RESEARCH WORKSHOP ON TAX AVOIDANCE, CORRUPTION AND CRISIS

Association for Accountancy & Business Affairs, Tax Justice Network

UNIVERSITY OF ESSEX, 5th-6th JULY 2012

TAX AVOIDANCE, CORRUPTION AND CRISIS

Provisional Programme

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Thursday 5th July

Arrival and registration: 12.00-12.45

Welcome and Introduction: 12.45    Prem Sikka (Essex University)

SESSION 1: PLAYERS AND VICTIMS

13.00- 15.00   facilitated by Jim Henry, TJN-USA

Olatunde Julius Otusanya, Sarah Lauwo, Ahmad Khair Amal Hayati
The Culpability of Accounting Practice in Promoting Bribery and Corruption in Developing Countries 
Bribery and corruption are increasing in the developing countries. It has been estimated that some $400 billion of bribe is paid to political elite in developing countries. Such huge amounts of money cannot be successfully executed without the active involvement of multinational companies (MNCs) from the Western countries. This paper examines the processes involved in the misapplication of accounting practice from the perspective of anti-social criminal practices. 
Olatunde Julius Otusanya is affiliated to the Department of Accounting, Faculty of Business Administration, University of Lagos;  Sarah Lauwo is affiliated to the Essex Business School, Essex University; Ahmad Khair Amal Hayati is affiliated to the Department of Accounting and Finance, Hull University Business School, University of Hull.

Ingrid Hauge Johansen
The Role of the City of London Corporation and Lord Mayor in the Global Financial Crisis
The City of London, also known as ‘The City’ and ‘The Square Mile’, is a financial district located in the heart of London. It is considered to be one of the world’s most important financial centres.  The Lord Mayor is the head of the City of London Corporation. His objectives are to promote the City as a leading international financial centre and act as an ambassador for financial and professional services based across the UK.  This paper asks whether the Lord Mayor, simply by doing his job, is duty bound to promote activities that damage the global economy. It follows the Lord Mayor’s official visits to more than forty countries from the period 2005 to 2010; pre, during and post the financial crisis.
Ingrid Hauge Johansen was formerly an AML analyst at PwC, and is now training as financial investigator at Kroll, London

Nicholas Shaxson, John Christensen
First the Resource Curse: now a Finance Curse?
The phenomenon of the Resource Curse is well established in the literature. Many countries that produce valuable natural resources like oil fail to harness those resources for national development, and in many cases seem to have been actively harmed by them in terms of more conflict and political instability, higher inequality and poverty, greater authoritarianism and more. We examine finance-dependent countries and ask whether there is such a thing as a Finance Curse. We find that there is evidence of such a Curse in some finance-dependent countries, and that many of the fundamental political, economic and social drivers behind this Finance Curse are similar to or the same as those causing the Resource Curse. Each Curse also has drivers that are not found with the other. We examine the trends and processes that are at play in large finance-dependent economies, with a special focus on the United Kingdom; and in small finance-dependent economies, with a special focus on the British tax haven of Jersey.
Nick Shaxson is author of Treasure Islands: Tax Havens and the Men Who Stole the World, John Christensen was formerly economic adviser to the government of Jersey

Tea break

SESSION 2: TAX AND FOREIGN DIRECT INVESTMENT FLOWS

15.30 – 17.00  facilitated by Richard Murphy, Tax Research LLP

Jinning Hong, Keith W. Glaister, Jane Frecknall-Hughes
Mapping Tax Strategy on to a Model of Foreign Direct Investment: A Theoretical Perspective
This paper examines the literature on the foreign direct investment (FDI) decision process undertaken by multinational enterprises (MNEs), with particular reference to the role of tax, in order to investigate and demonstrate the theoretical interface between tax strategy and corporate strategy.  The paper uses the general model of the FDI decision making process as developed by Larimo (1987), and maps in detail the relevant elements of tax strategy on to the three main strategic decision making phases of identification, development and selection.  The paper offers a theoretical framework for fully integrating taxation into the FDI decision making process, which has not been attempted before.  It thus allows a deeper appreciation of how tax considerations can be embedded into a corporate decision making and strategy process.
Jinning Hong is tutor in Business and Economics at the Sheffield International College; Keith W. Glaister is Dean and Professor of International Strategic Management at the University of Sheffield; Jane Frecknall-Hughes is Professor of Law/Head of the Law School at the Open University.

Francis Weyzig
Tax Treaty Shopping: Structural Determinants of Foreign Direct Investment Routed Through the Netherlands
Many multinationals divert Foreign Direct Investment through third countries that have a favourable tax treaty network to avoid country withholding taxes.  This is referred to as tax treaty shopping.  The Netherlands is the world’s largest pass-through country; in 2009, multinationals held approximately €1,600 billion of FDI via the Netherlands.  This paper uses microdata from Dutch Special Purpose Entities to analyse geographical patterns and structural determinants of FDI diversion.  Regression analysis confirms that tax treaties are a key determinant of FDI routed through the Netherlands. The effect of tax treaties on FDI diversion partly arises from the reduction of dividend withholding tax rates, which provides strong evidence for treaty shopping.
Francis Weyzig is a PhD candidate at Radboud University, Nijmegen, Netherlands.

Tea break

SESSION 3: TAX COMPLIANCE AND ACCOUNTABILITY

17.30 - 18.45    facilitated by Ronen Palan

Uddhab Prasad Pyakurel
Tax Avoidance as a Major Agenda of Common People of Nepal
Since taxation plays a positive role by enabling governments to supply basic infrastructure and services, such as education and healthcare to its citizens, it is the duty of each and every human being in the world to be cautiously aware on the issue of tax provisions, and tax avoidance (if any) as well.  However, studies indicate that delinquency and manipulation of taxation are rampant in Nepal. According to the preliminary finding of our research, Nepalese people are willing to pay tax (more taxes in some cases), provided the tax administration and distribution system is transparent. However, a large portion of the population is still found far away from basic understandings of taxation. Why? Whether it is ignorance or real lack of understanding? Whether such ignorance/lack of understanding helps rampant delinquency and manipulation of taxation? This particular study is trying to find out answers of these issues.
Uddhab Prasad Pyakurel is a Researcher associated with the Nepal Center for Contemporary Studies, Kathmandu, Nepal

Ofer Sitbon, Moran Harari
Israel's Missing Billions - a new study of aggressive tax planning and corporate social responsibility
This study analyses the 'Tax Gap' (i.e. the gap between the statutory corporate tax and the actual tax payment) of 25 leading Israeli corporations listed on the Tel Aviv Stock Exchange (TASE) TA-25 index between the years 2006-2009.  The study also reviews donations made by these corporations over the same period to the communities in support of social responsibility projects. It found, that the ratio between the corporate community giving of these corporations and the Tax Gap was approximately 1 to 11. The study concludes that adopting a responsible tax payment policy is an essential part of a corporation's social responsibility. The essence of this argument is that a corporation cannot manage its activities without the help of the country in which it operates, and whose services and resources, it consumes regularly. Given that CSR refers to the area of contribution to society that goes beyond mere compliance with the law, the report claims that the corporation is expected not to exceed its 'license to operate' and to avoid using any form of aggressive tax planning, even when such planning is considered legal.
Ofer Sitbon is the Head of Research of the Corporate Social Responsibility Institute at the Academic Center of Law & Business in Ramat-Gan, Israel.  Moran Harari is affiliated to the Corporate Social Responsibility Institute at the Academic Centre of Law & Business in Ramat-Gan, Israel. 


