The Rise and Rise of Britain's tax haven empire

Last year TJN's Financial Secrecy Index revealed the astonishing scale of Britain's tax haven empire. Britain - or more accurately the City of London - lies at the heart of a massive web of secrecy jurisdictions spread across the globe, ranging from Anguilla in the Caribbean to Vanuatu in the South Pacific. All were part of the formal British Empire and remain British Commonwealth members.

Others, like Hong Kong and Ireland, were part of the Empire but are no longer associated with Britain. All share similar features of Common Law and banking practice which make them formidable providers of secrecy and tax evasion services. Taken individually they appear small and insignificant: taken as a whole they account for around one half of the world market for offshore financial services.

How and why did Britain come to be such a dominant player in tax havenry? Did it arise from government policy, or was it driven more by private sector players striving to shake off the shackles of regulation imposed by Bretton Woods? And how did the various Whitehall departments react to the emergence of this tax haven empire during the crucial period of the 1960s and 70s as it suddenly mushroomed in scale?

In 2009 a TJN research team visited the Bank of England and national archives to explore files released under the 30 year rule. What we discovered was an astonishing inter-departmental battle of ideas, with Inland Revenue on one side fighting to prevent rupturing revenues, and the Bank of England and Ministry for Overseas Development on the other, both supporting tax havenry. The research team, consisting of Paul Sagar, John Christensen and Nicholas Shaxson, has written up its initial findings in a paper which it gave at a conference at Loughborough University this week.

The paper's abstract is shown below. You can download the presentation we used at Loughborough here. The paper itself will hopefully be published in due course in a book on the conference proceedings.

British Government Attitudes to British Tax Havens

An examination of Whitehall responses to the growth of tax havens in British dependent territories from 1967-75

Paul Sagar, John Christensen, Nick Shaxson

Abstract

The rise in the number and scale of Britain's offshore tax havens is indelibly linked to the post-imperial regeneration of the City of London as a global centre of financial capital. Following the emergence of the offshore Eurodollar market in London in the mid-1950s Britain actively promoted the creation of offshore industries in various satellite centres, particularly in its Crown Dependencies and Overseas Territories, which remained under a measure of British control and protection even as the formal empire collapsed. London and its satellite centres attracted major American, Canadian and European banks, multinational corporations, wealthy individuals and criminals seeking the attractions of a largely deregulated and secretive international market. All this happened under the watchful eye of British state agencies.[1]

Drawing on fresh research from public archives, this paper explores the varied and conflicting attitudes of different agencies towards the emerging British offshore network. From HM Inland Revenue (anxious to mitigate against rampant tax evasion) to the Ministry of Overseas Development (pragmatically supporting the development of tax havens in former colonial territories as a means of avoiding aid dependency) and the Bank of England (viewing tax havens as useful conduits for foreign capital flows), the emerging picture is of interdepartmental conflict and rival power-bases in Westminster and the City. Successive official enquiries in the 1960s and 70s failed to resolve these contradictory positions.

Contact author: Paul Sagar - paulrichardsagar@googlemail.com

---

[1] See P.J. Cain and A.G. Hopkins, British Imperialism – Crisis and Deconstruction 1914-1990, (Harlow, Essex: Longman, 1993).

Open letter to Roger Helmer: Laffer is bunk; tax competition is harmful

Recently a British Conservative politician wrote an open letter to TJN's director John Christensen, arguing that tax competition between states is a good thing, and that he seems to have ignored the so-called Laffer Curve (see picture). Christensen's reply is below.

30th September 2010

To Roger Helmer
From John Christensen

Dear Roger

Thanks for your letter extolling tax competition: do you think that cutting VAT rates would stimulate growth, or is it only taxes on capital that concern you? I have noticed a tendency for politicians to push for tax cuts for some (those rich enough to provide party funding) while being all too happy to increase taxes on poor people (who foolishly don't fund politicians and their parties). Why are some tax cuts competitive but others not? I only ask because raising VAT - a regressive tax which will only make British society even more unequal - was among the first measures your party took on assuming government.

I would hope that any university lecturer promoting the Laffer Curve to first year undergraduates would be quickly called to task. Embarrassingly for it proponents, empirical evidence for its existence remains elusive, and most accept that it is shifty, which limits its policy application. You might like to consult Martin Wolf:

"the theory that cuts would pay for themselves has proved altogether wrong.:

or Greg Mankiw, chairman of the Council of Economic Advisers under George W. Bush no less, who described supporters of the idea to be "charlatans and cranks."

For a more entertaining and thorough read, you might like to try this.

"The Laffer Curve became the supply-siders' Sermon on the Mount, the core of their faith. For Cheney, it was "a revelation, for it presented in a simple, easily digestible form the messianic power of tax cuts", Chait notes. "In that sloping parabola was the magical promise of that elusive politician's nirvana, a cost-free path to prosperity: lower taxes, higher revenues."

No wonder it is so popular among Conservatives who want to be tax-cutters and deficit-cutters! The trick, as one of its leading early proponents (also a big fan of extra-sensory perception, or ESP) liked to say, is that "you've got to have faith." Empirical evidence is everywhere. Just take one example. From 1947 to 1973, the US economy grew by 4 per cent a year - while the richest Americans paid a 91 per cent top rate of tax. Tax revenues soared.

Now on the subject of tax competition, I am sure that you will appreciate we receive many enquiries about it -- so we have prepared a web page primer to which I refer you. You might also take a look at this briefing paper and this newsletter on the theme of tax competition, both published in 2006.

Many people fall into the trap of lazily conflating tax "competition" between jurisdictions, on the one hand, with real competition between firms in a market. The notion that these two kinds of competition are comparable is simply nonsense. Although they (unfortunately) share the same word, the processes involved are wholly, entirely different.

I would draw your attention to two matters in particular: first, using subsidies such as tax holidays, special exemptions, accelerated depreciation rates, etc, to attract inwards investment creates economic distortions that undermine the entire intellectual basis of comparative advantage. Instead of investing where productivity is highest, investors head towards wherever they can wrangle the best fiscal incentives. Tax Justice Network is not alone in questioning the value of such subsidies: the IMF and OECD have also called them into question. I would particularly draw your attention to this IMF report on the impact of tax competition on Sub-Saharan African countries, which raises a number of important questions.

Second, the beggar-my-neighbour tax policies of places like Switzerland and Jersey does not attract investment in the normal sense of that term. Locating a headquarter offshore is entirely artificial and does not contribute one iota to economic efficiency: quite the opposite. Multinational companies use tax havens for profits-shifting and tax avoidance. Small and medium sized companies which are not multinational in their operations can not. The outcome is a massive economic distortion which reduces competition, allows free-riding on public goods and leads to misallocation of capital. I am surprised that you do not address this issue, which was outlined in the OECD’s 1998 Report on Harmful Tax Competition.

