two, with the most recent highlights at the top of the page under "News" and older highlights stretching down in "highlights" as before.

We hope you like it.

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Tuesday, April 28, 2009

New EU proposals on tax and transparency

From the EU:

"The European Commission today has adopted a Communication identifying actions that EU Member States should take to promote "good governance" in the tax area (i.e. more transparency, exchange of information and fair tax competition). The Communication identifies how good governance could be improved within the EU. It also lists the tools the EU and its Member States have at their disposal to ensure that good governance principles are applied at international level. Finally, it calls on Member States to adopt an approach that is more coherent with good governance principles in their bilateral relations with third countries and in international fora."

This is welcome news, and specific parts are most welcome. Here are some (abridged) examples that we like:
  • Ensure effective administrative cooperation in the assessment of taxes and recovery of tax claims;
  • Improve the functioning of the Savings Tax Directive. There is a need to extend the scope of the Directive to intermediate tax-exempted structures (trust, foundations...) and to income equivalent to interest obtained through investments in some innovative financial products.
  • To discuss with Member States possible counter-measures towards non cooperative jurisdictions in the tax area.
  • More coherence between Member States' own bilateral tax policies towards third countries and the principles of good governance in the tax area.
Good. The text of the full proposals are here. We will return to this theme.

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Britain's budget doublethink

Something we've just noticed (well, it's been pointed out to us by Tom Lines). Much attention has been paid recently to the new 50p tax rate in Britain's budget, raising taxes on high earners, pleasing many who worry about inequality (as we should). And Britain's Prime Minister, Gordon Brown, had pledged to work hard against tax havens. Yet in the same budget, something completely different emerged, which is likely to widen wealth and income inequality across the world. It is a classic example of Doublethink as Lines notes. The FT gushes:

"The UK has introduced a “tax elected funds regime”, which ensures tax is only paid by investors in a fund, not the fund itself, bringing the UK into line with more competitive jurisdictions."


Followers of this blog will know exactly what "competitive" means in this context. To recap: there is good competition (producing incentives for firms to produce better goods at lower cost) and bad competition (a race to the bottom.) The FT is enthusing about the pernicious, unhealthy kind of competition. It then adds:

"Separately, the UK government has created a “white list” of instruments that funds are able to invest in without running the risk of this activity being classed as “trading”, a ruling that potentially made a fund subject to capital gains tax. This clarifies the use of derivatives, favoured by many hedge funds and an increasing number of Ucits III mutual funds."

So we not only have doublethink in the substance of the budget, contributing to the erosion of the taxation of capital around the world while simultaneously enacting a headline-getting 50p tax rate on high earners. But we also have term "white list" for the most abusive instruments, adding an exquisitely Orwellian finishing touch.

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Monday, April 27, 2009

Climate of fear in British tax haven

Take a look at these remarkable words published in Britain's Hansard (official parliamentary publication) last Thursday, concerning a British Foreign Affairs Committee inquiry into Britain's Overseas Territories, notably looking at the Turks & Caicos islands. Here is a statement by one member of the inquiry:

"The memorandums that we received were unprecedented, in my experience on the Committee, with respect to their volume and, sinisterly, in the degree of fear that lay behind them, for those submitting them. Considerable numbers were sent anonymously because people were not prepared to divulge their names

. . .
Citizens of a British overseas territory were afraid to be seen in public with Members of this House, afraid to give evidence and afraid even to be seen at a reception talking to us. The only other places I have been to on overseas visits where people were in fear of talking to me as a Member of Parliament are places such as the People’s Republic of China. Does the right hon. Gentleman agree that that was a shocking thing?"

Others on the team - note Sir John Stanley's comments too, for example - confirmed this climate of fear. And the conclusion - which goes to the heart of Britain's relationships with some of the world's dirtiest tax havens - is extremely important.

Sir John Stanley: "Does not what the right hon. Gentleman has read out from the report of the independent inquiry appointed by the FCO say something about the stewardship of the Foreign Office over many years? Its man was there—I am not referring to any particular individual but to governor after governor. There is something wrong in London as well as in the territory on the stewardship issue."
. . .
Andrew Mackinlay MP: "What disturbed me—I think you will share my view, Mr. Bercow—is the uncertainty of our assumption that the House is ultimately the Parliament for all the overseas territories. They may have delegated legislatures, but if the House decides to go to war, those territories go to war. They do not have an op-out. This is their Parliament, and the UK Government can rescind and vary their constitutions as and when they wish. We cannot escape our responsibility.

In short, Britain has a lot of control and influence over its tax havens, and it could and should act. It seems to have been a heated session in parliament:

"The reason why I erupted is that financial regulation on the Cayman Islands is wholly the responsibility of the United Kingdom Government. In their jurisdiction, over which they have responsibility, the British Government here in London—not the overseas territory’s Government—are acquiescing in something that offends the OECD guidelines, and that is happening with their full knowledge and full consent. On the Cayman issue, therefore, they do not even have the fig leaf of suggesting that these things are happening because the overseas territory Government and legislature are dragging their feet."

But read through the whole section - it is just fascinating.

And, we should add, there is something very rotten indeed in the Crown Dependencies too - look no further than this example.

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Gordon Brown's indecent love affair

John Kay has been writing another of his insightful comments in the Financial Times. It is a reminder of something we already know - the government was hopelessly in bed with the bankers - and that it still seems to be true, despite the occasional sign of real fresh thinking. The government, as Kay notes,

"conducted an indecent love affair with the financial services industry."