18h45  Drinks followed by buffet dinner

SESSION 4:  THE PRICE OF OFFSHORE

Starts at 20h30 – facilitated by John Christensen

Jim Henry will present his latest estimates for the value of capital flight and the accumulated offshore private wealth stocks from more than 100 top developing countries during the period 1970-2010. Using new estimates of offshore assets under management by the world's largest private banks, combined with BIS data on cross-border private wealth, and informal surveys of private bankers about their top clients' portfolio preferences, this permits us to establish plausible bounds for the size and growth of offshore private wealth, much of which is unreported to tax authorities in home countries.

Jim will also examine the contribution that this offshore wealth stock has made to the overall concentration of global financial wealth -- now at the highest levels since the 1920s.

Jim Boyce, Richard Murphy and Sol Picciotto will comment on Jim’s research and there will be an opportunity for general comment and questions.


Friday 6th July

SESSION 5: TAX AVOIDANCE, HUMAN SECURITY AND CRISIS

09.00-10.30   facilitated by Markus Meinzer

Daniel MacKenzie
Human Security and the Offshore Financial System
The discourse of human security has had a major influence on the way security is understood in recent decades. However, mainstream human security has a simplistic account of economics, either omitting economic structures from the discussion about the causes of insecurity or seeing development policy as a neutral technology for achieving growth.  The offshore financial system is one economic structure which contributes to human insecurity. Through complex networks of financial centres and secrecy jurisdictions - serviced by an infrastructure of accountants, lawyers and bankers - countries are deprived of a sufficient tax base to support good governance, and illicit activities that feed corruption and violent conflict are encouraged. This paper documents the role of tax havens in damaging economic development, supporting repressive rulers, facilitating the global arms trade and undermining human security.
Daniel MacKenzie studies at the University of Manchester

Jorge Gaggero
Argentina: Lessons from the Past and Recent Improvements
Fiscal reform is Argentina is long overdue. In the mid- 20th century, after reaching a tax structure similar to that of developed countries, the situation deteriorated. The severe fiscal decomposition Argentina suffered since then is an historic ‘anomaly’ among comparable middle income countries. Increasing social inequality, production stagnation, and severe economic and fiscal instability have characterised the period under review.  Failures of fiscal policy were deepened by a vicious circle of foreign debt, corruption, capital flight, and tax evasion and avoidance. This paper will outline how recent governments have reacted to the crises, which is marked by a new political and macroeconomic context. The focus will be on the lessons other countries might learn from the Argentinean case, such as the political, institutional and economic changes that were and continue to be crucial.
Jorge Gaggero is an economist and adviser to Plan Fénix

Matti Kohonen
Education for Tax Justice: Building a culture of rights-based taxation
Taxation is still viewed in many countries struck by the on-going crisis in a negative light and most new taxation measures disproportionately impact the poor.  This is why Tax Justice Network has launched a new programme titled ‘Education for Tax Justice’ with the objective to create training and learning materials for schools, adult education institutions, and citizen tax literacy.  Materials currently focus on duties rather broader rights that are supported by taxation while also fail to discuss the scale and harm caused by tax avoidance and financial secrecy.  Several scenarios are presented for furthering this programme.
Matti Kohonen has just finished his doctoral studies at the London School of Economics

Coffee break

SESSION 6: TAXING NON NATURAL PERSONS

11.00-12.30: facilitated by Sol Picciotto

Tulio Rosembuj
Hybrid Entities   
It makes no sense to allow certain taxpayers, largely transnational businesses, to choose between being subject to tax as a corporation or being taxed as a partnership, which enables the partners to use pass-through entities for tax planning. Experience shows that this provision encourages the misuse of hybrid entities which can take advantage of gaps between different tax regimes, known as international tax arbitrage, to achieve double non-taxation. This paper examines the role of hybrid entities used by the financial and banking sectors to avoid tax.  The main research finding is that pass-through entities related to transnationals are chiefly used to shift profits to low tax jurisdictions, and should therefore be taxed as a corporation, to avoid artificial losses, abuse in foreign tax credits, structured financial arrangements (loans, credits).
Tulio Rosenbuj is a professor of tax law at the University of Barcelona
 
Markus Meinzer
Comparative Survey: bank account registries and automatic tax information exchange
Two key policies advocated by the Tax Justice Network, namely a registry of trusts and foundations, and automatic tax information exchange for capital income, lack a solid basis of empirical research to further political change.  This research aims to contribute to close these research gaps.  First, as relates to registries for trusts and foundations, experiences relating to the design of bank account registries or reporting systems have been analysed as examples of how to model similar registries for trusts and foundations.  Second, with respect to automatic tax information exchange for capital income, experiences from the European Savings Tax Directive, under bilateral double taxation treaties and under the Nordic Mutual Assistance Convention have been analysed with a view to assess their comparative performance, to identify preconditions for successful practice, and to draw conclusions for policy formulation.
Markus Meinzer works as an applied researcher and analyst for TJN’s International Secretariat


Workshop ends

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Swiss identify UK as partner in secrecy fight

For a long time we have been identifying Switzerland's main allies in the political chess game to preserve financial secrecy in Europe. Inside the Euro area, it is Luxembourg, and to a lesser extent Austria, both of which are important secrecy jurisdictions in their own right. Outside the Euro zone but inside Europe, we have identified the UK (led by the City of London, and its offshore satellites) as Switzerland's chief ally in pushing against transprency.

Nobody wants to admit to any of this, of course.  Now, however, Swiss voices confirm our analysis of who Switzerland's allies are. In the words of Urs Schwaller of the centre-right Christian Democrats, a Swiss Senator, speaking to Swissinfo:

We’ll see if there are other countries which, like us, reject the resolution. I think it would at least be in the interest of Luxembourg, and also of Austria and perhaps of Britain if everything that these countries have done in the past few years to deal with the issue was pointed out.

Not the definitive confirmation, of course, but as good as we are going to get for now.

One thing, Mr. Schwaller. It is not in the interests of "Britain" to do this. It is in the interests of certain financial players in Britain to do this. Please do not confuse the two.

The Swissinfo story has lots of interesting detail, including a reference to our Financial Secrecy Index. Unsurprisingly, the Swiss hate it, they huff and puff about it because Switzerland's at the top! Further analysis of the story from Tax Research, here.

10 Big Businesses That Barely Pay Taxes

Guest blog submitted by Online MBA

While the average American may be shelling out thousands of dollars each year in taxes to the federal government, many businesses are paying incredibly low tax rates, or none at all, despite raking in hundreds of millions in profits. What allows this to happen? While corporations may be considered people in other ways, they are given tax breaks and loopholes that the average person just can’t get, and with huge teams of lawyers and accountants on staff, they’re more than ready to game the system to get all they can. Officially, the corporate tax rate in the U.S. is around 35%, but many corporations pay only a small fraction of that amount, and some have even gotten hefty refunds back from the U.S. government. These tax issues have been major news lately, bringing the ire of many people who feel that corporations need to pay their fair share. Here we highlight some of the worst corporate offenders when it comes to paying little or no taxes this year and in years past.