As an aside, I would note that economists are generally weak on the free-riding issue. Perhaps this is because it presents us with modelling issues (no data and all that). But we know it happens. We know it leads to inefficient resource allocation. And we know that corporate tax avoidance is a massive exercise in free-riding on public goods. Why do you politicians tolerate it? When the UK tax gap is running at such astronomical levels, the failure to crack down on corporate tax avoidance (which is just another form of evading taxes) strikes me as unacceptable.

Which leads to a final comment. Way, way back, it might have been arguable that high marginal tax rates spurred tax evasion. But not now. Marginal rates have tumbled on all forms of income, but tax evasion and avoidance has risen in scale. Just take a look at the volume of personal assets held in secrecy jurisdictions for tax evasion purposes. Your arguments just don't stack up: tax evasion is endemic in Britain not because of high rates but because too many greedy and self-absorbed people don't give a damn about Big Society.

Economic theory has moved on a bit since Laffer scribbled out his notions on a hotel napkin in the 1980s. I hope you find this more recent reading illuminating.

Best wishes

John

Clinton: Pakistan should tax its elite

From Hillary Clinton:

"This is one of my pet peeves: Countries that will not tax their elites but expect us to come in and help them serve their people are just not going to get the kind of help from us that they have been getting . . . Pakistan cannot have a tax rate of 9 percent of GDP when land owners and all of the other elites do not pay anything or pay so little it's laughable, and then when there's a problem everybody expects the United States and others to come in and help," Clinton said to a round of applause."

Well said! (Nice to hear that there was applause too.) And she might as well have been talking about any number of countries. And it isn't just Clinton saying it. We have US Envoy Richard Holbrooke, saying much the same thing:

"Their maximum tax rates are much lower than ours, and there's a lot of tax evasion there, as has been well reported. And we can't ask American taxpayers to pay the burden if the Pakistanis don't raise their own revenue," Holbrooke said. "So I don't want to leave people with the impression we're going to pay for the reconstruction phase."

These words could have been written by TJN. And who could disagree?

38 degrees coming our way

In light of the austerity policies being pushed forwards by the fairly new British coalition government, this important grassroots organisation seems to be taking an interest in the agenda we have been pushing. We believe it increasingly reflects the spirit of the times.

"Every year companies and rich individuals dodge billions in tax by using loopholes and in some cases breaking the law. We could campaign for the government to cut the deficit by collecting the tax we are owed by tax cheats. The laws need tightening up, and we need more tax inspectors."

Please sign the petition, and vote!

Investments for Development: derailed to tax havens

TJN, together with five partner organisations, has produced a new report entitled Investments for development: Derailed to tax havens which looks at the use of tax havens by Development Finance Institutions - state-owned companies that use their capital to invest in businesses in developing countries (similarly to what the World Bank's International Finance Corporation does). The most well-known of these is Britain's scandal-plagued Commonwealth Development Corporation (CDC,) which we (and Private Eye) have written a fair bit about in the past.

Written by TJN Senior Adviser Richard Murphy, the new report looks at how DFIs invest in developing countries. As Murphy notes:

"DFIs have a duty to maximise their economic footprint in the countries in which they invest and that means they have a duty to pay tax in those places if they are to pay tax anywhere. I stress, the argument is that they should actually seek to pay tax there, support the tax systems of those countries, and encourage the development of those tax systems if necessary. This is an explicit component of the development agenda.

We argue they don’t do that. They invest in two ways. The first is directly, holding minority stakes in companies in developing countries. But increasingly they invest via funds in private equity style, often partnering with private equity partners. In both cases they use secrecy jurisdictions, either as intermediate holding companies or as the location in which funds are located.

DFIs argue this is necessary, to avoid double tax, to pool capital, to use legal infrastructure and to provide legal certainty.

The report does not agree with this. We argue there are seven reasons why investment in developing countries through tax havens is harmful. They are:

—Contributes to the loss of tax revenues by developing countries.

—Contributes to maintaining tax havens

—Contributes to supporting structures that facilitate illicit financial flows, even though there is no suggestion DFIs engage in such activities

—Contributes to the misallocation of investment funds

—Contributes to the risk that investments fail to meet governance criteria

—Contributes to the risk that DFIs are not democratically accountable

—Contributes to development ineffectiveness

Summarised, apart from the clearly inappropriate action of supporting tax haven behaviour that is demonstrably harmful to developing countries there is also the straightforward problem that the opacity of the arrangements into which DFIs enter – often made even more opaque by the now common tiering of structures through tax haven locations – makes governance harder and increases risk as a consequence. If risk is increased the rate of return required is increased to compensate. That increases the hurdle rate at which investment takes place so the volume of investment falls and the diversity of activity diminishes – often with consequence for the very poorest in developing countries and as a result aid effectiveness is diminished. That is not an unfortunate side effect of tax haven structuring, it is a foreseeable and inevitable consequence."

The report then outlines a new proposed Code of Conduct for DFIs. Now read on.

On the origin of the term "secrecy jurisdiction"

(Update: we've found an even older reference to the term from 1999, here)

Some people have credited TJN with coining the term "secrecy jurisdiction" as an alternative to "tax haven." It is a term that has been catching on reasonably well, and some tax havens, er, secrecy jurisdictions, have occasionally taken up the language, even if it is in the context of denial.

But we should like to point out that although we do like the term, and we have certainly helped popularise it, we didn't coin it: it seems to have originated in the United States. For instance, in a report by the U.S. Permanent Subcommittee on Investigations on private banking and money laundering, we note:

"Guardian Bank would sometimes wire the funds to another Guardian correspondent account at a bank in a secrecy jurisdiction, such as Credit Suisse in Guernsey, before sending it to the next destination."

That report was issued in 2001, which predates TJN. There may well be older mentions (anyone care to find us an older version?) It would be fun to find out who did coin it. Credit where credit is (or not) due . . . .

Did inequality help cause the financial crisis?

States within the United States compete with each other on tax, in an effort to attract mobile capital. This competition is harmful, and in particular it exacerbates inequality, by forcing tax rates on mobile capital to fall, while not having the same effect on (relatively immobile) labour. Recently, the Institute on Taxation and Economic Policy (ITEP) in Washington, DC, analysed the outcomes of this race to the bottom, in a distributional analysis of tax systems in the U.S. states. An ITEP summary of the report notes:

Nationwide, the poorest twenty percent of Americans paid on average10.9 percent of their incomes in state and local taxes in 2007. By contrast, middle-income taxpayers paid on average 9.4 percent of their incomes toward those taxes, and the wealthiest one percent of taxpayers paid just 5.2 percent of their incomes, on average, in state and local taxes.

State and local taxes are regressive, countering efforts made at the Federal level to institute progressive (that is, the poor pay a lower share of their income) taxation.

