Forbes: Let's tax offshore wealth sitting in first world banks

"How can we get the world's wealthiest scoundrels--arms dealers, dictators, drug barons, tax evaders--to help us pay for the soaring costs of deficits, disaster relief, climate change and development?" Simple, argues TJN's Jim Henry, in this article in Forbes Magazine: "levy a modest withholding tax on untaxed private offshore loot."

Jim, whose forthcoming Pirate Banking we await with great anticipation, estimates the volume of private wealth sitting offshore, entirely untaxed at somewhere between US$15 to 20 trillion. Three-quarters of that wealth is managed by the top 50 or so North American or European banks. Tax evasion cannot happen on that scale without the complicity of these banks, which make extraordinary profits from "wealth management" -- read "providing tax evasion services" -- on their client's behalves.

The vast majority of this wealth, 95 percent according to Jim, is concentrated in the hands of around 10 million hen-wees (high net-worth individuals), few of whom would squeal if a wealth tax of a mere 0.5 percent was imposed annually on their offshore loot. Greed, however, is a funny thing: despite the fact that the vast majority of people are having higher taxes and public service cuts imposed on them by governments that lack the courage and integrity to tackle massive inequality and tax injustice, hen-wees see themselves as a class apart, without obligations or responsibilities to the societies from which they derive their largely unearned wealth.

You can read Jim's article here.

G-20: Heavy on Promises, Short on Action

The Task Force on Financial Integrity and Economic Development, on whose Coordinating Committee TJN sits, has issued the following statement on the G20 Summit in Toronto:

WASHINGTON, DC -- The G20 Summit in Toronto June 27th-28th was heavy on promises and lean on concrete action items, notes the Task Force on Financial Integrity and Economic Development. While the G20 expressed a strong desire to "close the development gap," increase transparency, and tackle corruption and money laundering, there was a notable lack of language indicating an understanding of the interconnected nature of these different problems.

"We are disappointed that there was not an acknowledgment of the importance of curtailing illicit financial outflows from developing countries in the official statement," said Global Financial Integrity director Raymond Baker. "The G20 seems intent on increasing official development assistance and pumping money into other lending bodies for development work but the annual loss of $1 trillion a year from developing countries will continue to dwarf development aid and undermine all efforts to foster robust and sustained economic development until corrective action is taken."

Connect the Dots: A Prescription for Curtailing Illicit Outflows

In September 2009 the Task Force prepared a comprehensive policy paper with recommendations for curtailing illicit financial outflows from developing countries based on combating corruption and money laundering, dismantling bank secrecy, and fostering more rigorous reporting by multinational corporations.

Key policy recommendations include:

* Country-by-country reporting by multinational corporations of sales, profits, and taxes paid in all jurisdictions of operation;
* Reduce abusive transfer pricing, tax evasion;
* Require disclosure of the beneficial ownership of companies, and the beneficiaries of trusts and foundations;
* Automatic exchange of tax information;
* Stronger due diligence requirements on banks, better enforcement of these requirements;
* Harmonizing predicate offenses for money laundering.

The measures set forth by the Task Force would directly address several of the G20's key global priorities. Making multinational corporations and banks more transparent would significantly hinder money laundering, tax evasion, and corruption by making it difficult to impossible to launder and hide the proceeds of these illicit activities.

New Actions:

Two notable action items from the official summit statement are the establishment of two working groups tasked with addressing issues of corruption and development.

Statement on Anti-Corruption Working Group:

We agree that corruption threatens the integrity of markets, undermines fair competition, distorts resource allocation, destroys public trust and undermines the rule of law. We call for the ratification and full implementation by all G20 members of the United Nations Convention against Corruption (UNCAC) and encourage others to do the same. We will fully implement the reviews in accordance with the provisions of UNCAC. Building on the progress made since Pittsburgh to address corruption, we agree to establish a Working Group to make comprehensive recommendations for consideration by Leaders in Korea on how the G20 could continue to make practical and valuable contributions to international efforts to combat corruption and lead by example, in key areas that include, but are not limited to, adopting and enforcing strong and effective anti-bribery rules, fighting corruption in the public and private sectors, preventing access of corrupt persons to global financial systems, cooperation in visa denial, extradition and asset recovery, and protecting whistleblowers who stand-up against corruption.

Development Issues Working Group:

Narrowing the development gap and reducing poverty are integral to our broader objective of achieving strong, sustainable and balanced growth and ensuring a more robust and resilient global economy for all. In this regard, we agree to establish a Working Group on Development and mandate it to elaborate, consistent with the G20's focus on measures to promote economic growth and resilience, a development agenda and multi-year action plans to be adopted at the Seoul Summit.

Some notable language on money laundering and tackling tax havens in the G20 statement center around the delegation of monitoring and regulatory action to the Financial Action Task Force (FATF):

We fully support the work of the Financial Action Task Force (FATF) and FATF-Style Regional Bodies in their fight against money laundering and terrorist financing and regular updates of a public list on jurisdictions with strategic deficiencies. We also encourage the FATF to continue monitoring and enhancing global compliance with the anti-money laundering and counter-terrorism financing international standards.

We agreed to consider measures and mechanisms to address non-cooperative jurisdictions based on comprehensive, consistent and transparent assessment, and encourage adherence, including by providing technical support, with the support of the international financial institutions (IFIs).

We fully support the work of the Global Forum on Transparency and Exchange of Information for Tax Purposes, and welcomed progress on their peer review process, and the development of a multilateral mechanism for information exchange which will be open to all interested countries. Since our meeting in London in April 2009, the number of signed tax information agreements has increased by almost 500. We encourage the Global Forum to report to Leaders by November 2011 on progress countries have made in addressing the legal framework required to achieve an effective exchange of information. We also welcome progress on the Stolen Asset Recovery Program, and support its efforts to monitor progress to recover the proceeds of corruption. We stand ready to use countermeasures against tax havens.

The Task Force is heartened to see that the G20 continues to prioritize economic development as part of its broader work restructuring the global financial system. But the official statement from Toronto reveals a continued failure to grasp key linkages between financial opacity in the global financial system and illicit financial outflows from developing countries.

The Task Force hopes that the policy recommendations to be presented by the new Working Groups on development and anti-corruption measures in Seoul reflect this interconnectivity and incorporate elements of the Task Force prescription.

The Task Force on Financial Integrity and Economic Development is a consortium of governments and research and advocacy organizations focused on achieving greater transparency in the global financial system for the benefit of developing countries.

Task Force members include: Christian Aid, the European Network on Debt and Development (Eurodad), Global Financial Integrity, Global Witness, Tax Justice Network, Tax Research LLP, and Transparency International. *For full Task Force membership visit the Task Force website at http://www.financialtaskforce.org/ or contact Monique Perry Danziger at +1-202-293-0740 or mdanziger@gfip.org.


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The Task Force on Financial Integrity and Economic Development addresses inequalities in the global financial system that penalize billions of people, and advocates for improved transparency and accountability.


For additional information please visit http://www.financialtaskforce.org

G20: Canada delivers a potentially catastrophic failure

French commentator Jacques Attali, former president of the European Bank for Reconstruction and Development, has written a scathing commentary on the abysmal failure of last weekend's G-20 summit in Toronto. Its written in French, but here are rough translations of some of the highlights:

First, on the G-20 processes:

"like all meetings where non-one observes the rules, it is the strongest who rule over the proceedings. And in this context, this means the Americans and Chinese . . ."