General Electric
GE has raked in more than $81 billion during the past decade, but little of that profit has been returned to the government in the form of taxes. While the corporate tax rate has held steady at 35%, GE has paid an average of just 2.3% of its income in taxes since 2002. And that’s just an average, some years the company didn’t pay taxes at all, getting off scot-free in 2002, 2008, 2009, and 2010 (if you’re keeping count, that’s nearly half the years since 2002). While this data comes from an independent research group, the company itself disputes the results, saying that it paid 25% in the U.S. and a 29% rate globally. Of course, GE’s claims may not be entirely accurate, as those numbers also include deferred taxes which the corporation can push back year after year. How do they avoid paying taxes? A combination of government subsidies, deductions on employee benefits, and overseas tax exemptions have helped GE stay well below the standard 35% rate.
   
DuPont
DuPont took a hit in the recession, but they managed to make record profits in 2010 thanks in part to some interesting accounting practices that allowed them to not only avoid paying federal income taxes but to also get a $109 million tax benefit from the government. The company has since become a major talking point in debates about how to reform corporate taxes and with good reason: DuPont has stated that they are complying with all tax laws and regulations in every jurisdiction in which they operate. This may be true, as the company uses legal tax breaks and credits for research and development and domestic manufacturing to lower their tax bills. In past years, DuPont hasn’t paid the full 35% either, paying an average of just 17.7% in taxes on its $14.7 billion in profits from 2001 to 2010.

Verizon
According to a study by two nonprofit groups, Verizon hasn’t paid a cent in taxes for the past three years. The telecommunications giant not only hasn’t paid taxes in years, it actually makes money from the government in the form of tax subsidies and is the third largest collector of these benefits in the U.S., getting more than $12 billion from 2008 to 2010. In the coming years, Verizon could see these subsidies rise with new legislation that reforms the current Universal Service Fund as well as changes at the state level that may offer them even more benefits. Like GE, Verizon has denied these tax evasion allegations, stating that they pay billions in taxes every year, but like GE, Verizon is counting deferred taxes in these calculations, which may not be an accurate reflection of their annual tax liabilities.

ExxonMobil
ExxonMobil is another big business that has been called out on its tax practices. The company refutes most of the allegations against it and says it gets hefty refunds from the government because it overpays taxes, claiming to have paid more than 47% of its profits in taxes. Since the company has chosen to keep its tax bill private, everyday citizens may never really know the true story about its tax filings, but research conducted on the company shows that most of the taxes it paid were not in the U.S., where the company is based. The world’s second largest company shelled out $15 billion in taxes, but not a cent of that went to the IRS. In fact, ExxonMobil actually got a refund from the U.S. government to the tune of $46 million. By sheltering subsidiaries in countries with little or no tax, the company saves billions in taxes, a process that’s questionable, but currently quite legal.

Boeing
Boeing may own and operate factories and research facilities all over the U.S., but the mega-corporation isn’t paying much back to the government for the privilege of doing business in this country. In fact, the company hasn’t paid anything at all for three years running. Over those three years, Boeing made $9 billion in profits but didn’t pay anything in federal income taxes, actually getting back more than $178 million in tax benefits. Oddly enough, this doesn’t seem to be enough for the aeronautical giant, which has lobbied for tax cuts for corporations and has been a vocal critic of the current 35% tax rate.

FedEx
If you’ve tried to mail a package in the past few years, you know it’s not cheap. Yet FedEx, one of the leaders in this industry, isn’t paying much of anything to the government despite making a large profit. A study found that in 2008 FedEx paid no federal taxes, which the company claims is an anomaly caused by depreciation deductions. The company claims to pay a tax rate of 36% in most tax years, but many in the area aren’t buying it, staging protests in Memphis to draw attention to what they see as one of the worst corporate tax offenders.

Google
In 2010, this search engine company brought in a profit of $10.8 billion, not too shabby at any time, but especially impressive during a recession. Yet very little of this income goes back to the government in the form of taxes, with Google paying a tax rate that’s around 2.4%. Google avoids shelling out for that 35% tax rate by reporting income from overseas tax havens, patenting products abroad, and licensing technologies from subsidiaries abroad. While these things might be legal, it also means Google may want to take a hard look at its motto “don’t be evil” as these large-scale evasive practices can have a big impact on government resources, holding back infrastructure advancements that could seriously benefit the company in the long run.

News Corp
It shouldn’t come as much of a surprise that a man with as sullied of a reputation as Rupert Murdoch isn’t exactly playing fair when it comes to taxes. Yet many may not realize how much of a tax boon the tycoon’s News Corp brings in each year. On top of more than $10.4 billion in profits between 2007 and 2010, the company scored an additional $4.8 billion in tax refunds. That means that during those four years News Corp’s tax rate was effectively negative 46%, an astoundingly high figure that many others on this list can’t hope to match, even with some very fancy accounting. How do they do it? The company uses some very basic tax minimizing strategies: using intra-company transactions, allocating costs to locations that impose taxes and profits to locations that charge low or no taxes, buying companies with tax losses, deferring taxes owed to future years, and using a variety of subsidiary locations as tax havens to avoid paying taxes in the U.S. What’s worse, all of these tactics are entirely legal, though there is some room for debate on their level of ethicality.

Amazon
Amazon may be one of America’s most beloved retailers, but the company isn’t perfect in its business practices. In fact, it’s far from it. Amazon made a killing between 2005 and 2009, bringing in a whopping $3.5 billion in profits. Yet of this huge sum, little was paid in taxes, with the online company paying just $152 million over that four-year span. That’s a tax rate of just 4.33%. Yet Amazon’s tax sheltering tactics, many similar or identical to others on this list, are perfectly legal and the company makes even more profit by refusing to pay out sales tax in many states around the country.

Carnival Corporation
Carnival Cruise lines isn’t doing poorly when it comes to making a profit, even in a recession as families cut back on vacations and expensive trips. Between 2005 and 2009, Carnival brought in well over $11 billion dollars in revenue, yet during this same time the company paid only $126 million in taxes. That may sound like a lot of money, but if you do the math, it’s an effective tax rate of just 1.12%, far below the 35% that corporations are supposed to pay. Carnival avoids these taxes by taking advantage of an obscure provision in U.S. tax codes that permits shipping companies to avoid taxes by incorporating overseas and flying the flags of other countries. Carnival is incorporated in Panama, so much of its income isn’t subject to U.S. tax laws, even though the Cruise line takes advantage of U.S. Coast Guard protection, docks, bridges, customs officials, and other important amenities, not to mention U.S. business.

We’ve listed just a few major tax “dodgers” here, but there are many others that could make the list as well, including Pfizer, Wells Fargo, Honeywell, Yahoo!, Goldman-Sachs, BP, AT&T, IBM, Bank of America, and Citigroup, just to name a few. A nice thought to keep in mind as you file your own, most likely considerably higher, taxes this April.

Links Apr 25

EU Parliament Backs Mandatory CCCTB Tax-News
Apr 25 - Welcome news - "The European Parliament has voted in favour of making mandatory the implementation of a Common Consolidated Corporate Tax Base among European Union member states despite sustained opposition from some nations."

Activists and taxpayers clash over country-by-country reporting International Tax Review
Apr 24 - "Country-by-country reporting remains the solution for many in the tax justice movement, but multinationals are set against it. On May 2, they will go head to head at International Tax Review’s Tax & Transparency Forum in London to debate one of the most controversial issues in tax." Richard Murphy will be speaking. The forum is free to attend for tax directors and NGOs - see the article for details and registration.