In the context of inequality, another report from Raymond H. Brescia of Albany Law School explores some links between inequality and the financial crisis. First, he notes the stunning rise in inequality in the U.S., akin to what preceded the Great Depression (see graph.) Then he asks:

"There are several possible explanations for the potential connection between rising income inequality and the great strains on the economy it causes. Did rising income for certain sectors lead to an ability to use that income to influence policymaking in such a way that favored those sectors? Did such income inequality pressure politicians to promote policies that favored easy access to credit as a way to mollify lower income constituents who might otherwise grow frustrated with their own stagnating wages in the face of such inequality? These are the types of explanations that some have offered to try to explain the link between income inequality and the Great Recession. In this work, I both analyze these explanations, but also offer a third: that both income inequality and racial inequality created greater social distance and this social distance, in turn, led to greater predatory conduct. That predatory conduct turned a mortgage market into an economic killing field.

The results of his research?

• the greater the income inequality in a state, on average, the greater the delinquency rate in that state.
  
• The greater the generalized trust in a state, the lower that state’s delinquency rate.
  
• The higher the social capital in a state, and the higher the level of volunteerism in a state, the lower its delinquency rate.
  
• The higher the median income in a state, the higher the delinquency rate in that state.
• An index of a series of indicators — income inequality within a state, the size of the African-American population in a state and the median income of the African-American population in that state — reveals a strong correlation between these indicators and delinquency rates. This correlation suggests not that low-income African-Americans are to blame for the foreclosure crisis, but, rather, that middle-class African-Americans were targeted for, and steered towards, loans on unfair terms, precipitating the foreclosures that are now concentrated disproportionately in communities of color.

And the conclusion? Among other things:

"If we are to believe that a lack of trustworthiness and an excess of predatory conduct helped feed the subprime mortgage bonfire, it is essential to restore checks and balances to the financial system that restrain such conduct, and incentivize trustworthy behavior in mortgage lending and other financial practices. We also need to reduce social distance, both economic and racial."

And that would fit comfortably enough with the conclusions of the Spirit Level, one of the most widely discussed (and impressive) pieces of research on inequality in history. Tax is obviously a big part of the inequality story, and in this respect, the latest ITEP report offers four useful pointers for U.S. states to follow.

Is the left-right paradigm over?

The well-read blogger Barry Ritholtz seems to think so. His article entitled The Left Right Paradigm is Over: Its You vs. Corporations doesn't, by his own omission, encapsulate a brilliant insight: the central point is kind of obvious, in a way. But he does make a point that's worth remembering, and he puts it well:

"Keynes vs Hayek? Friedman vs Krugman? Those are the wrong intellectual debates. Its you vs. Tony Hayward, BP CEO, You vs. Lloyd Blankfein, Goldman Sachs CEO. And you are losing . .

TJN has long seen itself as a creature neither of left nor right. Admittedly, our rejection of tax cuts as the solution to all economic ills would, in certain forums, place us to the left of the centre, but we we have supporters in both camps, and -- like the fight against corruption -- our agenda that stands against loopholes and our opposition to mechanisms of escape for one part of a society while leaving everyone else to shoulder the burden fits neither a left-wing nor a right-wing paradigm.

We don't, as it happens, consider ourselves to be against corporations either: we see corporations as having great potential for promoting the public good. What we are against, however, is when corporation (and especially banks) break from the social contract, reaping the benefits of civilised society while casting off (either through escape via secrecy jurisdictions, or via off-balance sheet operations, or otherwise) the costs of paying for the project.

China blocks tax haven progress

Following our recent blogging about the rise of Asia in private banking circles, now Lucy Komisar, an investigative journalist and former co-chair of TJN-USA, notes that:

China is the major international power blocking a global solution to the offshore bank and secrecy problem. It is doing so because of its own secrecy jurisdiction, Hong Kong, says Jose Manuel Barroso, the president of the European Commission. Barroso told me this privately at the Council on Foreign Relations in New York last week. Before that, at his public speech, I asked his strategy for dealing with the offshore system which facilitates tax cheating, corporate corruption, organized crime and terrorism.

He said some countries hadn’t been reacting positively to efforts to change the system , to establish a level playing field. After the meeting, I asked him why the major financial powers hadn’t been able to achieve a solution. He said the problem was “China, because of Hong Kong.”

This is of course worrying, though it isn't entirely new: at the April 2009 G20 meeting where world leaders pretended to mount a crackdown against tax havens, Chinese president Hu Jintao fought behind the scenes to get two of the Chinese elites' favourite secrecy jurisdictions - Hong Kong and Macau - relegated to a footnote in the OECD blacklist. Still, it augurs ill for the future, and particularly for developing countries.

Ashcroft again

Tonight BBC's flagship documentary programme Panorama examines the affairs of Lord Ashcroft, sponsor and former treasurer to Britain's Conservative Party - a member of the coalition government which took power in May 2010.

Lord Ashcroft has long been a person of controversy, partly due to the opaque nature of his affairs in the tax haven of Belize, partly also due his non-domiciled tax status in the U.K. where he is a voting member of the House of Lords, and also because of his financing of the Conservative Party during the past decade to the tune of over £11 million.

According to the Guardian, Panorama will disclose how Lord Ashcroft avoided millions of inheritance tax by transferring shares to a trust created for his children.

The BBC programme Panorama will report tonight that the peer, who steps down from his party role today, transferred the ownership of his main UK company, the Impellam Group, on 5 April. The 64-year-old peer transferred shares worth £17m in the company to a trust to benefit his children. The following day, a law came into force compelling all members of the Lords and Commons to be registered in the UK for tax purposes and pay tax on all their worldwide income. The law had been in large measure prompted by the controversy over his tax status.

Tax lawyer Richard Frimston is quoted telling the programme that Lord Ashcroft would have faced a large inheritance tax bill under the new legislation. Frimston said: "If that had been done on the following day, assets worth say £17m going into trust would have been subject to tax at 20%, which would have created an immediate inheritance tax charge of something in the region of £3.4m. So that was avoided by doing it on 5 April as opposed to waiting until 6 April."

The British government has committed itself to create a fair tax system. Abolishing the non-dom rule entirely is a starting point. It should also take steps to prevent those who do not disclose the origins of their funds from funding political parties. As Britain heads for drastic cuts in public spending combined with tax hikes for ordinary people, the government needs to understand that Britain's tax haven status for the ultra-rich looks both unfair and harmful to democracy.

Message to the Irish government: European Solidarity is Not a One-Way Street

Two European Parliamentarians have issued a stark warning to the Irish government over its tax policies. Markus Ferber and Sven Giegold (Sven chaired TJN's global Board of Directors from 2003 to 2006) have released a joint statement to EU Tax Commissioner Algirdas Semeta calling for the Commission to ignore Irish objections and stick to its schedule for creating a common consolidated tax base for corporate taxation in Europe.

This project is a vital step in the direction of creating defensive mechanisms to protect ordinary people from the 'beggar-thy-neighbour' tax policies of countries like Ireland, which use a low tax rate to attract profits-shifting from other European countries but will almost certainly need a bail-out from their European partners as their economy tanks.

