Friday, July 29, 2011

Links Jul 29

A mere state can't restrain a corporation like Murdoch's Guardian
Jul 28 - "The modern globalised corporation is not a state within a state so much as a power above and beyond the state ... TNCs can and do locate their profits offshore to thwart any individual country's efforts to take revenue from them. The ability to raise taxes to provide services is a core function of democratic government, yet governments have been reduced to supplicants, cutting their tax rates further and further to woo corporates ...The transnational banks have been past masters at playing off one jurisdiction against another and using the threat of relocation to resist government controls."

African Nations to Bear Down on International Tax Evaders Taxation International News and Information
Jul 6 - Article on the African Tax Administration Forum (ATAF)statement, on three tax authorities on the African continent having agreed to a higher level of information sharing and cooperation with the Forum in order to fight tax evasion, with a particular emphasis on compliance issues for large multinational corporations.” The three countries are South Africa, Tanzania and Zambia. We've blogged this story previously on links and here.

Argentina takes a stand towards the G20 on eliminating tax havens infobae.com (In Spanish)
Jul 26 - Timerman, Argentine "Sherpa" for the G20 for a number of years, called on the G20 "to go beyond lists towards the elimination of tax havens."
The Argentine Minister "hoped that the summit of Heads of State and Government of the G-20 developed and emerging economies, which will meet between 3 and 4 November in Cannes will 'take concrete decisions to fight against tax havens and financial speculation.' "

The turbulent story of a small island nation
dradio
(In German)
Jul 25 - On the incredible and sad story of the island of Nauru, only 21 square kilometers in size, located in the Pacific Ocean. Having become hugely rich through phosphate mining, this ran out, and misguided governance rendered Nauru one of the poorest countries in the world. A large amount of the wealth vanished via Caribbean tax havens. Then Nauru became a tax haven in itself, and by the end of the 1990's had over 400 "banks" registered there, reported to be a laundering centre for Mafia money. For more on Nauru, also see
Global Witness, Time for Transparency. See also The French Publishers' agency.

U.S. : Wealth Gaps Rise to Record Highs Between Whites, Blacks, Hispanics PewResearchCenter
Jul 26 - More grim news on inequality. Also, data shows: "During the period under study, wealth disparities increased not only between racial and ethnic groups, they also rose within each group. Even though the wealthiest 10% of households within each group suffered a loss in wealth from 2005 to 2009, their share of their group’s overall wealth rose during this period. ... trends indicate that those in the top 10% of the wealth ladder were relatively less impacted by the economic downturn than those in the remaining 90%."

Neal stymied as corporate taxes escape change The Boston Globe
Jul 26 - "US Representative Richard Neal has been thwarted for years in his effort to stop foreign insurance companies from shifting premiums paid by their US customers to offshore tax havens ... Neal’s unsuccessful effort to close what he calls an offshore tax loophole is an example of how business interests have successfully stymied an array of tax code reforms. '`It’s the lobbying muscle,’' Neal said."

Greenlining Institute Report Looks at Effects of Corporate Tax Havens Law.com
Jul 29 - The report
"Corporate America Untaxed: Tax Avoidance on the Rise" (PDF) finds that U.S. Fortune 100 companies avoided $60 billion in taxes by shuttling profits offshore, and that America's top companies have added 44 new subsidiaries in tax haven countries since the the 2008 Govenment Accountability Office study of the use of tax havens by large corporations and federal contractors. Hat tip Offshore Watch.

Barbados touts its low-tax, offshore advantage CTV News
Jul 29 - "Offshore tax havens, still reeling in the wake of the global economic crisis, are looking to Canada to help revitalize the industry. Government officials of Barbados, one popular low-tax jurisdiction, are stepping up efforts to attract Canadian investors as the Caribbean country grapples with a slowdown." However note the observation: "...even if the math works out, political sensitivities may also stop a company from investing in a low-tax jurisdiction."

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TJN-Africa and ActionAid Report on Impact of Tax Incentives in Rwanda

One of the tax policy issues that TJN-Africa is focusing on this year is harmful tax competition within East Africa (we blogged the Nairobi Policy Roundtable here

Now
TJN-A and Action Aid International Kenya have conducted country studies on tax incentives for all East African Community (EAC) member states except Burundi.

The Rwanda country study is complete. The report titled "Policy Brief on Impact of Tax Incentives in Rwanda" is available
here, and the "East African Taxation Project: Rwanda Country Case Study" here.

The Policy Brief poses the question:
Tax Incentives for Investors: Investment or Growth or Harmful Taxes? In just 2008 and 2009 Rwanda lost over $234millions due to tax incentives. Was the investment return worth it?
And observes:

Every year Rwanda foregoes about a quarter of its potential tax revenue through tax incentives and exemptions given to businesses to attract private sector investment. Is this money well spent? This policy brief looks at the issue of providing tax incentives and exemptions for investors:

