Tuesday, November 29, 2011

New Report Puts Spotlight on Corporate Tax Avoidance

From the International Trade Union Confederation

Brussels, 28 November 2011 (ITUC OnLine): A new report released in London today by the Global Union Federation, Education International, documents the massive revenues lost to governments through corporate tax avoidance and the impact of this on education and other vital public services which are at risk from government expenditure cuts.

“Hundreds of billions of dollars are lost each year as corporations find new and intricate ways to avoid paying their taxes, and governments compete to attract multinational investment by cutting company tax ever lower. Governments are effectively cheating their own people of corporate tax revenues which could be put to good use in ensuring quality public services. They need to focus on ensuring companies pay their fair share, instead of cutting back government services, reducing wages and reducing peoples’ rights at work through misguided fiscal austerity measures,” said ITUC General Secretary Sharan Burrow. “This report will help bring the scandal of corporate tax avoidance into the public spotlight."

The report, Global Corporate Taxation and Resources for Quality Public Services, was prepared by the Education International Research Institute on behalf of the Council of Global Unions, which brings together The Global Union Federations with the ITUC and the Trade Union Advisory Committee to the OECD.


For more information, se
e: http://www.ei-ie.org/en/news/news_details/2022 The ITUC represents 175 million workers in 153 countries and territories and has 308 national affiliates. Website: http://www.ituc-csi.org and http://www.youtube.com/ITUCCSI
For more information, please contact the ITUC Press Department: +32 2 224 020 or +32 476 62 10 18

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Links Nov 29

Alpine tax drama Financial Times
Nov 29 - "Many British people dislike being overruled by Brussels – even for EU decisions intended to make citizens’ lives safer. But they should at least welcome the Commission’s latest effort to stop the UK government from shooting itself (and the other member states) in the foot. The office of Algirdas Šemeta, EU tax commissioner, is reportedly weighing legal action against the bilateral agreement that the UK signed with Switzerland in August to tax assets and income in secret Swiss bank accounts of British taxpayers, as well as a similar German-Swiss accord."

See also:
Swiss Banks May Lose $51 Billion of German, U.K. Assets Bloomberg Businessweek
Nov 29 - "Swiss wealth managers may lose about 47 billion Swiss francs ($51.1 billion) in assets as clients make withdrawals before tax agreements with Germany and the U.K. come into force in 2013, according to a Booz & Co. study." Booz seems to be behind the curve, as Rubik is looking like history.

A Courageous State would deliver a pension fund worthy of the name Tax Research UK

Nov 29 - "John Harris, writing in the Guardian, has reviewed George Osborne’s infrastructure plan for the UK and found it wanting. He did find an alternative. As he wrote: 'This week I spoke to Richard Murphy, the economist and tax expert, whose new book has the self-explanatory title The Courageous State and brims with imaginative thinking ...'

Africa - Overview of recent transfer pricing legislation and compliance activities ATAF
Nov 25 - "Companies doing business in Africa need to be aware that they can no longer view transfer pricing issues as isolated, country-specific concerns. Transfer pricing issues are global." Which is why this needs to be coordinated through the United Nations, not the OECD - see here and here and here.

Tanzania: Tax Expert Advises Tanzania to Increase Tax Collections AllAfrica.com

Nov 20 - Interesting commentary on the relationship between donor aid and tax collection rates.

Country-by-Country Reporting in the EU: debating the case for full transparency Task Force Blog
Nov 28 - On EURODAD recently holding a roundtable in the European Parliament on 21st November to launch its new report “Exposing the lost billions. How financial transparency by multinationals on a country-by-country basis can aid development.” (Linked previously). Richard Murphy also spoke at the event.

France: A vampire and a deposit box for Africa's looted funds? Modern Ghana
Nov 23 - "The case of Alpine nation of Switzerland as a safe haven for Africa's looted funds is known worldwide ... However, when it comes to France very little is known about how it has successfully milked African countries and created massive poverty in its former colonies ..."

India: Manmohan Singh want tax havens banned, can he do it? moneylife
Nov 29 -
"But Switzerland is no longer in the dominant position it used to be in. One reason, of course, is competition from different ‘parent’ countries. People are comfortable with tax jurisdictions where their parent countries have ‘agreements’ made by rich law-makers for rich people. An example in this case is Mauritius with India."

India: Black money probe: Govt may soon reveal names of those with illegal foreign accounts Times of India

Nov 28 - "Under pressure from the opposition on the issue of black money, the government may soon reveal the names of persons who had stashed black money in LGT Bank, Liechtenstein. But disclosure of identity from the list of HSBC, Geneva may take some more time as the Income Tax (I-T) department is still in the process of reassessing returns of people who figured in the list of Indians having Swiss accounts."

Tax Raids on Indian Diamond Firms Related to Swiss Accounts International Diamond Exchange

Nov 29 - "Indian Income Tax authorities raided four diamond-manufacturing firms in Mumbai Tuesday. These and earlier raids of a number of large diamond manufacturers are understood to be linked to a list of Indians who held secret bank accounts with HSBC’s private banking branch in Geneva, Switzerland."

One country with more tax evasion than Italy Business Insider

Nov 28 - An interesting view based on data published by Eurostat, the statistics arm of the European Commission on labour costs, as well as information on tax evasion in Italy, the UK, Germany, France, and Denmark.

Greece goes after big tax dodgers Global Post
Nov 22 - "Making good on its vow to stop tax evasion, the Greek government has arrested several high-profile businesspeople alleged to owe millions of dollars to the state. Tax dodging costs Greece more than $20 billion per year and is one of the reasons why the country is mired in debt and living month-to-month on international bailouts. The government is also nearly ready to publish the names Greece’s biggest tax evaders."

Bettencourt Owes EU78 Million on Tax, Penalties Bloomberg
Nov 22 -" L'Oréal heiress Liliane Bettencourt faces 77,752,139 euros ($105 million) in back taxes and penalties on undeclared accounts in Switzerland and Singapore and real estate, including an island in the Seychelles ... Bettencourt is in talks with French tax authorities to reduce the amount." Curious, as Bettencourt recently "signed a letter along with 15 other billionaires begging to make a special contribution to the treasury to help drag France out of the financial crisis" - see here.

Tax law pushes US expats to give up passport swissinfo
Nov 29 - On the "backlash from United States expats and the financial sector to the Foreign Account Tax Compliance Act (FATCA), designed to fight tax evasion." See some recent blogs on FATCA here, here and here.

I could do that job #94 Financial Crimes

Aug 25 - A piece from a while back, but nice point to observe. "KPMG are looking for a salaried tax partner for Qatar ... 'Being paid £150k after tax for saying 'There is no tax here' sounds to me like money for old rope.'".

For other recent Qatar news, see:
Qatar Bets on Hobbled European Banks Dealb%k
Oct 11 - The Qatar sovereign wealth fund buys into two private banking operations in Luxembourg.

