Wednesday, July 31, 2013

Links Jul 31

Most of TJN's bloggers are currently away, so posting will be relatively limited for the time being.

Info Tax Justice #10: Offshore-Leaks and what follows TJN Germany Blog (In German)

President Obama Clings to His Proposed Business Tax "Reform" that Would Raise No Revenue in the Long-Run Citizens for Tax Justice
See also: Biggest U.S. Firms Park $1.2 Trillion in Profits Offshore, Study Finds Wall Street Journal on the new study by U.S. PIRG

UK: Punish tax-dodging multinationals, says Lords committee The Telegraph
See also: The House of Lords recommend some deeply regressive corporate tax reforms Tax Research UK

Revealed: Nazi-looted Czech gold sold by Bank of England RT

Diamond revenues could be funding Zimbabwe election-rigging Global Witness

Meet the new UN tax committee Martin Hearson's Blog

Liechtenstein bank pays US $23.8 million for tax evasion globalpost/ Agence France Presse

Paris tax hunt sends French to Switzerland The Local

Tackling Tax Havens Center for American Progress

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Tuesday, July 30, 2013

Links Jul 30

Most of TJN's bloggers are currently away, so posting will be relatively limited for the time being.

G20 finance ministers: frenetic activity, little progress Eurodad

OECD avoidance plan is no quick fix accountingweb
See also OECD BEPS report confirms the international tax system is failing rich and poor nations Africa Business. For TJN press release see here.

Africa: Hi-Tech Action to Stop Capital Flows allAfrica / Trustmedia

Nigeria: Govt Targets Off-Shore Tax Evasion allAfrica / Trustmedia

6 Reasons Why Top Australian Companies Have Set Up Shop In Singapore Business Insider Australia

Latvia: the Next Cyprus? The National Interest
See also Latvia: Here comes the "Luxembourg of the poor"? negocios (in Portuguese), and recent TJN blog post Latvia: an emerging European tax haven

First Tax Haven in Armenia Launched Asbarez

"Black Money" Flows- Time for Global Action The Pioneer

Despite Jersey’s claims the OECD has not congratulated Jersey on its tax transparency Tax Research UK

U.S. Taxes on Overseas Earnings and the Race to the Bottom Wall Street Journal
Letter from TJN-USA's Nicole Tichon in response to recent editorial.

U.S. companies & offshore tax shelters Muckety - Mapping connections of the rich, famous & influential
How widespread are foreign tax dodges by America’s biggest companies? See the interactive map - great graphic.

Nike’s Bermuda Connection Highlighted Bernews

U.S.:Shedding Light on Advance Pricing Agreements Huffington Post

Transfer price tax risk ‘a priority’ for companies Business Day Live

Exporters mispricing goods to stash away dollars overseas The Economic Times

Ministers accused of money laundering in Mauritius Newstime Africa

Vatican confirms deal on bank information with Italy Reuters
See also: Italy and Vatican Sign Tax Agreement Taxation - International News and Information

Italian ministers publish incomes online in transparency drive Reuters

Swiss agree to share bank details The Sydney Morning Herald
Switzerland, has agreed on request to hand over the secret bank account details of Australians. For why "on request" is no solution, see resources here.

Here are the implications of Singapore's move to FATCA compliance Singapore Business

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Monday, July 29, 2013

Links Jul 29

Most of TJN's bloggers are currently away, so posting will be relatively limited for the time being.

U.S. Seeks PNC, Wells Fargo, JP Morgan Records To Find Tax Cheats--From Norway Forbes

U.S.: Business Tax Reform Principles proposed by TJN-USA and FACT coalition partners - letter to Senate
Read the technical options paper here.
See also: Tax writers promise 50 years of secrecy for senators' suggestions The Hill

The Nike Air Max isn’t just a shoe. It’s also a tax haven. Quartz

Russian Authorities To Investigate Google’s Tax Practices Tech Week

How Facebook and Goodle avoided hundreds of millions in Israeli taxes Worldcrunch

Dell Considered Novel Tax Strategy in Buyout Dealb%k

US drug company pays premium for tax haven with $8.6bn Irish takeover The Independent

Minimise this: A plan for curbing tax avoidance begins to take shape The Economist
On the OECD Action Plan on corporate tax avoidance. See the TJN press release here.