  • Are they too generous for a country like Rwanda that is struggling to raise money to fund its development strategy?
  • Are they targeted at the right groups?
  • Are they achieving the government’s objectives for them? Would the money be better spent on other policy priorities like education or health?
  • Why are the amounts foregone not made publically available?
  • Why is there no monitoring and evaluation of their effectiveness and why has there been no cost benefit analysis of tax incentives for attracting investment?
  • Should the amount foregone be considered as part of the government’s budget so that it becomes transparent expenditure?
Whether tax incentives and exemptions work or not, there is a need for transparency, public scrutiny and dialogue; equity and bargaining are essential to building a culture of tax compliance. Accountability of government to citizens is essential, and taxation encourages citizens to make claims on governments and hold them accountable for public expenditure.
The amount lost in tax incentives is staggering, and rising:
In 2006, according to the International Monetary Fund, the amount of revenue foregone in Rwanda to tax incentives was three per cent of GDP. Calculations from our research suggest that by 2008, this had risen to 3.6 per cent and 4.7 per cent by 2009. This compares with 2.8 per cent of GDP in Tanzania in 2008/9; one per cent of GDP in Kenya and 0.4 percent in Uganda.
The report concludes:
Our analysis of the costs of benefits of providing tax incentives for businesses including attracting FDI and domestic investment is inconclusive, but there is a growing consensus that tax incentives may not work, or to the extent they do they have to be used selectively and for a limited period
And recommends:
The government needs to balance supporting investment by providing a competitive tax environment and ensuring that investors pay an appropriate share of the fiscal revenue. There is a need to protect the tax base against sophisticated tax planning, that is, businesses avoiding taxation by taking advantage of incentives and then moving when they are no longer entitled to them. It should also be noted that once they are introduced, it is difficult to remove tax incentives. The Rwandan government should consider:
  1. developing an efficient and effective personal and corporate tax system that is transparent and fair to all;
  2. publishing comprehensive information on all tax exemptions in an annex to the annual budget giving details of the amount of revenue foregone due to tax incentives and exemptions;
  3. putting in place mechanisms to monitor and evaluate tax incentives;
  4. carrying out a cost-benefit analysis of tax incentives for business
  5. reviewing the tax incentives that it offers and the list of goods that are exempt from VAT;
  6. working with the other members of the EAC to harmonise taxes including tax incentives and exemptions.
Keep abreast of news on the TJN-Africa website.

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Microsoft shirks tax, via tax havens

From Lynnley Browning, who has recently moved from the New York Times to Reuters:
If you want to know why tax from surging corporate profits isn't making much of a dent in the United States' crippling budget deficit, a glance at Microsoft Corp's recent results provides some clues.

"Microsoft reported only $445 million in taxes in the U.S. and other [sic] foreign countries, just 7 percent of its $6.32 billion in pre-tax profit.
And look at how Microsoft's effective tax rate is tumbling:
"Microsoft's effective worldwide tax rate fell to 17.5 percent in the last fiscal year, down from 25 percent the previous year and 31 percent in the year to June 30, 2006. . . . Microsoft tax rate is still at the low end when compared with other large technology companies."
That chimes with a similar investigation by Marty Sullivan into Microsoft's tax affairs last year.

There are always a range of reasons, some more dubious than others, why companies have effective tax rates that are lower than the headline rate, but Reuters is clear about the big one:
"Microsoft is straightforward about the core reason for its lower tax bill: It is increasingly channeling earnings from sales to customers throughout the world through the low-tax havens of Ireland, Puerto Rico and Singapore."
The story quotes TJN senior adviser Richard Murphy, who calls Microsoft "a giant tax planning machine." Murphy says elsewhere:
Stand Gates alongside Bono, I say.
There is also indirect support for Country by Country reporting, a key TJN ask, from an unlikely quarter: James Hines of the University of Michigan, a well-known supporter of tax havens.
"U.S. companies do not have to break out earnings in foreign subsidiaries, making it hard to determine from financial filings how much tax they are saving through each jurisdiction. "We're in the land of guesswork here," said Professor James Hines Jr., a tax scholar at the University of Michigan."
Quite so. Which is why country by country reporting, pioneered by Murphy, is so important.

All of which is why Senator Carl Levin's recent Stop Tax Haven Abuse Act is so exciting, with its requirement for Country by Country reporting not just for industries in the extractives sector, as previous legislative initiatives have required - but in all sectors.

If that legislation came to pass, the effects on boosting transparency would be incalculable.

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Pascal Saint-Amans to be head of tax at OECD

This is new, from the OECD:
"Mr. Pascal Saint-Amans has been appointed Director of the Centre for Tax Policy and Administration (CTP). He will take up his duties on 1st February 2012 upon the retirement of Mr. Jeffrey Owens."
We mention this because we in the tax justice movement know and respect both officials. It is a hugely important post in the area of international tax, and undoubtedly a tremendously challenging one.

Congratulations to Mr. Saint-Amans, and best wishes to Mr. Owens.

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Thursday, July 28, 2011

Scrap tax incentives, E. African civil society, IMF suggest

Following TJN-Africa's organisation of a round table discussion which we recently blogged, the event has now happened. Uganda's Daily Monitor covered it:
Civil society organisations want East African governments to scrap tax incentives as a stimulus for investment inflows and development accelerator. Speaking during a roundtable discussion in Nairobi, Kenya on Wednesday, activists said incentives hinder the entry of revenue and have no empirical results to prove their efficacy and impact to investment.

They argue that the incentive regimes in the EAC are also an obstacle to integration and could lead to a “race to the bottom” as member states compete to give incentives in the name of attracting foreign direct investment (FDI).
TJN, which was an organiser of the event, had plenty to say, as the story notes. The position was broadly supported by an IMF representative too:
Mr Ragnar Gundmundsson, the International Monetary Fund resident representative in Kenya, said: “Although incentives are popular in Africa as a stream for attracting investment, economists are increasingly becoming skeptical about their impact.”

“There is very little impact of tax incentives in the absence of other interventions,” he said.

According to Mr Gundmundsson, EAC member states have to address other concerns including infrastructure and strengthening the rule of law instead of solely relying in incentives.
As we have noted, the IMF, for all its failings, does seem to be saying a few more sensible things about tax than it used to. For more on this topic, see this research on how tax competition is affecting developing countries.

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What is going on at 9/22 Curran Street, New Zealand?

The economic blog Naked Capitalism has a fascinating post looking at some breathtakingly murky company business, in an investigation, via Panama, of New Zealand. We have known about New Zealand's role as a secrecy jurisdiction for some time, but have not yet researched it in any detail. That time will be coming soon enough.

Before reading that post, take a look at this company registered at 9/22 Curran Street (pictured): Trillion Private Wealth Management Ltd. What does it offer? Well, for one thing, "protecting" your assets. That is, all too frequently, code for "helping you engage in criminal tax evasion" or "protecting you from the forces of law and order." Here is some of the spiel:
"You are one click away from having your offshore, multi-currency account. . . . we can get you up and running in no time. . . . We can assist you to incorporate an International Business Corporation in the Marshall Islands so that your new company can open the international account."
That kind of promise should set alarm bells ringing all over the place. Crime-fighters of the world, take note. It seems to be running the same business model as, let's say, that house in Cheyenne, Wyoming, in this Reuters story. Or that seedy building in 1209 North Orange Street, Wilmington, Delaware, explored in some detail in Treasure Islands.

