Friday, April 29, 2011

Links Apr 29

The basis of Glencore's competitive advantage is not paying tax Tax Research UK
Apr 28 - 'Up to 50% of the world’s trade in some commodities has been controlled by the 485 partners in Glencore. And as is now apparent that was not due to their innate ability. It was due to to the fact that Switzerland let them trade virtually tax free, providing a wholly artificial competitive advantage.'


Obama backs country-by-country reporting Tax Research UK
Apr 29 - On the Obama administration lobbying European allies to adopt anticorruption laws that require energy companies to disclose payments to foreign governments.


The art of not paying taxes Third World Network
Mar 2011 - Tax policy in Latin America is 'pro-rich' and not 'pro-poor'. In other words it is regressive, not progressive. This is one of the main causes of the huge inequalities prevailing in this part of the world. See also Tax Justice Focus: The Latin American Edition


BRIC Super-Rich Worth $4 Trillion The Wall Street Journal

Apr 29 - Brazil, Russia, India and China are reported by Wealth-X to have a combined 25,600 people with US$30 million or more in net worth. What is most interesting about the BRIC data is the concentration of wealth at the very top of the wealth pyramid.

Hopes that rich Russians will use the Island’s services Jersey Evening Post
Apr 27 - 'An increasing number of rich Russians could well be using Jersey to protect their wealth in future. That is the message from Jersey Finance following a visit to a major conference in Moscow...' So, what exactly does 'protect their wealth' mean?


Barclays' Protium Deal is 'all that's wrong in the City' Telegraph
Apr 29 - On how Barclays struck a highly unusual deal to move $12.3bn (£7.4bn) of dodgy credit market assets off its balance sheet and into a new Cayman Islands company, Protium. Barclays' Protium deal bears some remarkable similarities to the off-balance sheet vehicles it helped structure for Enron.


See also:

Lord Oakeshott asks HMRC to investigate Barclays' Protium deal in Parliamentary question Telegraph
Apr 29 - The compliance code Barclays signed last November states that banks "undertake tax planning only to support their business operations, not to achieve unintended and unexpected tax advantages."

Mexico Preparing to Sue U.S. Companies Deemed Culpable For Drug-War Crimes the narcosphere
Apr 27 – The
Attorney General’s Office of Mexico has retained a U.S. law firm to explore options for filing litigation against U.S.-based companies or individuals “believed to be participating” in money laundering and weapons trafficking activities “that may be harming Mexico”. The potential targets of such lawsuits could well include mainstream U.S. banks.


Guernsey Foundations Set For 2012 Introduction, Consultation Begins TAX-NEWS.com
Apr 29 - Peter Niven, Chief Executive of Guernsey Finance says he is hopeful that by early next year Guernsey practitioners will be able to offer a foundation which enables clients to preserve and enhance their wealth and assets. Adding this product to trusts, to appeal to other clientele - namely those in emerging markets.


Channel Islands' VAT abuse has cost the UK at least £475 million Tax Research UK
Apr 29 - Richard Murphy on the UK House of Commons issuing a new briefing sheet on VAT abuse involving the Channel Islands (and no doubt undervaluing the sum) - and how it could have been spent.


Netherlands Eager To Cut Corporate Tax Burden TAX-NEWS.com
Apr 29 - Dutch State Secretary of Finance, Frans Weekers has announced that his fiscal agenda includes increasing taxes on consumption whilst reducing the tax burden on companies in an effort to increase the number of international investors positioning headquarters in the Netherlands.

IRS Likely to Expand Mortgage Industry Coverup by Whitewashing REMIC Violations naked capitalism
Apr 28 - Demanding that tax law violators pay what they owe is somehow seen as an misuse of government authority? That appears to be the message." . . . Adam Levitin, a Georgetown University Law School professor and expert on taxation, said that if the IRS fails to act, “it would be a backdoor bailout of the financial system.” The piece is somewhat wonkish, but important.

CBPP: A Repatriation Tax Holiday is a Lousy Idea Taxprof

Apr 10 - On a recently released report by The U.S. Center on Budget and Policy Priorities: Tax Holiday for Overseas Corporate Profits Would Increase Deficits, Fail to Boost the Economy, and Ultimately Shift More Investment and Jobs Overseas.

Rich Man, Poor Man Mother Jones

Apr 27 - Fascinating commentary on wealth status and perceptions. And conclustions: if the poor don't really know they're poor, they're never going to mount much of a fight for more egalitarian public policies. And if the well-off don't know they're well off, they're going to strongly resist more egalitarian public policies.


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Progressive U.S. tax movement outshines the Tea Party

We missed this when it came out on Wednesday, but better late than never. We hope US Uncut won't mind our re-posting in full.
On Tax Day weekend, a two-month old grassroots organization called US Uncut used a little humor, fun and creativity to dominate the media narrative about taxes. Local US Uncut organizers from Fayetteville, Arkansas to Boston, Massachusetts; from Seattle, Washington to Jackson, Mississippi; from New York, New York to Los Angeles, California; from Portland, Oregon to Orlando, Florida - all participated in the largest collective protest against corporate tax cheats in American history.

This wasn't done merely with signs and banners- we had zombies in Arkansas. The Paul Revere ride anniversary in Boston was accompanied by the call, "The cuts are coming! The cuts are coming!" In Chicago, "billionaires" walked an elephant and a donkey on a leash through the streets. At Union Station in Washington, DC, a bestselling British author signed free copies of his book, Treasure Islands, about offshore tax haven abuse at a Verizon store in the midst of pirates, drumming and dancing.

While the network pundits didn't spend a lot of time talking about US Uncut, they did spend a lot of time talking about what corporate tax cheats are costing our country by avoiding their fair share of taxes. And for the first time on Tax Day, there was a nationwide movement of Americans who were staging protests against tax evasion, instead of taxes in general. US Uncut took the streets on Tax Day. And in doing so, we took the narrative with us. From April 15th to April 18th, US Uncut won the day. This was our first key victory.

And I don't know about you, but I didn't once hear the phrase "tea party" mentioned in the news or around me in person.

Now, the public knows who we are and what we stand for. Expect people to ask you about US Uncut as more local actions take place. Expect your local cops to give you fist bumps as you hoist a "STOP THE CUTS- MAKE THEM PAY" poster. Expect a lot of curious questions about US Uncut from your family and friends.

The fight has just begun, and there's plenty of ground to cover. But we should all be proud of what we've done. We've already accomplished more in two months than many action-based organizations have in years. Push on, and keep fighting.

Solidarity,
CG
Who would have thought it, just a year ago? Hats off to all of them, and a special mention to Johann Hari who helped seed this sophisticated, unexpected grassroots movement.