He asks

What would have happened if the Financial Services Authority or Bank of England had sought to block the competing bids from RBS and Barclays for ABN Amro – a contest which, we now know, would bankrupt the bank that won the race? The phones in Downing Street would have been ringing insistently and it is easy to imagine the government’s response."

And follows this with:

"Little has changed. The government continues to see financial services through the eyes of the financial services industry, for which the priority is to restore business as usual."


Notes that whatever old arguments there may have been are now out of date:

"For a time in 2008, it seemed possible to argue that a package of temporary support for the banking industry, combined with substantial recapitalisation of the weaker players, might stabilise the financial sector and prevent serious knock-on effects. But the problems of banks are much deeper than were then acknowledged and the destabilisation of the real economy has happened anyway. Government now provides taxpayers’ money to financial services businesses in previously unimaginable quantities. But there is no control over the use of the money, no insistence on structural reform or management reorganisation, no safeguarding of the essential economic functions of the financial services industry and no accountability for the damage that has been done."

And adding that

"We need a comprehensive reappraisal of both the fiscal framework and the economic and political role of the financial services sector."

Nothing extremely new here, but it's nice to see another influential voice making the case.

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TJN and the round-the-world cyclist

The great American satirist Tom Lehrer, whose work we blogged last week, famously said "life is like a sewer, you get out of it what you put into it." Faced with crises ranging from financial meltdowns to climate change, from imminent peak oil to horrendous poverty and inequality, it's tempting to adopt the ostrich position. A minority, have chosen the harder route of facing the issues head on, analysing the roots of the problems, and seeking durable solutions.

In this spirit, we applaud the spirit of Julian Sayarer who will be setting off from Rouen Cathedral in France on 10th June 2009 in an attempt to set a new world record for circumnavigating the world. His route is here - do wish him well and offer him your support if he comes to your neighbourhood. Julian wants to draw attention to a small number of organisations which he feels are tackling the core issues. This is what he says:

"This ride is not for charity, with it I hope to raise an awareness rather than funds. These organisations work to promote a healthier and fairer society, but differ from many charities in that they do not aim to support any obvious victim, rather, their work looks to better the society that we all inhabit together. Without the sentimental impact enjoyed by other charitable causes, much of their campaigning and hard work risks going unnoticed."


Our friends at the new economics foundation are listed. So is the Campaign for Real Ale. We are proud that the Tax Justice Network has been selected.

We have invited Julian to blog his thoughts and observations along the route. And, of course, we wish him a following wind and every success with his epic journey.

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Inequality - in shocking pictures

John Christensen attended the LEAP conference in London over the weekend, and describes the immense quality of the speakers and presentations. One that he found especially interesting was the presentation by Richard Wilkinson - author of the new book The Spirit Level (blogged here) about which The Economist, which isn't known for worrying about inequality, said:

"the evidence, here painstakingly marshalled, is hard to dispute."

Now we would like to draw your attention to the data. And this is the starkest demonstration we have ever seen on the perils of inequality. We'd made up the attached document as a composite from their website, and added a few shortened comments. The correlations the graphs show, and the repeated correlation in graph after graph, should make any statistician gasp.

Take a look.

For more data and discussion on each, look here, and if you want to get really detailed and read the book containing all their research, go out and get this.

In the meantime, here are a few quotes, pulled from the website illustrating the research:
  • "We are at a turning point in human history. For centuries the best way of improving the quality of life has been to raise material living standards. But we have now come to the end of what economic growth can do for developed countries. Measures of well-being or of happiness no longer rise with economic growth."
  • "It looks as if the American Dream is far more likely to remain a dream for Americans than it is for people living in Scandinavian countries."
  • "For rich countries to get even richer makes little or no difference to the prevalence of health and social problems."
  • "Societies with smaller income differences between rich and poor are more cohesive: community life is stronger, levels of trust are higher and there is less violence. The vast majority of the population seem to benefit from greater equality."
  • "There are two fundamentally different paths to greater equality. One depends on redistributing income from rich to poor through taxes and benefits, while the other involves having smaller differences in incomes at source - before taxes and benefits - so there is less need for redistribution. Although the two methods could be contrasted as the big government and the small government methods of achieving greater equality, the two approaches can of course be combined."
But it is, as we've noted, the hard data that speaks loudest. Just look at those graphs again.

Oh, and we should mention that at the presentation, Professor Wilkinson explicitly noted and praised the role of TJN in opening up entirely new areas for debate and analysis.

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Friday, April 24, 2009

Economic crisis - an end in sight?

Many people seem to think that the world economy, after a bad period, may have put the worst behind it. The cover of this week's Economist Magazine vividly illustrates the alternative opinion.

The economist warns that optimism contains important traps. One is a mistaken belief that things are getting better.

"The subtler trap, particularly for politicians, is that confidence and better news create ruinous complacency. Optimism is one thing, but hubris that the world economy is returning to normal could hinder recovery and block policies to protect against a further plunge into the depths."


We've had our beefs with The Economist in the past, but this seems like a sensible thing to say. It does, of course, have profound implications for the tax justice agenda, especially with respect to the crucial ingredient for change: political will.

Martin Wolf in the Financial Times has some interesting perspectives. While GDP data shows countries such as Germany and Japan performing even worse than the big financial-sector economies, notably Britain and the US, this masks something else: the fiscal side of things - government revenues and spending - are affected very, very much worse in the Anglo-Saxon economies, partly because of their over-reliance on finance.