On banks:

"they failed to agree on banking regulation, on taxing banks, on bank reserves, not even on their accounting systems"

On the Americans:

"... they succeeded in keeping the dollar as the principal reserve currency, in continuing to borrow from the entire world without any intention of ever paying anything back, and in making sure that no-one can intervene in their tax havens."

On the Chinese:

"they ensured that no-one challenged their exchange rate policy, nor their export policy, nor the weakness of domestic consumption in China. And that no controls are imposed on their financial centres and tax havens."

On the Europeans:

"...divided and without strategy . . ."

And in conclusion:

"Nothing has altered since G-20 first met. Day by day, democracy retreats in the face of the markets. Day by day, another financial crisis is building up, which will wreck all the efforts to control budget deficits.

And then what? What will they do then? Nothing, apart from making taxpayers pay yet again. Revolutions have been started for lesser reasons . . ."

Canadian Prime Minister Harper should hang his head in shame: he and his G-20 colleagues have failed to show leadership at the crucial moment.

Conference: The Political Economy of Taxation

Here is a the provisional programme for the forthcoming international conference at the Centre for the Study of International Governance, Loughborough University, at end-September.

Knowing many of the listed speakers, we can recommend it to both researchers and activists engaged on tax justice related issues:

The Political Economy of Taxation
An International Conference
Loughborough University, UK
September 29th 2010, 9.30 am to 6.30 pm

Conference Programme

Session A: 9.30-11.15

Taxation, Tax Culture and Taxation Reform in European Countries

George Irvin (SOAS, London) The Need for UK Tax Reform
Dieter Eissel (Giessen University, Germany) Social and Economic Aspects (or Failures) of Tax Policy in Germany
Francisco Pino (University of Salamanca, Spain) Tax Reform in Spain
Marc Berenson (University of Sussex, UK) Tax Me If You Can: What’s changed in Polish, Russian and Ukrainian Attitudes toward Tax Compliance from 2005 to 2010?

Session B: 11.30-13.15

Taxation Policy in the European Union

Frances Lynch (University of Westminster, UK) Effective Rates of Income Taxation in Western Europe since 1958
Miguel Glatzer (University of Massachusetts – Dartmouth, USA) Tax Inequality in Western Europe
Philip Genschel (Jacobs University, Bremen, Germany) Accelerating Downhill: How the EU shapes Tax Competition in the Single Market
Joao Felix Noguiera (Institute for Austrian and International Taxation, Vienna) European Direct Taxation and European Court of Justice Case Law

Session C: 14.00-16.00

Taxation, Taxation Policy and Development

Paul Sagar, Nick Shaxson, John Christensen (Tax Justice Network) Britain’s Conflicted Relations with its Tax Haven Satellites
Aaron Schneider (Tulane University, USA) The Politics of Taxing Transnational Elites in the Small, Dependent, Open Countries of Central America
Abiola Sanni (University of Lagos, Nigeria) The Challenges of VAT Law and Administration in a Federal System – A Case Study of Nigeria
Attiya Waris (University of Nairobi, Kenya) Taxation and State Legitimacy in Kenya
Alberto Vega (Universitat Pompeu Fabra, Barcelona) Tax Treaties between Developed and Developing Countries

Session D: 16.30-18.30

Recasting Taxation Policy: Principles and their International Implications

Margit Schratzenstaller (Austrian Institute for Economic Research, Vienna) International Taxes – Why, What and How?
Paolo Ermano (University of Udine) Equity, Efficiency and Progressive Taxation
Dries Lesage & Yusuf Kaçar (University of Ghent, Belgium) Country-by-Country Reporting as a Means of Fostering Tax Justice Worldwide
Doug Bamford (University of Warwick, UK) Comprehensive lifetime taxation, tax avoidance, and international citizens.


NOTE: There is a registration fee for this conference of £20, payable with the completed application form. This can be obtained from the conference office of the Centre for the Study of International Governance: csig@lboro.ac.uk

Strongly recommended!

On well-oiled efficient markets

Sometimes it's the small anecdotes that best illustrate the failures of grand doctrines. For those still wedded to the "efficient markets" doctrine used to justify the willy-nilly flow of untaxed, unregulated financial capital across borders, it might be illuminating to read this little FT story:

"The Financial Services Authority fined Steven Perkins, a former oil futures broker at the London-based PVM brokerage, £72,000 ($108,000) for “market abuse” after he took a “very significant” bet of more than $500m in Brent crude oil.

He accessed the market using an internet-based trading platform from his laptop in the middle of the night. The regulator said Mr Perkins’ explanation for his trading on 29 and 30 June, 2009, was that he was drunk after drinking “heavily throughout the weekend” on a company’s golf party.

He continued drinking afterwards, he told the FSA. “Mr Perkins’ account ... is that he was drunk and was in an alcohol induced blackout.”

The case made headlines last year as Mr Perkins’ trading pushed Brent prices to more than $73 a barrel, the highest level of the year up to that date."

Light-touch London: don't you just love it?

G-20: concerns raised about aggressive tax avoidance strategies of banks

Guest blogger Professor Dries Lesage, University of Ghent - originally published on Mondiaal Nieuws

OECD: Governments very concerned about massive deductible bank losses

TORONTO, 28 juni 2010 (MO) - Saturday (26 June), Jeffrey Owens, head of tax at the OECD, said that his organization is involved in talks between governments and the banking sector on the rising issue of deductible bank losses. He did so in Toronto at a press briefing for journalists covering the G20 summit.

During the ongoing global financial crisis, banks have already lost 800bn dollars, and this amount is rapidly growing on a weekly basis. These losses “have to be deducted somewhere”, and governments are concerned that this will heavily affect their corporate tax revenues over the coming years. Moreover, there are indications of “aggressive tax planning strategies” applied by banks. These include methods to make losses come to the surface in higher-tax jurisdictions. It could be that some important banks will not have to pay any corporate taxes at all in the coming years, and will even get refunded. Yet, Mr Owens is pleased with the progress made thus far and the constructive attitude of the actors involved. A report is to be released in September. Officials also think of a voluntary code of conduct for banks. Anyway, this issue adds a new dimension to the discussion on bank taxes.

Tax and development

Mr Owens also made a strong case to consider the relation between tax and development. Although domestic resource mobilisation is on the rise in a number of developing countries, “aid agencies should pay much more attention to this aspect.” Support to national tax administration still amounts to only about 0.7 percent of total development assistance. This effort should be increased, as the investment is likely to yield a multiple return. The OECD is becoming actively engaged in the tax and development debate in the framework of the UN Financing for Development process.

G20 and tax havens

With regard to tax havens, Mr. Owens called this topic a “G20 success story.” He emphasised the peer-review process that is now underway in the OECD’s Global Forum on transparency and information exchange. The review involves all G20, OECD and offshore jurisdictions. It will first examine legal and regulatory frameworks, and subsequently the actual implementation. The review is to take three years. In answer to a question, he stated that, at this moment, a revision of the criteria to assess compliance with the OECD standard is not on the table. That standard allows for information exchange on request between countries in a way that overrules banking secrecy. In particular the threshold of 12 bilateral tax agreements as an indication of compliance is facing growing criticism. It has made it too easy for certain jurisdictions to move from the G20 black and grey lists to the white list.