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Monday, November 28, 2011

Links Nov 28

Imran Khan: Unplugged The Express Tribune
Nov 27 - Interview with Imran Khan, Pakistani politician and former international cricketer for Pakistan. Interesting commentary on corruption and tax dodging. On money and assets in Swiss banks: "Firstly it is important to know that only a government that is clean can bring that money back."

India: Mr FM, name those 700 names Governance Now
Nov 28 - On a call to the government to make public the names of those holding hidden money offshore. "The union government’s insistence on keeping the names of 700 entities holding secret accounts in HSBC Bank in Geneva close to its heart reflects how sincere it is about fighting the black money menace."

A Family’s Billions, Artfully Sheltered New York Times
Nov 26 - Excellent piece on tax dodging by "superelite" via myriad schemes. And on those who dodge tax while being considered philanthropists: “It’s admirable when people back their charitable impulses up with donations,” said Scott Klinger, tax policy director of the group Business for Shared Prosperity. “But the tax code shouldn’t allow the wealthy the kind of loopholes that let them, essentially, force other taxpayers to underwrite donations to their pet causes.”


More on the world’s most expensive apartment block Treasure Islands
Nov 28 - The UK’s Observer has provided more information following the Sunday Times story about One Hyde Park in London, reportedly the most expensive apartment block ever built anywhere on Earth. As earlier reported:“The records reveal extensive use of tax havens to purchase the properties with the British Virgin Islands, involved in 25 deals, the most popular choice.”

Dolce and Gabbana say Italian tax authorities 'thieves' as they face new battle Telegraph

Nov 24 - "Italian fashion kings Dolce and Gabbana face fresh legal entanglements after Italy's highest court overturned their acquittal on charges of evading nearly a billion euros in taxes."

Why Sting's taxman is So Lonely: Star 'saves £2m by giving himself a bumper payout' (just before 50p top rate bites) Daily Mail
Nov 25 - The celebrity musician "has been blasted by former Liberal Democrat Treasury spokesman Lord Oakeshott. He told The Sunday Times ordinary taxpayers 'can't shuffle their future earnings into a lower tax year and they have to pay to maintain the overseas aid budget'." Hat tip: Offshore Watch.

Mining tax a step closer for Australia after passing lower house Guardian
Nov 23 - 30% levy on the biggest profits from minerals boom will fund infrastructure, pensions and business tax cuts.

Failing to tackle tax evasion is a choice to support criminals - and it's one that politicians have made Tax Research UK

Nov 25 - 'The choice the government is making by reducing the resources to tackle tax evasion is therefore a simple one. They’re saying they think criminals are more important than honest people in real need. And that criminals are more important than people who work for an honest living."

Financial Workers earn the most swissinfo
Nov 28 - The financial sector still pays the best wages in Switzerland: an average of SFr9,357 ($10,150) a month in 2010, according to the Federal Statistics Office ... the gross median wage over all sectors – with an equal number of workers above and below – was SFr5,979 a month last year. The mean for women, SFr5,221, was 18.4 per cent lower than that for men, SFr6,397.

Treasure Islands on New Statesman’s books of the year selection Treasure Islands
Nov 28 - Very nice.

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Swiss blow a one note alpine horn on sovereignty

We've been blogging on corporate tax abuse through Switzerland, such as that perpetrated by the Canton of Zug (see here, here and here for example.) Now, as reported in Swissinfo on Nov 26:
The European Union may consider taking measures if no progress is made in talks over the varying Swiss corporate taxation rates in its 26 cantons. Switzerland has been holding exploratory talks with the EU for the past year following a request for it to fall in line with the principles of the EU Code of Conduct for Business Taxation.
The article explains:
So far, only the “parameters and criteria” for dialogue have been discussed.
Slow progress, then. But now it seems the EU may be taking a harder line:
A group responsible for the Code of Conduct will look at alternative measures “if no satisfactory progress is made in this dialogue” within the next six months, according to a report presented by a group of experts to EU finance ministers ahead of their meeting on Wednesday ... diplomats of EU member states hinted that retaliation measures were possible if Switzerland did not step up the process.
On the EU Code of Conduct on Business Taxation, Richard Murphy has commented:
"The EU haw an impressive record in tackling tax haven abuse: in my opinion it has been the most effective agency in the world in doing so ... its EU Code of Conduct on Business Taxation has been enormously helpful in tackling tax abuse both on and offshore".
For some useful backgound, see Tax Justice Focus: Switzerland, October 2010 - "The Swiss-EU Tax Dispute: Origins and Prospects", by Thomas Cottier, Professor of European and International Economic Law and Managing Director of the World Trade Institute, University of Bern, Switzerland. The article points out:
The dispute is a fundamental one. Tax, the Swiss government argues, is not subject to existing treaty relations and negotiations, and the EU has no say in matters exclusively pertaining to Swiss sovereignty and autonomy of the Cantons. The EU Commission, however, argues that exempting from tax the profits generated abroad by holding companies and related forms (such as letter box companies) resident in Switzerland amounts to distorting subsidies, contrary to Swiss obligations under the 1972 Free Trade Agreement (FTA).
It is interesting to note that the Swiss government has some trouble in its own back yard. Cottier points out that "the Swiss public at large generally dislike tax privileges for the rich and wealthy." As Swissinfo reported last June in Trouble in tax paradise: "In recent decades Zug has managed to attract numerous multinational companies thanks to its low tax policy. The downside of the economic growth is rapidly increasing rents, which make it hard for middle class families to find affordable homes."

So it is really the same old story, not sovereignty, but a strategy that enriches elites while impoverishing locals.

The Nov 26 Swissinfo piece observes in its closing statement:
Switzerland maintains that it is not bound by the Code of Conduct rules as it is not a member of the EU.
So that's all right then? The Swiss government continues to play the same old self-interested sovereignty tune, whilst blatantly siphoning off revenue from EU and other sovereign nations.

As Cottier pointed out:
Swiss Tax Policies need to move towards a concept of cooperative sovereignty, taking into account the needs of all partners.

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Tackle Tax Havens - more news coverage

Some links to more news coverage of Tackle Tax Havens:

Huge Cost of Tax Evasion Revealed as Campaign to Tackle Tax Havens Launches envirolib
Nov 25 - "New research published by the Tax Justice Network shows that tax evasion costs 145 countries, representing over 98% of world GDP, more than US$ 3.1 trillion annually."

Time to tackle tax havens New Internationalist
Nov 28 - "$3.1 trillion a year is a seriously significant figure by anyone’s standard. To help put it into context, Murphy has compared countries’ tax evasion figures to their levels of healthcare spending, calculating that in 67 of the 145 jurisdictions assessed, tax evasion losses are larger than the entire healthcare budgets of those countries."