"The shift in this balance in the UK’s private sector between 2007 and 2010 is forecast (implicitly) by the IMF at 9.6 per cent of GDP (from minus 0.2 per cent to plus 9.4 per cent). The swing in Germany, in contrast, is just 0.6 percentage points. When the private sector shrinks its spending relative to incomes, either the current account or the fiscal balance must shift in equal and opposite directions. The current account deficit always changes relatively slowly. It is hard to change the economy’s structure quickly. So it has been the fiscal position that has deteriorated massively.

Thus, in the crisis-hit countries themselves, the consequence of the private sector cutback has been the fiscal deterioration."


Economic prediction, at least in the short and medium term, is a mug's game. But this blogger's gut feeling is: don't bring out the champagne yet.

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Raymond Baker of Global Financial Integrity in the FT

Our good friend Raymond Baker at Global Financial Integrity in Washington has a wonderful comment piece in the FT today. It starts by mentioning the extraordinary political impact his data has been having in India, which we have already noted too.

"The issue of India’s missing billions has grown progressively thornier, as both sides vie to take the moral high ground."


Baker adds:

"Whatever the outcome of the election, India’s problem has broader implications both for the developing world and for efforts by the Group of 20 developed and developing nations to craft an effective post-crisis economic plan for the global financial system."

He provides plenty of exta detail, then (apologies for posting such a large chunk of text) this:

"The proceeds of criminal activity, corruption and corporate tax evasion, these flows are clandestine in nature and usually end up in financial centres featuring low regulation and high secrecy. This makes it tricky to study illicit financial flows.

India is the latest of several nations to raise the alarm about illicit capital flight. Following high-profile scandals involving Liechtenstein and Switzerland, the Group of 20 nations has demanded greater co-operation in tackling the shadow financial system. Made up of tax havens, jurisdictions allowing secrecy, disguised corporations, anonymous trust accounts, fake foundations and assorted money-laundering mechanisms, it is designed to move money and obscure its sources.

What have thus far remained absent are the concrete reforms needed to dismantle this shadowy network and enforce greater transparency and accountability in the global financial system. The G20 is poised to accept the Organisation for Economic Co-operation and Development standard for exchange of tax information, a well-meaning but weak approach to the problem. While the much-publicised post-G20 arrangements by several havens to sign tax information exchange agreements are welcomed, these agreements are extraordinarily cumbersome. The onus remains on the requesting nation to prove that the information sought is “foreseeably relevant” to suspected crime or tax evasion. Furthermore, havens and jurisdictions supporting secrecy are not required to provide information they do not normally collect. Under the OECD standard, all elements of the global shadow financial system can remain in place.

What needs to happen now is for the G20 to broaden its dialogue on information exchange agreements, inter national co-operation and international financial protocols. Most effective in curtailing the massive illicit outflows from developing countries would be a requirement for automatic cross-border exchange of tax information on personal and business accounts and country-by-country reporting of sales, profits and taxes paid by multinationals.

As world leaders and high-level stakeholders meet this weekend in Washington, the question of India’s black money should be considered as a sign of what lies ahead. The global recession is expected to have a severe impact on developing economies and undo years of poverty alleviation efforts and economic gains. The desire to offset this predicted impact is sincere. But until efforts are made to dismantle the shadow financial system and mandate more co-operative and rigorous reporting, success will remain as elusive as India’s missing black money.

India has shown that this issue resonates with voters. Politicians in other developing country democracies would be wise to take note."


The world is rubbing the sleep out of its eyes and, slowly, slowly, is starting to wake up to the problem of massive cross-border illicit flows. Remember, this is just the illicit stuff (more data here.) Tax avoidance is another matter. And we're starting to see signs of life here too.

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Britain's budget - tax sea change

A truly important element has emerged in Britain's budget. The eye-catching part of it was the 50% tax rate on the seriously rich. But, as Ann Redston points out in the Guardian, this wasn't the most radical element.

"For the first time, HM Revenue & Customs (HMRC) will "name and shame" those who have deliberately underpaid significant amounts of tax, when this is later found to be legally due. For the first time, too, those responsible for the tax affairs of large companies will become personally liable for careless or deliberate underpayments. And waiting in the wings is the possibility of financial and other sanctions against non-compliant tax advisers."

This follows the remarkable step that Britain's government has in attaching the word "avoidance" into the list of worries it attaches to Britain's tax havens (though this was followed by a retrograde step). Crucially, Redston adds:

"These new approaches are only viable because of widespread UK support for a more rigorous regime. If taxpayers regarded avoidance and evasion as a national sport, naming and shaming would fail: being on the HMRC list would be an accolade, like having an ASBO on a run-down housing estate. These new approaches are possible because people generally pay their taxes, and resent those who do not."

We are not named in this article but we know we have played a central role in this: we certainly helped get the Guardian interested in the first place. Its excellent Tax Gap series has been profoundly important in Britain.

"Its thesis was that structured, artificial avoidance breaks the unwritten norms of our society – such as honesty, straightforward dealing, and fairness. It is thus unacceptable, and deserving of vilification. Many people agreed, endorsing the Guardian's campaign. This may in turn have encouraged government to adopt a more radical approach."

The budget documents also include significant new measures to tackle cross-border tax evasion, following the G20 summit earlier this month. Banking secrecy, tax havens, and transparency in tax affairs: these were all watchwords of the Tax Gap series, and of TJN's six-year campaign. The same themes are reiterated in the list of changes set out in the budget red book.