The French President Nicolas Sarkozy, at a press briefing in Toronto on Saturday just before the G20, suggested that some jurisdictions have met the number of 12 in a way that is not very serious. Possibly, he meant the fact that some tax havens had been concluding agreements with other tax havens or thinly populated jurisdictions such as Greenland. The logical implication of Sarkozy’s remark seems to be that there are jurisdictions now on the white list that should not be there. Sarkozy again talked about “putting non-complying jurisdictions on a black list”, even though the G20 black list got empty shortly after the 2009 London summit.

In a reaction, Mr Owens specified that the OECD has never said that reaching 12 agreements is sufficient. Also the implementation has to be looked at, as well as the overall compliance with the spirit of the OECD’s standard. The aim of the peer review is exactly to identify any remaining practices that may undermine the effectiveness of the standard. Moreover, “87 percent of the agreements are between countries which have real economic links, so massive signing of agreements is a sign of real progress.” Responding to specific questions, he added that places such as Hong Kong, Macau and the State of Delaware, located in powerful G20 countries, will equally be examined. There is a possibility that as a result of the peer review new proposals will be made.

Dries Lesage (University of Ghent) followed for MO* the G8 and G20 summit in Canada.

And now the Pyrenees goes tax haven-free

As the world teeters on the edge of the dreaded double-dip recession (read depression) ordinary people are bracing themselves for tax rises and public service cuts. But rich people are laughing all the way to their tax haven of choice. And despite the brave words of 2009, nothing of any practical use has been implemented against these places by the G-20. The Toronto summit cost a fortune but scored less than zero on virtually all counts (a very poor reflection on Canadian Prime Minister Harper), and claims about progress on signing tax havens up to information exchange treaties (see here for example) are not backed by evidence that exchanges are actually occurring.

We are hoping that next year's G-20 will see more progress on the tax haven front. The French public is far better informed on this subject than in the Anglo-Saxon countries (the latter resolutely ignoring their pernicious role in creating and sustaining these obnoxious and toxic places), and - as we have previously reported - French opposition parties are ratcheting up the pressure on the President, who holds the 2011 G-20 Presidency, to take action. The Région Pyrenees has joined the fast-growing list of regions that has signed up to being tax haven-free, which counts as yet another good reason for visiting this beautiful part of France.

Meanwhile, Paris is awash with delicious gossip about the L'Oreal tax fraud case, which threatens the political career of labour minister Eric Woerth, not to mention harming the brand image of that (in)famous company with past connections to far-right political causes.

Break open the bubbly: Champagne Ardennes wants to go tax haven-free

Champagne Ardennes is the latest French region to want to go tax haven-free. Where Ile-de-France led the way, others are now rushing to follow.

While we accept that this is largely a symbolic action, this blogger recalls that many of the actions taken against Apartheid South Africa were also largely symbolic, but had the effect of shifting public opinion against that obnoxious system. And that is exactly what we hope to achieve with our campaign against tax havens, which are largely a manifestation of a new form of imperialism and every bit as obnoxious and harmful as racism.

Vive le Région Champagne Ardennes.

Germany fuelling tax competition

From the TJN-Deutschland blog, loosely translated, commenting on new EU tax statistics:

"Eurostat has a new statistic on tax developments in the European Union published EU27 , which shows that between 2000 and 2008 Germany has moved from being a "victim" of the cut-throat competition for the lowest taxes on capital into a "perpetrator."

Eurostat notes that the average tax rate has fallen in the EU-27 since 2000 (40.6%) to 39.3% of GDP in 2008 (Germany is exactly average: 39.3%). The figures also show a continued decline in the top rate of corporation tax since 2000 (31.9%) to an average of 23.2% today (2010). Similarly for Income Taxes: In 2000, the average top tax rate amounted to 44.7%, today it is now only 37.1%.

According to Eurostat, the implicit tax rate on capital in Germany fell from 28.4% in 2000 (EU average: 25.1%) to 23.1% in 2008 (EU average: 26.1%).

Germany has clearly opted for an aggressive international tax strategy that leaves it with little legitimacy in the fight against tax havens.

Endnote: this English blogger grudgingly congratulates Germany on its football victory yesterday. We can reveal, courtesy of this Suddeutsche Zeitung photo, how they did it. Hat tip: Markus Meinzer.

OECD must stop touting its info exchange standard

We would have thought by now that the OECD would be toning down its rhetoric about its woefully inadequate, fig-leaf information exchange standards, given the sheer weight of evidence and analysis that is stacked against it. We are distressed to see that in a June 23 report, entitled Promoting transparency and exchange of information for tax purposes, that it says:

"The standard of information exchange on request, including bank and fiduciary information, is now universally endorsed."

Apologies for the undiplomatic statement here, but we are quite justified, and quite correct, in saying that the OECD is lying. The OECD standard is not universally endorsed, and the OECD is very well aware of the fact. We certainly don't endorse it and we never have, nor has any real civil society organisation. Those that are engaged on the issue oppose it, actively and strongly.

BP recently showed a contemptuous attitude about the "small people" and the OECD, it seems, is similarly minded to take the Leona Helmsley approach.

We have demonstrated beyond doubt that automatic information exchange, which is the way to go, is the emerging standard (see here or here or here or here or here or here or here or here, just for example); and we have demonstrated clearly why the OECD's standard is absolutely and utterly inadequate (see here or here or here or here or here or here or here or here, just for example).

The OECD's standard is worse than useless, because while we do accept that it has promoted some change on the margins, its main effect has been to allow business as usual, while giving the appearance of real change. Hardly a surprise for an organisation whose members include the world's most important secrecy jurisdictions. The OECD puffs its record up blatantly, as the latest report notes:

"The OECD Secretary General stated “what we are witnessing is nothing short of a revolution. By addressing the challenges posed by the dark side of the tax world, the campaign for global tax transparency is in full flow. We have equipped ourselves with the institutional means to continue the campaign."

The OECD must not be allowed to get away with this deception. For more on information exchange, click here.

P.S. the picture in this blog is of Captain Yossarian, who would have understood the OECD's information exchange standard very clearly indeed.

USA inequality latest

From the Center on Budget and Policy priorities:

"The gaps in after-tax income between the richest 1 percent of Americans and the middle and poorest fifths of the country more than tripled between 1979 and 2007 (the period for which these data are available), according to data the Congressional Budget Office (CBO) issued last week. Taken together with prior research, the new data suggest greater income concentration at the top of the income scale than at any time since 1928."

Read on, for more details, including why the latest recession may amount to only a speed bump in an ever-continuing trend. We blogged this not so long ago, including this quote:

"Based on the US historical record, falls in income concentration due to recessions are temporary unless drastic policy changes, such as financial regulation or significantly more progressive taxation, are implemented and prevent income concentration from bouncing back. Such policy changes took place after the Great Depression during the New Deal and permanently reduced income concentration till the 1970s. In contrast, recent downturns, such as the 2001 recession, lead to only very temporary drops in income concentration."

And for more on why inequality matters, click here.