‘Tackle tax havens’ campaign highlights the cost of evasion Tax Journal
Nov 25 - "TJN Director John Christensen said: 'Tax havens are engaged in economic warfare against the tax regimes of sovereign countries, and these estimates reveal the human cost in terms of the impact on health services.’ "

Tackle Tax Havens: A New Campaign The Robin Hood Tax
Nov 25 - "But tax havens are not just about tax: they cause colossal damage on many fronts. Tackle Tax Havens aims to arm the general public with a solid working knowledge of the offshore system and the problems it causes -- and to show what we can do about it."

Tax Justice Network launches anti-tax haven campaign International Adviser
Nov 28 - "In a statement released today, the European Network on Debt and Development (Eurodad) said Tax Justice Network was launching the campaign, Tackle Tax Havens, to 'highlight the critical role that [tax havens] play in corrupting the global economy' ”.

Tackling Tax Havens Brett Parris

Nov 26 - "You may have heard of the role of the Cayman Islands, Jersey, the Isle of Man, the US state of Delaware and others as tax havens. But guess which one tops the dismal list of those facilitating global tax evasion and money laundering? Switzerland! So much for that image of a global public citizen."

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Hedge fund chief backs financial transaction tax plans

From the Financial Times:
The founder of one of London’s biggest hedge funds has given qualified support for a European tax on financial transactions, breaking ranks with many of his peers fiercely opposed to such a measure.
and the key quote:
“I would be in favour of a low [financial transaction tax],” Mr Harding said, “if part of it was used to finance more supranational regulation of markets.”
A good idea, from an unusual source. And he voices something that we've long complained about:
“I am surprised to the degree to which the Treasury and the FSA [Financial Services Authority] act as lobbying organisations for the financial services industry,” Mr Harding said.

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Sunday, November 27, 2011

UK must renegotiate its useless UK-Swiss tax deal

We are delighted to see the FT reporting that the European Commission has threatened to sue Britain unless it renegotiates its wrong-headed and useless tax deal with Switzerland.
European Commission lawyers concluded that the bilateral deal, which recovers billions of unpaid taxes in return for protecting the prized secrecy of the Swiss banking system, is in breach of European Union laws that are tougher on tax evasion.

As a result George Osborne, chancellor, has been told that he must renegotiate with Berne to ensure the agreement is compatible with existing EU rules – particularly with regard to secrecy – or face a writ at the European Court of Justice."
Excellent news. We have already demonstrated how the UK cannot hope to get even a fraction of the money from the deal that has been trumpted by HMRC. And we don't tire of saying that nobody, anywhere, has found a specific fault with our analysis - even though the tax advisers who are currently drooling over the possibilities that emerge from all those loopholes have sought to play our report down.

Germany has already started negotiating. But why, we wonder? Note this, from our report:
"Not only are the loopholes in the UK-Swiss deal catastrophic, but the bilateral deal covers only the two countries. By contrast, the EU scheme effectively covers 42 jurisdictions, including most of the world’s big tax havens. This makes the UK-Swiss scheme far weaker."
The golden alternative for the UK is to put its weight fully behind the amendments to the European Savings Tax Directive, which will gather far greater sums of money than the Swiss deal ever could. And, at the same time, to take the kind of approach favoured by the U.S. and the Australians - bring the full force of law to bear on the individuals that are criminally evading taxes - and on those bankers and others who help them do it.

The UK has so far chosen to take the cosy, pro-secrecy, criminal-friendly approach towards the Swiss. It's not too late for a U-turn. It should scrap the deals from top to bottom, not renegotiate them.

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Occupy London Demands End of Tax Havens

The Guardian reports today that Occupy LSX activists have issued the first of their policy demands, and tackling tax havens and tax avoidance come top of the list:

"Globally, corporations deprive the public purse of hundreds of billions of pounds each year, leaving insufficient funds to provide people with fair living standards. We must abolish tax havens and complex tax avoidance schemes, and ensure corporations pay tax that accurately reflects their real profits."

We're thrilled to have played some part in shaping the agenda, and for those who didn't see our earlier posting, make a note of what's become essential reading for every activist around town (any town, any country)

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Friday, November 25, 2011

Occupy Economics departments

Nick Shaxson recently blogged about the academic discipline known as horse-shit economics, drawing on a famous quote from the economist J.K. Galbraith. Others have spoken of Voodoo Economics; Zombie Economics, and other variants.These kinds of economists played a huge role in creating the politics pre-conditions which led to the current crisis.

The Australian economist Steve Keen has just given a fiery (if soft-spoken) interview with the BBC which is well worth noting for many things, including asserting that the Occupy movement should target the economics departments of universities, because that is where so much of the trouble started.

In fact, we have already seen stirrings. Harvard University's Greg Mankiw was one of those skewered in the film Inside Job for his hewing to the conventional line, and he recently felt the stirring of popular discontent. Recently students of his Economics 10 class at Harvard walked out on him, issuing the following letter:

By Harvard Talks Politics

The following letter was sent to Greg Mankiw by the organizers of today’s Economics 10 walkout.

Wednesday November 2, 2011

Dear Professor Mankiw—

Today, we are walking out of your class, Economics 10, in order to express our discontent with the bias inherent in this introductory economics course. We are deeply concerned about the way that this bias affects students, the University, and our greater society.

As Harvard undergraduates, we enrolled in Economics 10 hoping to gain a broad and introductory foundation of economic theory that would assist us in our various intellectual pursuits and diverse disciplines, which range from Economics, to Government, to Environmental Sciences and Public Policy, and beyond. Instead, we found a course that espouses a specific—and limited—view of economics that we believe perpetuates problematic and inefficient systems of economic inequality in our society today.

A legitimate academic study of economics must include a critical discussion of both the benefits and flaws of different economic simplifying models. As your class does not include primary sources and rarely features articles from academic journals, we have very little access to alternative approaches to economics. There is no justification for presenting Adam Smith’s economic theories as more fundamental or basic than, for example, Keynesian theory.

Care in presenting an unbiased perspective on economics is particularly important for an introductory course of 700 students that nominally provides a sound foundation for further study in economics. Many Harvard students do not have the ability to opt out of Economics 10. This class is required for Economics and Environmental Science and Public Policy concentrators, while Social Studies concentrators must take an introductory economics course—and the only other eligible class, Professor Steven Margolin’s class Critical Perspectives on Economics, is only offered every other year (and not this year). Many other students simply desire an analytic understanding of economics as part of a quality liberal arts education. Furthermore, Economics 10 makes it difficult for subsequent economics courses to teach effectively as it offers only one heavily skewed perspective rather than a solid grounding on which other courses can expand. Students should not be expected to avoid this class—or the whole discipline of economics—as a method of expressing discontent.

Harvard graduates play major roles in the financial institutions and in shaping public policy around the world. If Harvard fails to equip its students with a broad and critical understanding of economics, their actions are likely to harm the global financial system. The last five years of economic turmoil have been proof enough of this.