And we very much like this:

"There are other reforms too. Those who create tax avoidance schemes already have to notify HMRC, and explain how the schemes work. But disclosure alone does not prevent avoidance: people may be reassured by the scheme's creators that the arrangements are legally effective.

HMRC may disagree, but the taxman currently keeps the schemes, and their flaws, confidential, until the government either changes the law or the arrangements are challenged in court. This is likely to change: HMRC are planning to publicise the schemes they believe breach existing laws. This will reduce the appetite for artificial arrangements: only the brave or foolhardy will take the risk."

See the details here.


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Thursday, April 23, 2009

Jon Stewart demolishes Jim Kramer

We missed this when it came out last month. This astonishing demolition by Jon Stewart of CNBC's Jim Kramer is unforgettable. More on the failures of financial journalists here, with additional reasons here.

The Daily Show With Jon StewartM - Th 11p / 10c
Jim Cramer Pt. 2
thedailyshow.com
Daily Show
Full Episodes
Economic CrisisPolitical Humor

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Wednesday, April 22, 2009

International News - April 22

** Also see our searchable archive of past story summaries; and Offshore Watch **

Mexico's Dirty Cash
April 20 (ISN) As much as US$25 billion in drug money is laundered in Mexico annually, and some experts say the Mexican financial system is set up to facilitate money laundering rather than impede it, writes Samuel Logan for ISN Security Watch.

Philippines to revise bank secrecy laws
April 20 (FT.com) The Philippines is preparing to revise its bank secrecy laws and strengthen the hand of anti-money laundering investigators following a brief appearance on the Organisation for Economic Co-operation and Development’s tax haven blacklist.

German cabinet to discuss plan to fight tax dodgers
April 20 (Reuters) The German cabinet will discuss a draft law to fight tax dodging at its meeting on Wednesday, finally addressing the issue after numerous delays, a government spokesman said on Monday.

Guyana Discusses Offshore Financial Centre Proposals

April 20 (Tax-news) - Guyana’s Minister of Finance, Ashni Singh (pictured), underlined his support to facilitate the development of Guyana as an Offshore Financial Centre at a meeting of senior Government officials and representatives of the Guyana Association of Bankers.

Greenland liked by offshore centres for tax deals
April 17 (Reuters) Offshore centres are rushing to sign data exchange tax deals with small Nordic countries such as Greenland to be taken off a "grey" list of tax havens, making a mockery of a G20 bid to clamp down on evasion, campaigners said.

Tax rates
April 17 (TJN) - . . . have been higher before. US Cartoon

Tax havens: India getting serious?
April 17 (TJN) - The Indian Central Board of Direct Taxes is investigating ways of acting against roundtripping and treaty shopping, capitalizing on concerted attempts worldwide to force greater disclosure on tax havens, Tax News reports.

India waking up - Part II
April 17 (TJN) - We have just noted the tax justice agenda starting to create ripples in India. Now we've been sent something else from TaxAnalysts - no link, unfortunately, as it's a subscription-only service. This new article, which quotes TJN, may help explain the moves by India to try and tighten up on tax havens.

The Solution to Ireland's Austerity Plan - Make Bono Pay Tax
February 26 (CounterPunch) Cork-born British television super-star Graham Norton commented at the time: "People like Bono really annoy me. He goes to hell and back to avoid paying tax. He has a special accountant. He works out Irish tax loopholes.

Guyana Discusses Offshore Financial Centre Proposals, by Phillip Morton, Investors Offshore.com
April 20 (Tax-news) - Guyana’s Minister of Finance, Ashni Singh (pictured), underlined his support to facilitate the development of Guyana as an Offshore Financial Centre at a meeting of senior Government officials and representatives of the Guyana Association of Bankers.


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On tax-free charities

A Cayman news organisation, bridling at the attack on offshore financial centres, recently said this:

"Pope Benedict XVI and certain charities, (all of them enjoying tax-free/exempt status) have joined the throng, accusing OFCs of causing poverty by assisting in the looting of third-world countries by corrupt officials."

The charity dig is, presumably, aimed at groups like TJN. What do we make of this?

Charities are only 'tax free' when they make a surplus. It's not the job of charity to run a surplus. They are, by definition, not profit-making. This looks like an exercise in sophistry - dressing up bogus arguments in a false veneer of legitimacy - from a professional who should know better.

The tax free status of gifts to charity is the consequence of their undertaking approved activity e.g. in the relief of poverty in lieu of the state. Without that work the tax burden may well be higher."

It's an interesting area.

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Dismembering a tax haven

Some French protesters dismantling a tax haven, in front of the Stock Exchange in Paris, ahead of the G20 summit. (OK, we're a bit late . . . )

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Foot: A safe pair of hands

The British people are famously distrustful of intellectuals and enamoured of "experts". Endless review processes are set in motion by successive governments, but these reviews are seldom designed to encourage exploration of the big picture issues, and reviewers are carefully selected to ensure that they don't stray beyond brief into the world of ideas. Judging from the tone and content of the Progress Report issued by Michael Foot yesterday, we are about to endure yet another of these pointless reviews.