U.S.: IRS pursuing 'stateless income' tax enforcement -official Reuters

Op-Ed: NewJourno and the IRS 100 Reporters

Pakistan:Probe into mega tax fraud cases: FBR helping NAB and other agencies Business Recorder

Berlusconi won't seek 'exile' if tax fraud conviction upheld Reuters

Revenue inquiry on Irish clients of HSBC with Swiss accounts Irish Times

Credit Suisse Says No Guarantee of U.S Tax Settlement This Year Bloomberg Businessweek

Almost 30,000 UK, Austrian tax dodgers disclose Swiss accounts Reuters
See also recent TJN blog Swiss bankers confess that their UK tax deal has failed

The UK Transparency Bill – extending the requirement for corporate transparency to the UK’s tax havens Tax Research UK

Secrecy jurisdictions and the ASX 100 companies that use them Australian Financial Review

Tax Dodgers Sans Frontières The Global Mail
"The companies robbing the world, and why it finally matters."

Russia Seeks Interpol to Explain Rejection of Warrant Request for Browder Ria Novosti
Latest update in the Magnitsky case.

Dolce & Gabbana Close Over Conviction---Temporary Or Final? Forbes

Steven Cohen throws a party despite his fund's indictment Reuters

TJN Germany Blog - News Links

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Thursday, July 25, 2013

Links Jul 25

Most of TJN's bloggers are currently away, so posting will be relatively limited for the time being.

The tax break that corporate America wants kept secret CNN Money
Oracle, Google, and Amazon are just a few of the hundreds of large companies that have cut confidential deals with the IRS to help lower their tax bills, and critics want the agency to disclose the details of these complex pacts.

Apple’s record cash haul could repay Detroit’s debt eight times over Quartz
Apple now has $146.6 billion in cash and marketable securities on its balance sheet, with some $106 billion kept offshore

Gambia’s now got an 0207 London number if it’s the new tax haven that you’re looking for Tax Research UK

Nigeria: Ekiti reads riot act to tax defaulters The Guardian Nigeria

Africa: Why governance and country ownership is critical to development progress trust.org

EU Chiefs Advise On Tax Avoidance Tax-News

Italian police crack billion euro tax evasion ring Reuters

Italian PM Enrico Letta pledges war on tax evasion AFP

Belgian Development Bank no longer to invest in tax havens Mondiaal Nieuws

Swiss Minister Wants Level Playing Field for Sharing Bank Data Bloomberg Businessweek

UK: Formula One pays just £1million corporation tax on £300million profit The Independent

Pakistan: President Zardari lets off man probed for $1.1 bn tax evasion Zee News

Criminal Indictment Is Expected for SAC Capital Advisors Dealb%k

Car parks for global wealth: the super-rich in London openDemocracy

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Wednesday, July 24, 2013

Links Jul 24

Most of TJN's bloggers are currently away, so posting will be relatively limited for the time being.

G20 backs plan to stop global tax avoidance and evasion BBC
See also: OECD and G20 tax reforms: key points The Guardian

Tax Avoidance: G20 and OECD 'Duck Big Issue' International Business Times

Tax crackdown has to be global The Sydney Morning Herald

Special report: How big tech stays offline on tax Reuters

Factbox - Companies that avoid creating tax bases in major markets Reuters

Amazon told: time is up for tax avoidance The Guardian

Vodafone chairman dismisses accusations of tax avoidance The Guardian

U.S. Court upholds the SEC’s final rule for Dodd Frank conflict minerals provision Global Witness

The Netherlands haven for companies that violate human rights SOMO
New CSR and human rights policies insufficient and outdated, revealed by new research Private Gain - Public Loss

Offshore special - Mauritius: Sun, sea and tax The Lawyer

Ireland isn’t a tax haven according to the OECD – who get described as a damp squib in return Tax Research UK

The UK Corporate and Individual Tax and Financial Transparency Bill – a Bill to transform tax in the UK Tax Research UK

(Sm)art Investing: Rich Move Assets from Banks to Warehouses Der Spiegel

German tax dodgers turn over new leaf swissinfo

Offshore Leaks has woken up many Belgians! La Libre (In French)