Country-by-country reporting: Lord Browne demands it in the FT Tax Research UK
Apr 25 - Explaining the distinction between full country-by-country reporting that would apply to all multinational corporations without exception, and the form that relates only to the extractive industries. Speaking of how "the extractive industry demand has been built into US law and is being considered for inclusion in EU law. This is the subject of much debate and negotiation but the case for doing so is unassailable."

Glencore says EU law would not increase transparency on tax payments The Australian/ The Times
Apr 25 - "Glencore dismissed as unworkable European Union (EU) plans to force mining and oil companies to disclose all tax payments to developing countries. Tim Scott, the global head of tax for Glencore, which recently reported full-year profits of $US4 billion ($3.8 billion), told British MPs that publishing accounts on a country-by- country basis would be very expensive."

See also:
Glencore, an investigative report FT Alphaville
Apr 24 - "FP’s report provides a fascinating account of how Glencore came to power, and the unique relations it had to forge with questionable entities along the way: This means operating in countries where many multinationals fear to tread; building walls made of shell corporations, complex partnerships, and offshore accounts to obscure transactions; and working with shady intermediaries who help the company gain access to resources and curry favor with the corrupt, resource-rich regimes that have made Glencore so fabulously wealthy..." For more on Glencore see here.

EU must not allow big oil to undermine vital transparency law Global Witness
Apr 23 - "Ahead of Thursday’s meeting of the European Parliament's Legal Affairs committee, Global Witness staged a parade of “dictators” in protest at plans to water down upcoming European laws to make oil, mining and timber companies more transparent about the billions of dollars that they pay in revenues to countries around the world." Read more about the campaign at www.globalwitness.org/dictatorscharter

Swiss braced for fresh attack on banking secrecy swissinfo
Apr 25 - "Swiss banking secrecy faces renewed attack from members of the Council of Europe on Friday when they vote on a resolution demanding a clamp-down on tax havens."

France Publishes Revised 2012 'Black List' Tax-News
Apr 25 - "French Finance Minister François Baroin and Budget Minister Valérie Pécresse have recently updated the country’s ‘black list’ of countries deemed to be ‘uncooperative’ in tax matters (les Etats et territories non coopératifs – ETNC). The list has retroactive effect from January 1, 2012, and contains the following eight jurisdictions: Brunei, Guatamala, Marshall Islands, Montserrat, Nauru, Niue, the Philippines, and Botswana." Compare and contrast to TJN's Financial Secrecy Index.

TJN's April Taxcast
In April's Taxcast: Amazon's tax affairs, the global tax cut race to the  bottom, India tackles tax havens and the miners in Zambia who pay more tax than the multi-national mining company.

Links Apr 24

Nicholas Shaxson vs. Anthony Travers on the Today programme: economic warfare Treasure Islands
Apr 24 - Interview with Anthony Travers, chairman of the Cayman Stock Exchange.

Indian tax system, black money and tax havens The Economic Times
Apr 24 - The piece somewhat misleadingly asserts - "The G20/OECD have successfully persuaded tax havens to improve tax transparency and participate in an international regime of information exchange" - and concludes - "we need a public debate on keeping India's status as a competitive investment destination: either by preserving the tax-haven route (albeit with restrictions) or by adopting the OECD model." The author happens to be a private equity professional.

Why does India Inc speak for foreign firms trying to avoid taxes: R S Gujral Business Standard
Apr 24 - "Finance Secretary R S Gujral defended the proposed retrospective amendments to the Income Tax Act, and asked why Indian industry was speaking on behalf of those routing investments through tax havens."

India presses for automatic exchange of tax info at G20  The Times of India
Apr 21 - "Worried over the spurt in cross-border transactions and tax evasion, India has pressed for automatic exchange of information among the countries to deal with the menace."

India Reassures US On Retrospective Tax Plans Tax-News
Apr 23 - "Finance Minister Shri Pranab Mukherjee has defended plans for retrospective tax legislation, telling the US Secretary of the Treasury that the proposals merely clarify the intent of current laws."

Income taxes across the world [infographic] Asian Correspondent
Apr 24 - "Death and income tax are the only things certain in this world. Of course that quote doesn’t put the tax evaders and the tax havens in the picture. Unlike death, income tax can be evaded. Not that you should. Living in India, I thought taxes were high. But this interactive infographic has shown what a taxing world we are living in..."

London Invokes Clause To Improve Swiss Tax Deal Tax-News
Apr 23 - " Given the mounting criticism to the tax deal in the UK, London is rather unsurprisingly determined to pacify opponents by improving the basic conditions of the agreement." See the TJN analysis on "Rubik".

Swiss hope to solve tax row with US this year swissinfo
Apr 22 - "Washington wants information from 11 Swiss banks on assets held by US citizens in its drive to crack down on tax dodgers. In the negotiations underway since 2010, the Swiss government seeks a global solution for all 320 Swiss banks to end a legal battle with the US over undeclared bank accounts."

Economic warfare and Switzerland Tax Research UK
Apr 23 - Richard Murphy on - According to Reuters: "Attacks on Switzerland as a tax haven constitute an "economic war" by rivals who want to hurt the country's big banks and its strength as a financial centre, UBS Chief Executive Sergio Ermotti was quoted as saying."

Minister accused of money-laundering via UBS swissinfo
Apr 23 - "Swiss bank UBS has got caught up in allegations of money-laundering and timber corruption by a Malaysian minister in the Borneo rainforest."

UK big business in ‘fightback’, losing battle to Uncut and Tax Justice Network Treasure Islands
Apr 23 - From the Observer newspaper, on the Confederation of British Industry (CBI,) "John Cridland, the CBI’s nerdy director general, is hardly the man for a punch-up. But in a sunny Westminster conference room last Thursday, he launched what he bullishly called a “fightback”. Launching a document called Tax and British business: making the case, it is a lobbying effort.

See also:
Press watch: Tax havens and the CBI's business tax campaign Tax Journal
Apr 23 - "Big firms boast about the tax they pay – but they're not leaving the Caymans"

UK: Setting up a company can amount to ‘aggressive tax avoidance’, Cameron tells BBC Tax Journal
Apr 23 - "Setting up a company specifically to avoid tax is ‘aggressive tax avoidance’ and should be distinguished from investment in pensions or genuine start-up businesses, the Prime Minister suggested". See recent TJN blog on Cameron and tax havens.

Squeezing ordinary people's finances always leads to disaster Guardian
Apr 23 - Prem Sikka - "Britain's rate of wealth transference from employees and the state to corporations is unmatched in any developed country."

The Facts on FATCA: New Rules Set to Reshape Global Wealth Management CFA Institute
Apr 23 - "Are we witnessing the beginning of the end for bank secrecy laws? Regulators in the United States and Europe have been chipping away at bank secrecy for some time now. But two recent developments suggest that efforts are not only intensifying but also becoming more globally coordinated ..." See TJN analysis of FATCA.

See also: “Beyond FATCA: An Evolutionary Moment for the International Tax System
The above article cites this recent paper by Itai Grinberg of the Georgetown University Law Center:  - the global tax regime “is in the midst of a novel contest between information reporting and anonymous withholding models for ensuring that states have the ability to tax offshore accounts.”

Mankiw's Ode to the Governmental Competition that Made Romney Wealthy Benzinga
Apr 23 - Article by William K. Black - see the section on International Tax Competition.