Here is the Ferber /Giegold joint statement:

Ireland-Crisis: European solidarity is not a one-way street

Due to the high interest rate spreads on Irish government bonds Markus Ferber, chairman of the CSU group in the European Parliament, and Sven Giegold, Green Spokesperson for Economic and Fiscal Policy in the European Parliament jointly declare:

The situation of the Irish financial system is extremely worrying and is driving towards Greek conditions. Ireland's economic output shrinks,the state is suffering from high interest rate spreads on its bonds and the largest Irish bank is threatened to collapse after having lost billions in speculative activities.

If the dramatic budget situation deteriorated even further and support from the EU became necessary, it is for the Irish government to make concessions in tax policy in return. European solidarity cannot be a one-way street.

The MPs warn: it cannot go on like this: by adhering to a corporate tax rate of just 12.5% and the categorical rejection of proposals for a European common consolidated tax base (CCTB) the Irish government is blocking the situation. If Ireland needed the European Resolution fund the corporate tax rate has to be doubled. Moreover, Ireland had to give up its opposition to European cooperation in tax policy. It cannot be that Ireland already today benefits from the common measures supporting the Euro but at the same time hampers other member states' ambitions collecting their taxes.

The Commission is currently working on a proposal for a common tax base for corporate taxation in Europe. The launch of a directive is scheduled for February 2012. We call on taxation Commissioner Semeta to follow this schedule consistently and not get distracted by skeptical voices from Ireland. The project is very important for the stabilisation of national budgets and the completion of the single market in Europe.

For further information:

Markus Ferber MEP
(Tel.) 0032-2-2845230
(Fax.) 0032-2-2849230
markus.ferber@europarl.europa.eu

Sven Giegold MEP
(Tel.) 0032-2-2845369
(Fax) 0032-2-2849369
sven.giegold@europarl.europa.eu

This is Not The End for Tax Havens - You have been warned

William Brittain-Catlin has posted a new article to the Guardian's Comment is Free section. As a long-term observer of the phenomenon of tax havens, William is well placed to judge whether reform efforts by G-20 and others will impact on their activities; his conclusion - and its one we share - is that financial capitalism will continue to innovate in its use of tax havens, and will migrate to new locations such as Mauritius, Singapore and Malta - until such time as concerted actions are taken at the global level.

Our attention was drawn to several issues raised by the article. First, did the 2007/08 financial crisis reveal the extent to which offshore finance has degraded the worldwide financial markets? Brittain-Catlin clearly thinks so:

2008 was the moment the offshore world fully merged with the onshore world, making both worlds practically indistinguishable from each other.

Global finance had turned into one giant tax haven, where risky transactions were concocted and kept hidden away from regulators and counterparties, and where deregulation and complex financial products went dancing hand in hand into a toxic twilight.

Yet all these failures – for many years seen as risks intrinsic only to tax havens – were part and parcel of mainstream banking and finance in 2008, not something that had gone badly but exceptionally wrong in Grand Cayman or the Isle of Man.

Curiously, in the never-ending stream of material published on the financial crisis, the role that tax havens played in mediating the deep fault lines of the global economy is only mentioned, if at all, as a footnote.

Isn't it remarkable that these little countries and islands that have traded financial secrecy for survival also managed to keep themselves hidden from the big economic questions that face us?

The untold story of the financial crisis and its aftermath is how tax havens and their clients will find gaps in the new financial regulatory order, and begin the job of firing up the economy anew.

Second, are tax havens an intrinsic feature of contemporary capitalism, or have they emerged as a response to the specific circumstances of the past half century? Brittain-Catlin opts for the former:

For what we are witnessing now in the tax haven world is a great reconfiguration of these hidden conduits of finance and ownership that appropriate and preserve wealth; passageways of financial power that will, as sure as night follows day, spur global capitalism on to another so-called golden age some 10, 15 years hence.

This is not prophecy, simply a lesson from history.

Modern tax havens were themselves born out of the financial crises of the late 19th century, and took off as depression-struck nations set up barriers to trade and international finance.

Tax havens germinate in the gaps between nations and act as renegade links that reconnect and empower business and finance, often by trailblazing new, riskier forms of finance and business-making that would not be acceptable onshore.

In turn, the financial alchemy worked offshore is turned against onshore regulations until the onshore dam is burst and offshore finance retakes the high ground of mainstream money-making.

And, finally, is there nothing that can be done to protect ordinary people from these engines of chaos and injustice?

The outcome we know already: offshore capitalism will destroy our economies in a repeat performance of all that we have witnessed these last few years.

But this need not happen; the economic gods have not determined our fate. With the removal of tax havens and offshore finance from the world, we can safely and securely build a new onshore polis. The responsibility is ours. We can and must determine our own fate.

And this is where TJN comes in. History has shown that evil prevails unless good people take counter-action. Politicians will not take action until the massed tanks of civil society are parked on their lawns. Get your engines running . . .

Non à l'Austérité - Civil Society Action in Brussels

Ne laissez pas échapper les grosses fortunes! Vive l'impôt juste!

Our colleagues at the Réseau pour la justice fiscale and Financial Aktie Network in Belgium have called for a day of action on 29th September alongside other campaigns to combat European austerity measures that, in combination, will impact heavily on the millions of poor households in Europe.

They will be calling for measures to tackle banking secrecy and tax havens and to make tax systems more progressive based on ability to pay.

Further information from D. Puissant: dpuissant(at)gmail.com

Automatic information exchange: new briefing paper

TJN has written plenty on the subject of how jurisdictions obtain and transmit information between each other for tax purposes. The OECD is pushing its extremely weak “on request” form of information exchange, while TJN and its partners support the far better and stronger alternative, automatic information exchange.

TJN now presents a new briefing paper, written by Markus Meinzer, which explores the intricacies of automatic tax information exchange.

In order to raise awareness and remedy the apparent lack of information about and understanding of AIE, TJN is starting a precedent case project. Ultimately, its aim is to accompany a small group of developing countries applying for the extension of the automatic information exchange mechanism under the EU-Savings Tax Directive or another international legal instrument that results in a similar AIE-mechanism. We have started informal contacts with a number of stakeholders, and this paper is an early stepping stone in this process and seeks to comprehensively introduce policymakers in North and South and civil society organisations to the subject, before beginning.

As the readers of this blog will be aware, the OECD together with its so-called Global Forum on Taxation is currently on a mission of hypocrisy. While OECD countries practice automatic tax information exchange among themselves, they are preaching to developing countries that they need to sign next-to-useless bilateral treaties with OECD countries and other secrecy jurisdictions.

The reason for this is brutal power politics. As this paper shows, OECD countries feast on billions of US dollars being deposited in their banks by wealthy elites in developing countries. The OECD’s on-request tax information exchange standards that are being pushed onto developing countries helps perpetuate this situation by providing the appearance of transparency, while delivering almost nothing.