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Thursday, April 28, 2011

AABA/TJN Research Workshop on Debt, Tax and Human Rights at Essex University, 5/6 July 2011

Association for Accountancy & Business Affairs
Tax Justice Network

UNIVERSITY OF ESSEX, 5th-6th JULY 2011

DEBT, TAX AND HUMAN RIGHTS

Provisional Programme

Fuller details of the workshop, including a downloadable booking form, are available here


Tuesday 5th July

Arrival & Registration: 12.00-12.45

Welcome and Introduction: 12.45 John Christensen (TJN)

Session 1: 13.00-14.45 Chair: Prem Sikka, Essex University

The Role of Tax in Achieving Human, Social and Economic Rights

Chairman’s Introductory Comments

Attiya Waris and Matti Kohonen
Building Taxation to Achieve the Millennium Development Goals in Africa

Ignacio Saiz
The role of fiscal policy in realising economic and social rights: the "Rights or Privileges" project in Guatemala

Break

Session 2: 15.00 -16.45 Chair: Richard Murphy

Tax and Social Justice

Peter Dietsch
Efficiency of what? Tax competition and the promotion of social objectives

Peter Latham
Land Value Taxation, debt and human rights: A Gramscian Perspective

Ayse Nil Özbakan Tosun, Oytun Canyas
Effects of the European Convention on Human Rights on Turkish Tax Policy and Administration

Tea

Session 3: 17.15 -18.15 Chair: Sarah Knott

Getting to the Roots of the Problem

Christophe Farquet
The Swiss Tax Haven in the Inter-War Period: An International Comparison

John Christensen, Nicholas Shaxson, Sam Heinrichs
The Shaping of an Ideology of Offshore

Drinks

19h00 Buffet Dinner

20h00 Panel Discussion – Debt, Tax and Human Rights led by Nick Dearden (Jubilee Debt Campaign), Ronen Palan (University of Birmingham) and Attiya Waris (University of Nairobi)

Wednesday 6th July

Session 4: 09.00-10.30 Chair: Markus Meinzer

Tax and Change

Tim Knight
Equitable Distribution of Wealth and Income Through Taxation

Tony Crawford
Capitalism without Capital: Tracking the Monetisation of Toxic Loans through Taxation Systems

Emerta Asaminew
Estimating the Underground Economy in Ethiopia

Session 5: 11.00-12.30: Chair: Liz Nelson

Exploring Secrecy: Mechanisms and Magnitudes

Jim Henry
The Price of Offshore Revisited

Steven Eichenberger, Markus Meinzer
Mapping Financial Secrecy 2011 – Changes, Process, Methodology and Implications

Alex Cobham, Petr Jansky
Tracking 'offshore' finance through the crisis: Using the Financial Secrecy Index to explore the evolution of dirty money flows

Workshop ends

Fuller details of the workshop, including a downloadable booking form, are available here.

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Wednesday, April 27, 2011

Jersey's Cook vs. TJN's Christensen on future of tax havens

A publication called Jersey Now is carrying (on its back page) a debate between Geoff Cook, chief executive of Jersey Finance, asking the simple question "Will the Jersey Finance Industry be here in 20 years' time?" Cook answers Yes and Christensen is categorised as representing No (although that isn't what he actually says.)

Let's start with Cook's "We are a co-operative, transparent and well-regulated centre . . . as well as being an OECD white-list centre."

First, let's quote from Treasure Islands:
"Close relationships are inevitable in such a small island, but it is precisely because of this that Jersey needs extra checks and more transparency, to weigh against the inbuilt tendency towards conflicts of interest. This is especially important when Jersey plays such a major role in international finance. This affects you and me. Skittish financiers dislike places that are chaotically corrupt, as do onshore regulators. Secrecy jurisdictions steeped in sleaze confront this by putting on a strenuous performance of rectitude, a theatre of probity that involves repeatedly projecting the essential message – ‘We are a clean, well- regulated, transparent and cooperative jurisdiction’ – burnished by carefully selected comments and praise from toothless offshore watch- dogs like the IMF’s Financial Action Task Force or the OECD."
That puts Cook's comments in perspective, of course. We have demonstrated beyond doubt on our website and in the FT - and note that top professionals agree with us, profusely -- that the global scoring mechanisms for tax havens are so flawed as to amount, in many cases, to a deliberate whitewash. The evidence is quite simply incontrovertible - and Cook's message needs to be understood in this context. Anyone who knows Jersey will know that its politics are rotten to the core.

One interesting comment Cook makes is that he thinks that in 20 years or so there will be only a dozen or so 'international financial centres' (they all hate the term 'tax haven'.) Perhaps Cook is right there. Christensen's argument - which does not put him in the 'no' camp in this debate - is self-explanatory. Read on.

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Tuesday, April 26, 2011

Links Apr 26

Black Money Comes Mainly from India: Assange The Times of India
Apr 26 -
WikiLeaks founder Julian Assange speaks on Swiss bank data and India, though the truth about what data Wikileaks holds will not be clear, apparently, for some time.

India: High-level committee to trail money laundering
Mangalorean.com
Apr 25 -
The Indian government has set up a multi-disciplinary committee, comprising top officials of different departments, to oversee and coordinate investigations into cases of money laundering and stashing black money in tax havens.


Barclays chief Bob Diamond to face tough grilling on pay and losses from Cayman deal Daily Mail

Apr 25 - On Diamond's potential £27m pay package, and details on how Barclays is dealing with its planned exit from "Protium", a parking place for some of the bank’s most toxic loans based in the Cayman Islands tax haven. We blogged Protium earlier, here.

Wall Street Journal Distorts Facts on Taxing the Rich: Jeffrey Sachs AllGov

Apr 23 - Jeffrey Sachs has taken exception to the assertion by The Wall Street Journal that it’s pointless to increase taxes on the wealthy. "America’s richest households have enjoyed quite a ride in recent decades as they’ve accumulated a mountain of wealth unprecedented in human history, at a time when much of the rest of society has been suffering."

Which is worse--theft of pizza or hiding almost $5 million from the IRS? ataxingmatter

Apr 24 - Comparing and contrasting. While in California someone is sent to jail for stealing a slice of pizza, a member of the elite class defrauds the government (and all honest taxpayers) by hiding $4.9 million in assets in a Swiss bank, and what does he get ...?

Liechtenstein structures will be within European Union Savings Tax Directive Tax Research UK

Apr 25 - Reporting from Richard Murphy: " ... for all serious offshore aficionados. It comes from the person I think the foremost expert on the European Union Savings Tax Directive – Mark Morris, and is from his blog, with permission." See a report on this, here.

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Dirty, Dark, Sub-plots of Secrecy

The New York Times reported on April 20 on "New Swiss Tax Rules Signal Big Changes for Private Banks". The article discusses the proposed new arrangements whereby Germany and the UK would receive a stream of income on undeclared assets held in Swiss banks via a withholding tax, but Swiss banking secrecy would be preserved.

Troubling indeed that governments are explicitly sanctioning the continuation of the secrecy regimes that provide a black hole where billions of dollars in criminal funds vanish, with impunity for the perpetrators.

The recent events in Germany, whereby Banque Julius Baer received an institutional slap on the wrist of a piffling fine of EUR 50million for abetting German taxpayers to dodge their responsibilities - in contravention of German law - is worrying evidence of this trend and standpoint. The German government, in this case, is choosing not to assert a need to know the identities of the tax evaders and criminals with the hidden funds. See Richard Murphy's comments here in Laughing all the way to the Swiss bank.

The question must be asked - why do governments collude in protecting secrecy? What do their members, and associates, also have perhaps to hide?

Alongside this tacit approval and practical support of the culture and mechanisms of financial secrecy, these moves are a political tool subverting the move towards automatic information exchange. See Austria's and Luxembourg's Anglo-German fig leaf .

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Tax cuts stimulate growth? No they don't.

George Bush the Elder (pictured) described the idea as Voo-Doo Economics, but like other too-good-to-be-true patent remedies, the idea that tax cuts for business stimulate investment and growth just won't die.

Over the past 30 years economists have researched and debated the case for tax cuts and generally concluded that the empirical evidence doesn't support the argument. In fact the more we consider the evidence the more risible the case for supply-side tax cuts becomes; read this, for example. Sadly the lack of empirical evidence doesn't deter some fanatics from pushing the case for all its worth, especially since politicians love ideas that go across well in soundbites.

The results of the latest research into the impact of corporate tax cuts on business investment have just been published by the Canadian Centre for Policy Alternatives. Their team has examined data on business capital expenditure as a share of Canadian gross domestic product and as a share of corporate cash flow from 1961 to 2010. Their research finds no evidence over the course of that half century that lower taxes directly stimulated investment. In other words, when investment increased factors other than tax contributed to the increase.