Stockholders' meetings a place to shine light on dodgy bank behavior Examiner
Apr 23 - "This spring, the 99% are taking action at more than 30 stockholder meetings to challenge the banks and their methods of not paying their fair share of taxes."

U.S. Repatriation Tax Lobbying Campaign Said to Disband

That's a headline from Bloomberg, with a remarkable story:

A lobbying coalition seeking a tax holiday for repatriating offshore profits ended its campaign amid bipartisan congressional reluctance after spending more than a year and $760,000 on the effort.
. . .
The technology-heavy group of multinational corporations that backed the repatriation holiday tried to use its lobbying muscle and support from lawmakers in both parties to secure a tax break. The effort fizzled as some Republicans focused on permanent tax policy and Democrats warned of the potential revenue loss.

The group wanted Congress to reprise a 2004 tax holiday that let companies bring home offshore profits at a discount. Critics, including the Obama administration, said the proposal would cost the government money, encourage companies to move profits offshore and undermine efforts to overhaul the U.S. tax code."

We are delighted to see this. And we should congratulate the FACT coalition, of which TJN-USA is a leading member, for bringing much needed attention to the lobbying, and for helping explain why it was such a bad idea. One internal FACT email today put it simply:

"We foxed 'em. Now time to seize the initiative on ending MNC transfer pricing abuses, getting a millionaires' tax, halting the global corp tax rate war, toughening up reporting of interest income paid to NRAs, and cracking down on offshore havens. Is that list long enough?"

Er, not quite. But it's a good start.

Reminder - Registration for 2012 AABA/TJN Research Workshop on Tax Avoidance, Corruption and Crisis

The 2012 research workshop co-organised by the Association for Accountancy & Business Affairs and the Tax Justice Network, will explore connections between tax avoidance, corruption and crisis. The workshop is to be held at Essex University in the UK, 5-6 July 2012.
The website registration portal for the 2012 workshop, with all the details and links, is on the AABA Website.

The 2011 prices are held, there is no increase. Early bird registrants (up to 1st June 2012) will pay the lower charge. After that a higher charge is applicable. Additional nights in student accommodation can be booked. There will be no on-site registration. Therefore, delegates without prior registration will not be able to attend.

To register, please click here.

Report on tax competition in East Africa

This article came out earlier and we remarked on it, but probably didn't do it justice. It is an important report produced by Tax Justice Network Africa and ActionAid, which finds that Kenya, Uganda, Tanzania and Rwanda are losing $2.8 billion each year through their use of tax incentives such as tax holidays for foreign businesses. These tax incentives are promoting harmful tax competition in the region, and are anyway not needed to attract investments. Members of the EAC should cooperate to eliminate excessive tax incentives, ensure greater transparency for any that remain, and promote coordination within the East African Community (EAC) to prevent harmful tax competition.

The press release is as follows:

EAST AFRICA LOSES $2.8 BILLION A YEAR FROM TAX EXEMPTIONS TO FOREIGN INVESTORS

Wednesday, 11 April 2012

Tax Justice Network Africa and ActionAid launch new report on tax competition in East Africa:

A Race to the Bottom? Tax Incentives and Revenue Losses in Uganda

(Kampala, 10th April, 2012) In Uganda 75% of the population lives on less than two dollars a day and holds one of the world’s highest population growth rates with over 3% per year, yet in 2009/10 the country lost approximately 2% of its GDP in tax revenue amounting to $272 million dollars that could be used for essential public services such as health, education and infrastructure.

In a report launched by Tax Justice Network Africa and ActionAid titled Tax Competition in East Africa: Race to the Bottom? reveals that as East African governments compete to offer incentives to attract investors with reduced tax rates and/or tax holidays, this trend reduces the revenue available for desperately needed public services in the region and also shifts the brunt of the tax burden to the ordinary tax payers - individuals who pay taxes on their incomes.

Sophie Kyagulanyi Actionaid Uganda’s Governance Coordinator explains:

“The “race-to-the-bottom” is the current tendency by our leaders to slash tax rates and ease regulatory requirements for foreign investors as a means to attract large companies to do business in the region.”

“The poor are the ones bearing the biggest burden of these tax incentives because revenue for public services is reduced. The only ones benefiting from “tax competition” are large corporations.”

The key findings of the study conducted in East Africa reveal that:

• Removing excessive tax incentives could raise more revenue for public services such as health, education and infrastructure.
• The primary beneficiaries of these tax incentives are large domestic firms and foreign multinational companies.
• Tax incentives are not needed to attract Foreign Direct Investment (FDI) in East African countries. The IMF, World Bank, OECD, UN, and African Development Bank are among the institutions that endorse this conclusion.
  

ActionAid, SEATINI (Southern and Eastern African Trade Information and Negotiation Institute), Tax Justice Network (TJN) and Uganda Debt Network launched the Ugandan Report: Tax Competition in East Africa: A Race to the Bottom? Tax Incentives and Revenue Losses in Uganda at 8:30am on Friday 13th April 2012 at Hotel Africana to urge the East African Community member countries to remove tax incentives to attract foreign direct investment.

Joined by representatives from the East African region, revenue authorities, relevant government and policy makers, as well as members from civil society, small and medium enterprises and policy analysts engaged in tax policy and administration, they call for the promotion of transparency in the granting of tax incentives and better coordination among countries in the region to address harmful tax competition.

ENDS
For more information and interviews contact:
Ssanyu Kalibbala +256 (0) 783 727 717 or Ssanyu.kalibbala@actionaid.org

Note: TJN has slightly modified this release, to take account for the later timing of this blog.

To be added to our tax competition page.

Tax Justice Focus - The Occupy Edition

Tax Justice Focus, Volume 7, Number 1

The Occupy edition is available for download here

23 April 2012

Editor: Dan Hind

Guest editor: The Economics Working Group, the Occupy Movement at Saint Pauls

The latest edition of Tax Justice Focus explores how the Occupy Movement has changed public attitudes, not least to tax justice. In the Autumn of 2010 demonstrators from UKUncut started to protest against deals being struck between prominent multinational companies and the British government. Their campaign inspired US Uncut. The latter merged with other groups to create Occupy Wall Street, and suddenly the international political and media establishments began to take notice of tax justice in a way that would have been inconceivable eighteen months ago.

To reflect this seismic shift in the profile of tax justice we asked the Economics Working Group at Occupy at Saint Pauls in London to act as guest editor for this edition. Workingwith our new editor, Dan Hind, they have jointly commissioned the four feature articles published here.

In their article, Zoë Young and Jamie Kelsey offer insights into the techniques used in the many Occupy assemblies and working groups around the world.

Carsten Jung explores how shadow bankers use tax havens to avoid regulation and raises the alarm that, four years after the financial crisis, shadow banking is now back to its pre-crisis peak at $60 trillion.

David Dewhurst explains why, after a career of committeemeetings, staff meetings, academic boards and governing body events, he has found the diversity and democracy of the Occupy discussion process intellectually liberating and enjoyable.

And in the final feature article, Philip Goff examines the links between the Arab Spring and the Occupy movement and concludes that the new class struggle is between democratic communities and unrestrained global capitalism.

In addition we have book reviews on Wilson Prichard’sTaxation and State Building: Towards a Governance Focused Tax Reform Agenda,and John Creedy and Norman Gemmell’s Modelling Corporation Tax Revenue.

This edition also includes a news section and, on the final page, an advertisement for the International Tax Review’s Tax and TransparencyForum 2012, which takes place in London on 2^nd May and is FREE to representativesfrom civil society.