Now read the Naked Capitalism story. It's quite involved, and involves a lot of digging, but it paints a very ugly picture indeed. Plenty of stuff like this:
"So we have a profoundly dodgy company, NEW ZEALAND INTERNATIONAL SAVINGS & LOAN LIMITED and a profoundly dodgy made-up individual, Rod Alvar, and what look like offences under the 1993 Companies Act. Surely a company that ragged couldn’t possibly make it onto the register of Financial Service Providers, could it?"
There's also one called New Zealand International Savings & Loan Limited. As Naked Capitalism notes:

"It’s quite umm…dubious. There are tells aplenty, but what a magnificent one on the main page! NZISL declare:
NZISL offers banking services as a registered Financial Service Provider in New Zealand and not as a registered bank under the supervision of the Reserve Bank in New Zealand. New Zealand International Savings & Loan is regulated by the Ministry of Economy and Finance of New Zealand which is responsible for supervising Financial Service Providers (FSP).
Well, there is no such thing as the “Ministry of Economy and Finance of New Zealand.
FSPs are regulated by the NZ Ministry of Economic Development (via the Companies Office). They’re the folk who registered NZISL as an FSP.

In short, we appear to have the magnificent spectacle of a non-existent financial institution staffed by non-existent people announcing to the world that the Ministry of Economic Development has nothing to do with regulation, and that a fantasy Ministry of their own devising does it instead."


There is a lot more in this story (not just about this particular house,) including an interesting Panama snippet suggesting how your money isn't nearly as safe as you think, if you put it offshore:
"The lawyers who set these things up promise the moon when they are taking your money, but when the investigators from the Public Ministry come knocking they simply say “we didn’t know” and roll over like ducks on a pond. It’s actually a pretty good gig for the lawyers."
Which is rather reminiscent of another Antipodean story we did not so long ago, highlighting the untrustworthiness of many offshore arrangements.

Naked Capitalism continues:
Helping to apply a veneer of respectability to dodgy companies, by not monitoring who is registering as an FSP, can only facilitate fraud. Perhaps I am an old fart, but I don’t think the purpose of the New Zealand Ministry of Economic Development’s imprimatur is to facilitate fraud. Of course if the Ministry are actually aiming at Panama’s “dodgy company” franchise, they should carry on just as they are."
What is New Zealand doing, tolerating this?

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Wednesday, July 27, 2011

Poor countries fight against rich countries on global tax

From the Treasure Islands site:

I have an article on The Guardian blog today, co-authored with Martin Hearson of ActionAid. It's hard to get a lot of traction in the media about international tax and developing countries - but it matters a great deal. The article reads as follows:

Poor countries fight for reform of global tax systems
The OECD club of rich countries is battling poorer states over a controversial global tax deal that could affect multinational tax schemes

By Martin Hearson and Nicholas Shaxson

Visiting South Africa and Nigeria last week, David Cameron wrote in a South African newspaper about the benefits of "effective tax systems" – but failed to mention aggressive tax avoidance by multinational corporations, something that South Africa's finance minister has called "a serious cancer eating into the fiscal base of many countries".

Meanwhile, the British government is locked in battle with South Africa and other developing countries over a controversial global tax deal, which is due to be finalised in Geneva on Wednesday; a deal that could potentially have a large impact on multinational tax schemes. It has become a rather hot potato.

On one side of this fight sit Britain, the US, the EU and other rich countries, which want to maintain the pre-eminence of the OECD (Organisation for Economic Co-operation and Development), a club of rich countries, as the body that dominates the setting of global tax rules. On the other side, along with South Africa, sit Argentina, Brazil, China, India, Mexico and other developing countries, which want developing countries to have a bigger voice.

When a multinational from one country invests in another, these global rules form the framework for deciding which country gets to tax which bits of the resulting income, and to what degree. Current OECD-dominated rules tend to skew taxing rights towards richer countries, and do a poor job of stopping multinational corporations (typically from rich countries) setting up schemes to avoid tax, often via tax havens.

The developing countries are seeking to strengthen the UN's own tax committee – the committee of experts on international co-operation in tax matters – which could potentially represent and advance the interests of developing countries far better than the OECD ever can. And, as Chile's permanent mission to the UN noted recently, the UN tax committee "is the only body with global membership in which these issues can be discussed".

More than a quarter of G20 member states – including Mexico, its next chair – are on record in favour of a stronger committee, and now, after years of relative quiescence on this crucial issue, developing countries seem to be finding their voice.

"The day is gone," said a speaker at a recent UN meeting in New York, "when there are rule makers and rule takers."

Argentina and China tabled the proposal earlier this year to upgrade the status of the committee, but the rich countries are justifying their opposition to this with rather convoluted logic, saying that sticking with a dominant OECD would "maximise synergies" and "avoid duplication".

This issue has been discussed before, and the UK has long opposed reform. Back in 2008, British diplomats spiked a similar proposal at a UN development conference. In answer to a written question in parliament in March, Treasury minister David Gauke curtly reiterated the UK's position opposing this route to giving developing countries a greater voice.

To be fair, some argue that while the UN may be the most legitimate forum to deal with international economic issues, it isn't always the most effective. Even UN secretary general Ban Ki Moon recognised as much last month: the UN is a universal forum, with unique legitimacy, he said, "but legitimacy alone is not enough".

The UN's tax committee is probably one of its more effective bodies. With scant resources, it takes complex global tax standards developed by rich countries through the OECD, and seeks to adapt them to better reflect the needs of developing countries. For example, it produces a model tax treaty used by developing countries when they negotiate tax treaties with rich countries. "Without that UN model [tax treaty], geez, negotiations would be a hard time," one African tax official told ActionAid earlier this year.