Similar conclusions can be drawn from the experiences of most other countries that have used supply-side subsidies to stimulate private sector investment. By and large these subsidies feed through into increased share prices and higher executive salaries and take the pressure off directors to innovate and improve productivity. So the tax cuts fail to achieve what politicians claim are their key objectives, but come at a huge cost the exchequer. As the CCPA report notes:

"Business fixed capital spending has declined notably as a share of GDP and as a share of corporate cash flow since the early 1980s—despite repeated tax cuts that have reduced the combined federal-provincial corporate tax rate from 50% to just 29.5% in 2010."

In the case of Canada, current proposals to cut the corporate tax rate will incur a tax expenditure of approximately $6 billion each year, yielding a paltry increase of business investment of only $600 million per year. Scarcely a success story, especially when compared to the potential increase in investment that would arise if the government scrapped the tax cuts and invested the revenues directly into public infrastructure:

"If the federal government spent $6 billion on public infrastructure instead of corporate tax cuts, the total increase in investment would be more than ten times as great as the increase in private investment from tax cuts alone. This includes the new public investment itself ($6 billion), as well as an additional $520 million in private business investment that would be stimulated through the positive spin-off effects of the resulting economic growth."

Voo-Doo economics is an idea that should have been kicked into the long-grass decades ago. Its survival is a testimony to the power of corporate lobbying and political laziness. Tax cuts on corporate profits do not stimulate investment; they simply transfer wealth upwards to politically well-connected businesses.

You can read the CCPA report here.


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Thursday, April 21, 2011

British government refuses to release Cayman corruption complaint

Another in our occasional the-rot-runs-deep blogs:

CayCompass, a Cayman Island news service, is reporting that the British Foreign & Commonwealth Office has refused to release details about a complaint filed by the former head of a special investigation into corruption within the island's judiciary. According to CayCompass:

"The complaint, made last year by the operation’s former Senior Investigating Officer Martin Bridger as well as its legal advisor Martin Polaine, made various accusations regarding the conduct among certain members of the local judiciary, as well as staffers at the attorney general’s office. "

Any complaint at that level should be taken very seriously indeed, but apparently not, especially when it relates to a British Overseas Territory much used by members of the British Establishment for their own tax dodging purposes. As always, the safe pair of hands appointed by the British monarch to maintain the appearance of probity and good governance, has apparently dismissed the complaint without explanation:

"Governor Duncan Taylor dismissed all aspects of the complaint earlier this year and refused to comment on it or release any details. He stated at the time that he had full confidence in members of Cayman’s judiciary. The UK foreign office said it did hold certain information about the initial complaint, but said the details should be exempted from release under Britain’s Freedom of Information Act."

But it gets even more shocking. According to CayCompass the FCO seeks to justify their refusal to release the complaint on the basis that the information it contains might damage public confidence in the governance of the islands:

“We judge that disclosure of the information requested could lead to a loss of confidence within the international community, which could impact negatively on the Cayman Islands’ reputation and, more directly, on its financial services industry.”

This is, of course, nonsense. Sensible investors will smell a cover-up, and suspect the worst. The only sensible thing to do to de-toxify the issue is to go for complete transparency. Publish the complaint and the outcome of subsequent investigations.

And finally, yet again the FCO tries to pretend that when dealing with the Cayman authorities it is somehow dealing with an independent sovereign state:

“Disclosure would be prejudicial to the effective conduct of international relations between the United Kingdom and the Cayman Islands, which depends upon maintaining trust and confidence between the governments...”

This is yet more nonsense. Just for the record: the Cayman Islands are a UK Overseas Territory. The UK government is directly responsible for their defence and foreign affairs and has responsibility for the governance of the islands. The Cayman Head of State is the British monarch, who appoints a Governor to preside over the islands’ executive council, which has the role of a cabinet. British common law and local statute applies; the Queen’s Privy Council in London acts as the final court of appeal. And the UK government is guarantor of any public debt incurred by the Cayman Island government. In other words the British government is largely running the show. And apparently doing a rather poor job of it.



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Links Apr 21

Having Their Cake and Eating It Too Canadian Centre for Policy Alternatives (CCPA)
This study examines historical data on business investment and cash flow from 1961 through 2010, and, using econometric techniques, finds no evidence in the historical data that lower taxes have directly stimulated more investment.

Nigeria: Uduaghan’s Involvement In The Looting Of Delta State Treasury By Liberate - Delta People's Movement sahara reporters

Apr 19 - In the corruption probe of James Ibori, former Governor of Delta State in Nigeria (big name), funds laundered via the UK and Mauritius.

India's illicit financial flow is $462 billion Mangalorean

Apr - "From 1948 through 2008, India lost a total of $213 billion in illicit financial flows," says a new book "The Darker Side of Black Money" by B.V. Kumar, a former highly regarded member of the Indian Revenue Service. "The present value of India's total illicit financial flows is at least $462 billion".

India: Supreme Court asks government's view on black money probe team Sify

Apr 21 - The Supreme Court seeks the central government's response to its suggestion for setting up a special investigation team with experts from various agencies to probe black money stashed away in tax havens abroad. See also SC again raps government for inaction on black money in tax havens domain-b.com Apr 21.

Money laundering trial follows political drama swissinfo.ch

Apr 11 - A Swiss court is hearing claims that the Zurich private banker helped French energy group Alstom set up multi-million dollar slush funds to bribe foreign officials - a case that has significant ramifications beyond this one individual and the Swiss borders.

Canada's Caribbean bank tax holiday rabble.ca

Apr 17 - A disturbing trend - a growing share of Canada's direct investment abroad is being funnelled into tax havens to avoid Canadian taxes and financial accountability rules. Hat tip Offshore Watch.

Close tax havens as part of fixing deficit madison.com

Apr 21 - From the U.S. State of Wisconsin, the epicentre of inspiring public protest on the right for collective bargaining, WISPIRG calls on Congress to address the deficit by closing corporate tax loopholes, rather than cutting public priorities.

Prosecutions of tax evaders up 25% USA Today
Apr 17 - Criminal tax prosecutions by the federal government hit a 10-year high in 2010, powered in part by a continuing crackdown on offshore tax evasion by wealthy Americans. Hat tip Tax Justice Network USA
.

The income tax system is broken CBS News

Apr 15 - "43 % of Americans pay no federal income tax, a sign that something's wrong. ... People who pay no taxes but nevertheless get benefits are less likely to be careful overseers of their elected representatives".

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Cyprus, Russian bankers and the oil price

A nice, if slightly involved, article from the Financial Times' Alphaville blog, quoting Standard & Poor's:

Non-resident deposits account for 144 per cent of Cyprus’ 2011 GDP. S&P says, when you include deposits from the subsidiaries of foreign companies channelling funds through the country for tax arbitrage purposes. In fact it seems to finance a good old chunk of the Cypriot current account.

No surprise there. But then there's an interesting graph, correlating nonresident deposits with oil prices. And it says:
More than anything else, what seems to drive nonresident deposit levels in Cyprus is the price of oil (see chart below); when oil prices are high, the levels of nonresident deposits in the Cypriot banking system increase. This link occurs through CIS [Commonwealth of Independent States] commodity-based shell companies that deposit transactional balances of their CIS-based legal subsidiaries engaged in oil, mineral, and metals exports, often involving transfer pricing and other tax minimization strategies. The Central Bank of Russia classifies Cyprus as the largest single source of FDI in the Russian Federation, with a total of $41.7 billion in cumulative inbound FDI into Russia’s non-financial sector between 2007 and 2010 (over 2.7x German levels)

Cyprus is also counted among the top FDI investing nations in several Central Asian countries (likely Russian capital reinvested via Cyprus, a process known informally as “round-tripping”).
Er, yes indeed, just as we have been saying - though it's nice to have fresh, hard data. (For some of the blood and guts of this, see here, for instance.) And it seems that FT Alphaville has noticed us saying it. The next part of the blog continues:
"Which rings a bell or two. On page 249 of Treasure Islands, Nicholas Shaxson’s excellent book on the global offshore tax system, we find this interesting nugget:

'Having gone out of its way to welcome wealthy Arabs in the 1980s and rich Japanese and oil-rich Africans in the 1990s, the City has more recently, with the help of conduit havens like Cyprus, aggressively courted Russian oligarchs, providing them with bolt-holes beyond the reach of Russian law enforcement. By April 2008 a hundred companies from the former Soviet Union’s Commonwealth of Independent States (CIS) were listed on the London stock exchange…'

Small world or what."