Excellent article on transfer pricing

. . . by the expert Lee Sheppard of TaxAnalysts. We won't reproduce much of it here (read it for yourself; it's not that long) except for a taster or two:

"The United States imposed the so-called "international consensus" on the taxation of multinational corporations on Europe 50 years ago, and will not back away from it, even though the government is losing tax revenue. This bad system has survived due to congressional cravenness in the face of multinational corporations arguing that competitiveness depends on not paying taxes."

And

"The OECD bureaucracy and American multinationals are locked in a codependent relationship that benefits both to the detriment of the federal budget. American tax professionals profit from the present system. The U.S. government throws on ineffectual fixes, while cutting secret deals with multinationals. Occasionally the government drags a multinational into court and loses badly."

And, finally:

"There is no perfect answer for assignment of multinationals' income to specific tax jurisdictions. The law should recognize this fact and move toward a system that is fair and administrable. The international consensus is neither. Formulary apportionment, as the Europeans have recognized, is the fairest multilateral approach."

But there are plenty of useful and well-explained analysis, and details, in there. If you want to read more about this vital subject, on formulary apportionment, on the CCCTB, and more, click on our Transfer Pricing resource page.

Transparency to break out in California?

Citizens for Tax Justice has produced another useful pointer:

"Bills moving through the California legislature would make it much easier to determine whether California’s special tax breaks — costing billions of dollars annually — are worth the trouble. Specifically, the Assembly would require that the names of publicly traded corporations, and the amounts they received in specific tax breaks, be made publicly available on a searchable website. The Senate, in turn, is seeking to create a new job creation reporting requirement, and to require that new tax credits include specific, measurable goals and sunset dates. Business groups have predictably lined up in opposition to these bills."

This is such a no-brainer, as they like to say over there, that it's a wonder it doesn't happen more often. More here.

Delaware fights against U.S. transparency

Citizens for Tax Justice in the United States has a short but important article how Senator Thomas Carper of Delaware is trying to throw a spanner into the machinery of new legislation to increase transparency in the U.S. financial system - one of the factors that led us to rank the United States in first place in our Financial Secrecy Index.

For those who need reminding, Senator Carl Levin gave an example of the kind of thing that Senator Carper wants to encourage:

"In July 2009, Romania filed a formal request with the United States for the names of [Bout's] company’s owners and other information. But it is unlikely that the United States can supply the names since, as this Committee has heard before, our 50 states are forming nearly 2 million companies each year and, in virtually all cases, doing so without obtaining the names of the people who will control or benefit from those companies. The end result is that a U.S. company may be associated with an alleged arms trafficker and supporter of terrorism, but we are stymied in finding out, in part because our States allow corporations with hidden owners."

Shame on Senator Carper. Delaware has been behaving like this for a century. William Cary, a former chairman of the Securities and Exchanges Commission, said in a landmark article about Delaware in 1974:

“Necessary high standards of conduct cannot be maintained by courts shackled to public policy based upon the production of revenue, pride in being ‘number one,’ and the creation of a ‘favorable climate’ for new incorporations.”

How true. And how little things change. As an endnote: Delaware has rightly received a vast amount of criticism for its appalling legislation. In terms of raw outrageous secrecy, however, it probably isn't even the worst state in the U.S. That prize probably goes to Wyoming or Nevada. More on that later.

Don't forget the corruption enablers

The Boston Globe is carrying a useful opinion piece on corruption:

"Everyone’s against corruption, or so they say. But virtually every country in the world is awash in cross-border flows of corrupt, criminal, and tax-evading money. To Western eyes, the Third World is the locus of this shady behavior. Yet the rich and powerful countries, the winners that write the rules for the global financial system, are corruption’s pinstriped enablers."

The TJN corruption analysis, which we articulated in an article jointly co-authored with Raymond Baker of Global Financial Integrity, is clearly catching on. (And some of the terminology: pinstriped enablers is classic TJN-speak) About time too.

Meanwhile, the Guardian is carrying another article from Anthea Lawson of Global Witness, who is arguing along very similar lines:

"In 2008, Africa received $44bn (£29.5bn) in international aid. In the same year, the continent exported oil and minerals worth $393bn. Many of the poorest countries could lift their populations out of poverty with their natural resource revenues. One of the biggest things stopping them is the willingness of the international financial system to accept looted funds. The flow of corrupt funds into the banks of the developed world is a disaster for the world's poor. Some estimates put this transfer of wealth as high as $40bn a year."

Bear in mind that this $40 billion estimate is just one very small part of the overall panorama of illicit flows - in his book Capitalism's Achilles Heel, Raymond Baker estimated that the illicit flows stemming from corruption were merely three percent of the overall picture.

TJN research seminar, Guatemala

This email has just come in:

First ever TJN Latin American research and training seminar is being held in the city of Antigua, 25 - 27 August, 2010.

Please consider registering before the 2nd July 2010.

We have now completed a nearly final programme of an upcoming research and training event in the city of Antigua in Guatemala, taking place between the 25th to the 27th August. The first day and a half will be a research seminar, and the second day and a half will be a training event. We'd wish participants come for both events, but can also choose to be present for only either one if this is preferred..

If you'd like to participate to this event, or if you'd like to sponsor your partners to participate, please refer to myself, Martin Rodriguez ( martin.rodriguez@icefi.org ) from ICEFI, and Federico Arenoso ( farenoso@poderciudadano.org ) from Poder Ciudadano, for registration. The event organisers have already identified 30 leading Latin American civil society actors, and central american policy-makers to participate. We have decided to open up the seminar for further participants, to increase the audience so that others can also benefit from the programme.

It's important to have:

1) names of participants, and contact details;
2) the organisations they represent;
3) days they will travel (and thus be included in conference package);
4) and billing information (i.e. who to address an invoice).

We will then administer a preparatory package: including pre-reading materials, and a participant questionnaire to better prepare the conference, so again essential to pre-register so we have everybody included in the participatory and preparatory work of the seminar.

In this case ICEFI will prepare a conference package price of approximately 150-200 USD per day, which includes hotel accommodation, airport pick-up, half-board, local transport, and conference participation. ICEFI will confirm the rate as we negotiate the hotel, and for this reason advance registration 2 months prior is essential for negotiating good rates in the middle of the summer tourist season in the old colonial city of Antigua, which receives many tourists in the summer.

We will send a full programme in both English and Spanish as soon as we confirm the two final speakers in the research seminar, and as soon as our Argentinean partner Poder Ciudadano gives us the final version of the training programme.

Free counselling for accountants driven loopy by tax loopholes

ActionAid campaigners demanding tax justice for developing countries added colour to an arcane-sounding accountancy event in central London on Thursday 24th June by offering a free counselling service for accountants attending the International Accounting Standard Board’s IFRS conference.

This is the first time an IASB event has been targeted by campaigners. ActionAid says it wants to draw attention to calls for a country-by-country reporting standard within the IASB’s IFRS6 standard for extractive industries, which is currently being reviewed and will be discussed at the conference.

“We’re not against the IASB, in fact we think it can be a positive force for good. But it must consider the needs of all users of company accounts, in developing and developed countries,” explained Martin Hearson, ActionAid Policy Advisor and therapist-in-chief.