Tax inspectors from developing countries say they need the work of both the OECD and the UN to do their jobs well. But the OECD cannot be allowed to dominate proceedings. As another African tax official said: "The UN should do more. We are losing a lot from the OECD."

The UK, US and others should listen to developing countries and support the long-needed reform for which they are calling.

Cameron, as it happens, was accompanied on his South Africa trip with the bosses of some of the most accomplished exponents of the devious arts of aggressive tax avoidance, including Barclays, Vodafone and auditors PriceWaterhouseCoopers, who advise many businesses on how to dodge tax.

According to preliminary indications, things haven't gone very well in Geneva this afternoon for developing countries - but we await further information.


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Links Jul 27

ATAF holds first General Assembly in Mauritius The Botswana Gazette
Jul 27 - "The African Tax Administration Forum (ATAF) held its first General Assembly in Balaclava, Mauritius, this week, focusing on illicit financial flows, tax evasion and tax avoidance among other issues." - Of all unlikely places - although then again, possibly there are good reasons for basing this in a tax haven ...

UK Chancellor of the Exchequer Osborne needs a plan Asian The Guardian
Jul 27 - "The leak that a potential "plan A+" to boost the economy might prioritise cutting the 50% top rate of income tax had one business leader in quiet despair; he was no friend of the higher rate tax band, but the obvious target for any tax cuts must be the hard-pressed majority of standard-rate taxpayers whose real incomes – and spending power – is being so severely squeezed. What was Osborne thinking...?"


Vodafone meeting hit by UK Uncut protest
The Guardian

Jul 26 - "Vodafone's annual meeting kicked off on Tuesday with a protest over its tax payments. Demonstrators from
UK Uncut, formed last year to highlight corporate tax issues, accused the company of a £6bn "tax dodge", which Vodafone denies." See reference to Vodafone in our blog Tax is for little, vulnerable people.

The 400 Richest Americans Pay An 18% Tax Rate Forbes
Jul 25 - "The 400 richest Americans used to pay 30% of their income on the average to Uncle Sam. Today, they pay 18% on the average, according to Steve Rattner, a Wall Street financier."

U.S.: Taxing and Spending, in Balance
New York Times

Jul 23 - An interesting one to ponder: "There are good arguments for balanced-budget tax increases. They don’t lower average after-tax income, since every tax dollar goes directly to providing someone with income. Even those hurt by a tax increase may accept the sacrifice if they know it improves the chances that unemployed friends or relatives will find jobs." - interestingly, not mentioned in the article, curbing tax dodging by multinational corporations and wealthy people.

UBS staff fear more heads will roll
swissinfo

Jul 26 - Workers at rival Swiss banking giants UBS and Credit Suisse face grim prospect of job cuts. Meanwhile "top bosses increased their share of the pot by a third ... 'The elite in banking circles have created this war for talent argument to protect their own bonuses,' Denise Chervet, Secretary-General of the Swiss Bank Employees Association told swissinfo.ch."

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Stop Tax Haven Abuse Act unveiled in U.S. House

Following the introduction of the Stop Tax Haven Abuse Act in the U.S. Senate by Senator Carl Levin, we now have an updated press release on its introduction in the House of Representatives:
Reps. Doggett, Levin, DeLauro Introduce Bill to Stop Abuse of Tax Havens
July 27 2011, For Immediate Release. Contact: Sarah Dohl (202) 225-4865

Washington, DC— Today, over 40 Members of the House led by Representatives Lloyd Doggett (D-TX), Sander Levin (D-MI) and Rosa DeLauro (D-CT), introduced the Stop Tax Haven Abuse Act, which would curb abuses of the international tax laws that cost taxpayers nearly $100 billion a year. Senator Carl Levin (D-MI) recently introduced the same legislation in the Senate.

“It is long past time to take effective action to stop offshore tax dodging,” said Congressman Lloyd Doggett, a senior member of the House Ways and Means and Budget Committees. “Revenue lost to these tax avoidance schemes contributes to the soaring budget deficit and increases the burden on small businesses, families, and others who play by the rules.”

“Offshore tax abuses are not only undermining public confidence in our tax system, but increasing the tax burden on middle America,” said Senator Levin, who had introduced companion legislation in the Senate. “People are sick and tired of tax dodgers using offshore trickery and abusive tax shelters to avoid paying their fair share. This bill offers powerful new tools to combat offshore and tax shelter abuses, raise revenues, and eliminate incentives to send U.S. profits and jobs offshore. Its provisions, which can help stop the $100 billion per year drain on the Treasury, will hopefully be part of any deficit reduction package this year, but should be passed in any event.”

“Abuse of tax havens is a serious problem that undermines our entire tax system, let alone leads to higher deficits. We must step up enforcement, close offshore tax loopholes and ensure that working families are not unfairly burdened because of people trying to avoid paying the taxes they owe,” said Congressman Levin, Ranking Member of the House Ways and Means Committee.

“Addressing tax haven abuse is a critical part of addressing our national deficit. Too many companies are avoiding taxes by sheltering money overseas, and this legislation will ensure this unfair practice is halted,” said Congresswoman DeLauro. “The cost, both in dollars and jobs, at a time when so many families are still struggling, is unacceptable.”

The bill is supported by small business, labor, and public interest groups, including the Financial Accountability and Corporate Transparency (FACT) Coalition, American Sustainable Business Council, Business for Shared Prosperity, Main Street Alliance, AFL-CIO, SEIU, Citizens for Tax Justice, Tax Justice Network-USA, U.S. Public Interest Research Group, Global Financial Integrity, Global Witness, Jubilee USA, and Public Citizen.

A number of provisions from past versions of the legislation have made it into law, such as measures to curb abusive foreign trusts, close offshore dividend tax loopholes, and strengthen penalties on tax shelter promoters.