It rather seems so.

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Representation without taxation

A nice quote from Canada's Globe and Mail, for our quotations page:
"A revolutionary war was fought and a nation formed on the principle of “no taxation without representation”. It’s a hard sell to suggest the most powerful entities in society should have representation without taxation."

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Wednesday, April 20, 2011

Project Wickenby – Notes, And A Warning, From The Inside Track

Reproduced from the original on the Treasure Islands blog.

This long blog is compiled from email communications I've had with Michael Inglis, a tax barrister in Australia who has got in touch with me about Treasure Islands (he liked it, but wanted to discuss a few things.) Inglis has been closely involved with Australia’s Project Wickenby, a large, dedicated and remarkably successful effort to go after tax evaders and other criminals using offshore structures. As the Australian Tax Office puts it, Project Wickenby:

“was established in 2006 to protect the integrity of Australia's financial and regulatory systems by preventing people promoting or participating in the abusive use of secrecy havens.”

Inglis describes it like this:

"Project Wickenby is, to my knowledge, the biggest investigation into anything in the history of our Commonwealth, apart from time of war."

The text here provides a fascinating insight into the interplay between tax authorities, tax cheats and criminals, and their advisers.

Before I get to it, I should highlight one especially fascinating element, where he explain how untrustworthy offshore trusts (and other structures) can be. As he explains it, lower down in this blog, offshore arrangements often involve a devious side agreement based on a pretence that the individual(s) concerned does not control or enjoy the assets and income in question - and hence can escape taxes or the long arm of the law – while in reality they do retain that control. But they are often discovering that when push comes to shove - notably when the courts or the Tax Authorities get involved - that the offshore promoters who had hitherto been so diligent in maintaining the real control alongside the pretence of non-control, suddenly find themselves reinterpreting the arrangement, and the individual actually loses control of the asset. (If you want to read more about the devious arrangements involved in offshore trusts, take a look at this TJN blog I wrote a while back: In Trusts We Trust .)

The untrustworthiness Inglis describes chimes with what I heard a couple of weeks ago at the Offshore Alert conference in Miami, where a seasoned investigator described in detail to me how players in all the different offshore jurisdictions frequently cannot be trusted to honour devious offshore agreements, and how those stashing their money offshore risked losing it. Inglis notes:

“The catastrophe to be avoided, at all costs, is being detected by the Tax Office (or other local or overseas agency), losing the benefit of the “hidden” assets or structures, and then being left stranded with substantial liabilities for tax, penalties and interest, with insufficient available funds to call on.”

I have compiled the text for the material below from emails from Inglis and from a presentation he made on March 22 in Sydney at a breakfast put on by a medium-sized national firm of accountants. In places his text has been abridged and slightly modified from the full version (which is available here). It is reproduced with his permission.

First, email commentary from Michael Inglis

The work I have been doing in recent years has involved my essentially (but not only) seeking to rescue a variety of punters from the more terrible consequences that flow from being detected by the Australian Taxation Office or one of its partner agencies in the joint task force drive against offshore tax evasion and associated money laundering, securities fraud etc, known as Project Wickenby.

Those punters have all been deep into a variety of offshore arrangements, and it's almost always been tax evasion, money laundering, securities fraud etc.

You make a very substantial case (in Treasure Islands), indeed, as did Palan et al, for rebranding these tax havens/secrecy jurisdictions as crime havens. My extensive personal experience would strongly support that rebranding. In fact, tax havens is a euphemism, of an unjustified and powerfully self-serving kind, suggesting strongly that all that goes on in these places is tax avoidance, which is not unlawful, not criminal.

So many of the offshore service providers whose work is revealed to me, in the course of my trying to help those punters as detected by the authorities, are not in fact providing any genuine accounting, banking etc services at all. What they are doing is engaging in organised criminal activities and entering into a series of ongoing conspiratorial agreements with the relevant onshore patriarch or whoever.

Project Wickenby: Some Words for the Wise.

By Michael Inglis (my abridged and slightly amended version; his original is here.)

Project Wickenby is a very serious matter: hundreds of millions of dollars to fund it, many Commonwealth, and even State, agencies (including a number of law enforcement agencies) working together onshore and also offshore (and with their partner agencies overseas), thousands of targets (or taxpayers), and billions of dollars of tax involved.

When someone seeks my help, say, well into the Wickenby cycle – e.g. following receipt of a 264 notice – I often ask them, gently: “Have they got your attention yet?” On examination, it commonly turns out that the Wickenby target has been interacting with the Tax Office – and even, on occasions, with other agencies as well – for some time, without ever realizing that things were already serious, and had the potential to get a great deal more serious.

In my experience, the people who end up being prosecuted for serious tax crime have often compounded their original or underlying tax fraud or tax evasion by also doing one or more of the following during their dealings, once detected, with the Tax Office or other agency:

• Telling lies or being evasive, in person, in response to written questions, or otherwise;
• Secreting documents (e.g. by sending them offshore) or destroying documents;
• Fabricating documents;
• Hiding or stripping assets, onshore or offshore;
• Offering a bribe to a Commonwealth officer; or
• Threatening a Commonwealth officer.

The words “once detected” are pregnant with meaning, and I need to expand upon them at this stage.

A covert phase (covert ops) precedes the overt phase (overt ops). The relevant target may have been detected (or found out) long before, say, the execution of any search warrant by the Australian Federal Police (“AFP”). The target’s phones may have been “on” before he or she learns that he or she has been detected.

It is common practice for law enforcement agencies to leave the target of a criminal investigation “out there” for a substantial period, and blissfully unaware, until such time as it suits the agencies – under the overall criminal investigation plan – to put the balloon up (with the phones “on”), by means of an appropriate “event” such as the execution of a search warrant – and then see, and hear and record, precisely what happens.

Much can be gained by cleaning things up with the Tax Office before the Wickenby officers ever have occasion to make that crucial first compliance contact. “You came to us, we didn’t come to you, and that makes a difference”, is how it might be put.

In my experience, the earlier any at risk Wickenby target gets real, and climbs off the lies and deception inherent in such an offshore “trust” arrangement, the better it is for them. The barriers may include that they feel trapped by the lie and have no option other than to ride the lie to the end of the road.

What such a target needs is a realistic appraisal of their position, given the big facts that their number has now come up, they are the person who lives onshore (within the jurisdiction), they are the party now directly and immediately in the line of sight of the Tax Office and perhaps other agencies as well, their livelihood and even liberty are now very much at risk, the Wickenby agencies are now on their case, and to “sit tight, she’ll be right” is simply the worst possible available strategy for them. Once an overt Wickenby tax review, audit or criminal investigation commences, the turbulent river, in which the target then finds themself, can (and usually does) get deeper, faster and wider very quickly.

I often tell clients that only the truth shall set them free, and the truth shall be their protection.