OECD governments appear to be afraid of the outflow of funds should developing countries be given the same level of cooperation on tax information as they grant each other through mechanisms such as the EU Savings Tax Directive. But they seem blind to the potential ill effects that these huge illicit inflows may have on their own societies. The graph (click to enlarge) provides some useful pointers.

Dutch trust industry: facts and figures

The Dutch trust industry is not something you hear much about at dinner parties. But here are a couple of useful data sources. The Dutch trust industry associations International Management Services Association (VIMS) & Dutch Fiduciary Organization (DFA) have some useful data here which notes, among other things, about Dutch Special Financial Institutions (SFIs):

Total transactions by these SFIs amount to over 4,500 billion Euros a year, which is over nine times the Dutch Gross domestic product.

And the Dutch central bank contains a lot of useful data too, noting, for example, that there are 13,000-odd SFIs in the Netherlands which "offer little if any employment in the Netherlands but serve as financial hubs for/between foreign-based group companies. In other words, these are offshore tax haven services.

We aren't trying to make any particular other point here: just point to some data sources for anyone who's interested. Hat tip: Katrin McGauran, SOMO.

Jersey: Why does the Church support tax havenry?

We have previously blogged on the rotten state of politics and the established church in the island known to readers of Britain's Private Eye magazine as 'the Septic Isle.' Mid-year 2009 we picked up on a story in Jersey's Evening Post about the Reverend Andy Thewlis - rector of the parish church of Saint John - in which he praised the island's offshore tax haven industry and attacked Christian Aid's campaign for tax justice.

Reverend Thewlis did not respond to our invitation to discuss our concerns. Nor have any of his colleagues in Jersey's Anglican communion who also used their positions to attack our tax justice agenda and defend tax havens. This includes the Dean of Jersey, who completely lost his rag when asked why he felt that Jersey's bankers were morally superior to those on Wall Street.

Now a little snippet has come our way which might explain why Reverend Thewlis has his nose so firmly up the derrières of Jersey's financiers. Last night his daughter took part in a communion service at Saint Marks church in Saint Helier. Her sponsor for communion was none other than Terry le Sueur, Jersey's chief minister, a former accountant and arch-proponent of tax havenry. Le Sueur lives in Saint John and is a practising Roman Catholic.

Could this explain why Thewlis is so opposed to tax justice?


Footnote - the information referred to in this blog was provided by a member of the congregation at the event in question. We have had confirmation that Terry le Sueur was indeed at the ceremony, and that he has close connections to Reverend Thewlis. But the suggestion that Mr le Sueur sponsored the confirmation has been challenged.

However, TJN supporters in Jersey remain deeply concerned that Mr Thewlis is so prominently engaged in providing what they see as ethical support for tax haven activities. They have also told TJN that Mr Thewlis continues to openly challenge the tax justice agenda. We hope that someone in the Church will be prepared to mediate between TJN and the Church in Jersey. We know from visits to Jersey in the past three years that genuine Christians have left the organised Church as a result of its support for tax havenry.

Over 90 percent of Americans would prefer Swedish model

An interesting new piece of research from Michael I. Norton of the Harvard Business School and Dan Ariely of Duke University, who asked a survey group to estimate the current distribution of wealth in the United States and to “build a better America” by constructing distributions with their ideal level of inequality. The results?

"These results demonstrate two primary messages. First, a large nationally representative sample of Americans seem to prefer to live in a country more like Sweden than like the United States. . . Second, across groups from different sides of the political spectrum, there was much more consensus than disagreement about this desire for a more equal distribution of wealth, suggesting that Americans may possess a commonly held “normative” standard for the distribution of wealth despite the many disagreements about policies that affect that distribution, such as taxation and welfare."

It also demonstrates that U.S. citizens of all stripes drastically underestimate the level of inequality that actually exists.

Hat tip: Raw Story

The four faces of HSBC private banking

Back in March we had a report that "About 24,000 clients of HSBC's private banking operation in Switzerland had personal details stolen by a former employee, the company has admitted."

which was followed by a French tax probe, and now

"It is understood HMRC has acquired a list of high net-worth individuals with accounts at the Swiss division of HSBC. The list was stolen by an employee and passed to the taxman by the French authorities. The bank is not accused of any wrongdoing."

Well, Tax Research now has some useful questions to ask about the bank's leadership (for non-UK readers: ConDem refers to the UK's coalition Conservative/Liberal Democrat government.)

Read on.

Tax Could be The Way Out of African Aid Dependence

Last week we blogged the Declaration on Tax Justice issued by participants at a civil society round table in South Africa. In this article for IPS, Stanley Kwenda picks up on the theme of tax and development and, citing TJN-Africa and its partners, argues that tax could be the way for African countries to break free from their aid dependence.

Noting that tax is both a source of revenue and a mechanism for connecting citizens to states, and vice versa, Kwenda points out that attention to tax policy has "generally been lacking." But, as TJN-Africa's Alvin Mosioma points out: "History proves that no country will march out of poverty through aid, but effective resource mobilisation can aid development of African countries."

Citing the experience of Malawi, which offers extensive tax subsidies to attract external investors, Kwenda interviews Benjamin Chikusa, a Malawian parliamentarian, who comments that:

"Multinationals come to invest in African countries on the back of so many investment incentives that are packed into our tax regimes . . . Most of the employment benefits come in the form of low-paid jobs at a level where income taxes do not recover what has been lost through tax allowances."

The Malawian Ministry of Finance estimates the cost of these tax subsidies to multinational companies at USD125 million annually, representing about 9 per cent of total government revenues. TJN argues that the case for subsidising multinationals in this way is weak in almost all circumstances, but in the case of Malawi the need to subsidise foreign direct investment suggests that globalisation simply hasn't delivered on its promises.

Furthermore, as Christian Aid's Dereje Alemayehu comments, poorer countries in Africa also lose from capital flight and tax evasion:

"First, through falsified invoicing, or the inflating or undervaluing of prices to increase costs and diminish tax liability. Second, through transfer mispricing, a phenomenon in which companies sell to each other at inflated prices, inflating costs in intra-corporate financial transactions. Third, through 'round-tripping' where companies operating in a country send their money offshore and bring it back as 'foreign investment' to get preferential tax treatment."

Current tax regimes are failing to deliver either development or justice to most African countries. For decades they have been under pressure from western-based international financial institutions to subsidise western business and increase consumption taxes to compensate for revenue shortfalls. The outcomes have been disastrous in terms of increased aid dependency and mounting external debt. As Kwenda concludes, radical rethink is required:

"Experts recommend that African countries design effective tax systems that allow them to track tax evaders beyond their borders; and that parliaments play a stronger oversight role when it comes to taxation."

How did the Bush tax cuts work out?