The Occupy edition is available for download here.

Andrew Haldane on the arms races in banking: keeping up with the Goldmans

Copied from the Treasure Islands blog, with permission. This will be stored on our 'competition and co-operation' page, on this general theme.

Andrew Haldane, who is widely regarded as one of the most perceptive analysts of the global financial crisis, has given a talk at the Institute for New Economic Thinking (INET.)

He talks of harmful "arms races" in the financial sectors, of which he identifies three: one from the past, one from the present, and one for the possible future. He said these arms races (I prefer to call them races to the bottom) are prevalent throughout human behaviour then adds:

"Finance is plainly no exception. In fact the very structure of finance means that these arms race type behaviours is even more prevalent than in other aspects of human behaviour."

The arm's race from the past relates to banks' Return on Equity (ROE). This was:

"an arms race, not just a case of keeping up with the Joneses, but of keeping up with the Goldmans. If Goldman posted a ROE of 20 percent, everyone else felt they needed to leapfrog ahead. The simple way that leapfrogging was achieved was by taking on leverage. The result of this arms race on returns on equity was that everyone converged to a high ROE and therefore high leverage and therefore a high risk equilibrium, which sowed the seeds of crisis of the last 3-4 years.
. . .
(drawing on) Philippon and Reshev, important work on returns in finance and non-finance: for investment and universal banking this was a period that isn’t even close to any historical precedent, not even the 1920s."

Strong stuff, and there is a similar dynamic going on with top bankers' pay - with the difference that whereas ROE fell off a cliff in the crisis; bankers' pay hasn't. Haldane and others have analysed this dynamic before (see this newspaper article and longer paper, for example), but it helps make his overall case here.

The next arms race, from the present, concerns high frequency trading. And here he produced some astonishing statistics:

"Those traders now dominate mainstream financial markets, accounting for between a half and three quarters of volumes transacted for example in the world’s major equity markets. One reason they dominate is that they submit huge volumes of quotes in the market, most of which are never exercised: the firms cancel them before they are ever exercised. For every order executed, 60 are cancelled."

My emphasis added. This is about stuffing the bandwidth full so that others can't trade, and aggressively taking advantage of those fleeting moments of superiority. The Flash Crash of May 2010 is one example, but there have been hundreds of mini-crashes since then, he said. Here is another case of an arm's race producing a public bad.

The third race is less intuitive, and concerns a flight to safety. In essence, investors in banks all want to have their claims secured against solid collateral, because of their fears about banks' eventual solvency. But there is only so much collateral to go around.

"It, too, is an arms race: it too comes with a cost. It results in banks’ balance sheets being progressively more encumbered. They are signing away those assets to an increasing number of investors: those assets cannot be signed away indefinitely."

I think Haldane's arguments need to be complemented with further discussions of arms' races. Financial actors deliberately encourage arms' races between jurisdictions. "Don't tax or regulate us too much or we'll fly off to London / Geneva / Singapore / Hong Kong / New York" the bankers cry, and regulators as a result fail to put in place those capital requirements or other regulatory devices to make the system safer. More on this kind of 'competition' here.

So we have the regulators failing to regulate, leading to unhealthy arms races; and the bankers growing ever more powerful, and using an arms' race between jurisdictions to tie the regulators' hands, making them yet more powerful, and . . . so on. A circular race to the bottom. Where will it ever stop? We now have regulatory fatigue, and a public ground down by the sheer weight of awfulness spewing endlessly out of the financial sector.

This is the trap the world has fallen into. We are in a downwards spiral. Who is going to break this dynamic?

The text of Haldane's speech is below. It's almost complete; there are a few minor words missing here or there, and a couple of slightly spurious sections (I've put timing marks in, so you can go and find and listen to them if you want.)

Keeping up with the Goldmans (my title, not his.)

I want to have a different take on the question of the social utilty of finance. In particular I want to focus on the possibility of equilibria in financial markets that are true Nash equilibria, but are nonetheless socially inefficient in some sense, in particular where that inefficiency derives from an arms race. We know that the classic arms race does deliver socially inefficient equilibria: the desire for individual safety results in an equilibrium where everyone is collectively less safe.

I want to talk about some examples where similar sorts of dynamics are at play in the financial sector, where competition can be a public bad.

. . . some stuff about Elephant Seals . . . Gareth Harden’s classic paper on the Tragedy of the Commons . . 3:30

We have examples from throughout econonmic theory, of relative behaviours of relative standing, be it for setting of wages or prices or consumption or employment, keeping-up-with-the-Joneses type arms races do appear to proliferate across most aspects of human behaviour. Finance is plainly no exception. In fact the very structure of finance means that these arms race type behaviours is even more prevalent than in other aspects of human behaviour.

One structural feature that delivers that is information assymmetry. Finance is founded on information assymmetry, 4:30, on people not knowing. And one response to people not knowing, acting in a world of deep uncertainty about how much risk is truly being borne; who are the good guys and bad guys in finance; one response to that uncertainty and asymmetry is to rank: is to order firms, to convey financial information in league tables. If you convey information in league tables you generate just the types of arms race dynamic that we saw from the elephant seal. That possibly will generate these socially suboptimal outcomes, the so called Red Queen races, where however fast you travel, no-one ever wins. 5:30

Let me give some examples of these arms race dynamics appearing in the financial sphere. I will talk about three: one from the past – the race in returns in the banking system that we saw pre-crisis; one from present – the speed race currently being carried out in financial markets, and the one from the potential future: the quest for safety.

First, the race in returns was a key driver, generator, propagator of the crisis. With hindsight, returns to both financial capital and financial labour were extraordinary by any historical metric. The LHS picture here looks at the return on equity for UK banks over 100 years. Returns on equity to UK and other banks were at historcally unprecedented levels. The 1920s is the closest we might remotely come. 7.00 The right hand panel blows up returns on equity for all global banks during the runup to crisis from 1990 onewards. It is a steady ascent. One of the interpretations of that ascent is that it was an arms race, not just a case of keeping up with the Joneses, but of keeping up with the Goldmans. If Goldman posted a ROE of 20 percent, everyone else felt they needed to leapfrog ahead.

The simple way that leapfrogging was achieved was by taking on leverage. The result of this arms race on returns on equity was that everyone converged to a high ROE and therefore high leverage and therefore a high risk equilibrium, which sowed the seeds of crisis of the last 3-4 years. That is why ROE returned to earth, indeed below earth, in 2007-8. 8:30 That pattern in returns to financial capital has been mirrored in returns to financial labour. LHS picture taken from Philippon and Reshev, important work on returns in finance and non-finance: for investment and universal banking this was a period that isn’t even close to any historical precedent, not even the 1920s. The RHS looks at bank CEO compensation. It, too, ascends pretty much in line with the ascent in returns on equity. Some of that is east to explain, because in this period, CEOs, senior executives in the banks were being remunerated on the basis of equity-based metrics.
 The only difference between CEO pay and ROE: while the ROE fell off a cliff, that is not obvious with CEO pay.

10:00 Second: the speed race has been playing out, is still playing out, over last 10 years or so. Back up 20 years, and trade execution times were measured in minutes. Back up 10 years, and those trade execution times were measured in seconds. Back up five years, and those trade execution times were measured in milliseconds; today it is measured in microseconds. Tomorrow it will be nanoseconds. Iit has given rise to this phenomenon of high frequency trading.