We are walking out today to join a Boston-wide march protesting the corporatization of higher education as part of the global Occupy movement. Since the biased nature of Economics 10 contributes to and symbolizes the increasing economic inequality in America, we are walking out of your class today both to protest your inadequate discussion of basic economic theory and to lend our support to a movement that is changing American discourse on economic injustice. Professor Mankiw, we ask that you take our concerns and our walk-out seriously.

Sincerely,

Concerned students of Economics 10

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Links Nov 25

Domestic Resource Mobilisation for Poverty Reduction in East Africa: Lessons for Tax Policy and Administration African Development Bank
"The African Development Bank (AfDB) has partnered with the African Tax Administration Forum (ATAF) and the East African Community (EAC) Secretariat on a Domestic Resource Mobilisation (DRM) project for the EAC partner states. The project is designed to build capacity for tax administrators and tax policy experts in the Bank’s Regional Member Countries in the EAC sub-region." Hat tip: Vera Mshana.

The fight against tax havens, avoidance and evasion ABC News
Nov 23 - Interview with TJN Director John Christensen. Transcript available. The piece concludes with the presenter, Ticky Fullerton, observing "John Christensen, I would say you have your work cut out for you, but thank you very much."

The Stolen Money Trail New York Times
Nov 23 - Op-ed by Anthea Lawson of Global Witness, on banks taking in proceeds of corruption from dictators. "A first step would be for governments and regulators to follow the British and Swiss example and take a hard look at what their banks were doing when they took this money. But they must all go further. The second step must be for governments and regulators to make it unacceptable for banks to take this money in the first place."

Rubik tax treaties face serious hurdle swissinfo
Nov 25 - On the story we blogged yesterday. "Switzerland is facing defeat in its efforts to isolate European Union members with tax deals that guarantee client anonymity ... The European Commission has threatened to take Germany and Britain to court if they enforce the Swiss treaties." Hat tip: Bruno Gurtner

See also:
France rejects Rubik and clamps down on Tax Fraud Le Temps
(In French)
Nov 25 - France's Budget Minister Valérie Pécresse said: "We reject any amnesty ... And I say just as clearly, we do not wish to engage in the device "Rubik", because that would lead us to agree to compromise our principles."

Take the UK - Swiss tax deal and then avoid it Tax Research UK

Nov 23 - On some commentary that affirms TJN's view that the Swiss Rubik deal would help tax evaders, written by a party who is advertising services to help people do exactly that.

Switzerland: Rich cast nervous eye at inheritance tax plan swissinfo
Nov 22 - Reporting on a proposed move to tackle inequality in Switzerland: "A proposal to stiffen the inheritance and gift tax laws in Switzerland has sent many wealthy residents running to their accountants for advice."

Taiwan's financial institutions urged to prepare for U.S. tax law Focus Taiwan
Nov 25 - Head of a wealth planning firm describes
"the introduction of FATCA as a significant turning point in the global banking system because financial institutions will have to move from secrecy on account information, where no information is revealed under any circumstances, to confidentiality. "

Amid crisis, Italy confronts a culture of tax evasion Washington Post
Nov 24 - "As the world’s eighth-largest economy struggles to pull back from the brink of a debt crisis that has much of the financial world on edge, Italy may be on the verge of a national reckoning over one of its most vexing financial — and cultural — problems: tax cheats." Hat tip: Offshore Watch.

We know we need to stop tax abuse. So why is it so hard? Tax Research UK
Nov 25 - Comment by Richard Murphy on an article in The Independent. "And why do government’s continually listen to the abusers and not those who want to do the right thing? Why is it so hard to support ethical behaviour?

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Tackle Tax Havens - News Coverage

We've been blogging the launch of the Tackle Tax Havens, campaign, see here and here.

Here are some links to early news coverage:

Collect the evaded tax, avoid the cuts Guardian
Nov 25 - "Comment is Free" has published a piece by Richard Murphy. "Globally, trillions are being lost to tax evasion. If countries tackled it seriously there would be no eurozone crisis ... We could stop the cuts: we can collect tax due instead. That way we all win."

'Tackle Tax Havens' campaign launched The Telegraph
Nov 25 - The article concludes with stating the campaign's "three simple measures that, if taken, would eradicate tax evasion and make the single biggest contribution to solving the world's financial crisis.” See also the Telegraph article reproduced on Yahoo! Finance.

Tax avoidance costs UK economy £69.9 billion a year New Statesman

Nov 25 - "New report from the Tax Justice Network highlights the staggering extent of global tax evasion." A great piece commenting on the growing tide of awareness and outrage at the extent, impact, and morally repugnant character of tax dodging.

We like ... Tackle tax Havens Just Do It
Nov 25 - The Blog/Word on the Street says" We super like the snazzy new website dedicated to tackling tax havens. Find out all about what they are, why they’re so damaging and what we can do about it."

Bureau Recommends: Tax evasion costs $3.1 trillion The Bureau of Investigative Journalism

Nov 25 - The Bureau Recommends an exhaustive investigation by Tax Justice Network released today which analyses tax evasion levels in 145 countries representing over 98% of global economic output.

Eurozone debt crisis 'could have been avoided if nations had tackled tax evasion' This Is Money / Daily Mail

Nov 25 - "Research by the Tax Justice Network ... found that eurozone members are losing huge chunks of their national incomes to the black economy."

$3.1 trillion lost to tax evasion globally; cost to Britain: £69.9 billion Left Foot Forward

Nov 25 - "The research demonstrates the importance of tackling tax evasion, tax avoidance and the tax havens that help the immoral super-rich from contributing to the services that directly benefit them – from the health and education systems their workers rely on, to the roads that transport their goods, to the courts that enforce their contracts, to the police who protect their property.

Counting the Cost of Tax Havens The Sydney Morning Herald
Nov 26 - "Tax evasion - which costs Australia $41.4 billion a year - is the cause of the Greek debt crisis that is destabilising Europe ... Every year tax evasion costs the world's governments $3.1 trillion, or about 5.1 per cent of world gross domestic product (GDP)"

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Jersey seeks to blackmail UK charities

From the Jersey Evening Post, more evidence (as if any were needed) of how financial interests can capture an entire state's political apparatus:
"Jersey might be forced to reconsider donating hundreds of thousands of pounds of public money to UK charities which repeatedly attack the Island for being a tax haven, the Overseas Aid Commission said today.

Kathryn Filipponi, the commission’s executive officer . . . she said that as long as the money was spent on those in real need and not on the organisations’ political campaigning, the flow of cash would continue for now."
Jersey has been giving money to charities like Christian Aid. Now it is saying it will pull that cash unless these charities stop acting in the interests of poor people, by pointing out the colossal harm that tax havens cause.

Does this fall under conventional definitions of blackmail? Well, a lot of people would call it that. We would.