We have already drawn attention to matters of tone. Instead of approaching this review from a critical stance exploring how these tax havens interact with the rest of the global economy and Britain, Mr Foot has embarked on preparing what looks more like a regional development strategy for Britain's tax havens: with the emphasis on helping them to ride out the international pressures for tacking tax havens. How else can one explain the curious idea in the foreword of shifting the management of toxic banking assets to the OFCs (Offshore Financial Centre)? Despite all his years at the Financial Services Authority, Foot still seems unaware of the fact that many of those toxic assets accumulated offshore in the first place, hidden away in structured investment vehicles which he and his former colleagues resolutely watched with a blind eye.

Noticeably absent from this Progress Report is any suggestion that Foot and his review colleagues will come forward with serious proposals for how Britain's tax havens can plan for a post-tax haven future. Where will the Plan Bs come from and what role will the British taxpayer play in supporting some of the poorer territories in the Caribbean during a transition period?

Also absent is any indication of whether Foot proposes to ask the big questions about the role of Britain's tax havens in a world of globalised financial markets. He hints at a vague awareness of some of the issues: for example, in paragraph 2.2 (page 9) he notes

"There is also no agreement on who may gain or lose from the existence of offshore centres."

A Very Big Question!!! But he takes it nowhere. Yes, Mr Foot, there is no agreement, though we argue that these places benefit a tiny minority of global free-riders, (while also creating a globalised criminogenic environment), and they impact negatively on the interests of the vast majority of people, both in Britain and throughout the rest of the world.

Michael Foot must now address this issue very clearly: do tax havens add value in a world of globalised financial markets, or do they use beggar-thy-neighbour tactics to undermine the tax regimes of other nations and promote regulatory competition that will inevitably catalyse a race-to-the-bottom? In the section on taxation, for example, he states:

"Each centre will need to take this (TJN note: the US Stop Tax Haven Abuse Act) into account in balancing the real or perceived competitive advantages of current tax regimes with the need to generate sufficient revenue to support its domestic economy."
(para 1.10).

Now this sentence might appear innocuous, but it is laden with neo-conservative ideology, premised on the idea that tax competition is a helpful process. Let's be absolutely clear about this: tax and regulatory competition corrode democracy, harm economic efficiency, turn the entire idea of comparative advantage on its head, do not in any way serve consumer interests, shift the tax charge from capital to labour and consumers . . . we could go on. Mr Foot seems oblivious of this, and - in that very British way of blundering forwards without any guiding principles or vision - he seems on track to produce a review of the exterior seating arrangements of the Titanic.

Reading between the lines, we suspect that Foot has been too close to the City of London for far too long to be able to break free from the prevailing, now completely ruined, laissez faire ideology of the past three decades.

Nowhere does he talk about any need to make these places operationally more transparent. Nowhere does he make it clear that the British monarchy is directly responsible for these places; successive governments have failed to ensure their good government (look at unfolding events in Antigua and Turks & Caicos). This must be a major embarrassment to the Queen.

We could take these arguments much, much further, but our over-riding concern is this: Michael Foot seems neither willing nor intellectually equipped to tackle the big questions that need to be answered at this stage. We have nothing personal against him, but his track record with the FSA, his career in the City (and other tax havens), his current professional interests, in fact everything about him, mark him out as the quintessential British safe pair of hands. Another instance of a "chap" talking to other "chaps."

The perfect man to ensure that nothing useful comes from the current review.

Richard Murphy offers his own piercing critique, making a number of different points, here.

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Event: Offshore Alert Conference, Florida, April 26

The 7th Annual Financial Due Diligence Conference specializes in cutting edge information and intelligence on Fraud, Money Laundering, Tax Evasion, Compliance, Risk Management & Asset Recovery as they relate to Offshore Financial Centers. Click here for the programme.

Last year, the Mitchell vs. Murphy debate was a key feature.

Speakers include Jeffrey Owens, head of tax at the OECD, Bob Roach, Counsel & Chief Investigator, US Senate Permanent Subcommittee on Investigations, and many others.

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Tuesday, April 21, 2009

The Foot progress report into Britain's tax havens

Last December the British government announced an independent review of British offshore financial centres, that is, Jersey, Guernsey, Cayman, the Bahamas and the like. This is to be Britain's major review of the tax havens around the world over which it has a substantial measure of control. They asked Michael Foot CBE to conduct it. Today Michael Foot has issued a progress report, laying out the areas in which he will focus.

Recently we had felt real signs of hope when we received copies of letters that Britain's Prime Minister Gordon Brown had sent to these places, appearing to push for real change. This report appears to come from a very, very different angle. In short, it shocks us.

First, a word on the overall tone. Take this quote, for example, from the foreword:

"The most immediate issue facing the financial centres is how they can best deal with the current downturn in financial services business, particularly if it becomes prolonged."

followed by:

"Important questions for this Review are the ability of each financial centre to weather the downturn and to remain competitive in the future."

The message here is clear enough. It is this: 'how can we help our tax havens get through this difficult period?'

Now consider this, from the foreword:

"Even in a downturn, new opportunities may arise to offset retraction in certain areas of financial services business. Managing toxic assets from the banking sector may be an example of one such area."

What is the message here? It is this: 'Bring your toxic assets to us, and we'll put a cloak of offshore secrecy over them!' Is that the way to engender trust in the system?

Finally, we'd like to note this, which isn't new. Who is Michael Foot? He does have some impressive credentials, to be sure: a former executive director of the Bank of England, a former managing director of Britain's Financial Services Authority (FSA, known by the satirical British magazine Private Eye as the Fundmentally Supine Authority) and other posts. What else has he done? As his biography says:

"Michael was appointed Inspector of Bank and Trust Companies for the Bahamas November 1st, 2004 to May 2007. He then returned to become Chairman of PFG UK."