Those traders now dominate mainstream financial markets, accounting for between a half and three quarters of volumes transacted for example in the world’s major equity markets. One reason they dominate is that they submit huge volumes of quotes in the market, most of which are never exercised: the firms cancel them before they are ever exercised. 12: 00 For ever order executed, 60 are cancelled. What is going on here? One thing: although there are loads of quotes on the screen, if you try and hit them, they disappear before you can transact. There is a mirage of liquidity. A second feature is that some have said that this practice of putting in multiple quotes, “quote stuffing”, is an externality because bandwitdth is a common good: it is finite, so by quote stuffing you are using up bandwidth and you are slowing down everyone else. This might matter a lot if prices are moving around a lot.

13:15. Take for example 6th May 2010, the well known flash crash, the mirage of liquidity was shown to be just that. .. bandwidth message traffic went through the roof: those who could not keep up were unable to trade … .the flash crash was no one-off. In the period since, though not well publicised, there have been hundreds of mini flash crashes, the sources of those was this speed race in financial markets, that brings the externality of fragile liquidity and of order cancellation.

Third, the final race is a flip of the first one I mentioned. Over the last year or two, there has been not so much a quest for risk, but a quest for safety. That has been felt acutely by the banking system. Investors increasingly want the security of collateral. Investors are much less willing to invest in them on unsecured terms than in the past. Everyone wants to be senior, to be first in the queue, to have first claim on the assets of the bank. We are engaged in a race to safety.

Not everyone can be first, can be senior. 15:30 Central banks -- in the liquidty against collateral that they have provided -- have been part of this race. For example, look at the LHS picture. That looks at the refinancing requirements of Euro area banks this year, which total around US$1.1 trillion. Most of that that needs refinancing is the blue bar, which is unsecured: money taken out on unsecured terms in the past. So far this year, the unsecured fraction, the blue bit, has been miniscule. It has almost all been secured on collateral: a good chunk of course through the ECB’s LTRO operations. 16:20 The unsecured market has found itself squeezed as investors have sought, through this arms race, security, safety. This is the pattern to the RHS picture that we have seen playing out not just this year, but for every one of the last three or four years. It, too, is an arms race: it too comes with a cost. It results in banks’ balance sheets being progressively more encumbered. They are signing away those assets to an increasing number of investors: those assets cannot be signed away indefinitely. This is BarCap’s estimates of how much of banks’ balance sheets in different countries are encumbered. Those numbers are almost certainly an understatement.

17:26 This equilibrium is self-fulfilling, because if I am an unsecured creditor, why would I refinance on unsecured terms right now: why should I let everyone else be ahead of me in the pecking order? What we are seeing is everyone converging on this high-security, high-safety but ultimately self-defeating equilibrium.

What do do about it?

If you buy this story, these arms races which proliferate across finance, then there is a clear case for public intervention, 18:05 both to protect the system and to protect individuals within it. Here is a rare case where both the regulators’ and the regulateds’ incentives are in the same place. For that intervention to be effective, it needs not to focus on any one business, but to coordinate across the system as a whole. I needs to be explicitly macroprudential, otherwise you intensify the competitive scramble.

What interventions would help?

On the returns’ race, the answer is simple. With hindsight, we would have capped leverage and prevented forestalled this ROE race. We might even have capped both. We’d have sought to put performance measures that made this race in returns less likely. On the speed front, we might stop it at source, as some U.S. regulators are now doing, this act of quote-stuffing, by placing some restrictions on order cancellation; to require traders to commit to provide liquidity; we might require circuit-breakers that sit across the system as a whole. On the last race, the safety race, this is the one where regulators might have most to do: right now there are no restrictions on how much of their balance sheets banks are allowed to encumber. In future we might need that.

END

Commodities - Switzerland's most dangerous business

That's the title of an important new book just published in English by the Berne Declaration. The book, which has already been available in German for some time, says on its back cover:

"‘Commodities – Switzerland’s most dangerous business’ paints a searing and detailed picture of one of globalisation’s biggest winners, a powerful industry whose dealings often take it into dangerous areas. In the last decade Switzerland has emerged as one of the world’s dominant trading hubs for commodities, handling from 15 to 25 per cent of world trade. All the world’s largest trading houses operate partly or mainly out of this seemingly peaceful and innocent country. But while these powerful companies experience an unprecedented boom, the population of many resource-rich developing countries remain mired in poverty. This book tackles the question of why?

By means of research and reportage, Berne Declaration (BD) digs down to uncover the historical roots of Switzerland‘s role as a trading hub, scrutinises scandalous business practices and their political contexts, goes down a copper mine in Zambia, and exposes the leading Swiss companies and players in this discreet industry. The book reveals how commodity deals are financed and how taxes are avoided, provides insights into the social and environmental consequences for producing countries, and suggests how greater justice can be achieved in a business which is worth billions and upon which we all depend."

A highly important piece of work. Delving into the book, there is so much to highlight. We will select just this very broad point about Switzerland:

"this amazing success story is based on something deep-rooted in the Swiss character, namely political opportunism. Consistently standing on the sidelines, looking away and claiming not to know, even refusing to join the UN until 2002, are all actions which have been defended under the cloak of ‘neutrality.’

Indeed. Read all about it in the UK chapter of Treasure Islands. And for something more current on Switzerland, see this, today: Switzerland and economic warfare.

Alongside the book, the Berne Declaration and Revenue Watch issued the following press release:

Pioneering Commodities Studies Bring Transparency to Oil Companies and Swiss Trading Hub
Zurich/New York, 23 April 2012

National oil companies and their customers should publish the price, volume, and crude grade for every cargo of oil sold, thereby bringing greater transparency to a largely hidden part of the world’s oil market, Revenue Watch (RW) reports in pioneering research released today. The study is being published simultaneously with the English edition of “Commodities: Switzerland’s Most Dangerous Business,” a groundbreaking analysis of the industry by Berne Declaration (BD) that shows why and how resource-rich developing countries remain poor while Swiss trading companies make billions.

“Since oil marketed by state companies belongs to the citizens of those countries, national oil companies and buyers share responsibility for making public all sales information,” says Alexandra Gillies, head of governance at RWI and leader of its research project. “In some oil-producing countries, these sales generate more than two-thirds of all the government’s income.” Like all other kinds of oil revenues, the buying and selling of a state’s share of production should be reported as part of the Extractive Industries Transparency Initiative (EITI), the study “Selling the Citizens’ Oil” concludes. “The money from these oil sales is supposed to benefit the public, which needs access to far more information about every stage of these transactions,” Gillies adds.

The study includes background papers on how oil sales work, oil sale governance risks and how global oil prices are identified and change over time. Based on research into how 11 countries sell their share of oil production, RWI’s recommendations include the following:
· Companies should disclose annually the price, volume, grade and date of each cargo purchased from a wholly or partially government-owned entity.
· Governments should require commodity traders and other buyers registered or listed in their country to report on payments made to producer country governments.
· National oil companies should also disclose all financial transfers to and from the government.

RWI’s analysis of good sales practices shows that selling to independent commodity traders is almost always not the best choice for developing countries. This sector is heavily concentrated in Switzerland and is the topic of “Commodities.” German and French editions of Berne Declaration’s reference book were widely reviewed and became bestsellers in Switzerland. This first ever survey of Swiss-based commodities trading industry, available as a free online download, includes portraits of the key firms, provides insight into the consequences for the producing countries, scrutinizes tax avoidance and speculation, and offers proposals for greater transparency and better deals for producing countries in this multi-billion-dollar business.