“We’re here to urge the IASB to deliver country-by-country reporting in the extractive industries. Greater transparency in the tax affairs of multinational companies is a vital step towards enabling developing countries to finance their own development, as well as a way to tackle corruption and make governments more accountable to their citizens.”

“ActionAid believes that transparency is the best medicine to tackle tax evasion and corruption, and like others in the Publish What You Pay coalition we want the IASB to support country-by-country financial reporting.”

African countries lose huge amounts of tax revenue that could be used to combat poverty as a result of corruption, combined with tax dodging by mining companies. ActionAid says that including country-by-country reporting in IFRS6 would reduce the levels of secrecy within the industry and allow citizens to monitor the payments made to governments, as well as helping tax authorities to detect tax evasion practices.

The campaigners were outside the conference as the Outlandish Revenue Service, committed to going to ludicrous lengths to achieve tax justice. They invited accountants driven loopy by tax loopholes or crazed by convergence to relax on their chaise longue and receive free counselling advice from highly trained professionals. In return for this free counselling, campaigners urged accountants to ensure that country-by-country reporting is included in their discussions


For more information contact Sean Kenny on 07872 378251 or Martin Hearson on 07727 235391.

From Top Kill to tax kill

From the Huffington Post:

"No "top kill" or "blind shear ram" can stem this leak, which is costing taxpayers billions. And unlike the Deepwater Horizon leak, which will eventually be closed off, this costly tax loophole is poised to grow much larger."

This is based on a story by the U.S. tax writer David Cay Johnston in Tax Notes. A simplified explanation is available on youtube, where Johnston explains how anyone filling up for gas in the U.S. is "being forced to pay the income taxes of some of the wealthiest people in America." The full details are available here.

In brief, utilities in the U.S. are regulated monopolies that set rates based on formulas for a "just and reasonable rate of return."

Johnston discovered a rule buried in the regulations that lets companies to organize as MLPs to avoid paying corporate income tax on the earnings and simultaneously apply to the government to set higher rates based on the "potential" tax costs they are avoiding by being organized as MLPs. The result is billions in added costs passed on to consumers and, according to Johnston's calculations, 75 percent higher after-tax profits for the pipeline investors.

The Tax Notes report is here, courtesy of TaxProf.

Venezula prohibits offshore transactions

From Venezuela Analysis:

"Sudeban, Venezuela’s independent bank and financial institutions regulator that acts under the Banks and Financial Institutions Law, with the approval of the Central Bank of Venezuela (BCV), passed a resolution last week to prohibit financial operations and transactions with off-shore banks in countries that apply little regulation. That is, in the words of the resolution, “in countries, states, or jurisdictions with low taxes, without supervision or monetary, banking, or financial regulation and with strong bank secrecy protection.”

Venezuela, by virtue of its oil as much as anything else, is not what one might call a "normal" country in economic terms, so we won't herald this as particularly signalling a trend. But it does follow some important moves against tax havens (or secrecy jurisdictions) by Brazil, which we blogged recently, and by something different, but in a similar spirit, by the Ile-de-France.

And we'd also note that when a country takes a determined stand, really big changes can happen. Just look here, for a good example of what leadership can achieve.

Reagan Revolution - in charts

The Daily Kos has a vivid set of charts what has happened to Americans before and after the Reagan revolution. If you like that sort of thing, click here.

Indian state cracking down on rampant transfer pricing abuse

We have previously reported on India's efforts to crack down on transfer pricing abuse. India ranks amongst the countries most vulnerable to illicit financial flows. The majority of these flows arise from trade mispricing. After intensive investigation, the Indian revenue authorities have announced that they will imminently serve demands on over 8,000 foreign companies who they deem to have used abusive transfer pricing strategies to shift profits offshore.

Enormous sums are involved: according to this article audits by the Income Tax Department have identified up to Rupees 8,500 crore (approximately US$19 billion) of lost revenues.

We welcome this crackdown by the Indian government and look to them to take the lead within the G-20 countries in pushing for an international accounting standard for country-by-country reporting that will help tax authorities identify instances of flagrant pricing abuse.

Tax rises and spending cuts: a glimpse of the future?

Monaco: Leopards don't change their spots

A French language economic magazine is reporting that the forthcoming OECD Global Forum peer review* evaluation of Monaco - due next month - will make unhappy reading for those who think this secrecy jurisdiction and others have mended their ways.

According to this article in Challenges, the Principality will be in the line of fire over the lack of depth of its tax information exchange treaty network, and its continued lack of transparency over beneficial ownership.

Initially included on the OECD's 2009 'grey' list of secrecy jurisdictions, Monaco rushed to sign up to the minimum of 12 tax information exchange agreements. Much to the OECD's embarrassment, however, many of these agreements involved other secrecy jurisdictions, including Liechtenstein, San Marino and the Bahamas. To date Monaco has not signed agreements with either Italy or the UK, both of which states are reckoned to lose significant revenues to Monegasque tax evasion structures.

As much as anything else, the Global Forum's evaluations are likely to reveal the shortcomings of the OECD listing process. Allowing secrecy jurisdictions to slip so easily from the grey to the white list suggests that the OECD has been somewhat naive about the sheer malevolence of the people they're dealing with. Hopefully they will copy our example and require secrecy jurisdictions to demonstrate true willingness to cooperate by signing up to a minimum of 60 tax treaties with information exchange provisions, this being the threshold we used for the 2009 Financial Secrecy Index evaluation.

+++++++


* Created by the full forum at its 2009 meeting in Mexico City, the peer review group is to ensure forum members comply with tax information and exchange agreements they sign (169 DTR I-5, 9/3/09) and whether signed agreements meet OECD standards. The group will also verify agreements are actually been implemented (11 DTR I-6, 1/20/10).

According to OECD, the review group includes senior tax officials, auditors, and lawyers from countries such as France, India, Japan, Singapore, Jersey, Brazil, Cayman Islands, South Africa, Switzerland, the United Kingdom, and the United States.

In its phase 1, to last three years, the group will examine each forum member's legal and regulatory framework. Phase 2, also slated to begin early this year, is to evaluatemembers' implementation of OECD tax standards.

The review reports will be published once they have been adopted by the Global Forum, whose next meeting will take place in Singapore at the end of September 2010.

Update on EU anti-abuse rules

The resolution on EU-anti-abuse rules in tax matters we reported on recently has already been adopted, see here. Unfortunately, we are not encouraged by its content.

The text on CFC-clauses and thin capitalisation rules shows that the EU Member States are still unable to make an adequate response to the Cadbury-Schweppes decision by the EU-Court of Justice in 2006 which limited the application of CFC-rules to "wholly artificial arrangements". At best, the wording of the passage will usher in a new round of legal disputes in which company lawyers will challenge the interpretation of tax authorities before the European Court of Justice.

Controlled foreign corporation (CFC) rules are features of an income tax system designed to protect the tax base of home countries of TNCs by limiting the artificial booking of paper profits by using foreign low taxed entities. As TJN has repeatedly pointed out, the only effective way to address the fundamental problems of the taxation of integrated MNCs is by taxing them on a consolidated basis. The EU has been attempting to develop this approach through the project of a Common Consolidated Corporate Tax Base (CCCTB) in Europe, but is making slow progress, due to opposition from some states, including the UK.