Italian prosecutors finish investigation into San Marino 'tax evasion ring' The Guardian

Samoa has until the middle of next month to come up with evidence as to why it should be heard in a tax case in Australia Samoa Observer

Julius Baer CEO Expects Swiss-U.S Tax Dispute Agreement Bloomberg

UK Uncut forces closure of HSBC branches in tax protest The Guardian

Ex-Monte Paschi executives investigated in tax fraud case-source Reuters

Dolce & Gabbana close Milan boutiques for three days as 'symbol of disdain' The Telegraph

Wall Street in Crisis: A Perfect Storm Looming SEC Whistleblower Advocate

Wall Street Rips Off 'The Sting' Rolling Stone Taibblog

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Tuesday, July 23, 2013

The July Taxcast - Who needs the OECD? Japan introduced a Tax Haven Counter Measure Law in the 1970s!

In the Tax Justice Network's July podcast: We analyse the OECD’s Action Plan it says is going to tackle corporate tax avoidance. And who needs the OECD, the G8 or the G20 anyway? The Taxcast looks at working models governments could implement NOW without any more summits: Japan introduced it’s Tax Haven Counter Measure Law in the 1970s and Mexico has a tax haven black list and the Dictamen Fiscal rule to help it hold multinational corporations to account.


Produced by @Naomi_Fowler for the Tax Justice Network

Home site www.tackletaxhavens.com/taxcast
Download link here.

Update: For latest and previous Taxcasts, see here.



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Friday, July 19, 2013

Other reactions to OECD corporate tax report: some positives, but big fails for developing, developed countries

Today we published a report outlining our response to the OECD's new Action Plan on tackling corporate tax avoidance. It follows a report on the issue we published ahead of the OECD report's launch.

For those who have read our response already, we can also recommend this article from Professor Prem Sikka, putting these issues in a similar perspective but in a slightly different light.

And we recommend this press release from the Global Alliance for Tax Justice (of which TJN is a member) along with Oxfam and Christian Aid, entitled OECD Action Plan On Tax Dodging Is Step Forward but Fails Developing Countries.
See also the Financial Transparency Coalition's response, entitled OECD BEPS Report Confirms The International Tax System Is Failing Rich And Poor Nations.

We also recommend this blog from Richard Murphy of Tax Research UK, which provides additional perspectives.

Reminder: for our own full response, see the press release below, and the earlier briefing.

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Press Release: TJN responds to OECD Action Plan on corporate tax avoidance

Now updated, with full commentary below. 

The OECD has now published its long-awaited Action Plan on how to deal with corporate tax avoidance. Our response is below. It is broadly in line with a briefing yesterday as a curtain-raiser to this report.


Taxing multinational corporations: OECD chooses a path strewn with obstacles, headed in the wrong direction.

TJN’s Response to the OECD’s Action Plan on “Base Erosion and Profit Shifting”
July 19th, 2013

The OECD this morning published its long-awaited Action Plan to tackle corporate tax avoidance, which has seen the likes of Starbucks, Google, General Electric, Vodafone, Apple, Amazon and many others avoid billions in taxes.

Having carefully examined the Plan, which the OECD sent us under embargo on Wednesday, we have not changed our overall assessment we published on July 17th.
  • The Action Plan proposes the design of a series of piecemeal patches. These patches are generally to be welcomed, as immediate remedies to the gaping holes in the broken international tax system.
     
  • After a year’s work, the OECD has only identified the issues on which work is needed; developing actual proposals will be a far more arduous task, and the timetables of up to two years are likely to prove optimistic.
     
  • This approach is fraught with political obstacles. Although many of the envisaged measures are welcome, the overall approach would ultimately entrench the current broken system.
     
  • The OECD’s recommendations are not binding, and would require many governments to reverse their policies, in the face of determined opposition from business, and from the influential armies of accountants and lawyers who greatly benefit from designing tax avoidance schemes.
     
  • If governments did adopt the recommendations, this would intensify tax conflicts as each nation seeks to ‘grab’ as much cross-border income as possible for tax purposes. An already highly complex system will also become still more convoluted. Coordination will be extremely difficult, and the OECD’s ambitious idea for a multilateral convention is more likely to take twenty years than two.
     