The Stop Tax Haven Abuse Act would authorize the Treasury Secretary to take special measures against foreign jurisdictions or financial institutions that impede U.S. tax enforcement, close offshore tax loopholes, and increase penalties on tax shelter promoters.

For a more detailed summary of the legislation, please click here.

To read Rep. Doggett’s op-ed on the Stop Tax Haven Abuse Act, please click here.
Also see the FACT coalition's statement here.

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Virgin Enterprise off to Geneva to shirk tax

Copied from the Treasure Islands blog:

From The Telegraph:

"The company that owns the rights to the Virgin brand around the world is planning to relocate from London to Geneva in the coming weeks in a move that will reduce its tax bill. . . . A source said the decision had been made to maximise “tax efficiency”.

Shifting a brand offshore is a classic abusive transfer pricing move to avoid tax. Here's what happens.

First, the offshore subsidiary that owns the brand charges huge fees to other parts of the company - fees that it's very hard for Revenue authorities to challenge (just how much, exactly, is Virgin's brand worth?). Next, that offshore subsidiary makes huge profits, by virtue of charging those huge fees. But because it's in a tax haven, it pays little or no tax on those profits. And as for the 'onshore' subsidiaries in high-tax countries: well, they can then offset those huge fees as costs, against tax, cutting their tax bill.

Hey Presto! A tax bill evaporates!

Overall, nobody, anywhere, has produced a better, more efficient air service, record company, widget or whatever. All that's happened here is that money has been transferred away from hard-pressed taxpayers, to people like Richard Branson and his fellow shareholders. And pressure is put on countries to lower their tax rates to stay ahead in this awful race to the bottom. (If you don't believe that, just look at the tone of that Telegraph story, or the Daily Mail story that followed.) Britain's already large deficits get that little bit wider, creating additional risks in an already precarious situation. Smaller competitors get killed, for no good economic reason, on account of a tax subsidy that is available to bigger players, but not to them. Markets are made less efficient on account of the costs of expensive tax advisers, lawyers, bankers and so on.

This is bad, harmful, egregious stuff that's happening.

How important is this kind of abusive tax practice to the Virgin empire? Well, it's hard to know exactly, but in 2002 Branson was quoted in this way:

"Virgin's offshore status has been crucial to its development: it allowed money to move from business to business without massive tax liabilities. "If we had not done it the way that we did, Virgin would be half the size that it is today," argues Branson."

So overall the rich get richer, the poor get poorer markets get distorted, and there is no net benefit to the world of any kind. Quite the opposite.

People like Branson get awards all the time. No doubt he's a good businessman in some ways. But this stuff counts as a serious, serious black mark against his name, during these times of national strife.

What is interesting about this is the comments under the Telegraph story - readers are generally a right-wing bunch, but most of the ones under this story, at least at the top, are unremittingly hostile to Branson's move. Perhaps that comes more from feelings of patriotism than anything else, but still, it's interesting.

Oh, and as for that term 'tax efficiency' - see TJN's dictionary of offshore obfuscation.

And then there are things like Branson's private island in the British Virgin Islands.


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Credit Suisse “worse off” than UBS in the US

This is going to be interesting. Reuters recently posted a useful story indicating how Credit Suisse was not likely to be getting the same backing from Switzerland that UBS did, in the sense that there is no appetite in Switzerland for a new tax treaty of the kind that was designed to help UBS settle U.S. charges against it.

Now we have a similar story, from a U.S. angle, explaining the bank's further woes. From Swissinfo:

lawyers and clients of Credit Suisse see the position of Switzerland’s second largest bank as more serious than that of its competitor UBS. First, there's this wee problem:
“The very serious allegations against Credit Suisse relate to a wider range of conduct extending beyond a tax conspiracy into a broader range of criminal activity,” [Scott] Michel of the Washington firm Caplin & Drysdale told swissinfo.ch.

“These are not just allegations that a Swiss bank opened accounts that they knew would not be reported to the IRS [Internal Revenue Service], there are also allegations that employees of the bank lied to the Federal Reserve, engaged in destruction of records, helped people try and evade DOJ [Department of Justice] investigation and provided unlicensed banking services to customers,” the lawyer representing some 30 Credit Suisse clients said.
And then, of course, there is this one, which adds another massive layer of trouble on the bank's shoulders:
In Washington the political climate is marked by the federal debt crisis; not a good backdrop for Credit Suisse to be in trouble. “There’s no sympathy anywhere in the government for people who are not paying their fair share in the context of big budget problems.”
Remember the time, just 10 years ago, when the U.S. Treasury Secretary appeared to say that tax evasion via foreign tax havens was "amusing?"

Well, the times, they are a'changing.

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Tuesday, July 26, 2011

Deficit Talks Reach Stalemate, Momentum Builds to Close Tax Loopholes

From TJN-USA and the FACT coalition:

FOR IMMEDIATE RELEASE July 26, 2011
Washington – As budget and debt-ceiling negotiations continue to polarize Washington, lawmakers in both chambers have put forth a proposal that could cut the deficit by closing tax loopholes while giving companies greater incentive to keep jobs here in the U.S.

The Stop Tax Haven Abuse Act, introduced by Senator Carl Levin (D-MI) earlier this month in the Senate and now by Rep. Lloyd Doggett (D-TX) in the House of Representatives, would put new restrictions on the use of offshore tax havens to avoid and evade federal taxes. Some of the key provisions include taxing corporations where they operate and do business (as opposed to where they are incorporated, which can amount to a Post Office Box), and requiring annual country-by-country reporting by SEC-registered corporations related to their employees, sales, purchases, financing arrangements, and taxes.

For a summary of the bill, click here. It has been reported by the Senate Permanent Subcommittee on investigations that shutting down the use of tax havens could bring in $100 billion each year - $1 trillion over ten years.

This bill is supported by the Financial Accountability and Corporate Transparency (FACT) coalition, which includes a broad range of organizations with an interest in seeing the loopholes closed due to their impact on jobs, critical programs, small businesses, human rights, corruption and national security.