“Unnoticed by the public and politicians, Switzerland has become the world’s most important commodities hub,” the book argues. “Because of tax privileges, a strong financial industry and weak political regulation it continues to attract trading and mining corporations as a dunghill attracts flies. After the fall of Swiss bank secrecy, the commodities business is the country’s next exposed flank.” The release of the English–language edition and of RWI’s report coincide with the “Global Commodities Summit,” which opens today in Lausanne, Switzerland.

Contacts:
Oliver Classen, Media Director, oliver.classen@evb.ch, +41 44 270 7006 (BD/Zurich and Lausanne)
Robert Ruby, Head of Communications, rruby@revenuewatch.org, +1 917 443 2392 (RWI/New York)

To add to our country-by-country reporting page.

UK Cameron family: the tax haven connection

The Guardian is running a fascinating and important piece about the family fortunes of UK Prime Minister David Cameron.

"It was perhaps for sentimental reasons that the offshore fund Ian Cameron [David's father] helped to establish in the tax haven of Panama shares the name. Blairmore Holdings Inc, just like Blairmore House, is a monument to wealth obtained overseas. Valued today at £25m, the Panamanian fund was established in 1982 while David was still at Eton, the school that his father attended.

A 2006 prospectus for Blairmore holdings stated that

"The affairs of the fund should be managed and conducted so that it does not become resident in the United Kingdom for UK taxation purposes." . . .the firm has access to banking services in Panama as well as auditors and trading offices in the Bahamas."

And there is more:

Before his death in 2010, Ian Cameron was intimately involved in several such companies: Blairmore Holdings, located in Panama; Blairmore Asset Management, a short-lived fund located in Geneva; and Close International, a Jersey-based investment vehicle founded in 1979.

There is a slight glitch in the story:

Of the countries in which the businesses were based, only Jersey has acceded to the requirements of the OECD global transparency tax standard.

The glitch is that this transparency standard is, as readers of Treasure Islands will know, not too far off being worthless. The evidence on this is absolutely overwhelming. Currently, the OECD black/white/grey list of jurisdictions (based on adherence to this standard) is empty, and last time I looked, a couple of weeks ago, its grey list contained the financial giants of Niue, Nauru and Guatemala only. (I can't find the list any more; perhaps the OECD removed it, out of embarrassment.)

There is lots more to this Guardian story, but a clarification is in order, to be fair: David Cameron, who once called himself the "heir to Blair", was not the heir to Blairmore.

Leaving aside the question of money, though, another all-important question needs to be asked. What kind of economic world view did the British Prime Minister imbibe from his offshore-diving (late) father?

Links Apr 20

Billions lost as EAC states dangle tax incentives The Observer
Apr 17 - "Like contestants before judges at a beauty pageant, East African Community countries jostling to look attractive to foreign investors are dangling tax incentives as baits, losing millions of dollars in revenue, a new report notes. The report titled Tax Competition in East Africa; A Race to the Bottom, was prepared by SEATINI, Tax Justice Network, ActionAid and Uganda Debt Network." Hat tip: Alvin Mosioma.

See also:
Tax avoidance uproots vine from which Tanzania's development could spring Guardian
Apr 16 - " There is a growing awareness among Tanzanians that foreign companies often contribute little to the government's coffers because of complicated tax avoidance techniques."

See also:
Tanzania: State Defends Tax Incentives to Investors allAfrica / Tanzania Daily News
Apr 19 - "Tax incentives given to multinational corporations operating in Economic Process Zones and Special Economic Zones create jobs and add value to local exports, Director General of Export Processing Zone Authority (EPZA), Dr Adelhelm Meru has argued. Dismissing a recent ActionAid and Tax Justice Network report which denounced continued government generosity in granting foreign companies tax exemptions, which peaked to 381bn/-between 2008/9 and 2009/10 fiscal years."

Tax havens boost their lobbying efforts The Bureau of Investigative Journalism
Apr 19 - "Britain’s Overseas Territories and Crown Dependencies have been boosting their lobbying strength in the UK and Brussels in recent years amidst growing criticism of tax havens. NGOs such as Christian Aid have argued that the Territories’ image as tax havens puts them at ‘serious reputational risk’ and if they continue with their current policies ‘then their international profile as facilitators of corruptions and tax evasion will increase’."

Trusts: last bastion of the Swiss financial center? Le Temps (In French and subscription only)
Apr 20 - The article describes how trusts hold the bulk of large private fortunes of the world, and provides a brief explanation of how trusts function. Hat tip: Bruno Gurtner. See also TJN's explanation - In trusts we trust.

See also:
Global Outlook for Trust & Estate Business remains positive The Society of Trust and Estate Practitioners (STEP)
Mar 8 - Interesting to note, in the context of the above. "The Society of Trust and Estate Practitioners’ (STEP) latest global quarterly confidence survey shows confidence remains high in both the immediate and long term outlooks for the industry."

The EU sets out its red lines on Switzerland Tax Research UK
Apr 20 - Europolitics has an important article on the EU’s attitude to Switzerland, in the form of an interview with Taxation Commissioner Algirdas Semeta. In it he says: "We have identified the amendments that need to be made to the EU Savings Directive in order to strengthen it and close its loopholes, and we want to achieve equivalent amendments to the EU-Swiss savings agreement ... The EU is not prepared to back-track on good governance, nor will we accept bank secrecy that can support tax evasion."

Top U.S., Swiss officials to discuss tax secrecy Reuters
Apr 19 - "Switzerland's finance minister is expected to meet with the head of the U.S. Department of Justice in coming days to try to solve a row over untaxed money in secret bank accounts .. A global crackdown on tax evasion by cash-strapped governments in recent years has chipped away Switzerland's tradition of banking secrecy, which helped it build up a $2 trillion offshore wealth management industry."

Leading bank sponsors five university chairs swissinfo
Apr 20 - "The UBS bank has announced plans to sponsor the creation of five economics chairs at Zurich University as part of a multi-million franc investment in education ... However, experts warn that the increasing involvement of commercial firms risks undermining the independence, continuity and focus of academic education in the long run."

Obama Administration Scores a Victory for Honest Taxpayers Everywhere Citizens for Tax Justice
Apr 19 - "On Tuesday, advocates for transparency scored a victory while tax evaders suffered a loss." See TJN blog on the story here.

See also:
Florida bankers object to disclosing identities of foreign depositors Orlando Sentinel
Apr 18 - Predictable complaining on the part of Florida Bankers on moves towards transparency. Hat tip: Clark Gascoigne. See Treasure Islands blog for an explanation - "We all know of Wall Street having captured politicians in Washington. Well here we have a more granular story: the politicians of Florida captured by tax haven interests."

Kirk deserves praise for stance against tax havens Herald Scotland
Apr 18 - "Where the use of tax havens by large companies is concerned, the Church of Scotland, for one, has strong misgivings, and has made the admirable decision to act on the issue. The Church's Special Commission on the Purposes of Economic Activity will seek support from the General Assembly next month to ask companies from which the church procures large amounts of goods and services to reveal how much they use tax havens ... With tax havens being established worldwide, there is no easy legislative fix. A climate in which companies feared damage to their reputation, however, could help reverse this worrying trend."