Offshore promoters will typically make statements to the effect of “the Tax Office are a bunch of dopes, they never stick it out, and you’re a fool if you give them anything without a fight” or “Glenn Wheatley co-operated and look what happened to him – they took his money and he went to gaol as well”. The truth is very different: a truth I have lived with a number of at risk Wickenby targets. Once the balloon goes up, any at risk Wickenby target would be well advised to look to their own welfare, and that of their immediate family, above all things.

When presented with mature Wickenby matters, my experience has been that the presenting malady is often very severe, the time is often five minutes before midnight, and the need for speed is very great if anything of substantial benefit to the client is to be achieved.

Not all taxpayers caught in the Wickenby net will prove to be tax cheats, or to have been involved in other nefarious activities such as securities fraud or money laundering. Some may have simply made a mistake; on occasions, there are complex personal or business circumstances that drive the use of OFCs and secrecy jurisdictions. Tax may never have been a primary consideration for the offshore arrangements, especially where driven by suppliers or customers. However, the Project Wickenby agencies won’t necessarily appreciate these situations, particularly prior to first (open) contact with the target or taxpayer.

For those who have been simply hoping that the secrecy of their offshore arrangements will not be compromised, and that the best approach is to “sit tight, she’ll be right!”, their strategy may well need to be re-evaluated. Especially for those who have (big dollar) offshore arrangements but who are yet to hear from any of the agencies, now is the time to re-evaluate their strategy. There is the ever-present risk of things lurching into the criminal investigation area. There is still time to avoid being dragged before an inquisitor - so long as they are prepared to acknowledge their exposure and move to rectify it now. But the clock is ticking.

The caffeine in the brew

Whether the purpose is tax evasion, securities fraud, defeating creditors or an estranged spouse, hiding and laundering the proceeds of hard crimes such as drug dealing, hiding bribes or stolen monies, or simply money laundering, many offshore arrangements, including the more serious offshore arrangements commonly targeted by Wickenby, share a common theme.

That theme is the creation of the appearance of independent (or third party) offshore ownership and control of offshore assets or structures, onshore assets or structures, or a mixture of the two.

A simple example would be the creation of an apparently independent (or third party) offshore trust “arrangement” in, say, the Isle of Man where the relevant “trust” assets are monies on deposit with (or through) a bank in, say, Singapore or the Cayman Islands.

However, the caffeine in this particular offshore “trust” arrangement would be that the relevant (potential) Wickenby target – an Australian resident individual – is treated, by the relevant parties in the Isle of Man, Singapore, Cayman Islands or elsewhere, who have apparent control of the corporate trustee (and so the trust assets), as if the “trust” assets are in fact the personal property of that Australian resident individual.

(once again, see my blog on trusts to understand some of the mechanisms in more detail.)

As such, the all essential side agreement or arrangement – whereby the relevant offshore parties treat the Australian individual as if the “trust” assets are the personal property of that individual – is unenforceable in any court of law, it not being any part of the functions of the courts to aid or assist criminal activities.

As onshore and offshore patriarchs and matriarchs die, their heirs and successors are finding, in a material number of cases, that the side arrangements – which meant, over the years, that their parent was treated as if they were the owner of relevant “hidden” assets and structures, both onshore and offshore – are not being honoured by those very offshore players who previously followed so diligently, year by year, the directions of the now deceased patriarch or matriarch.

As local and overseas revenue and law enforcement agencies, including the Tax Office and its fellow Wickenby agencies, make their enquiries, a significant number of other patriarchs and matriarchs (still alive) are finding that those very offshore players – whose cooperation is so vital to their supposed control of their supposed assets or structures, both onshore and offshore – are inclined, once that heat comes on, to dishonour the relevant side arrangements and act as if the apparent (independent, third party) ownership of the relevant assets and structures was, in fact, real.

The growing vulnerabilities of offshore arrangements provide some powerful reasons why any disentangling exercise should be effected before, rather than after, the Tax Office or other (local or overseas) agency gets on the front foot. Moving to obtain and confirm legal and indisputable ownership and control of the “hidden” assets or structures is the key, followed by actually getting the relevant monies or assets safely onshore.”

END

Some notes, for those who want to know more background:
1. An aside: TJN’s John Christensen had an acquaintance from school in Jersey, who later developed a reputation of, to use a nice offshore euphemism, ‘having problematic clients,’ who got caught in the Wickenby net. His extradition proceedings stretched into their third year: “Lawyers for Mr de Figueiredo have won a long string of adjournments that have allowed their golf-loving client to keep living in a luxury apartment overlooking one of Britain's most prestigious golf courses, rather than standing trial in Australia.” He was eventually extradited from Jersey to Australia the day before Christmas eve last year.
2. Regarding this sentence “tax havens is a euphemism, of an unjustified and powerfully self-serving kind, suggesting strongly that all that goes on in these places is tax avoidance, which is not unlawful, not criminal” another experienced offshore insider we showed this material to had this to say, preceded by PERFECT PERFECT PERFECT. The insider added “Most of the people working in these places, (while unaware of the awful impact of tax dodging on poverty), in seeing incoming funds self-justify -- as the boxes are ticked for basic anti-money laundering due diligence and no further/deeper questions asked. There is an illusion that such tax “minimization” is the right and entitlement of the wealthy, and so they put their efforts into conscientiously serving the client. Thus a blind eye is unwittingly turned by the majority of secrecy haven workers – many of whom would consider themselves to be “good people” and in fact they are. However, the particular elite who control the secrecy system know, absolutely, that criminal money is coming in, and extend themselves to provide that service motivated by greed, a hunger for power and social status, and fear too of the reprisals should they turn against that system. As an offshore banker, it is only when you reach the higher levels and inner circles that you become privy to the truth – and by the time you reach that stage (unless you are born into it, which some are) – both the carrot and the stick to encourage complicity are very, very strong incentivizing factors.
3. Regarding the sentence “As such, the all essential side agreement or arrangement – whereby the relevant offshore parties treat the Australian individual as if the “trust” assets are the personal property of that individual – is unenforceable in any court of law, it not being any part of the functions of the courts to aid or assist criminal activities.” The offshore insider added: “When “selling” an offshore trust arrangement to a settlor, one is supposed to emphasise that such mechanisms such as a Memorandum of Wishes are not legally binding – however, it often happens that the bankers selling trust services are not themselves trust experts, and it frequently happens that products are sold with either actions or security mechanisms promised to the client that cannot legally (within trust law) be fulfilled – there is many an occasion that a trust specialist / trust administrator is frustrated and angered by the conflict that arises when what is promised or represented to the client cannot legally and technically be provided. Frequently, there is dissonance between the private banking “relationship manager” and the trust and company admin, also the banking back-office.”
4. Mr. Inglis has a bit of a disagreement with me and the Tax Justice Network over our definitions of tax havens, secrecy jurisdictions. He says: “Tax havens (crime havens) are not just about tax evasion, as you have rightly emphasised. But, they are not just about secrecy or escape either. In essence, they are about secrecy plus deception. Jack Blum has rightly and powerfully reminded us, over the years, that so many of the relevant entities in these havens are just paper things, with no commercial or other reality. Even where you have a properly constituted offshore IBC/shell company/trust, where necessary meetings are actually held, the point is that, in my experience, the apparent ownership and control of the relevant assets is a mere facade, a mere deceptive facade, created to cloak the criminal side agreement by reason of which (as I set out in my paper) the offshore parties in apparent control of the IBC etc treat the relevant onshore patriarch AS IF the relevant assets are the personal property of that patriarch, responding immediately and invariably to the directions of the onshore patriarch as to purchase and sale of assets, movement of monies onto and off deposit and between jurisdictions etc. In terms of tax, as opposed to associated insider trading or whatever, all of this is tax evasion not tax avoidance. It is criminal in nature, not civil in nature. This distinction has the most profound consequences when the balloon goes up at the time the patriarch is tumbled by the tax agency or other onshore authority. One profound consequence of it being tax evasion is that the punter is immediately at risk of being prosecuted for a series of serious indictable offences. There is a wonderful passage in R v Meares (1997) 37 ATR 321, NSW Court of Criminal Appeal, per Gleeson CJ at 323, which I commend to you: "Although on occasion, it suits people for argumentative purposes, to blur the difference, or pretend that there is no difference, between tax avoidance and tax evasion, the difference between the two is simple and clear. Tax avoidance involves using, or attempting to use, lawful means to reduce tax obligations. Tax evasion involves using unlawful means to escape payment of tax. Tax avoidance is lawful and tax evasion is unlawful. Although some people may feel entitled to disregard that difference, no lawyer can treat it as unimportant or irrelevant. It is sometimes said that the difference may be difficult to recognise in practice. I would suggest that in most cases there is a simple practical test that can be applied. If the parties to a scheme [an offshore arrangement] believe that its possibility of success is entirely dependent upon the revenue authorities never finding out the true facts, it is likely to be a scheme of tax evasion, not tax avoidance." That is just so relevant to offshore, where secrecy AND deception are the order of the day, and most certainly the success of the various offshore arrangements (success back home, that is, onshore) is so frequently entirely dependent upon the relevant onshore authorities never finding out the true facts.”