The inadequacy of the CFC rules is shown by the failure of EU-member states to put pressure on financial secrecy jurisdictions within the European Union in order to make them accept developing countries becoming part of the Savings Tax Directive as well as a substantially extended and revised Directive. So far, the available instruments to bring these changes about appear to be quite limited after the government of Luxembourg silenced its internal critics.

Guest blog by Markus Meinzer

What does not get measured does not get remedied

Over 30 years ago the British and American governments launched a massive experiment in opening up financial markets by abolishing exchange controls and de-regulating banking and related financial services. This experiment proceeded in full knowledge that financial markets are riddled with fiscal distortions and shaded in secrecy.

Following Gresham's Law, the experiment has led to a vast increase in illicit financial flows and related economic crime. Developing countries have been the principal victims of this process as huge amounts of capital have flowed northwards into the major global financial centres in Europe and North America. Secrecy jurisdictions have played a central role as conduits for these flows; and they have thrived accordingly (80 percent of the top twenty states and sub-states ranked by the CIA by gross domestic product per head of population are classified by TJN as secrecy jurisdictions).

For obvious reasons the scale of cross-border illicit flows is unknown and can only be estimated using a variety of available tools, some of which you can read about - in summary form - in a just-released briefing paper by the renowned anti-corruption centre at the Chr. Michelsen Institute in Norway.

TJN and our allies have argued for many years that the scale of illicit financial flows and economic crime conducted via offshore secrecy jurisdictions has reached proportions that impact on macroeconomic stability while also undermining law and order, democracy and the welfare of the vast majority of people. Nay-sayers might quibble about whether best available estimates are out by 10, 20 or even 50 percent, but the scale of the problem is so enormous that the international community, which in this case means that G-20 countries which have placed themselves into the position of being the global financial stability, cannot ignore the subject.

Corporate tax and the common good

During the course of today's session at the French National Assembly, discussion turned to tax and corporate responsibility. Action Aid's Martin Hearson argued that company directors are conflicted between what they see as their duty to maximise shareholder value by avoiding tax and their commitment to corporate responsibility. TJN's John Christensen pointed out that much confusion arises from the mistaken belief that minimising tax payments contributes to "efficiency" (a tricky term at the best of time).

According to John, the confusion arises from the treatment of tax as a production cost (which it patently ain't) rather than as a distribution to stakeholders, which is how its shown on the profit and loss account. John therefore suggested that company laws should be adapted to require directors to maximise all distributions, not only dividend payments but also tax payments to societies that provide the capital (human, social and infrastructural) that are vital to real wealth creation.

Coincidentally today's Guardian carries a short article about an interesting idea from Hector Sants, chief executive of the UK's Financial Services Authority who wants to amend Britain's Company Act to give company directors an explicit obligation to contribute to the common good. An excellent idea: and contributing tax revenues is the correct form for making such a contribution. While TJN has no position on whether corporate donations to local projects are a good or bad thing, we do not see them as substitutes for paying tax at the correct rate, at the correct time, and in the place where the true liability arises.

Japan: new financial nation

A couple of weeks ago we posted a blog entitled Japan takes another step offshore, looking at how Japan was starting to insert temporary tax exemptions for foreigners wishing to invest in Japanese bonds, as an offshore lure to draw in capital. That was bad enough, but now look at this:

"The government says it will create a “new financial nation” that will “rejuvenate and develop” the markets’ capabilities and make Japan an Asian financial centre that “draws in funds from the globe” and “opens up the country”.

The story is about a stock exchange merger, which is not something that (on the face of it) needs bother us, but this sentence, especially the second half of it, is looking increasingly like a pattern developing: a new Japanese offshore push. The Financial Times seems to be cheerleading this abusive new approach to finance, assuming that our worst fears are realised, which our earlier blog suggests they will be.

"The toughest of them all, and one that no government is likely to be able to reform radically, is Japan’s highly uncompetitive tax and regulatory regimes. They are no match for the more appealing environments of Singapore and Hong Kong, where many financial institutions — even those specialising in Japanese securities — choose to base themselves. For now, it would seem, Japan’s shiny “new financial nation” will continue to lack polish."

Shame on the Financial Times, for its desire to see Japan push further.

Gibraltar to abolish ring fence

Gibraltar is making some important changes:

"The government of Gibraltar said on Wednesday it would end its tax-free offshore status for companies based in the British territory as of January as it seeks to dispel its reputation as a tax haven. Currently, the tax regime in the tiny enclave off southern Spain makes a distinction between "onshore" companies, which pay corporate taxes, and "offshore" companies, which are exempt."

But there is a catch:

"Under the new tax code that comes into effect next year all companies will be required to pay corporate taxes although the rate will be slashed to 10 percent from 22 percent currently."

Depending on what happens, this looks like the swapping of one form of tax havenry for another - to the Ireland model, one might say - though the abolition of the ring-fence (a tacit admission, if ever there was one, that what they offer is harmful) is definitely a step forwards.

People think that Britain has clung onto Gibraltar for strategic reasons, at the price of damaging Britain's relationship with Spain. What most people don't understand is that Gibraltar, which has a reputation as an especially mucky little tax haven (even the folk in Jersey wouldn't do some of the business that Gibraltar welcomes - and that's saying something) is a conduit for capital and business from the Mediterranean region and further afield to be channeled to the City of London. This is Britain's biggest reason for intransigence. Spanish people should be outraged.

Hat tip: Offshore Watch

Uganda's imperial problem

Following our blog yesterday on mineral taxes in Mali, we have noticed another, in the same vein, concerning Uganda. This one is a story about Heritage Oil, a company with an extremely colourful past which is trying to wiggle out of paying a $360 million capital gains tax on a sale it made to Ireland's Tullow Oil (another unusual company, at least with respect to some of its other operations in Gabon.)

Heritage, with astonishing imperial arrogance, wants to settle the disagreement in a court in London, the former seat of the British empire, which for historical reasons remains a centre for this kind of thing.

As the FT reports:

Hilary Onek, Uganda’s energy minister, told the Financial Times yesterday that the government “would not budge” and that, like any company in Uganda, Heritage was liable for the tax.

“The oil fields are not in London. They [Heritage] are doing business here based on a national asset. They are obliged to pay the tax,” he said. “If I were Heritage I would not go for arbitration. I would just pay my tax and get my super profit. I don’t understand that greed.”

Well said.

Gold mining in Mali: Who really profits?

From Eurodad, a useful article on mining taxes whose first paragraph starts like this:

"A new International Monetary Fund (IMF) working paper entitled “Mining Taxation: an application to Mali” analyses the structure of the mining taxation system in Mali. It follows the regressive path set forth by the World Bank, consisting of attracting Foreign Direct Investments (FDI) by lowering royalty taxes in the gold mining sector at the expense of lower government revenues collected through these royalties."

Following IMF recommendations, Mali’s government decided to reduce the royalty rate applied to gold mining companies from 6% to 3% in order to encourage investment in this sector. Read on.

And bear in mind the generic points about taxing rents, which we have blogged earlier several times, such as here.

Ile-de-France goes offshore-free

We've just been informed from Paris that the Ile-de-France, a major French region, has just gone offshore-free. The regional assembly voted unanimously. For more details, see our recent blog.