“We’re talking about $1 trillion of taxes not being collected to help pay for our national defense, infrastructure, courts and education system. That means that small businesses and individual taxpayers pay more taxes to subsidize these giant corporations that depend on these government services,” said Frank Knapp, President of the South Carolina Small Business Chamber of Commerce, spokesperson for Business and Investors Against Tax Haven Abuse, and FACT member.

“Most of the provisions in the Stop Act deal with foreign countries that serve as offshore tax havens, which can facilitate both tax evasion and tax avoidance. The bill also targets some other types of tax dodging, as well as the bankers, lawyers, and accountants who facilitate these abuses by their clients,” added Rebecca Wilkins, Senior Counsel for Federal Tax Policy at Citizens for Tax Justice and a founding member of the FACT coalition.

“Giving these billion dollar tax breaks to corporations while asking everyone else to ‘sacrifice’ is complete nonsense,” said Nicole Tichon, also a founding member of the FACT coalition and Executive Director of Tax Justice Network USA."
CONTACT: Nicole Tichon
Executive Director
Tax Justice Network USA
nicole@tjn-usa.org 202-758-9552

CONTACT: Rebecca Wilkins
Senior Counsel, Federal Tax Policy
Citizens for Tax Justice
rwilkins@ctj.org 202-299-1066 x 32

Contact: Frank Knapp President and CEO,
South Carolina Small Business Chamber of Commerce
sbchamber@scsbc.org 803-252-5733
It is very good to see TJN-USA at the forefront of this crucial fight.

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GlaxoSK: welcome words, now walk the walk

Copied from the Tax Research Blog:

As the Guardian has reported:
GlaxoSmithKline lent its support to the UK economy on Tuesday by pledging to hire more staff and pay more taxes – in stark contrast to its US rival Pfizer, which is shutting a key centre in southern England.

Glaxo’s chief executive, Andrew Witty, reiterated that the government’s patent box – which will offer lower rates of corporation tax on profits generated from the fruits of UK research and development from 2013 – had made the UK more attractive. He has previously attacked British companies that relocate in search of lower taxes, lambasting businesses that turn themselves into “mid-Atlantic floating entities” with no connection to society.
Of course I welcome this, but only cautiously.

GSK has a long history of tax avoiding, on transfer pricing and of using tax havens.

So this change is welcome – but I’ll be convinced when I see the evidence. So my challenge to GSK is a simple one. Adopt country-by-country reporting and then we’ll know if you are delivering the tax we expect. Doing so would make you a real world leader.

Bite the bullet: walk the talk and show us you pay your tax to build the type of society – the democratic society that supports health for all paid for from tax – that is the only sustainable base for your business.

If you don’t this is welcome – but only as a gesture.

The choice is yours: gestures, or the real thing?

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Policy Roundtable on Harmful Tax Competition in East Africa

From TJN-Africa:

TJN-Africa and Action Aid International Kenya are hosting a Policy Roundtable on Harmful Tax Competition in East Africa to be held in Nairobi on July 27th and July 28th. The Roundtable will bring together national and regional policy-makers, policy analysts, civil society actors and other stakeholders to discuss the issue of harmful tax competition and the policy alternatives East African Community (EAC) countries can use to combat this.

You can see the Concept Note here, and the Agenda here.

The Concept Note explains:
Tax Justice Network-Africa (TJN-A) and Action Aid International Kenya (AAIK) commissioned studies in four of the East Africa Community (EAC) countries, with a view to understanding the rationale for and nature of tax incentives used by these governments, as well as contribute to the ongoing debate on the harmful aggregate consequences of tax competition and the tax harmonisation process in the EAC.

The TJN-A and the AAI now propose to hold a regional policy round table on July 27th and 28th in Nairobi in order to critically review the findings and recommendations of the final Rwanda country report, and the draft country and regional reports for Tanzania, Uganda, Kenya, and the EAC respectively. The policy roundtable will provide a platform for high-level discussion on the nature, impact, and means of alleviating harmful tax competition in East Africa, including through tax harmonisation and the proposed Code of Conduct against Harmful Tax Competition and the Model Agreement on Double Taxation Avoidance.

Invited participants will include regional and national policy makers, including members of the EAC Council of Ministers, EAC Secretariat, representatives from revenue authorities and relevant government ministries, as well as civil society actors, SME Associations, academics engaged in tax policy and administration, and private sector tax practitioners.

Objectives

The purpose of this Policy Roundtable is to:
  • Critically consider the extent, nature, and impact of investment incentives in East Africa;
  • To critically review the draft reports of the TJN-A and AAIK studies in Uganda, Kenya, and Tanzania on harmful tax competition in the region;
  • Critically discuss emerging issues relating to the ongoing tax harmonisation process at the regional level; and
  • Critically consider lessons learned and best practice from the region and elsewhere (for example the use of tax expenditure analysis, experience in contending with tax competition in other regional economic communities).
Expected Outcomes
The Policy Roundtable proposes to achieve the following outcomes:
  • Shared analysis and understanding of the tax policy issues relating to tax incentives and the impact of harmful tax competition on the economic and social development of member states; and
  • Develop innovative and politically feasible recommendations on how to contend with harmful tax competition and rationalise the use of tax incentives in order to further enhance the objectives of generating employment, increasing equality and meaningfully reduce poverty.

The agenda includes:

East African Experiences with Tax Incentives
This session will contextualize the use of tax incentives in investment policy, both the historical and current thinking on the use of tax incentives, and highlight country experiences on the use of tax incentives in East Africa.

Alternative Experiences with Tax Incentives
This session will consider steps individual countries have taken in order to rationalise the use of tax incentives, including their monitoring and evaluation (e.g. the use of tax expenditures and public debate).

Contending with Harmful Tax Competition at the Regional Level
This session will address challenges and opportunities of addressing harmful tax competition at the regional level, including consideration of what instruments need to be harmonised, why and to what extent, the impact of tax harmonisation on tax sovereignty, an update of the draft Code of Conduct on Tax Harmonisation, and lessons learned from other regional economic communities.