PFG is the Promontory Financial Group. As they say on their website:

"Our client roster has grown to include banks of all sizes, securities firms, insurance companies, investment advisers, private equity firms, hedge funds, broker-dealers and exchanges—in short, financial companies of every stripe."

Is this a conflict of interest? Is this an independent review? Make your own minds up. We will discuss the more detailed aspects of this progress report in a subsequent blog. Update: read more here.

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Illicit Capital Flight from India

We have recently been blogging about India - where the tax justice agenda seems to be taking off. now Global Financial Integrity has come up with an important news release regarding India:

"During the period 2002 to 2006, total IFFs (Illicit Financial Flows) from India average from a low of US$22.7 billion to a high of US$27.3 billion per year."

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The Roadshow to Serfdom

In a wonderful preamble to a song about bullfighting in Mexico, Harvard mathematician and satirist Tom Lehrer, introduced the character of Dr Samuel Gall, inventor of the eponymous bladder and specialist in diseases of the rich. Gall has, of course, been joined in this specialism by virtually the entire American medical-industrial complex, but I digress.

I was reminded of Dr Gall whilst working in Vienna last week. Talking with lawyers, bankers, economists, government ministers, and other specialists in the affairs of the rich, I entered this all-too-familiar world in which tax evasion by wealthy people is a legitimate response to the predations of democratically elected governments (code for Germany where a large proportion of their clients reside).

The tax evasion industry has a wide range of cheerleaders, including university professors, journalists, and all sorts of think-tank-operatives-cum-spin-doctors. Their ideology has shaped political debate since the 1970s and in almost all cases can be traced back to the Austrian (later British) economist Friedrich Hayek, most famous for his book The Road to Serfdom (first published in 1944). Hayek worked briefly at the London School of Economics, before heading to the University of Chicago in 1950. He later worked in Germany and returned to his native Austria. His influence as a preacher of full-on laissez faire capitalism cannot be underestimated, with leading disciples including Milton Friedman, Alan Greenspan, and a huge number of politicians who (following the lead of Margaret Thatcher and Ronald Reagan) bought into the notion that "there's no government like no government".

Greenspan has, of course, famously recanted. Faced with the almost complete collapse of the deregulated American financial system, he has fessed up in front of the US Congress and the world's TV cameras that he (belatedly) recognises a «flaw» in free market theory. Under challenge from Representative Waxman who proposed: «You, mean that your view of the world, your ideology, was not right, it was not working?» Greenspan replied, «Absolutely, precisely. You know that’s precisely the reason I was shocked, because I have been going for 40 years or more with the very considerable evidence that it was working exceptionally well.»

But not all of Hayek's disciples have joined the repenti. Several of those I met in Austria persist with the argument that the current crisis finds its origins in excessive or incompetent government regulation, and one lawyer put it to me that the only scandal relating to awarding bonuses to bankers who have been incompetent, greedy and worse was the idea that the state could intervene to prevent such payments from going ahead. The markets know best remains the refrain, despite overwhelming evidence that the markets have been clueless about the current crisis which has been building up for years.

And then there's the issue of tax havens. I have spoken with a large number of Hayek's disciples, including Dan Mitchell at the Center for Freedom and Prosperity (a leading cheerleader of tax havens), plus assorted members of Hayek related groups like the Mont Pellerin Society, and the F.A. von Hayek Institut, and they uniformly support tax havens as promoters of tax competition. Friedman, for example, is cited on the homepage of the CFP saying: "I write to express support for the Center for Freedom and Prosperity's support of tax competition." We have written elsewhere about the totally bogus idea of tax competition, which conflates micro-economic theory of the firm with the broader issue of political science and democracy, see here, for example, and here, but these zealots persist despite the huge evidence of the harm they have caused.

Whilst in Vienna I learned that the F.A.von Hayek Institut has put together a Road Show of various opinion formers on the extreme right, including Richard Rahn (former adviser to the Cayman Islands) now linked to the Discovery Institute, Dan Mitchell (CPF and Cato Institute), Prince Michael von und zu Liechtenstein, and others, to tour European countries to promote the benefits of laissez faire capitalism (and tax havens). Interestingly, the listed speakers include John Fund (Wall Street Journal) and Daniel Thorniley from The Economist, both newspapers taking an uncritically supportive editorial position on the role of tax havens, see here for example.

The Road Show starts in Skopje on 11th May, ending in London on 20th May. Expect to be reading a whole load of tax haven propaganda in your newspapers imminently.

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Monday, April 20, 2009

LEAP Conference - London - April 25

Speakers and contributors include: John Christensen (Tax Justice Network), Penny Cole, Bob Crow (RMT), Andrew Fisher, Paul Feldman, Professor Gregor Gall, Gerry Gold, Colin Hampton, John Hilary (War on Want), Jerry Jones, John McDonnell MP, Rosamund Stock, Graham Turner, Professor Richard Wilkinson, Matt Wrack (FBU).

The full conference agenda is here.

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Google avoids £100m UK tax

The Sunday Times reports:

"Google’s accounts show that the highly profitable search engine paid just £600,000 of UK corporation tax in 2007, despite generating revenues of more than £1.25 billion in this country."