A chat with Rudolf Elmer

From Global Financial Integrity, for those in Washington D.C.,

The Future of Banking Secrecy
A Discussion with Swiss Bank Whistleblower Rudolf Elmer
Friday, June 18, 2010
1:00pm-2:00pm
Cannon House Office Building Room 304

Join us this Friday, June 18, for a talk by Rudolf Elmer, former head of Caribbean operations for Swiss bank Julius Baer, based in the Cayman Islands.

Mr. Elmer has joined the ranks of banker whistleblowers Hans Kieber of LGT and Bradley Birkenfeld of UBS. Mr. Elmer will discuss his time with Baer and address the larger issues of Swiss banking secrecy, global financial transparency, and what lies ahead for international money management.

There will be a question and answer session following Mr. Elmer's talk.

Space is limited so please R.S.V.P. to secure a seat
Please reply to Monique Perry Danziger: 202-293-0740, mdanziger@gfip.org

Crocodile Dundee and the candidates for jail

Paul Hogan, the Australian star of Crocodile Dundee and other movies, is in the news again. In the course of a story about his tax affairs, in which Hogan looks visibly discomfited (see the video), he made an interesting comment.

"I havent done my own tax for thirty years. They are talking about (unclear) me going to jail. Excuse me: there are about four law firms and about five accounting firms – some of the biggest ones in the world – that'd have to go to jail before they get to me."

We are no fans of Hogan's tax planning techniques, via offshore trusts and the British Virgin Islands -- but we like this comment very much. Because he's kind of right. Or at least he ought to be.

UK Government appoints anti-corruption "champion"

British Prime Minister, David Cameron, has announced the appointment of Kenneth Clarke as the Cabinet member who will champion Britain's anti-corruption efforts.

The appointment of such a prominent politician comes at a time when Britain's international reputation remains badly tarnished by issues including the festering BAE Systems scandal, politically embarrassing connections to the attempted coup in Equatorial Guinea, London's prominence as a tax haven, and the malignant role of London's satellites in encouraging and facilitating corrupt practices.

Britain's report card reveals systemic deficiencies and calls for urgent political action. All too often, however, Britain plays a blocking role in trying to water down international efforts to tackle corrupt practices. This has included past attempts to water down the European Union's Savings Tax Directive to exclude trusts and other legal entities used extensively for tax evasion, not to mention warning foreign governments against probing too deeply into deals involving British companies.

Global concerns about corruption have moved on considerably since Mr Clarke last held a ministerial portfolio in the mid-1990s. As a starting point in preparing for his new role, he should read this and this.

Letter to the Financial Action Task Force

In advance of a plenary meeting of the Financial Action Task Force, members and supporters of the Task Force on Financial Integrity and Economic Development have sent the following letter to FATF delegates, observers, and the finance ministers of all countries involved in the process.

The letter calls on the FATF to require full and proper registration of the true beneficial ownership of companies, as well as registration of details of settlors, beneficiaries and trustees of trusts and similar legal entities. It also calls on the FATF to implement a new methodology for evaluating the effectiveness of government enforcement of anti-money laundering legislation, and for civil society involvement in the current FATF review of its existing recommendations.

Here is the full text of the letter:


To: Member delegations to the FATF, FATF observers

Copied to: FATF Secretariat,Ministers of Finance of FATF member countries

11 June 2010

We are writing to you on the eve of the June plenary meeting of the Financial Action Task Force (FATF).

The Task Force on Financial Integrity and Economic Development is a consortium of research and advocacy organizations and governments working towards mechanisms that will curb the global flows of illicit capital, because of the damage done to developing countries. Its wider membership includes governments, economists and other academics, as well as development, human rights and faith-based organisations.

We wish to raise three points in advance of your meeting.

Firstly, we understand that following the G20’s request regarding corruption last September, and the presentation of a report on the subject by an informal working group to the February FATF plenary, the FATF has agreed to raise the profile of anti-corruption work within its ongoing initiatives and work. We also understand that in response to the same G20 request, the FATF will give more priority to its ongoing work on customer due diligence, beneficial ownership and transparency. This is all very welcome.

Clearly, the current review of the FATF’s Recommendations offers an excellent opportunity to tackle these issues, particularly the requirements for transparency of beneficial ownership information as set out in Recommendations 33 and 34. The G20’s request was not specific about what progress on ‘beneficial ownership’ and ‘transparency’ will look like, and we understand that debate is still ongoing within the FATF about what to do with Recommendations 33 and 34. However, our growing coalition of civil society organisations from all regions has a very clear vision of what is needed, which is this: in order to prevent misuse of corporate vehicles and legal arrangements, the only meaningful option is public registries of beneficial ownership of companies, as well as settlors, trustees and beneficiaries of trusts, with those who set them up subject to the anti-money laundering (AML) regime of customer due diligence requirements.

Secondly, the FATF has done a very effective job in many jurisdictions in ensuring that anti-money laundering laws are on the books, and a significant proportion of the third round of evaluations has been devoted to this process. Now that many countries are starting to have AML laws in place, the focus turns to ensuring effective enforcement of those laws. We welcome the process of listing those jurisdictions that are failing to meet the FATF’s standards, that was reinitiated in February. Nuhu Ribadu, the former Nigerian anti-corruption chief, frequently talks about how Nigeria’s place on the previous non-compliant list was essential in galvanising his then government to put in place a more effective AML regime. However, the listing process is based on the existing evaluation reports, which were produced according to an assessment methodology that, while it includes some elements to measure enforcement, is still heavily weighted towards measuring whether laws are in place. We would welcome the development, for the fourth round of mutual evaluations, of a new ‘methodology for assessing enforcement’ to measure whether governments are fully implementing such legislation.

Finally, we note that between May and August 2002, during the period when the FATF Recommendations were last being reviewed, there was a consultation process open to all interested parties. The work of the FATF, and indeed of the Task Force on Financial Integrity and Economic Development, is driven by a recognition of the fundamental importance of transparency and accountability. We look forward to the opportunity to contribute to the review process this time.

If you have any questions please respond to Robert Palmer at Global Witness. He can be reached at rpalmer@globalwitness.org, +44 (0) 20 7492 5860, or by post at Global Witness, Buchanan House, 30 Holborn, London, EC1N 2HS, United Kingdom.

Yours sincerely,

Task Force on Financial Integrity and Economic Development Coordinating Committee members:
Gavin Hayman, Campaigns Director, Global Witness
Raymond Baker, Director, Global Financial Integrity
John Christensen, Director, Tax Justice Network
Richard Murphy, Tax Research LLP
Alex Cobham, Chief Policy Adviser, Christian Aid
Francois Valerian, Head of Private Sector Programmes, Transparency International
Marta Ruiz, Senior Policy and Advocacy Officer, Eurodad

Other signatories:

Jack Blum, Chair, Tax Justice Network, USA
Gweneth Barry, Head of Policy, CAFOD
Milton Ponson, President, Rainbow Warriors Core Foundation, Aruba
Clotaire Rodonne Siribi, NGO GAPAFOT and Social Watch Central African Republic
Isabel Thomas Dobson, Moderator, Synod of Victoria and Tasmania, Uniting Church in Australia
Stephanie Fried, Executive Director, `Ulu Foundation, Hawai`i
Acción Ciudadana y Lucha contra la Corrupción Asociación Civil por la Igualdad y la Justicia (ACIJ), Argentina
Friends of the Earth, United States

Transparency First - link

We recently blogged about an important article by Raymond Baker in The American Interest. We now have a link - it's here.