David Cay Johnston notes the arrival of new data, and does some sums:

Total income was $2.74 trillion less during the eight Bush years than if incomes had stayed at 2000 levels. . . Average incomes fell. . . . The tax cuts cost $1.8 trillion in the first eight years, according to an analysis by the Tax Policy Center . . . One of every eight dollars of the tax cuts went to the 1 in 1,000 taxpayers in the top tenth of 1 percent . . . The tax cuts did not spur investment. Job growth in the George W. Bush years was one-seventh that of the Clinton years. . . . . The number of Americans in poverty, as officially measured, hit a 16-year high last year of 43.6 million, though a National Academy of Sciences study says that the real poverty figure is closer to 51 million.

And those are just the highlights . .

Africa Tax Spotlight 2010: tax competition, tax incentives

Welcome to the latest edition of Africa Tax Spotlight, the newsletter of the Tax Justice Network for Africa. The theme of this issue is tax competition, with a special focus on the West African region and on tax incentives. The issue comes at a time when sub-Saharan African governments are prioritising efforts to reform and developm their tax systems in order to enhance the full potential of domestic resource mobilisation.

In the lead article Tax Incentives: Tool for Attracting Foreign Direct Investment in Nigeria, Adeniran Samuel Fakila looks at a range of tax incentives in Nigeria in various sectors, combs through the country's long and troubled history in this area, and asks who benefits from these incentives.

In Taxation, Citizenship and National Development, Bishop Akoglo of ISODEC in Ghana looks at the challenges and limitations of taxation in countries with large informal sectors, narrow and rigid tax structures, undeveloped banking sectors and weak institutions and explores how the politics of taxation tends to take place in non-public arenas, typically small lobby groups pressuring for exemptions, though he sees local government as an exception to this. Overally, if tax is so important for nation-building, he asks, why is it rarely central in economic and policy debates?

ISODEC's Daniel Chachu follows this with What's oil got to do with it? Replacing baskets with buckets in Ghana's Domestic Revenue mobiisation Efforts. Chachu traces some of Ghana's post-independence tax history and looks at the prospects as Ghana enters the oil age.

This is then followed by Dr. Mohamed Jalloh's Tax incentives and foreign direct investments: implications for the Sierra Leone Economy, and ontlines some of the major tax losses the country has suffered from tax incentives which tend to happen on a case by case basis without any unified framework.

Christian Aid's Amadu Sidi Bah follows in the Sierra Leone theme with The paradox of incentive-based taxation and enhancing revenue mobilisation in Africa: the impacts on corporate taxation in Sierra Leone which sees tax competition as the direct result of an unfettered race between poor countries to attract investment, and drills down into different taxes and incentives in the aid-dependent country where tax constitutes just over 11% of GDP, as opposed to 30-50% in most OECD countries.

These articles are complemented by a series of reports on various TJN activities, from one on the French-language campaign Stop Paradis Fiscaux (in French), a report on our August 5-6 Manila meeting, a look at French civil society's pressure on the French government; a look at our forthcoming film Ca$hback, on the recent policy round table meeting in Johannesburg, another meeting on tax revenues for poverty reduction in Cameroon, and an interview with ISODEC's director Bishop Akoglo.

Enjoy!

Inside job: the movie

With an endorsement from Naked Capitalism, this looks like a film worth looking out for.

Private banking shifts to Asia

It's official - the private bankers, smarting from defeats at the hands of governments in Europe and the United States, are turning their attention to the developing world, and most especially Asia. There has been such a flurry of reports about this in the past week that it's been hard to keep up. Just for example, we have this:

"Morgan Stanley plans to double its Asia head count in wealth management over the next three years."

Or this article entitled Julius Baer eyes ‘second home’ in Asia which notes a sure-fire indicator of what is happening:

"Many private bankers say the costs of expansion are rising fast in Asia because of a “war for talent”

which was complemented by this:

"Julius Baer chairman Raymond J. Baer told a roundtable discussion meeting with financial editors on Monday that his bank would upgrade its Hong Kong office to a booking center, open an office in Shanghai and a trust company in Singapore, in addition to the branch office it set up in the city state in 2006.


And followed by this:

"Credit Suisse's private banking chief told Reuters Insider TV net new assets from rich clients in Asia will grow well above 20 percent, higher than the 15 to 20 percent annual growth the bank is targeting for end 2012.

And now we have [PwC] forecasting that:

“by 2040, “the three largest clusters by value of assets under management are projected to be New York, Singapore and London

Singapore is rapidly turning itself into a very dirty and increasingly important jurisdiction, and needs to be increasingly targeted by the regulators and policy-makers and criminal authorities of responsible jurisdictions. Contacts tell us that Singapore is aggressively playing the offshore deception of signing enough Tax Information Exchange Agreements (TIEAs) to ward off the OECD's blacklist threats, while ensuring there are enough "safeguards" (read: loopholes for criminals and others) to ensure that real information exchange will never happen.

For more on Singapore, see our 2008 blog entitled Singapore: dirty money, no questions asked. Which contains some useful historical pointers, and a good overview description:

"Former chief economist at Morgan Stanley, Andy Xie, wrote in a private email that was inadvertently leaked to the public, said that Singapore's financial success "came mostly from being the money laundering center for corrupt Indonesian businessmen and government officials.''

PWC seems to think that this is OK (or do they think this is just a minor detail?). It thinks that Singapore, along with Hong Kong,

"offer less burdensome tax regimes than their western counterparts and have ‘well-regulated but moderate’ regulatory structures."

All in all, two things are happening here. First, Asia's wealth is growing, and private bankers in Europe and the U.S. are licking their lips at the thought of it all. Second, governments in Europe and North America are starting to get really quite angry at the criminal activities of private bankers on their own soil, and are (half-heartedly, it has to be admitted) trying to crack down on it a bit. So the private bankers thought they would focus their criminal activity increasingly on developing countries. Problem solved!

Here is what we would like to see. Today, these institutions are quite happy to call themselves private bankers - when the word "private" is a clear marker for the criminality that underlies the entire business model. We hope that in a few years' time, the word "private" when associated with "banker" will have become such a dirty word that they will no longer want to be known by that term. Please help us achieve that cultural change.

Letter from America: the MDG summit Day 1

This letter from America was sent to us by David McNair, Christian Aid, who is in New York at a summit meeting of world leaders to discuss the UN Millennium Development Goals (MDGs).

The Millennium Development Goals Summit Day 1
Security is tight as heads of state, diplomats and NGOs meet at the United Nations in New York of a summit on progress towards the millennium development goals. A 15-car entourage is not uncommon as everyone from President Obama, to Robert Mugabe and Mahmoud Ahmadinejad are in town.

10 years since the goals were set and with 5 years to go, progress is slow towards the 8 goals which range from dealing with hunger to maternal mortality.

For Christian Aid, poverty is a lack of access to power, whether that be personal, political, economic or social. Restoration of that power to the poor is addressing the root causes of poverty.