At least the Jersey Evening Post, a highly partisan newspaper, does give Alex Cobham of Christian Aid the space to put a riposte:
‘We recognise that the stance that we, and increasingly the broader international development community including ActionAid and Oxfam, have taken with regard to financial secrecy has at times been uncomfortable for Jersey.

‘However, recognising the extent to which the secrecy offered by tax havens can prevent people from lifting themselves out of poverty, and the genuine concern of Jersey’s citizens to help them do precisely that, we could not in good faith remain silent on this issue.’
Well said that man. Now here's an idea. TJN officials John Christensen and Richard Murphy have a long-standing challenge to anyone from a leadership position in Jersey to a public, televised debate to be broadcast in Jersey, on the pros and cons of Jersey as a tax haven.

Curiously, after several years of repeating this challenge, nobody in Jersey has accepted their offer.

Perhaps the Jersey Overseas Aid Commission should, before saying such things, put this particular proposition to the Jersey leadership. Then they might find out whether or not charities like TJN, Christian Aid, Oxfam, ActionAid and others might just have a point.

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The Cayman has almost completely fixed its tax evasion problem

. . . or so you would think, on reading the latest report from its Financial Reporting Authority Cayfin. We can't find a link to the report itself, which doesn't seem to have been published yet, but in any case here is a table drawn from p19:

So let's see - that shows tax evasion at just one percent of all suspicious activity reports. Impressive! Time to crack open the champagne.

Even more impressive, given that its Confidential Relationships (Preservation) Law states that you can go to prison in Cayman not only for divulging confidential information, but merely for asking for it!

And then there is the whole issue of Cayman directors as a fig leaf, which we noted (and updated) recently.

Joking aside, we should state that while Cayman deservedly has a terrible reputation for its secrecy, it probably isn't as sleazy as some. Such as the British Virgin Islands.

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Tax evasion is worth $3.1 trillion a year - over 5% of its GDP

The Tax Justice Network issues the following press release today:
Huge Cost of Tax Evasion Revealed as Campaign to Tackle Tax Havens Launches

New research published by the Tax Justice Network shows that tax evasion costs 145 countries, representing over 98% of world GDP, more than US$3.1 trillion annually.

Click here to see the report.


Tax havens are a major part of the tax evasion problem – and these new findings come as the Tax Justice Network launches Tackle Tax Havens, a new campaign aimed at the general public that highlights the critical role that these secretive states play in corrupting the global economy.

The issue of tax collection is rising fast up the political and social agenda, as countries across the world make deep cuts in public spending and increase taxes in ways that hurt the poor and the middle classes the most.

This new research demonstrates how important it is to tackle tax evasion and the tax havens that help wealthy individuals and organisations escape from contributing to the services that directly benefit them - from the health and education systems that support their workforces, to the roads that ship their goods to markets, to the courts of law that enforce their contracts or to the police who protect their property.

But tax havens are not just about tax: they cause colossal damage on many fronts. Tackle Tax Havens aims to arm the general public with a solid working knowledge of the offshore system and the problems it causes -- and to show what we can do about it.

Other key findings of the new report include:
  • Europe as a whole loses the equivalent of 87% of its total healthcare budget to tax evasion, while Africa loses 98% and South America 139%
  • Over the 145 countries surveyed, an unweighted average of 110% of the annual healthcare budget was lost to tax evasion
  • 119 of the 145 countries surveyed are losing over half of their healthcare budget to tax evasion
  • In 67 countries, tax evasion losses are larger than their entire health budgets
  • In Bolivia, tax evasion is more than four times as large as that oil rich country's health spending. In Russia, it is more than three times the size

  • More than $1 in every $6 earned in the world is not subject to tax because those earning it have deliberately ensured that their income is hidden from the world’s tax authorities

  • In Greece and Italy, where economic collapse currently looks possible, more than €1 in €4 is hidden in the shadow economy
QUOTES:

John Christensen, Director of the Tax Justice Network:
“Tackling tax havens is a crucial part of ending the culture of tax evasion. Tax evasion is crippling public finances across the world but governments aren’t doing nearly enough to end this cancer.”
“Tax havens are engaged in economic warfare against the tax regimes of sovereign countries, and these estimates reveal the human cost in terms of the impact on health services.”

Richard Murphy of Tax Research UK, who undertook the research for the Tax Justice Network:

“New data from the World Bank published last year on the size of countries’ shadow economies let us prepare this estimate of tax lost to criminal tax evasion annually. The findings add a new policy agenda to public debate on the world’s financial crisis. For example, Italy loses €183 billion to tax evasion a year. Its current debt of €1.9 trillion represents just over 10 years tax of tax evasion on this basis. If only more had been done to tackle rampant tax evasion, Europe would not be facing a crisis today.”

“Tax havens can be beaten using three simple measures. First we demand that all tax havens put details of the ownership of all companies and trusts located there, and the accounts of those organisations, on public record. Second we demand that all multinational companies publish accounts that reveal their use of tax havens. Last, we believe that all tax havens should be required to exchange information each year on the income recorded within them belonging to the citizens of other countries with the places where those people really live.” 

“These measures would shatter the secrecy of tax havens for good, and that means those committing tax crimes will no longer have places to hide the proceeds of their crimes. Nothing could make a bigger contribution than this to solving the world’s financial crisis right now.”

Please note:
• Tackle Tax Havens website: www.tackletaxhavens.com
• Campaign video: http://www.youtube.com/watch?v=4d5FZU64Bnw
• Twitter: @tackletaxhavens
• Facebook: www.facebook.com/tackletaxhavens
• Download full research findings and methodology here
• To discuss the research findings please contact Richard Murphy of Tax Research UK who undertook the research on behalf of the Tax Justice Network richard.murphy (at) taxresearch.org.uk +447775 521 797
• All other enquiries: please contact rich (at) taxjustice.net / +447968 082 921

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Tackle Tax Havens - live today

We launch our new website, Tackle Tax Havens, today.


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Thursday, November 24, 2011

France: country by country reporting for banks?

We have already written two articles drawing heavily on Christian Chavagneux' informative piece in Alternative Économiques about the press conference by the Valérie Pécresse, French Budget Minister, yesterday. Now here's another encouraging snippet from the Minister, in response to a question from Chavagneux:
The introduction of country by country reporting for banks is an avenue that we could consider.
Now that would shine a whole lot of light into some very dark places. As Chavagneux notes:
"This will make a lot of non-governmental organisations fighting against tax havens happy. This should be pursued with Valérie Pécresse."
Indeed. And in other countries too. For information in French on the activities of European banks in tax havens, click here.