We also have a link to TJN's article, Measuring Secrecy, about our Financial Secrecy Index, and an important article by GFI's Heather Lowe, which describes the current state of play, principally in the United States, with respect to legislative efforts to get a better grip on the problems of corporate opacity and secrecy jurisdictions. It takes a look at moves by jurisdictions such as Hong Kong to allow corporations to be set up in minutes, and whose directors don't even have to be human beings: they can be other companies that in turn have other companies or agents as directors.

"The risk here is that a completely anonymous company can be set up in Hong Kong in a matter of minutes, a bank account can be set up in the name of that anonymous company, and the real flesh-and-blood beneficial owners of the company can transfer their tax evading, human trafficking, drug-related and other illicit proceeds to that Hong Kong account in less than a day."

It also examines the Incorporation Transparency and Law Enforcement Assistance Act, the the Foreign Account Tax Compliance Act, or FATCA Act (which we've explored in detail ourselves,) and the older Stop Tax Haven Abuse Act, the The Energy Security Through Transparency Act, and more.

Will G-20 act against tax havens in 2011?

France has the G-20 presidency in 2011. President Nicolas Sarkozy has already indicated that combating the menace of tax havens will be high on his agenda. But how far is he prepared to take it, and to what extent will the interests of developing countries count in the process?

At an open seminar at the French National Assembly in Paris this Friday, politicians, experts, journalists and activists will discuss what actions are needed by G-20 to start to rid the world of these menaces to equity and democracy.

The programme covers a wide range of issues, including the merits of blacklisting, G-20 actions to date, corporate tax evasion, and the problems arising from judicial immunity. TJN will be represented by speakers from North and South.

The seminar starts at 09h15 on Friday 18th June. Entry is free. You can download the programme here

Norwegian Church Aid launches online petition for country-by-country reporting

Global momentum behind a shift towards country-by-country reporting by multinational companies is gaining pace. While OECD officials consider the pros and cons of adopting the proposed international standard, public campaigns are raising awareness and building support for this major step towards accounting transparency.

Norwegian Church Aid is the latest organisation to launch an online petition in favour of country-by-country reporting. Their petition draws attention to revenue losses of around $160 billion a year inflicted on poorer countries by the tax avoidance techniques of multinational companies, and contrast this with the $120 billion of aid flows funded by taxpayers in richer countries. As their petition says:

This year, the worlds largest companies owes the world poor 160 billion dollars in tax. By using tax havens and secrecy, companies avoids large tax sums when they operate in poorer countries. This is money which should be used for the benefit of the country. - I want to know that Norwegian companies don't cheat on the taxes in poorer countries.

A moment's reflection on how much that amount of tax revenue would contribute to the sustainable development of poorer countries underlines why country-by-country reporting by multinational companies is an idea whose time has come.

Transocean: traditionally offshore

We've written a bit about the Deepwater Horizon, Transocean's ill-fated oil rig, being offshore in more ways than one. Now there's a superb article by Marty Sullivan of TaxAnalysts, courtesy of TaxProf, looking at the details of five oil services companies, all operating out of Texas.

"There is something else not working well in the gulf: the tax system."

The article looks at the practice of corporate inversions: the practice by which a company changes its legal domicile from one jurisdiction to another - a practice that seems to have been unusually common for U.S. oil service companies.

"In general, a U.S. multinational is liable for U.S. tax on income from its worldwide operations. By inverting, a multinational is no longer subject to U.S. tax on income from its foreign operations."

And there are transfer pricing games that can be played too. Sullivan's article examines five corporate inversions by Texas-based oil services companies: Transocean, Noble Corp., Weatherford, Nabors and Global Santa Fe. Each started out domiciled in Delaware and ended up in the Caymans and Bermuda (and two subsequently hopped to Switzerland, in fear of possible anti-avoidance moves by the Obama administration.) These companies saved 10-15 percentage points in tax each: Transocean's effective tax rate fell from 31.6% to 16.9%. At the earlier rate, Transocean would have paid nearly $2bn more in U.S. taxes since then.

These moves generated quite some outrage in the U.S. especially after the September, 11, 2001 terrorist attacks. In April 2002 then-Senate Finance Committee ranking minority member Chuck Grassley said that ‘‘These expatriations aren’t illegal. But they’re sure immoral.’’ Subsequently, the American Jobs Creation Act of 2004 closed the loophole for taxes. Britain, by contrast, continues to see a bleeding of companies, as this article explains.

"In a recent survey half of the top 30 UK companies said they would consider a move abroad."

Talk is cheap, of course, and most of those won't go down this route. But the threat from offshore is real enough.

EU Council: progress and weasel words

This new document from the EU Council has both good and bad in it.

The good points include some useful preamble:

Point 1. Mobilisation of domestic resources for development through efficient and fair tax systems is crucial for sustainable growth, reducing aid dependency, poverty reduction, good governance and state building, including the provision of public services required to achieve the Millennium Development Goals (MDGs). Efficient and fair tax systems are integral to democracy, promote state legitimacy and strengthen the social contract and accountability between government and citizens.

And at face value this is promising:

EU member states should work towards . . .

"A global system for exchange of tax information, including through multilateral instruments, building on the EU and OECD experiences on spontaneous, on-request and automatic exchange of information."

However, while a global, multilateral system for tax information exchange is important, the rest are weasel words that avoid saying automatic information exchange is the only effective tool for deterring tax evasion.

The document also calls on International Financial Institutions to include information exchange criteria in their Reports on the Observance of Standards and Codes (ROSCs) frameworks; and to check

"whether or not a country treats fraud as a criminal offence that requires a report such as it is the case with money laundering."

This is potentially useful, but the wording is unclear: do they mean tax evasion, as a predicate offence which would require a financial intermediary to issue a suspicious activity report? They should be clearer. This is also useful:

"IFIs must carry out a broad based due diligence to avoid that EU funds are being used directly or through Offshore Financial Centers, so-called tax havens or any other jurisdiction, for the purpose of evading tax payment to beneficiary countries and EU Member States or in connection with tax fraud and avoidance;"

and this:

"Exploring country-by-country reporting as a standard for multinational corporations,"

There is plenty of less good stuff.

One is:

"Developing countries have primary responsibility for building and improving efficient and fair tax systems and committing the necessary resources thereto."

Well, yes, these countries do have responsibility for their own tax systems. But when their systems are being shredded and penetrated from outside, by the aggressive behaviour of OECD companies and jurisdictions, then it would have been far better for the EU Council to have been far, far more explicit in stressing that EU member states need to do a whole lot more.

While it is good to see that any wording on beneficial ownership information has been included, it is unfortunate that it only speaks about "availability" instead of automatic information exchange thereof. And the term "could" rather than "should" in the following paragraph suggests that the dead hand of special interests has been at work on depleting the strength of the document"

"First steps at the international level could be to promote the availability of the beneficial ownership of all legal structures taking note of the ongoing review of the international standards of the Financial Action Task Force, as well as to strengthen the role of the Global Forum on Transparency and Exchange of Information. "

Any mentioning of opening the EU STD to developing countries has disappeared.