TJN's Senior Adviser Richard Murphy did much of the work for the newspaper. Google avoided paying over £110m in UK tax in 2007. despite pulling in annual revenues of more than £1.25 billion, the research found. The story continues:

"Google avoided a further €135m (now £119m) in tax from Ireland during 2007. The search engine’s Irish subsidiary is owned by one of two companies Google has set up in the tax haven of Bermuda. Several sets of Google’s UK accounts were filed late, with one set of accounts outstanding by more than five months.

Vince Cable, the deputy leader of the Liberal Democrats, said: “Google is another in a long line of companies who seems to think that paying British taxes should be optional. “The reality is, the more tax that companies like Google avoid, the more the tax burden falls on the rest of the public."


Then, the usual disclaimer. The story said:

"Google, which has become the first port of call for hundreds of millions of people seeking information online, declined to reveal details of its corporate structure, how much UK tax it pays or the purpose of the operations it has set up in Bermuda. 'Google complies fully with the tax requirements in all the countries in which we operate,' the company said.

Richard explains more of the details here.

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Sunday, April 19, 2009

Tax and Corporate Responsibilty - ESRC event May 29

A discussion on the forgotten side of the corporate responsibility debate. Read more on the issues here.

Click on the image to enlarge.

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Friday, April 17, 2009

India waking up - Part II

We have just noted the tax justice agenda starting to create ripples in India. Now we've been sent something else from TaxAnalysts - no link, unfortunately, as it's a subscription-only service. This new article, which quotes TJN, may help explain the moves by India to try and tighten up on tax havens:

"The idea of repatriating wealth being siphoned to offshore tax havens caught the attention of India's political parties after The Economic Times, India's largest daily business newspaper, published Pai's letter on February 2. The letter, which suggested measures to bring the money back into India, estimated the unreported wealth at more than INR 1 trillion.

L.K. Advani, the Bharatiya Janata Party candidate for prime minister, said a mere fraction of the unreported Indian assets in tax havens would be sufficient to settle India's foreign debt."


and it added:

"Three political parties -- the Communist Party of India (Marxist), the Bharatiya Janata Party, and Janata Dal (United) -- have incorporated the issue of tax havens in their manifestos for the national elections that began April 16 and continue through May 13."

We are astonished and delighted to see this issue coming to life, around the world. Something that has been hidden and ignored for so very long.

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Tax havens: India getting serious?

The Indian Central Board of Direct Taxes is investigating ways of acting against roundtripping and treaty shopping, capitalizing on concerted attempts worldwide to force greater disclosure on tax havens, Tax News reports.

"In the present climate of opinion among world leaders where greater transparency is demanded of all the tax havens, India is examining its own financial relationships with Mauritius and Cyprus in particular, which together account for 46% of total inward direct investment into India in the last decade. In fact Mauritius overtook the US in this period as the largest direct investor in India."

That last sentence just illustrated how badly markets are distorted by the offshore system, as John Christensen has been remarking this morning on the BBC World Service's Analysis programme.

The Canadian High Commissioner to India acknowledged that while Canadian investment into India over the last ten years was USD 239m according to official statistics, the actual figure, including money routed through the tax havens, was more like USD 10bn, Tax News said.

"We should endorse sharing information and bringing tax havens and non-cooperating jurisdictions under closer scrutiny,” Prime Minister Manmohan Singh said at the G-20 dinner.

We shall watch this with great interest. It looks like a most positive development. All around the world, good sense is breaking out.

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International News - April 17

** Also see our searchable archive of past story summaries; and Offshore Watch. **


Indian Tax Authority Considers Ways To Reduce Use Of Tax Havens
April 17 (Tax News) - The Indian Central Board of Direct Taxes is investigating ways of acting against roundtripping and treaty shopping, capitalizing on concerted attempts worldwide to force greater disclosure on tax havens. India is examining its own financial relationships with Mauritius and Cyprus in particular, which together account for 46% of total inward direct investment into India in the last decade. In fact Mauritius overtook the US in this period as the largest direct investor in India.

Jersey Funds Industry To Benefit From New Investment Vehicles Structures
April 16 (Tax News) - Jersey’s funds industry is set to benefit from the introduction of new legislation this year which will offer more choice for fund promoters over how they structure their investment vehicles, according to funds lawyers, Joel Hernandez and Sophie Travis at Jersey law firm, Mourant du Feu & Jeune.

Switzerland May Implement Sanctions Against OECD
April 16 (Tax News) - Switzerland may exercise its veto on various key votes within the OECD together with applying other financial sanctions aimed increasingly at Angel Gurria, the OECD Secretary-General in protest at the way he personally is applying pressure to relax bank secrecy laws and share information for tax purposes.

Switzerland Ready to Return $130m Loot
April 16 (This Day) - The Government of Switzerland yesterday said it would be willing to release the $150 million Halliburton bribe money trapped in Swiss bank accounts if Nigeria formally requests for assistance."We have discovered that $150 million of the bribe money is in Zurich.”

‘Eaten alive by investment bankers’
April 16 (FT) - “I witnessed trusting and naive provincial building society executives and non-executives, who had no real understanding of securitisation or structured finance or any other aspect of the workings of global capital markets, being eaten alive by cynical, rapacious and short-termist investment bankers

Financial Watchdog Lacks Bite
April 16 (FT) - Lord Turner of Ecchinswell, who became chairman of the FSA last September, has admitted that the City watchdog’s previous “light touch” form of regulation was a mistake. Lord Turner proposed restrictions on excessive bonuses and greater regulation of the “shadow banking” system, such as hedge funds and offshore tax havens.