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France: information exchange systems are not working

From the Wall St. Journal:
"France had signed a tax treaty with Switzerland in August 2009. Since then, France has sent 80 requests to Swiss authorities, but received a response for only 16 of these requests, said Pecresse."
That's the French Budget Minister, whom we've just written about. Christian Chavagneux has more:
"In the context of what the G20 has put in place since April 2009, France has signed 36 tax information exchange agreements, of which 22 are in force. French tax authorities can theoretically ask for information from tax havens when there is a question about the activity of a particular taxpayer. It can do this - but does this happen? For the first time, the minister gave out some information: in the first eight months of the year, France sent 230 information requests to 18 countries - and it only got a rate of return of 30 percent. And for those countries which did reply, the information was not necessarily of the quality what had been asked for:

"Elements of a juridical nature (statutes, names of shareholders, business reports) were generally transmitted. However, the transmission of more concrete elements relative to taxpayers (information on bank balances, amounts of remuneration) often seem to have been more difficult, and some states seem to think that co-operation involves confirming information already known by the French authorities, rather than giving new information."

So it seems clear, given the information given by the Minister, that the devide for exchanging information on request, put in place by the Global Forum on Transparency and Exchange of Information is not yet developed. And that backs non-governmental organisations' demands to move towards automatic information of information.
Fascinating insights and information, confirming what we've long, long been saying. But there is more encouraging news:
If tax havens continue to hold back information, the Minister and the Rapporteur indicated, threatened, that they were ready to put recalcitrant jurisdictions on the French official list of tax havens (which today only contains small, rather unimportant territories) - which would mean that any transfer of money to these places would trigger a 50 percent withholding tax.
Way to go, the French Budget Ministry! That makes two excellent pieces of news in one day.

To be added to our fast-growing information exchange page.

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France rejects (useless and immoral) Swiss tax deal

From Christian Chavagneux at Alternatives Économiques, who attended a press conference with Valérie Pécresse, France's budget minister:
"She has, finally, officially and firmly rejected any type of "Rubik" agreement with Swiss bankers which would let them preserve their clients' secrecy, in exchange for a withholding tax."
Well done France. As we have explained in our detailed report analysing the deals, the agreements that Switzerland has signed so far -- with the UK and with Germany -- won't raise even a small fraction of what has been promised. And we will continue to note this absolutely crucial point: we at TJN have directly contacted private tax advisers, the Swiss tax authorities, and the UK's HMRC, challenging them to explain where we have got our analysis wrong. Nobody, anywhere, either among those whom we have contacted, or elsewhere, has been able to show a single flaw in our analysis. We believe it is rock solid.

We're also pleased to see this:
"Gilles Carez (budget rapporteur) was also happy to see that the agreement between Switzerland and Germany is not certain to gain a parliamentary majority. We could add that some Länder (German states) have already implicitly said that they were thinking of continuing to buy CDs with data on tax evaders."
That's the way to do it! Go after the criminals, rather than sign cost agreements with them. The Americans have a similar idea. Why can the UK not take a similar route?

Switzerland, it seems, is getting nervous about its ridiculous deals. Here, from Bloomberg:
Germany must make the ratification of a tax agreement with Switzerland a “priority” as there is no alternative solution to a dispute over alleged tax evasion, the Swiss Bankers Association said.
So Swiss bankers, not content with helping wealthy Germans commit crimes, are now trying to tell the Germans to hurry up and sign a deal entrenching their secrecy. The sheer arrogance of it!

Why are they getting nervous? Well, partly because the Germans themselves don't like what they've signed. But partly because the European Union is now starting to bring its big guns to bear. And it is another sign of nervousness that the Swiss Finance Minister yesterday inexplicably cancelled a planned meeting with EU officials on the subject (see the NZZ reporting it here, in German, with a very rough and ready English translation here).

Let us now turn to another idiotic comment from the Swiss side. Again, in an older Bloomberg story reporting on TJN's analysis of the deal:
The Swiss Bankers’ Association, an industry body that held talks with authorities during drafting of the treaty, disagrees. “There is no legal way for a British person to remain entitled to his or her assets in Switzerland in any way while at the same time evading identification,” Sindy Schmiegel Werner, head of U.K. communications at the SBA, told Bloomberg News by e-mail.“There is no possibility to sidestep the scope of application of the existing tax agreement.”
Here, in essence, is what Sindy Schmiegel Werner is saying. "If you do get caught in the net, then you will not be able to escape." Well, that is a tautology. What Sindy Schmiegel Werner is not saying, of course, is that the trick is not to get caught in the net in the first place. That is the whole game! And the way to avoid that is to make sure that you are, legally speaking, 'not entitled to those assets.' You do that by, for instance, using slippery structures such as discretionary trusts, foundations, or insurance wrappers - where you still have full or partial control over the assets, but you are no longer, at least legally speaking, technically 'entitled' to those assets (in any way). So you can escape the Rubik deal, but still remain full or partial control. For more details on this see Sections 3.1, 3.2 and 3.3 of our report. For general background on trusts, see here.

If we didn't know the Swiss Bankers' Association better, we would call that an idiotic statement by Sindy Schmiegel Werner. But it is not idiotic - because they know exactly, precisely, what they are saying. This statement is a smokescreen designed to bamboozle the casual non-expert. They have not said that our report is wrong, not at all. They have merely used weasel words to try and avoid answering our challenge to them.

As we have already noted several times, the Swiss "Rubik" deals are morally wrong.

But worst of all, they are useless. That dog don't hunt.

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Time for Cayman to take on Plan B?

Cayman News Service (CNS) has published a report on Monday, Cayman ‘let down’ by UK, looking at an official review of the United Kingdom and Cayman Islands relationship produced through a public consultation with the people of the Cayman Islands. The article says:
Among the many issues the review uncovered was the belief in the community that when the Cayman Islands came under pressure from the international financial community, it was let down by a failure on the part of the United Kingdom government to fully represent the interests of Cayman and protect them where necessary.
Richard Murphy comments, on the Tax Research UK blog, looking at an article on the same subject in the UK's Daily Telegraph:
So let’s get this straight. First Cayman thinks it will sink without support from the UK. I think that’s right.
Second, they think the UK should therefore defend Cayman’s right to run a tax haven that deliberately seeks to undermine the UK’s tax system and regulation.
And third they think the UK should support them both against people like me and internationally when that’s what they actually do.
Might the absence of logical flow in that argument have passed them by?
I think so ... But I will support their bail out – on condition the tax haven is swept away. But that will be the pre-condition.
Now in this context let's look at another issue revealed in the review that considers the "captured state" scenario:
"An improved relationship is likely to require a process of mutual education, with the United Kingdom and its people needing to learn about and better understand the various Territories and their distinct features; as opposed to a one-way process where the people of the Territories merely had to come to terms with what the United Kingdom prescribes.”
And then:
"The committee found a significant contradiction in the community, with a desire for more control for Cayman to govern itself but at the same time more checks on the potential excesses of those elected to office and the administrative arm of government...
When it came to good governance, the report says that the community welcomes and wants greater transparency and accountability from its government.
Er ..., so we are hearing, "transparency and accountability"? So the local people of Cayman are in favour of those principles, apparently.