Replying in brief, I think that our difference stems largely from our tendency to view these from an economic perspective, and his preference to view this from a legal, even legalistic, perspective. And one also needs to consider the grey area of legality – what is legal in one jurisdiction may not be legal in another. But that’s for another debate.


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TIEAs: a Norwegian update

Following our long information exchange blog and our FT comment piece, this has been sent to us by Sigrid Klæboe Jacobsen, Chair of TJN-Norway.
TJN-Norway revealed on April 4 that Norway only used its tax information exchange agreements (TIEAs) with tax havens four times in 2010. In 2009 Finance Minister Sigbjørn Johnsen had called them "a success story since the beginning". Last week the Ministry of Finance announced its thirtieth TIEA, with the Seychelles.

We have argued that the agreements don't solve the problem of secrecy, and that huge resources are needed to obtain information for just one case. Its also quite probable that tax havens are using the agreements to whitewash themselves: six tax havens have only signed agreements with other tax havens.

We argue that country-by-country reporting and automatic information exchange has to come in place to end secrecy.

Roger Schjerva, state secretary in the Ministry of Finance, has argued in response:

- If you compare the situation from just a few years back, the agreements are still a success story.
- The Global Forum on Transparency and Exchange of Information for Tax Purposes monitors whether or not countries are fulfilling their obligations under the agreements. All OECD countries and all 38 jurisdictions on OECD list of tax havens have agreed to this process.
- The agreements have a preventive effect, as many Norwegians already have reported about their tax related issues to the tax authorities.
- We are working on automatic information exchange and country-by-country reporting.

The last statement is highly questionable. They have only recently stated that they will consider c-b-c, and only after they know the results from the EU. It has taken them two years since c-b-c was presented as a recommendation in an official report from the Ministry of Foreign affairs. As for AIE, I seriously doubt that the Norwegian government has taken a proactive approach to this internationally.

A news article about this, in Norwegian, is here.

- Sigrid Klæboe Jacobsen, Chair, Tax Justice Network - Norge, tel. +47 46861189

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Tuesday, April 19, 2011

Links Apr 19

Economic Report on Africa 2011: Governing development in Africa: The role of the state in economic transformation This report by the Economic Commission for Africa & African Union states, in the section "The quest for reform of the global financial architecture" (p25), "Africa’s challenges with the current global financial architecture relate mainly to lack of voice and effective representation in decision-making bodies." See UK, US, OECD oppose developing country interests on tax

Why tax incentives should be accounted for Kenya Today

Apr 18-24 - A
n article on tax incentives published in the Kenya Today (a government weekly newspaper), by Vera Mshana of Tax Justice Network-Africa. (Note: the PDF is if the Op-Ed section that has two articles - scroll down to see Vera's which follows an article by Robert Zoellick, World Bank President).

Uganda:
Lift the secrecy on oil agreements The Independent
Apr 7 - We linked on Mar 31 to a Press Release by our friends at Publish What You Pay and One, and this issue is crucial to keep to the forefront. In Uganda, where over 7 million people still live in extreme poverty, harnessing the newfound oil wealth is a one-off opportunity to accelerate social and economic development at a previously unthinkable rate. Transparency and accountability are key.

Korea targets tax cheats in foreign havens The Korea Herald
Apr 19 - The South Korean government is clamping down on rampant offshore tax evasion. Their main target, a reclusive shipping tycoon, shows how to get around paying taxes in and out of more than five trading borders while keeping over 10 trillion won ($9 billion) in assets: "Register your business at a tax haven, stash all your profits there ... ". Note the closing emphasis on the U.S. as a tax haven.

Overseas Banks Could Face Novel Penalty From U.S. New York Times
Apr 12 - The penalty for U.S. individuals found violating
the FBAR (Report of Foreign Bank Account) rules, may soon be applied to financial institutions if they are found to have abetted violations. This is "a fresh potential headache for Swiss and Swiss-style banks". A nice step forward in deterrence. Hat tip Rebecca Wilkins.

Jim Boyce: Tax Havens or Financial Sinkholes naked capitalism

Apr 19 - "When the countries of the world joined together to eradicate smallpox a generation ago, they achieved a historic victory for global public health. International cooperation to plug the world’s financial sinkholes could bring a comparable victory for global economic health". See also Africa’s odious debts: forthcoming book on Treasure Islands.

Indonesia: Money laundering probe starts at Citibank The Jakarta Post
Apr 19 - Officials launched a money laundering investigation at Citibank, amid allegations that public officials had accounts with implausibly large balances at the bank. Citibank’s anti-money laundering compliance is seriously in question, concerning the exercise of due diligence on “politically exposed” customers. Hat tip Offshore Watch.

Russian Deputy PM says 1,000 Russian banks are money-launderers The Komisar Scoop
Apr 4 - Sergey Ivanov, the Russian deputy prime minister, asked by our friend Lucy Komisar if he thought the U.S. and Russia should get together to put a stop to offshore tax evasion, "smiled and agreed that the two countries need to deal with the international offshore system."

Russian Officials Said to Reap Wealth in Tax Case New York Times

Apr 18 - After accusing government officials of involvement in large-scale tax fraud, a lawyer was jailed until he died mysteriously in detention. The bureaucrats involved in the tax scheme are said to have stashed millions of dollars away in offshore bank accounts and shell companies.


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The Death of Information Exchange Agreements?

The April edition of the Journal of International Taxation (not available online) has a provocatively titled article on 'The Death of Information Exchange Agreements?' about the G-20 / OECD project for tackling tax evasion with Tax Information Exchange Agreements (TIEAs).

The bottom line? The authors share TJN's view that TIEA's just don't do anything very useful, so powerful countries like the USA and EU member states use other tools:

"TIEAs continue to be signed weekly….. the question is whether these TIEAs really have “teeth.” The major countries of the western world have clearly started to focus on other means of obtaining data because TIEAs in practice do not work."

We've long since reached the same conclusion, as we recently argued in the Financial Times, and as explained by David Spencer, but perhaps what makes the article most interesting is the nature of the authors, all four of whom are with the law firm Baker & McKenzie.

Since the article is long and we respect copyright laws, we can only highlight some of the key grounds for the authors' conclusions.

First, they note that the majority of the bilateral agreements currently in use are based on early versions of Article 26 of the OECD's model tax convention on exchange of tax information. Thus they omit vital provisions added to the Article in 2005 relating to the need for contracting countries (the secrecy jurisdictions) to obtain information for exchange (paragraph 4), and to over-ride banking secrecy laws (paragraph 5). As the authors note:

"It is unclear how long it will take for countries to begin to alter their agreements to take into consideration new paragraphs 4 and 5 of Article 26."