Mapping the Way Ahead
Underlining the challenges, successes, and proposed actions to be taken at the national and regional level and consider future prospects for tax harmonization and combating of tax competition in the EAC

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Tax is for little, vulnerable people

From Private Eye:
Good to see that HM Revenue & Customs (HMRC) knows who the real tax-dodging villains are in Britain. Having let Vodafone and Goldman Sachs off millions in tax, it’s been commendably ruthless with… a small charity for disabled children. ...

The charity has been whacked with a £16,000 tax bill, dating from an accounting error made in the early 1990s when the centre was run by completely different people. The charity has been given a year to find the cash, which will eat up the proceeds of dozens of the raffles, sponsored walks and coffee mornings that usually keep the service afloat.
We can't comment on their particular tax bill, but we do wonder if the Big Boys would have faced the same treatment. Private Eye observes:
"Meanwhile, why does accountancy firm Deloitte remain such a favourite of HM Revenue and Customs’ tax boss when it is arguably the biggest tax avoidance drain on the British economy? A parliamentary question from Tory MP David Davis reveals that HMRC’s business-friendly tax boss Dave Hartnett has met Deloitte UK chairman David Cruickshank no fewer than 48 times since 2006.
. . .
Under Cruickshank the firm’s tax division, a tribunal recently exposed, also ran a £140m scheme for bankers from Deutsche Bank to dodge tax on their bonuses via a Cayman Islands share scheme. . . . this exploits tax laws that industry specifically asked for to help investment, even a member of the tax industry told the Eye: “It really is taking the piss."

Read the rest here.

One set of rules for the elites, another for the rest of us.


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Quotes of the day - Van Ruymbeke

From Renaud van Ruymbeke, one of France's top investigating magistrates, from an interview published last year in the SudDeutsche Zeitung (hat tip: Markus Meinzer and the TJN-Deutschland blog.)
SZ: Has globalisation of financial markets makes your work difficult?

Ruymbeke: Buinesses have become so complicated that we investigators often have no chance. . .
It's an interesting interview, for those who read German (or a rough web translation of the story here) It has a particular focus on Luxembourg, a "European paradox" as he puts it, due to its being an EU founding member but also a hub for secret money. He also points the finger at Cayman and Switzerland in particular.

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New IMF paper on global systemic linkages

From a new IMF paper (hat tip: Mark Herkenrath)
"Increased cross-border financial linkages promote risk diversification at the individual country level, reducing exposure to localized shocks. However, increased interconnectedness, by facilitating transmission of shocks, also generates a network externality that makes the global financial network more prone to systemic risk—the risk that shocks to a ―core‖ node leads to a breakdown of the entire network. Moreover, as the extent and complexity of cross-border financial linkages grow, investor information about specific exposures becomes less certain, amplifying systemic risks from panic responses to shocks."
Information is incomplete, of course.
"This data has some well-known limitations (Lane and Milesi-Ferretti, 2008, and Milesi-Ferretti and others 2010). First, not all the economies participate in the survey, including some that are likely substantial holders of external assets (these include some oil-exporting economies with large sovereign wealth funds, offshore centers, and economies with large holdings of official reserves or portfolio assets, such as China and Taiwan."
And where are the key nodes through which these shocks are transmitted? This paper doesn't characterise the shock transmitters the way that we would. But another IMF paper does.

Step forward, the tax havens.

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Monday, July 25, 2011

Links Jul 25

Credit Suisse Tax Evasion Probe: Bankers Unlikely To Get Help From Switzerland HuffPost Business
Jul 24 - 'Switzerland's parliament would not vote for a second tax treaty to help settle U.S. charges that Credit Suisse bankers helped wealthy Americans evade taxes ... The investigation against Credit Suisse has also prompted Swiss private banks Sarasin and Julius Baer to ban staff from traveling to the U.S. "For the last two weeks it has been necessary to get approval for all private and business trips to the U.S. ... It's about protection. So the bank and its employees will be protected from investigations and arrests" '.

HSBC Acts on Offshore Cash Wall Street Journal
Jul 20 - 'The global banking giant is cutting ties with wealthy American clients who bank offshore, as U.S. prosecutors turn up the heat on the bank to produce information about account holders who may be evading taxes.'

Foreign Tax Profile of Top 50 U.S. Companies Tax Analysts
Jul 25 - Of America's 50 most profitable companies in 2010, seven are with a coalition seeking the repatriation holiday that we've blogged extensively - Apple, Cisco Systems, Devon Energy, Google, Microsoft, Oracle, and Pfizer had a total of $164 billion in accumulated undistributed foreign profits. On average, their foreign effective tax rate was 12%. Hat tip
TaxProf.

Pakistan: Auditors detect tax evasion of Rs209bn Dawn
Jul 25 - 'Auditors have unearthed tax evasion and irregularities of more than Rs209.797 billion in 50,000 cases over the apst few years. Experts say the dodging of such a huge amount is not possible without official connivance.'

Jersey’s wealthiest to pay even less tax – and the BBC applauds
Treasure Islands

Jul 25 - Check out the quotes, such as: ‘I pay a quarter in tax terms of what the guy who collects my bins does. I play golf all day while he probably can’t even afford to pay for the house he lives in. Living in Jersey is like that: if you’ve got the money, you get the cream’.


Luxembourg: less transparent than Nigeria? Treasure Islands
Jul 25 - The
Financial Secrecy Index ranks Luxembourg as the world’s second-biggest secrecy jurisdiction, after the United States. 'Now, from Access Info ..."“Luxembourg, one of the wealthiest countries in the world, is failing to achieve even minimum standards when it comes to open government, public participation, and accountability” '...

UK: HMRC under fire over tax-dodging disclosure deadline The Guardian
Jul 25 - Lawyers and accountants have rounded on HM Revenue & Customs over proposals for a tax-dodging amnesty and toughening rules on how struggling companies offset their losses. A deadline of 60 days ix proposed for miscreants to reveal how much tax they have withheld.