The report goes on to say:
The review heard calls for more stringent application of anti-corruption laws and increased checks and balances to be enshrined in the constitution because, the public said, even the perception of corruption is potentially damaging, not least because this can deter investment and inhibit development.
And makes a crucial point:
When it comes to economic development, the report reveals there are suspicions of the concessions provided to the so-called “big names” and there was a call for more support for small business and innovation.
This latter point speaks of the "crowding out" issue that TJN has been speaking about, such as here.

Next, as Nick Shaxson's Treasure Islands says:
"the political bedrock underpinning the world’s fifth biggest financial centre is Britain’s role. If Caymanians gained full control, most of the money would flee."
Now compare that with this, from CNS:
"The report also found that people believe the relationship with the UK creates an image of stability for the financial services industry and there were concerns that steps towards the independence of the Cayman Islands would almost certainly result in a major loss of confidence in the sector."
Exactly. Britain bears a huge and central responsibility for the financial abuses run out of Cayman.

TJN is aware from quite a number of sources that there is discontent within local populations of island nation tax havens at the wealth gap between fat cats who profit most from the havenry business, and the majority of local people who feel squeezed out of economic opportunity while the trickle down effect of revenue from financial services is minimal.

A recent paper by Dr Mark Hampton (University of Kent) and TJN's John Christensen explores the development options for small island tax havens in the light of sustained international initiatives against offshore secrecy. Titled "Looking for Plan B: What Next for Island Hosts of Offshore Finance" the paper explores the extent to which small island economies (Jersey is used as a case study) are able to shape their destinies in face of extensive state capture and limited development options.

For more information on the history of the Cayman Islands as an offshore centre, see here and here.

In light of all the catastrophes that are happening around the world, everyone seems to be looking for a Plan B. Cayman is no exception.

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Finland wants to connect tax transparency with public procurement

In June we brought you a report from Matti Ylönen : Letter from Helsinki - Finland gets serious. Here is another guest blog from Matti with positive news on further developments in Finland:
While discussions on binding Country-by-Country reporting standards are steadily gaining momentum in international fora, the city board of Helsinki has decided that it's time to open another track. After returning the initiative earlier for further preparation, the board is now ready for Helsinki to start the background work on how the City of Helsinki could positively favour companies that report their key financial information openly and on country-by-country basis in public procurement.

Furthermore, the resolution called for finding out possibilities on how the work against tax havens could become part of this criteria. The resolution still needs approval from the city council, which looks very likely. The initiative came from Thomas Wallgren from the social democratic group, and it has gathered support from several parties in the board.

The decision in Helsinki was inspired by the work done in other municipalities in Sweden, Norway, France and elsewhere. As Thomas Wallgren noted, "this vote happens at a time when scandals are disclosed about how the privatisation of elderly care in Sweden and Finland means that companies are making huge profit from outsourced welfare services, evade taxes, pay huge bonuses to bosses --- and leave old people alone with their agony and their wet diapers.

There is a window of opportunity now for connecting our local work in Helsinki with the winds of change globally. Everywhere now there is a tremendous need and demand for a post-neoliberal policy and economy. I do not want to be romantic about our role. But it would be nice if we could contribute a bit from Helsinki."
(For more on country-by-country reporting, see here.)

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Wednesday, November 23, 2011

BVI Watch: Congo's opaque mining deals may have lost the state $5.5 billion

From Christian Science Monitor:

Congo mining concessions have been regularly sold at a fraction of their worth to shadow companies outside Congo.

By Jason Stearns, Guest blogger / November 21, 2011

The British parliament released a statement yesterday suggesting that the Congo had lost up to $5.5 billion in state assets through the undervaluation of mining concessions. Eric Joyce, who is head of his legislature's Great Lakes working group, backed up his allegation with a raft of documents from the Congo, the British Virgin Islands, and the United Kingdom.

Read more from the Christian Science Monitor, as well as Eric Joyce's Congo Fire Sale, Congo Fire Sale 2, and Congo Fire Sale 3.

TJN has criticised many offshore jurisdictions in the past - and we stand by all our criticisms. But we think that at this point we need to single out The British Virgin Islands far more than we have so far. It is, to put it bluntly, a vicious, sleazy, corrupted rogue state within the global financial system.

Again and again and again, those who are investigating scandals find their trails leading to the BVI. The Congo case is no exception.

The BVI is an Overseas Territory of the United Kingdom. It is a source of disgrace to the entire British nation state that this jurisdiction should be allowed to operate as a beserker in the global economy, helping wreck whole nations in the pursuit of the narrow interests of a small few.

We are targeting financial interests here, not the ordinary people of the BVI. But given the seriousness of what the pinstripe infrastructure in (and related to) the BVI are doing, it would be quite appropriate to shut this rogue state out of the global financial system.

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The difference between the protesters and the bankers

Hat tip: Barry Ritholtz

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Tuesday, November 22, 2011

Links Nov 22

Exposing the lost billions: How financial transparency by multinationals on a country by country basis can aid development Eurodad
Nov 21 - New report released by Eurodad: "Pressure has mounted on the EU to crack down on tax avoidance by multinational companies with the release of a report that reveals in detail and with examples how dodgy accounting deprives some of the world's poorest nations of billions of dollars in revenue."

See also:
Eurodad and the need for transparency in Europe Tax Research UK
Nov 22 - Richard Murphy on the launch of Eurodad's new report. "There’s a long way to go in this debate as yet, with every chance the Commission proposals can be extended to embrace full country-by-country reporting. I’m up for the fight to achieve just that."

Congo's opaque mining deals may have lost the state $5.5 billion Christian Science Monitor
Nov 21 - On a British parliament statement
released yesterday. "Ahead of this month’s Presidential elections in the Democratic Republic of Congo (DRC), documents have been released by UK Member of Parliament Eric Joyce that appear to show a systematic pattern of underselling Congolese mining assets to off-shore ’shell’ companies incorporated almost exclusively in the British Virgin Islands (BVI), the ultimate beneficial owners of which are often unknown, with the result that the Congolese people do not benefit from the vast mineral wealth in their country."

India's whistleblowers BBC World Service
Anti-corruption campaigners in India risk their lives. An investigation into how local-level campaigners against corruption in India face threats and violence - despite promises that the government will stamp out graft.


G20 president says Uruguay is no ‘fiscal haven’ and praises transparency commitment mercopress
Nov 17 - "Uruguay received a huge political boost from Mexico (the same it was denied from its Mercosur partners under influence from Argentina) in its dispute with the recent G20 summit which through spokesperson French president Nicholas Sarkozy described Uruguay as a ‘tax haven’ " Hat tip: Martin Hearson. Uruguay ranks 26th on TJN's Financial Secrecy Index and is towards the top end of the secrecy scale (see the Jurisdiction Report).