MDGs largely focus on the symptoms of poverty. However, these symptoms are real and desperate for those living without food, for mothers whose babies die in child birth, for those living on less than 2 dollars a day.

Having made my way through security barriers, passed snipers standing on the roof, we enter a side event on the role of tax in meeting the MDGs.

It is clear with rich governments failing to meet their commitments, aid isn’t going to do the job. In fact in the view of Ngozi Okonjo-Iweala, Managing Director of the World Bank it was never going to. Developing countries raise much more in tax than they receive in aid, she told the group of a hundred dignitaries and officials.

The European Commissioner called for an end to capital flight which, in his view, costs poor countries seven times what they receive in aid. In fact everyone agreed that we would never eradicate poverty without addressing capital flight and tax dodging which we estimate costs developing countries $160bn dollars a year. Gay Mitchell MEP said this money could save the lives of 350,000 children each year and this outflow needs to stop.

This is where I got excited. Having spent most of my waking hours in the past year talking, writing and dreaming of governments taking Christian Aid’s proposals seriously the head of the OECD said this: ‘Country by Country reporting and Automatic Information Exchange are anathema to those wishing to avoid or evade tax and we should pursue them’. This is a clear signal that Christian Aid’s proposals make sense, but that it is a matter of political will to make them happen.

It is also a clear signal that Christian Aid and our partners have been successful in putting this issue firmly on the agenda of those in power. This is in stark contrast to my experience when we started this work in 2008. As a policy officer in Christian Aid’s Dublin office, I received personal abuse on national radio for defending our report Death and Taxes as completely ridiculous!

But what are those with the power going to do about it? Our friend Raymond Baker from Global Financial Integrity made a clear call for rich governments to stop facilitating and harboring corrupt money.

Angel Gurria was right. It is not impossible to deal with these issues. It is a matter of political will – and it is up to us as campaigners to generate that political will. Why not join us?

U.S. tax breaks benefit wealthy most; poverty rises fast

Here are two stories with more than a passing relationship: Wealthy benefit most from tax subsidies: study (or Dog Bites Man, as Naked Capitalism put it); and Poverty rate hits 15-year high (and on that score, for a really depressing read, try this one.

Declaration of Participants of the Southern Africa Regional Tax Policy Round Table

The Tax Justice Network for Africa, together with Africa Forum and Network on Debt and Development (AFRODAD) in collaboration with the Institute for Democracy in South Africa (IDASA) organized a two day policy round table held in Johannesburg – South Africa on the 14th and 15th of September 2010. It brought together tax policy experts from the southern Africa region to discuss tax policy issues as they relate to the efforts of the region to raise domestic resources to finance their development. Participants included members of Parliament, Researchers, Tax practitioners from the private sector and representatives from relevant government ministries and the South Africa development community (SADC).

The meeting produced the following declaration:

Declaration of Participants of the Southern Africa Regional Tax Policy Round Table
We, participants of the two day policy round table held in Johannesburg – South Africa on the 14th and 15th of September 2010 organized by the Africa Forum and Network on Debt and Development (AFRODAD) in collaboration with the Institute for Democracy in South Africa (IDASA) and the Tax Justice Network-Africa(TJN-A):

1. Considering that well designed tax policies that take into account the nature of the African economies and effective tax collection can guarantee resource mobilization and utilization to accelerate socio-economic growth and welfare creation;
2. Recognizing that many African states lack the political will and / or capacity to design an equitable tax policy;
3. Recognizing the critical role of parliament and other democratic institutions and that they need capacity to carry out their role
4. Recognizing that the prevailing tax regimes risk reinforcing inequality and eroding the already fragile social fabric;
5. Recognizing that citizens’ participation in the formulation of equitable tax policy enhances efficiency and effectiveness of revenue generation and redistribution;
6. Recognizing that Africa’s blessing with resources has turned into a curse because of the secretive investment agreements that expose African resources to foreign exploitation while promoting corruption;
7. Recognizing that the concessions and tax incentives offered to multinational companies and other national conglomerates minimize the benefit African countries could have derived from their resources;
8. Recognizing the laxity in revenue collection and outright tax evasion and predatory tax avoidance by multinational companies is resulting in excessive and increasing loss of revenue which exceeds all forms of resource inflow to the continent;
9. Recognizing that stopping resource leakages caused by disadvantageous investment agreements, by a policy of tax incentive to attract foreign investment; by predatory practice of multinationals facilitated by secrecy jurisdictions should be pursued by African governments as a central policy for domestic resource mobilization for poverty eradication and development
10. Recognizing the importance of transparency and accountability including parliamentary oversight in the design and implementation of tax policies and the need for capacity building of oversight bodies
11. Recognizing that the MDGs will not be attained in many African countries partly due to inadequate domestic resource mobilization efforts, and that tax remains the most reliable and predictable source of financing the MDGs
    

Call upon African Governments

• to work with African Civil society for the elaboration of tax policies that are fair, progressive and equitable
• to improve capacity, transparency and efficiency and accountability of revenue authorities
• to revise investment agreements and ensure that future agreements are transparent and open to public scrutiny
• to close loopholes that facilitate tax evasion and enable aggressive tax avoidance
• to introduce tax expenditure statements in national budgets
• to work together in regional and pan-African fora to demand with one voice an end to lack of transparency in international financial transactions facilitated by secrecy jurisdictions, including country by country reporting
• to scale up public education and civic engagement on tax issues
• to harmonize taxation policies in line with the economic integration agenda

Call upon Members of Parliament

• in their role as members of an oversight institution to ensure effective and transparent and accountable use of state revenue
• in their capacity as legislators to take a lead in tax reform process, including enacting fair and equitable tax legislation that enhances public revenue and minimizes tax evasion and aggressive tax avoidance
• to engage in institutional and legislative reforms that will guarantee their independence, capacity and powers to effectively perform their oversight function
  

Call on the South Africa Government

• as member of the G20 to advance African interests on this platform and to push for the adoption of Country-by-Country reporting; the identification and registration of beneficial ownership in all jurisdictions, as well as for a multilateral agreement on automatic tax information exchange between jurisdictions
  

Call on the African Union and other regional bodies

• to facilitate and coordinate collaboration of African governments on tax matters
  

Call on African Civil Society in the region and beyond

• to join us in our struggle for a fair and equitable tax policy at the national level to use these resources to ensure decent life with dignity for all Africans
• to call for and support cooperation at the international level to put an end to illicit outflow of resources needed for the development of the continent
• to strengthen partnership, collaboration with revenue authorities, parliaments and other state and non state actors in promoting fair, transparent and sustainable taxation
  

We commit ourselves to work collaboratively to advance the tax justice agenda in our respective countries and to coordinate our efforts for equitable domestic revenue mobilization and to stop illicit capital flight.