  • The OECD should open the door to an approach that many tax experts agree is superior: unitary taxation, where multinationals are taxed not according to the tax haven-friendly, inefficient and distorted economic forms that their accountants and lawyers contort them into – but instead according to the genuine economic substance of what they do and where they do it.
     
  • The OECD experts have for years stubbornly clung to the outdated principles of a system devised 80 years ago, and have sought to close down any debate on this alternative, which would effectively cut tax havens out of the international tax system and restore countries’ abilities to tax multinational corporations. They claim that unitary taxation is not politically feasible.
     
  • We demonstrate below why unitary taxation is more politically feasible than the OECD’s approach, if governments are serious about taxing multinational corporations. It can be introduced gradually, starting with a transparency requirement, then expanded, building on years of accepted practice.  
Professor Sol Picciotto, a Senior Adviser to the Tax Justice Network, said:
“The Action Plan contains some ambitious measures, which would produce some benefits if implemented. But its approach is like trying to plug holes in a sieve. The OECD has chosen a road that is strewn with obstacles, and leads in the wrong direction.

The OECD has missed this big opportunity to crack open the door to the big reform that the world’s citizens need. It is still open to countries to adopt their own versions of worldwide taxation of multinationals, and for other organizations such as the United Nations to take a lead in developing an effective worldwide system.”
Part 2: detailed commentary

The section below explores the OECD report in more detail.

The OECD Action Plan: the positives.

The Tax Justice Network supports the OECD’s efforts to strengthen international tax rules. The Action Plan is uneven, but in many respects ambitious. Some of its proposals would mean ending tax breaks that we have fought hard against, or introducing measures that we have supported. For example:
  • Strengthening so-called Controlled Foreign Corporation (CFC) rules. These have been eviscerated notably by the U.S.’ so-called “check-the-box” and pass-through rules, and by the UK’s move to a ‘territorial’ system in 2012, as a result of lobbying by multinational corporations and their advisers;
     
  • Limiting corporations’ ability to deduct interest and other payments made from affiliates in high-tax jurisdictions to related affiliates in low-tax or no-tax jurisdictions;
     
  • Ending arrangements that facilitate so-called treaty-shopping, such as the ‘Dutch Sandwich’, and other abuses of provisions in tax treaties;
  • Reforming the concept of “Permanent Establishment” and of attribution of profits, which are easily avoided by separating related functions.
A path strewn with obstacles, and leading ultimately in the wrong direction

Despite these positive recommendations, which if implemented would provide some relief for citizens who bear the economic brunt of corporate tax avoidance, the OECD report is build on a fatally flawed approach.

The OECD experts could have taken this unique political opportunity – on the back of widespread citizen protests and pressures from cash-strapped governments to tackle corporate tax avoidance – to set the world on the road towards a new and far better system. It does not do this, but instead aims to strengthen existing rules.

The fundamental flaw in the current system is that it tries to tax transnational corporations (TNCs) as if they were loose collections of separate entities operating independently in each country. This is a system built on a fiction: the OECD knows as well as anyone that these firms are not bunches of separate entities - but unified firms under central direction.

A tax system fit for the 21st Century would recognise this economic reality, and seek to tax them using a unitary approach. Most tax experts, even some at the OECD, recognise the clear superiority of the unitary approach.

Their main objection has been that such an approach would require a degree of political cooperation which would not be politically feasible. However, a gradual transition towards such a system is both possible and necessary, as we explained in our previous Briefing, and in a more detailed earlier report.
In our view, on the contrary, the OECD’s piecemeal approach is itself fraught with political obstacles, and is far less politically feasible as an approach, if we are serious about taxing TNCs effectively.

Recommendations are not binding; lobbyists will fight hard
 

Many of the measures that the OECD proposes to formulate would require states to reverse their international tax strategies, in the face of determined opposition not just from business, but also from the powerful firms of accountants and lawyers who find the current porous and complex system allows them to design highly lucrative tax avoidance schemes.

There will be many who will hope that while the OECD tries to flesh out these ideas into detailed provisions, the economic and political climate might change, fiscal pressures will abate, and press and public will lose interest in tax justice. We think this is unlikely.