See also:
Brazil supports Uruguay in disagreeing with Sarkozy America Economía
(In Spanish)
Nov 20 - Brazil's President Dilma Rousseff expressed explicit support to President José Mujica of Uruguay against French President Nicolás Sarkozy's statement accusing Uruguay of being a "tax haven".

Tax harmonisation central to development Daily Monitor
Nov 22 - "While it is important to remember that Uganda and indeed the other East African countries have a right to protect their tax systems, they must be willing to cede national ground for regional good. Insufficient tax harmonization between the East African countries has been, and will invariably continue to be a barrier to progress in regional economic integration."

Nicholas Shaxson at St. Pauls Treasure Islands
Nov 21 - On Nick Shaxson speaking to people at St Pauls, the epicentre of Occupy London, followed by Tent City University, and then "a slightly more raucous showing" at the Bank of Ideas held inside their occupied UBS building in the City of London just next to their Finsbury Square encampment. See also the report in the Observer.

Washington Lobbying Firm Offers to Undermine Occupy Movement Occupy Wall Street

Nov 22 - "According to MSNBC, the lobbying firm Clark Lytle Geduldig & Cranford sent the memo to the American Bankers Association and offered to conduct 'opposition research' on Occupy Wall Street in order to construct 'negative narratives' for a fee of $850,000." See the post for further links.

Swiss Bankers Wary Of Withholding Tax Changes Tax-News
Nov 22 - "The Swiss Private Bankers Association (SPBA) has warned that a hasty reform of withholding tax in the Confederation could have serious long-term consequences for the Swiss financial centre." Interesting piece on withholding tax operations within Switzerland. Hat tip: Markus Meinzer.

France - Tax Fraud: At least 29 billion Euros a year Le Temps (In French)
Nov 21 - Budget minister Valérie Pécresse is presenting measures to reinforce the state against tax fraud - a phenomenon that is difficult to quantity. Estimates range from 29 to 51 billion Euros a year.

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Buffett-Ducking Billionaires and an 800 pound gorilla

Jesse Drucker has another fine article, Buffett-Ducking Billionaires Avoid Reporting Cash Gains to IRS published yesterday in Bloomberg:

"When billionaire Billy Joe “Red” McCombs, co-founder of Clear Channel Communications Inc., reported a $9.8 million loss on his tax return, he failed to include about $259 million from a lucrative stock transaction.

After an audit, the Internal Revenue Service ordered him to pay $44.7 million in back taxes. McCombs, who is worth an estimated $1.4 billion and is a former owner of the Minnesota Vikings, Denver Nuggets and San Antonio Spurs sports franchises, sued the IRS, settling the case in March for about half the disputed amount.

McCombs’s fight with the IRS illustrates an overlooked facet in the debate over tax rates paid by the nation’s wealthiest. Billionaires -- from McCombs to Philip Anschutz to Ronald S. Lauder -- who derive the bulk of their wealth from stock appreciation are using strategies that reap hundreds of millions of dollars from those valuable shares in ways the IRS often doesn’t classify as taxable income, securities filings and tax court records show.

“The 800-pound gorilla is unrealized appreciation,” said Edward J. McCaffery, a professor of law, economics and political science at the University of Southern California in Los Angeles.

In referring to Warren Buffett's stance on tax dodging, the article points out:

“The problem is not that people like Warren Buffett pay tax at a 17 percent rate, it’s that they can use complex transactions not available to most Americans to get cash from their appreciated stock without paying any taxes at all”.

The article provides explanation and more stories of billionaire tax dodging through convoluted financial arrangements. Well worth reading through.

Although the IRS has tried to crack down on these deals, such efforts appear to have had limited effect so far. The article closes with a quote from an accounting analyst:

“It’s still desirable to defer the tax and wind up with an interest free loan from the government,” he said. “Chances are you don’t get audited and if it does get challenged the odds are good you’ll have a settlement for some fraction of the amount you saved. Who wouldn’t want that?”

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Ruedi Elmer - an interesting twist to the story

The higher court judgement, in Swiss whistleblower Ruedi Elmer's appeal heard last week Thursday, has some very important implications. (See earlier blogs on the story here and here.)

The Swiss court hearing Ruedi's appeal against his conviction for breaching Swiss banking secrecy said it lacked clear evidence to rule on the case. As Reuters reports:
Judge Peter Marti said ... it was not clear whether the CD-roms Elmer had handed over contained data of bank clients in Switzerland or just in the Cayman Islands.

"If the data also originate from Zurich, the Swiss banking law also applies. We don't know precisely, however, what was on the CDs," Marti told the court.

And here's the twist:

He ordered the public prosecution service and [Bank] Julius Baer to prove the origins of the data on the disk, placing the onus on the Swiss bank to publish client data.

In other words, as reported in swissinfo:
Thursday’s high court ruling puts Julius Bär in an awkward situation.

Only the bank and Elmer himself know exactly what the stolen data contains, and the bank has refused to give details.

This judgement has a crucial element: As an article in the Neue Zürcher Zeitung describes, Swiss law has no jurisdiction in the Cayman Islands, therefore this case presents no violation of Swiss banking secrecy. (Google translation of the article here). The lower court ruling had implied an assertion by Switzerland of extra-judicial application of bank secrecy, but the appeal ruling now determines that the lower court decision contradicted usual practice in the finance industry

The idea that Ruedi could be held criminally liable in Switzerland for data that had been held in Cayman was always considered not only unjust to TJN but also bizarre, as it is a well established principle that Swiss bank secrecy can only be valid for data held in Switzerland. According to the article in the Neue Zürcher Zeitung, the Swiss financial supervisory authority, Finma, has even issued caution that Swiss banking clients' data are not protected by Swiss secrecy laws where a bank outsources operations to another jurisdiction.

The Neue Zürcher Zeitung report is more accurate than others we have seen, in terms of clarity on the point that bank secrecy applies to the jurisdiction where the data is held. Other reports risk leading readers, who may be unfamiliar with the issue, to interpret bank secrecy as applying to whether the clients themselves are from Switzerland or Cayman. Reuters writes, somewhat ambiguously: "Judge Peter Marti said ... it was not clear whether the CD-roms Elmer had handed over contained data of bank clients in Switzerland or just in the Cayman Islands." Similarly, from swissinfo: "since if the data is that of Cayman Island customers, they are not covered by Swiss banking secrecy".

This distinction is very, very important. To explain in other terms, the issue is not whether clients are Swiss or Cayman, it is whether the data are from the Swiss or Cayman institutional entity.

Which brings us to the second crucial element of the judgement: the dilemma of the bank. Will they risk the appearence of diluting, or breaking, bank secrecy by revealing data to the authorities?

This ruling appears to be a hopeful turn of events for Ruedi. And, a very intriguing development on the implications of bank secrecy not only in Switzerland, but also in other places where bank secrecy is enshrined in law.


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