Done in Johannesburg, South Africa on 15th September 2010

Resource transparency: time for London to play fair (+ Bono)

The aid economist Paul Collier and Jamie Drummond, executive director at Bono's ONE campaign, have an article in the Guardian about transparency in the extractive industries. Transparency initiatives like EITI and the recent Cardin-Lugar amendment in the U.S. are good, they say, but don't go nearly far enough. We'd agree (and today's TJN blogger recently wrote a Chatham House report on Nigeria's EITI performance, arguing just this.)

Collier and Drummond have spotted one of the great global transparency problems, which goes way, way beyond the extractive industries:

"Clearly, though, it is not sufficient for the US to be acting alone. In the immediate future Britain has to decide whether to match American action or to connive at maintaining an advantage of dishonesty for those British companies not cross-listed in New York. The upcoming British financial services regulation bill is our equivalent of the Wall Street Reform Act. London is home to many of the major companies not covered by Cardin-Lugar, such as Gazprom. Integrity, rather than opportunism, would be consistent with the exemplary emphasis of the coalition on transparency in all areas of British government."

This would be an exceptionally positive step, but in light of Britain's performance (and its own industrial policy to support its banking sector through lax regulation) we aren't holding our breaths.

And one more thing. Drummond's organisation ONE was co-founded by the musician Bono. We've had a lot of big beefs with him (see here, for instance.) and we still do. It's nice to see his organisation pointing (in a limited way) to London's history of conniving in maintaining an advantage of dishonesty for British companies. In addition, this recent interview with Bono in Libération (in French) contains a tantalising snippet. Speaking in the context of capitalism and markets generally, he says:

"So we need a big bang. At the moment, nothing has happened about the international financial system. Not on tax havens, nor on tax evasion, nor on the corruption of big multinationals, nor on transparency.

We aren't quite sure what he means by this "nothing has happened" ('rien ne s’est produit' in the original). But it makes us wonder - is he changing his opinion about the things that concern TJN? More clarity from him would be welcome.

Tax, not aid, is the key to development - OECD

We have said that headline many times. And we're pleased to see the OECD saying it. We've had our beefs with them, and we will continue to do so, but we like the kind of talk coming out of their development centre. The head of their development centre in Paris has just said:

"In 2008, the combined fiscal revenue in Africa reached over $400bn - 10 times the total amount of aid money flowing to the continent."

That ratio is just what we pointed to yesterday, although the numbers themselves are looking at slightly different things.

"The international community could play a key role. Saying that African countries should rely more on themselves is not the same as saying they should be left to achieve this alone. Development partners could support an international tax dialogue to voice and address Africa's concerns on issues such as tax evasion, fiscal havens and abuses by multinationals."

Yup. And there's more.

Who exactly is seeking Jersey's independence?

Not long ago we blogged some potential moves in Jersey, which is frightened of European Union moves in the area of tax havenry, to move towards full independence from Britain. But who exactly is pushing this? This Tax Research blog about a conference discussing the idea says it all.

As it notes:

"One of the most striking features of last week’s sovereignty conference was the total lack of participation by politicians."

On entertainment, identity, football - and tax havens

This is about British football, but it could apply in one way or another to many countries as of late. Here is a speech by Paul Marshall, the co-founder of Marshall Wace, (and Manchester United fan) to the Liberal Democrat autumn party conference on Monday night. It is repeated on the FT Alphaville column, which focuses on finance.

It's long, but a few choice segments are worth drawing out.

"Does it matter if a lot of money is wasted by irrational owners and that money winds up in the pockets of players? Well, in many respects it does not. These are consenting adults.
. . .
The problem arises when the owners have no shared identity with the supporters, when they are not part of the community and instead of supporting the community, they actually take money out of the club – as in the case of the Glazers (or Liverpool’s current owners). Then we have the reverse of community. We have something antithetical to the spirit of a football club. We have the rape of a community."

One is reminded here of the comments of John Maynard Keynes:

"Experience is accumulating that remoteness between ownership and operation is an evil in the relations among men, likely or certain in the long run to set up strains and enmities which will bring to nought the financial calculation.

Football seems to have proved him right, once again. Marshall goes on to outline the three big purposes of a football club: to provide community, identity and entertainment.

"A football club should not be seen either primarily, or even secondarily, as a means of making money."

And he goes on to look at international comparisons, the corporatisation of British football, and possible legislation to bring football back home to the community again. It is interesting stuff, and worth reading for any football fan.

There are several elephants in this particular room, and he describes some of them very well. But he misses a big one: the offshore angle. And this is where it gets interesting.

For more on this, read Christian Aid's Blowing the Whistle: time's up for financial secrecy, which set out to try and find the true owners of football clubs in the English, Welsh and Scottish league, as well as the Irish League in Northern Ireland and League of Ireland in the Republic of Ireland. As it says, in the context of offshore secrecy:

"This secrecy – core to which is the anonymity offered by tax havens – has hidden the financial meltdown of a number of football clubs from view until too late. Stakeholders, club supporters in particular, have been betrayed and the football authorities caught napping."

Why does this angle get overlooked so very often? (And if football and tax is your thing, then don't overlook this horror: FIFA's African tax bubble.)

A Chinese Feast of Red Herrings and Libertarian Scaremongering

The lead feature article in Hong Kong's China Economic Review covers tax evasion and tax information exchange processes. It includes a balance of opinion, TJN's David Spencer, Oxfam, and Richard Murphy of Tax Research LLP are cited, as are Dan Mitchell of the right-wing libertarian Cato Institute and Geoffrey Hodgson of the Society of Trust and Estate Practitioners (a pro-tax haven lobby), but raises many Aunt Sally arguments about why automatic information exchange is impracticable (gossip about cardboard boxes of information lying around unopened stretches credulity in an era of digital data exchange) and peddles OECD estimates of the volume of funds held offshore - USD7 trillion - that are at least a decade out of date. The piece is not entirely accurate about TJN - one sentence describes us as saying that tax harmonisation is "inevitable" when we say no such thing.

What is of interest, however, is to read the latest line of scaremongering from our old friend Dan "Hyperbole" Mitchell. Mitchell loves to cast the OECD as a totalitarian organisation - the article's title, Bigger Brother, underlines this point - and he doesn't hold back from raising the spectre of the OECD's plans for world domination:

Mitchell believes that the OECD and G20 push will follow roughly four stages: the break-down of existing privacy laws, followed by automatic exchange of tax information, then a drive for worldwide “tax harmonization,” and finally a push to raise corporate taxes.

He argues that many of these stages could be accomplished within the next two to five years, depending on the circumstances.

Its never clear to us whether Dan actually believes a word of what he spouts, but the fact that neither the G20 nor the OECD have been pushing for automatic information exchange as the global standard (we wish they would), and no-one has mentioned the prospect of worldwide tax harmonisation now or at any time, doesn't inhibit Dan from talking complete and utter crap.

You can read the article here.