And of course there's the fact that TIEAs do not provide for (require) automatic exchange of information.

Second, the article notes the weakness of the OECD's 2009 black/grey/white listing process. Having set the bar so low that the black list was emptied within a matter of days, and the grey list was rapidly vacated as secrecy jurisdictions scurried round the world signing up to the required 12 TIEAs amongst themselves, the OECD finds itself in an embarrassing mess entirely of its own creation. It now needs to review (i) which jurisdictions have been signing TIEAs with other secrecy jurisdictions (awkward! see note below on Lichtenstein), (ii) whether secrecy jurisdictions that have made it to the white list will be prepared to carry the process forwards (TJN, for example, has suggested 60 TIEAs as the minimum threshold), and (iii) whether all these new TIEAs have served any purposesince there is no available evidence that any information is actually being exchanged.

Which brings us to the author's third substantive point: the specificity of the requests that need to be made. This is where we enter the world of Catch 22: in order to request information from a contracting secrecy jurisdiction, the requesting country needs to provide a dossier of information about the specifics of the request, including:the name of the (non)taxpayer;
  1. details of the information being requested; no automatic exhanges.
  2. reasons why this information is relevant for tax purposes;
  3. reasons for believing the information is available to the requested party;
  4. names and addresses of the person(s) holding the information;
  5. a statement outlining what steps have been taken to obtain the information through other sources;
  6. a statement of the legality of the request in respect of the laws of the requesting country.
But the obstacles to information exchange don't stop there. In their fourth point, the authors note that implementation of TIEAs is also thwarted by secrecy jurisdictions interpreting agreements in a very narrow way, some even going to the extent of enacting domestic legislation to impede compliance with information requests. Austria's recently enacted Administrative Assistance Accomplishment Act is a specific instance, allowing the (non)taxpayer an opportunity to issue an injunction against fulfilment of a request for information exchange which could potentially delay the process for up to 4 years.

Fifth, as TJN has frequently commented, the OECD scored an embarrassing own goal by allowing secrecy jurisdictions to sign up to TIEAs with other secrecy jurisdictions. Oops! Take Liechtenstein, for example. Originally on the grey list, Liechtenstein shifted to the white list on the basis of agreements (TIEAs and in some cases double tax agreements) with the following:
  1. the United Kingdom (a secrecy jurisdiction)
  2. the United States (ditto)
  3. Netherlands (ditto)
  4. Ireland (ditto)
  5. Andorra (ditto)
  6. Antigua (ditto)
  7. Antigua and Barbuda (ditto)
  8. Monaco (ditto)
  9. St Kitts and Nevis (ditto)
  10. St Vincent and Grenadines (ditto)
  11. Luxembourg (ditto)
  12. Uruguay (ditto)
  13. Hong Kong (ditto)
  14. San Marino (ditto)
  15. Germany (not a secrecy jurisdiction)
  16. France (also not a secrecy jurisdiction)
You see the point. As the authors comment: "Thus the question becomes whether these TIEAs exchanged anything of value or just caused a bunch of secrecy jurisdictions to run around the world signing agreements that do not have any effect . . ."

Which brings us to our final point about the article: its title. Is the possibility for effective information exchange dead, or is it more likely the case that OECD countries (especially major secrecy jurisdictions like Austria, Luxembourg, Switzerland, UK and USA) did everything in their power to prevent tax information exchange from ever coming to life?

In this light, it's probably worth quoting the end our Financial Times article:

"A new dawn of global financial transparency? Hogwash. Or perhaps we should say whitewash."


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Finland: Stock market secrecy became a heated topic ahead of the formation of new government

Not so long ago, Finland regularly scored number one as the world’s least corrupt nation in Transparency International’s Corruption Perception Index.

Then came 2008 and the corruption scandals around financing of parliamentary election campaigns. Investigative journalists found many members of parliament had received funding from sources with conflicts of interest, including three ministers who had received funding from a company registered in Luxembourg and – apparently – owned by another tax haven company in the British Virgin Islands.

Now, a public debate on a 500 page proposal for renewal of the Finnish stock market legislation is gaining momentum. At the heart of the debate, spurred on by the political theatre playing out in Parliament, is a proposal to widen the Finnish nominee registered shareholding system. On top of it, the nominee register would also be extended to Finnish non-listed companies.

The Finnish model for stock ownership has been relatively more transparent than in other EU countries. The nominee register has been available for foreign investors, while Finnish investors have been obliged to register their ownership in a public register. Domestic tax evasion has been possible by setting up a foreign holding company, but at least this has required technical expertise and funding.

Last year, the nominee register was extended to foreign investors in mutual funds, with practically no public discussion. The working group issued by the Ministry of Finance wants to make the nominee register available to Finnish investors as well. The report commissioned by the National Audit Office of Finland estimated in 2010 that even in the current system, 90% of the profits from international financial markets are undeclared.

The MoF justify their proposals on the basis that nominee register will lower transaction fees especially for larger investors. Many have challenged this claim, saying that other factors play a far bigger role in investment decisions than transaction fees.

The shareholdings of politically prominent persons have so far been public knowledge, available to journalists. In the early 1990s, this helped to expose one of the biggest politically connected financial crime scandals in Finnish history. In the new proposal, this information would no longer be in the public domain, which contradicts the attempts to make politicians' economic connections more transparent.

The composition of Finnish elite is extremely narrow and their attitude is inward-looking. The party you represent is not relevant, but you need to have money or public influence before you’re invited to the 'inner circle', said a financial crime investigator who wanted to stay anonymous in a newspaper interview.

“Once you’re in, you’re in. The most influential group consists of business organisations and unions, and the Federation of Finnish Financial Services."

Finland held parliamentary elections on Sunday, and the new government will have to decide whether or not to commit itself to these standards.

Representatives of tax administration and media have already pointed out that:

- The Financial Supervisory Authority, which receives 95% of its funding from financial sector companies, did not file a single report of an offence to the police in 2009. It has never issued a penalty fee on misconduct of the companies it supervises.

- In 2010, the Finnish stock exchange hosted 52 foreign stock brokers, of which only one submitted a mandatory annual report to the authorities. The Ministry of Finance says it’s impossible to demand the reports. For instance, this is being done in Sweden.

- Finnish tax administration is poorly staffed in investigating financial market crimes compared to Sweden. Sweden has a separate unit for investigating financial market crimes with 80 personnel. Proposals for setting up a similar unit in Finland have not succeeded.

Recent estimates by the National Audit Office of Finland show that with GDP of 180€ billion, Finland loses approximately 800€ million per year because of the international financial market related tax evasion alone.

But not everything here in Helsinki is gloomy. In development policy, Finland made a progressive start by committing itself to promote automatic information exchange in the EU in the summer of 2010.

Matti Ylönen (with significant contributions by Jari Hanska)


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Tax Justice Network USA on Facebook

From the fastest-growing part of our global network. Filled with news, views, analysis, reports, pictures - and much more. TJN-USA on Facebook - click here.

Contact Nicole Tichon (pictured last week at the National Press Club, introducing Senator Carl Levin) for more details. (+1) 202-758-9552, nicole (dot) tichon (at) gmail (dot) com

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Monday, April 18, 2011

The Tax Shell Game

How Much Did Offshore Tax Havens Cost You in 2010?

According to this new report by US-based Public Interest Research Group, the use of offshore tax havens results in $434 in additional tax burden for taxpayers across the USA.

“Main street businesses and ordinary taxpayers without access to an army of accountants to devise elaborate tax avoidance schemes are forced to pick up the tab every year. We’ve already paid to bail out the banks and other big corporations – is it fair to ask us to pay their taxes as well?” said U.S. PIRG Legislative Office Director Gary Kalman.