UK: Taxman triggers rebellion over powers to put accountants out of business This Is Money
Jul 24 - '
The taxman may be given the power to put accountants out of business for organising efficient tax planning for their clients.'

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How the tax system makes finance more dangerous

Simon Johnson, a leading U.S.-based intellectual, has written an excellent piece in the New York Times with the above headline. It concerns an issue we've written about several times in the past: that the tax system in many countries has encouraged a bias towards debt, rather than equity financing. The resulting indebtedness made the financial system more dangerous, and we are now finding out the consequences of this.

The simple reason is that borrowing is, in many cases, tax-deductible, whereas equity financing is not. So instead of raising money through the stock market, say, they borrow it.

And banks, of course, are among those over-borrowers. And this creates risks to society - a form of economic pollution. Johnson notes:
It is also ironic — perhaps even bizarre — that while we try to constrain how much banks borrow through regulation, we give them strong incentives to borrow more through the tax code.
(He also notes two reports just published by the Joint Committee on Taxation, one on business debt and one on household debt.)

There are two ways to tackle the debt bias problem: eliminate or curb the tax deduction for debt, or make an equivalent deduction for dividends. We have favoured the former - which among other things seems like a good idea in the current deficit-plagued situation.) Johnson has more.
"I [propose] that we go further and consider a tax on “excess leverage” in the financial sector. The idea — already being applied by some European countries and further developed by some of my former colleagues at the International Monetary Fund — is based on the premise that a high level of borrowing relative to equity is a form of pollution, creating negative spillovers for the rest of the economy."
In other words, if a bank is borrowing too much - which in practical terms means it has huge borrowings, when compared to the size of its equity capital safety buffer - it should be taxed on this, above and beyond the regulatory requirements to have larger capital buffers than before. He proposes something that (at least in the current environment) would be seen as setting quite a high bar:
"companies of any kind would be taxed on debts that exceeded some reasonable multiple of their equity (perhaps a multiple of three or four). . . . the same logic [as applied to banks] applies to insurance companies, hedge funds and even leveraged buyout firms."
It is right that the bar should be high, in light of all that's happened.

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Norway: our grief, and our thanks

In this time of shock and grief over the brutal events in Oslo and on Utoya, we recall Norway's strong, selfless and indispensible support for the cause of tax justice, and we wish to express our outrage, our concern, and our solidarity with the people of Norway.

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Sunday, July 24, 2011

Quote of the day - drugs

From Mauricio Rodríguez, Colombia's ambassador in London, via The Observer (hat tip: Patrick):
"Let's be serious about where the big money is. If you look at the trail of cocaine, you'll find that 5% of the profits remain in the producing countries; 95% is in the distribution networks and laundered. The big money is in the big banks in the big countries; the big money is in the US, Europe and Asia."
One more for our quotations page. It's an interesting overview of the decades-long war(s) on drugs.

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Friday, July 22, 2011

Links Jul 22

Swiss adviser charged in tax fraud tied to UBS Reuters
Jul 21 - A
Swiss financial adviser has been charged with helping more than 60 U.S. taxpayers hide more than $184 million in Swiss bank accounts and move assets from UBS AG to other Swiss banks to avoid getting caught. See Treasure Islands for insider commentary on bankers exchanging business in order to "assist" their clients.

See also: U.S. Department of Justice Press Release: Manhattan United States Attorney Announces Charges Against Swiss Financial Adviser For Conspiring With Over 60 U.S. Taxpayers To Hide More Than $184 million In Swiss Bank Accounts Hat tip Lucy Komisar.

Ex-Credit Suisse Offshore Banking Head Charged in U.S. Tax Case Bloomberg
Jul 22 - Credit Suisse Group’s former head of North America offshore banking was among seven bankers charged with conspiring to help clients in the U.S. evade taxes through secret bank accounts. In the past two years, prosecutors have filed criminal tax charges against more than two dozen UBS clients, four UBS bankers, four other alleged offshore enablers and several other clients of Credit Suisse and HSBC.

Tax Dodgers in the Cross Hairs Citizens for Tax Justice
Jul 21 - A
summary of tax dodging news from our friends at CTJ: Congress, the Internal Revenue Service, and the Department of Justice continue the attack against tax dodging, including schemes using offshore tax havens ... .

Anti-Tax Forces Have Lost the Public. Will the White House Fight or Cave?
Citizens for Tax Justice

Jul 21 - Recent polling makes clear that most Americans do not agree with the Tea Party-backed members of Congress who believe the only “concession” they should make in deficit negotiations is to prevent a calamitous default on U.S. debt obligations. The question is, will the White House use this advantage and demand a balanced approach, or will it back down again to anti-tax, anti-government lawmakers who are outside the mainstream of public opinion?

Congressmen and Banksters Protect Despots, Drug Lords and Tax Evaders
Firedoglake

Jul 21 - Lawmakers have introduced legislation (H.R. 2568) to stop the Treasury Department from implementing rules requiring U.S. banks to report deposit interest paid to nonresident aliens, taking congressional opposition to the controversial regulations (REG-146097-09) to a new level. See
Treasure Islands blog - Tax Haven USA attracts over $3 trillion in foreign dirty money which talks about a lobbying effort from Florida; the new story is about legislation now introduced by those same interests.

Ecclestone under fire in F1 bribes probe
Financial Times

Jul 19 - Prosecutors in Germany have publicly alleged for the first time that Bernie Ecclestone and a trust belonging to the Formula One supremo's family paid almost $44m in bribes to a German banker. "Payment was disguised through Mauritius and the British Virgin Islands."

Tackling the mafia through the money trail swissinfo
Jul 19 - 'To overcome organised crime, the gathering, analysis and exchange of information between all the partners – national and international – is vital.'
Treasure Islands speaks of how Al Capone, legendary gangster, was convicted of tax evasion - and how his associate Meyer Lansky becamse fascinated with schemes to launder Mob money and began with Swiss banking.

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