More plausibly, cash-strapped governments will want to try to plug some of the holes in the leaky sieve of international taxation. Each will prioritise the measures that they think would least upset their own business lobbies. It will prove hard to persuade governments to repeal tax provisions that they believe attract business, even if these provisions harm other nations’ economies.

A recipe for conflict
 

To the extent that the OECD does succeed in persuading governments to follow its new recommendations, it faces an enormous task of coordination. If each state prioritises measures that give it a bigger slice of the tax pie, that is a recipe for international tax conflicts between nations. Some issues raised by countries have been ruled to fall outside BEPs project. These would add to the numerous conflicts that already bedevil the system. For example, India and other developing countries remain concerned about the limits current tax rules place on source taxation of foreign-based service providers.

Internet-based services: a growing headache
 

Many governments would like a quick solution to the problem to taxing internet-based companies. Google, for instance, has avoided large amounts of tax by selling its advertising through its affiliate in the tax haven of Ireland. The OECD is unlikely to deliver a good solution to this. One of the fifteen points in the Action Plan concerns the Digital Economy: it expects to deliver only an analysis in a year’s time, and even this deadline is unlikely to be met.

There are good reasons for this: the digital economy is not a distinct sector, but an important element in all business today, to a greater or lesser extent. Specific ways may be devised to tax some particular activities such as internet sales, but such partial and unilateral methods would produce imbalances and conflicts. In fact, the issues identified by the examples of Google, Apple and Amazon point to the more fundamental systemic flaws of the “separate entity” approach described above, which as we have pointed out the OECD does not propose to tackle head-on.

The OECD’s powers of persuasion
 

In its very tough task of coordination, the OECD’s only weapons are technical expertise and peer-pressure persuasion.

It proposes to use three methods.

First, at the most voluntaristic level, it will `revamp’ its Forum on `harmful tax practices’. This essentially entails using peer-pressure to persuade countries to remove tax breaks and preferential regimes.

Second, it will draw up revisions mainly of the Commentary to the Model Tax Treaty, and if necessary also to the actual model treaty articles. The treaty articles are legally binding, and the Commentary has significant legal effect in interpreting those provisions. But this effect only works if and when states actually renegotiate their existing bilateral tax treaties. With the best will in the world, this would take years.

Third, the Plan also proposes to formulate a multilateral treaty, which it hopes would override existing treaties. This poses complex legal problems, and a special group of international legal experts will be recruited for this delicate task. But such a multilateral treaty also would only come into force once ratified by individual states, and only among the states which do ratify it. We recall that in 1988 the OECD drew up, in conjunction with the Council of Europe, a multilateral convention on tax co-operation. This took over twenty years to gain more than a handful of ratifications.

Transfer pricing: a deeper and deeper hole
 

In our view, the OECD has chosen a road that is not only strewn with obstacles, but leads in the wrong direction. This can be seen most clearly, perhaps, with respect to the transfer pricing problem. Here, the OECD has dug itself progressively into a deeper and deeper hole by doggedly pursuing the fiction of “separate entity” and the “arm’s length method’, described above.

The Action Plan suggests that there is the beginning of a realisation of the need for a new approach, in mentioning that `special measures, either within or beyond the arm’s length principle, may be required’. This could potentially be construed as a possible tiny opening. However, it falls well short of the fundamental reorientation of approach that is required.

The OECD experts can be said to have done what could realistically be expected of them, given the political constraints. We had hoped for more, at least as regards transparency.

A road map to true reform
 

As we have pointed out, moving towards unitary taxation would not entail the sudden shock of a ‘big bang.’ It can be introduced gradually, building on existing practice. It involves three components, each of which can build on elements already existing in the current system.

A first, immediate step towards a unitary approach would be a transparency requirement, to require TNCs to submit to each relevant tax authority a Combined and Country-by-Country Report. This would outline the genuine economic substance of what the TNCs do and where they do it, and build on and enhance the already fast-emerging standard of Country by Country reporting.

This report should include global consolidated accounts, for which the OECD could and should develop a template. Action 13 of the Plan does seem to open up this possibility, and for this we must be grateful.