UBS Client Pleads Guilty in Tax Case
April 14 (NYT) - A wealthy UBS private banking client whose yacht company caters to Russian oligarchs, Kuwaiti royals and other global jet-setters, pleaded guilty on Tuesday to tax fraud, the second American caught in a widening investigation of the Swiss banking giant.

Radio: William Brittain-Catlin on tax havens

Radio: TJN's John Christensen on BBC World Service Analysis

Credit Card Processor Asked for Offshore Data
April 15 (NYT) - The federal government is widening its investigation of offshore tax evasion to include services sold by the First Data Corporation, a large processor of credit card transactions.

Still No Verdict in Castroneves Tax Case
April 15 (AP) - Jury deliberations will stretch into a fifth day in the complex tax evasion case of Brazilian race car driver Helio Castroneves and two co-defendants.

Obama Vows to Reform "Monstrous" Tax Code
April 15 (Reuters) - President Barack Obama promised Americans his administration would reform the "monstrous" U.S. tax system as millions faced the dreaded annual deadline on Wednesday for filing income tax returns.

The quiet coup
The American financial industry gained political power by amassing a kind of cultural capital—a belief system. Once, perhaps, what was good for General Motors was good for the country. Over the past decade, the attitude took hold that what was good for Wall Street was good for the country. The banking-and-securities industry has become one of the top contributors to political campaigns, but at the peak of its influence, it did not have to buy favors the way, for example, the tobacco companies or military contractors might have to. Instead, it benefited from the fact that Washington insiders already believed that large financial institutions and free-flowing capital markets were crucial to America’s position in the world.

Digger: Clubs no haven for super rich
April 7 (Guardian) - The ultimate controlling party for more than a third of the 20 Premier League clubs are based offshore

Panama holds out against campaign to end era of banking secrecy
April 13 (Times Online) Faced with the growing hostility of politicians, some tax havens quickly crumbled under the pressure.

Round-tripped FDI from tax havens under OECD review
April 13 (Financial Express) Days after G-20 nations agreed to crack down on tax havens where nearly $11 trillion is parked, the Organisation of Economic Cooperation and Development (OECD) has begun a review of India’s foreign direct investment (FDI) policy to suggest measures that will ease sector-specific ceilings as well as look into issues of round tripping.

Swiss bank 'to close US customer accounts'
April 13 (Guardian) The Swiss bank Credit Suisse is edging towards closing the accounts of thousands of American customers as tax authorities in Washington step up a campaign against offshore banking secrecy.

It is time to put finance back in its box
April 13 (Financial Times) Nicolas Sarkozy arrived at the Group of 20 summit having said: “The all-powerful market that is always right is finished.” The French president left it proclaiming “a page has been turned” on the Anglo-Saxon financial model.

Welcome to tax-dodge city, USA
April 10 (Guardian) It lacks the palm-fringed sandy beaches of the Cayman Islands. Or the craggy Alpine peaks of Liechtenstein. But should the second smallest US state, Delaware, go on a blacklist of globally notorious tax havens?

New CTJ Fact Sheet: Do the Rich Really Pay Over a Third of Their Income in Federal Income Taxes?
April 10 (Tax Justice Digest) As we approach April 15th, one complaint we often hear is that Americans who work hard and become successful have to pay over a third of their income in federal income taxes. But a recent report from the Internal Revenue Service (IRS) shows that this is not remotely true.

The G20’s plan to tackle banking secrecy is a small step in the right direction, says Prem Sikka
April 9 (Tribune Magazine) TAX avoidance has undermined the tax base of many countries

Shackelford Presents Corporate Income Tax Burdens at Home and Abroad Today at Northwestern
April 9 (Tax Prof Blog) Douglas Shackelford (University of North Carolina, Kenan-Flagler Business School) presents Corporate Income Tax Burdens at Home and Abroad (with Kevin Markle (University of North Carolina, Kenan-Flagler Business School) at Northwestern today as part of its Advanced Topics in Taxation Series organized by Tom Brennan and Charlotte Crane.

Distributional Consequences of Converting the Property Tax to a Land Value Tax
April 8 (Tax Prof Blog) John H Bowman and Michael E Bell have published Distributional Consequences of Converting the Property Tax to a Land Value Tax: Replication and Extension of England and Zhao

Cabinet seeks greater say on tax haven laws
April 8 (Swiss Info) Switzerland is seeking to boost international cooperation to avoid a repeat of sanction threats against its financial centre.

Is the sun setting on Tax Dodgers?
Comment article from our friends at GFI.

Come to Sunny Jersey!
April 8 (Senator Stuart Syvret Blog) Just a brief post as I am doing yet more legal work - and as I've commented elsewhere, the police raid and search of my home on on Monday was - most definitely -unlawful.

Six tax breaks you've probably never heard of.
April 7 (Newsweek) Ah, the wild, wacky tax code—you gotta love it. With more than 20,000 pages of rules and regulations, there's something in it for everyone. And we mean everyone.

From the House That Ruth Built to the House the IRS Built
April 6 (Tax Foundation) The stadium's construction costs have been publicly subsidized in the form of $942 million in tax-exempt bonds issued by New York City.[3] Seeking tax-free status for the bonds to ensure a lower interest rate, New York structured the deal to ensure it didn't run afoul of a federal tax code provision which requires that such bonds not be "private activity bonds."

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