Tax havens are countries with minimal or no taxes, to which U.S.-based multinational firms or individuals transfer their earnings to avoid paying taxes in the United States. Users of tax havens benefit from access to America’s markets, workforce, infrastructure and security, but pay little or nothing for it—violating the basic fairness of the tax system.

Abuse of tax havens inflicts a price on other American taxpayers, who must pay higher taxes—now or in the future—to cover the government’s revenue shortfall, or must deal with cuts in government services.

The United States loses approximately $100 billion in tax revenues every year due to corporations and individuals sending their money to offshore tax havens.

• Residents of Michigan paid $300 to make up for the taxes that are avoided by corporations and wealthy individuals through the use of offshore tax havens.

• In 2010, making up for this lost revenue cost the average U.S. tax filer $434. That’s enough money to feed a family of four for three weeks.

Some of America’s biggest companies—including many who have taken advantage of government bailouts or rely on government contracts—use tax havens. As of 2008, 83 of the 100 largest publicly traded U.S. corporations maintain revenues in offshore tax haven countries.

• Goldman Sachs, which reported more than $2 billion in profit in 2008, was able to use its 29 tax haven subsidiaries to reduce its federal tax bill to just $14 million. That means that Goldman Sachs’ CEO Lloyd Blankfein, who made $42.9 million that year, earned more than three times the amount that the company paid in federal taxes.

• General Electric appears to have paid no federal income taxes in 2010, despite reporting profits in the United States of $5.1 billion. The biggest company in the country, GE has lobbied hard for tax breaks and loopholes in the federal tax code, and shifted many of its profits to tax havens to avoid paying U.S. taxes. GE employs nearly 1,000 people in its tax department to help exploit those loopholes, but has laid off one-fifth of its U.S.-based workers since 2002.

To restore fairness to the tax system by preventing corporations and wealthy individuals from avoiding taxes through the use of tax havens, policymakers should:

• End the ability of U.S. multinational corporations to indefinitely defer paying U.S. tax on their profits. U.S. corporations should pay taxes immediately on profits from U.S. business that companies attribute to their foreign entities, rather than wait until they someday bring the money back to the United States. The United States should not adopt a “territorial” system under which companies temporarily move profits and pay taxes in tax haven countries and then freely bring them back tax-free to the United States.

• Expand rules against money laundering to cover those who aid and abet. The rules should include lawyers who set up shell companies, hedge fund managers who set up anonymous accounts, and others who help taxpayers avoid tax laws.

• Increase the penalties and strengthen rules related to offshore tax shelters, including prohibiting tax strategy patents and fees contingent on obtaining tax benefits.

• Revise tax treaties to enhance sharing of tax information between countries to include the real names of account owners.

• Require multinational corporations to report financial statements on a country-by-country basis.

• Close loopholes that allow tax credits from other countries to count against U.S. tax liability.

• End the ability of U.S. multinational companies to apply tax deductions related to foreign income to U.S. income.

• Eliminate the incentive for U.S. companies to transfer intellectual property (e.g. patents, trademarks) to tax haven countries for artificially low prices and then pay inflated royalties to use them in the United States. This manipulation masks what would otherwise be U.S. taxable income.

• Stop the ability of multinational companies to manipulate how they define their corporate status to minimize their taxes, including the ability to represent themselves as different types of corporations to different countries.

• Treat foreign corporations as U.S. domestic companies if they are managed and controlled in the United States.

• Increase IRS resources to combat transfer pricing and tax haven abuses

Hat tip: Public Interest Research Group in Michigan

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Big vs. small corporations: pay your taxes, fly the flag

A lovely blog in The Hill, a Washington, D.C. political newspaper, from Kelly Conklin, a small business owner in New Jersey. About corporate tax avoidance, and more, it speaks for itself:

"As a small business owner I’m used to contending with powerful corporate interests. Purchasing health insurance, we’re dealing with big insurance companies. Handling credit card transactions, we’re paying exorbitant rates to Wall Street’s finest. And of course, small businesses have to hold our own with big corporate competitors – Wal-Mart, Home Depot, Amazon.com – in the marketplace. Every day, we’re reminded what it’s like to have no bargaining power, and to face a stacked deck.

Now, these same corporate players that routinely pick our pockets are asking us to foot the bill for their permanent tax holiday. Enough is enough; if you want to fly the American flag outside your corporate headquarters, you should be paying your way."


That last sentence will go on our quotations page.

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Links Apr 18 Part II

Notes from a Guerilla Book Signing Treasure Islands
Apr 18 - Nick Shaxson in a guerrilla book signing at the Verizon store in Union Station in Washington, D.C. Organized by U.S. Uncut. It came off wonderfully. Take a look.

The Double Irish and the Dutch Sandwich Slate

Apr 14 - Also the Killer B, the Deadly D, and the Outbound F. The Explainer's guide to exotic tax dodges.

Loophole-ridden tax treaty passes Panama's assembly Public Citizen
Apr 14 - Our friends at Public Citizen on the Tax information Exchange Agreement (TIEA) just ratified between the US and Panama. "Given Panama’s longstanding public policy of encouraging tax-haven activities, this loophole is big enough to keep its offshore economy alive and kicking." See also article in The Hill Apr 14. Hat tip Todd Tucker.

Glencore denies allegations over copper mine tax Guardian

Apr 17 - Further news on this story linked previously. Our friends at ActionAid estimate that the company's tax dodging potentially cost the Zambian government up to £76m a year - significantly more than the £59m the UK government gives Zambia each year in aid. The Zambian government has declined to investigate Mopani's tax affairs despite calls from development charities.

Swiss bank pays $73million to dodge German tax case Forbes

Apr 14 - Swiss private bank Julius Baer AG says it has paid Euro50 million ($72.5 million) to avoid prosecution as part of a deal with German tax authorities. Fig-leafism. See Richard Murphy on Laughing all the way to the Swiss bank.

Now why would Barclays want to offer this? Tax Research UK

Apr 15 - Richard Murphy draws attention to this feature from Shelter Offshore, on "A brand new, highly attractive, flexible and potentially tax-free offshore company and bank account package is available in the UAE...". A blatant advert for a way to dodge taxes and disclosure requirements, while providing the skimpiest of due-diligence / know-your-client info.

9 things the rich don't want you to know about taxes Willamete Week

Apr 13 - David Cay Johnston observes, "Tax policy is something the framers left to politics. And in politics, the facts often matter less than who has the biggest bullhorn". Some media-perpetuated tax myths explained. Hat tip The Cynical Tendency

Tax Shell Game: How Much Did OffShore Tax Havens Cost You In 2010? U.S PIRG

Apr 18 - A new report by our friends at
the U.S. Public Interest Research Group (U.S. PIRG), shows that the use of offshore tax havens results in an additional tax burden for the average U.S. tax filer of $434 - that’s enough money to feed a family of four for three weeks. On the power of the lobbying force, see Who Slows the Pace of Tax Reform. Hat tip Nicole Tichon.

Yet again, a chance to rein in the bankers has been squandered Guardian

Apr 17 - On the power of the banking lobby in the UK, regarding the publication of Sir John Vickers's Independent Commission on Banking interim report. The article speaks of The City of London being "an over-mighty interest group enjoying privileged access to the inner councils of the state". For the history of this topic, read Treasure Islands.

America's Tax System Is Not as Progressive as You Think Citizens for Tax Justice

Apr 15 - Conservative lawmakers and pundits often claim that the richest Americans are paying a disproportionate share of taxes while a huge number of lower-income Americans pay nothing at all. Our friends at CTJ have updated their report on federal, state and local taxes that explains why they're wrong.

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