Second, tax authorities could use this information to apportion the global profits multinationals using appropriate allocation factors reflecting the economic substance of their activities around the world.
This can build on existing practice, in particular the so-called “profit-split” method already accepted by the OECD Transfer Pricing Guidelines, which aggregates the profits of related entities then apportions them according to so-called “allocation keys.” This is a narrower, transaction-level version of apportioning profits by formula.

This approach, as currently used, aggregates profits only at the level of bilateral transacting entities - whereas in reality TNCs use more complex cross-linkages among multiple affiliates. It would not be such a great stretch to extend this practice from the level of transacting entities to the combined whole. Indeed, there is already considerable experience in some sectors in applying formulaic profit apportionment, especially in the finance sector, e.g. where a trading book is transferred between offices in different time-zones over 24 hours. Formula apportionment of such profits has been done for 20 years through Advance Price Agreement (APAs) with banks. If firms such as Apple, Amazon, Google and Starbucks really do want to pay a fair level of taxes wherever they do business, they too could enter into APAs and agree an appropriate apportionment.

The experience of using profit split and APAs could be combined with proper research to determine appropriate apportionment formulae. Some degree of divergence of formulae is likely, but this is acceptable.

Some argue that states would simply aim to weight the factor which produces the biggest ‘tax grab’ for themselves – and that therefore it will be impossible for there ever to be full global agreement on a formula: and so, they argue, the whole approach is politically impossible.

But this is quite wrong, for several reasons.

First, full convergence is not necessary. Differing formulae could certainly lead to some overlaps between different countries’ tax systems – but as explained above this already happens under the current system, and the problem is likely to be less under unitary taxation.

Second, states won’t just go for the biggest possible tax grab – because they need also to consider the effects that this would have on inward investment. This is likely to lead to a more balanced approach towards designing a formula, and to encourage convergence. A balance between production and consumption factors seems best. In the US, the trend among states using unitary taxation has been for convergence (towards emphasising the sales factor.)

Some also argue that firms could still reorganise themselves to minimise their taxes.

This is true but it would happen to a dramatically lesser degree, and in a very different way. It is far harder for a firm to relocate physical assets, workers and sales to other countries than it is for them to shift artificial profits under the current system. And if they chose to divest some operations to truly independent third parties, they would lose the profits of synergy and scale. It is hard to imagine a company like Apple being willing to transfer to a truly independent wholesaler in a low-tax country a significant slice of its profits. Relocation of real activities may well occur, but this is very different from the artificial shifting of profits to largely paper affiliates that happens under current rules.
States would remain free to choose their own marginal tax rates. So countries could compete to attract genuine investment rather than formation of paper entities aimed at subverting the taxes of other countries.

Unitary Tax would therefore eliminate harmful tax competition, while allowing countries to make genuine choices between attracting investment in production and generating revenues from corporate taxation. Such a system would of course not be perfect, but aligning tax rules more closely to the economic reality of integrated firms operating in liberalized world markets would make it simpler and more effective.

The third important element of reform would involve a procedure for resolving disagreements and conflicts between states. Such a system already exists in the OECD’s Mutual Agreement Procedure (MAP) but it could be improved, as explained above, and extended to include negotiation of APAs.
Currently, the MAP is very secretive, and decisions often involving hundreds of millions or even billions of dollars are not published. The secrecy of both MAP processes and APAs greatly increases the power of frequent actors in these processes, i.e. the international tax and accounting firms – to the great detriment of the system as a whole.

Publication of both would be a great step towards a system which could both provide and more importantly be seen to deliver a fair international allocation of tax.

Not just the OECD.
 

A new approach to international tax in any case should not come from the OECD alone.

Although they propose to include at least seven of the eight non-OECD members of the G20, this still excludes the vast majority especially of developing countries. A more inclusive forum is needed. The United Nations Tax Committee should be the appropriate body – but it is hampered by lack of resources and bureaucratic problems. Nevertheless, if sympathetic governments could supply it with special funding, it could initiate a special project, following up its rewrite of the Transfer Pricing Manual which was published this year.

The IMF’s Tax Policy Department could also play a role, given its expertise. Indeed, the IMF last month recognised that there is considerable interest in a unitary taxation approach:
“such schemes—including their impact on developing countries—deserve a more thorough and realistic assessment."
We hope that the OECD would also contribute to such a broader initiative to study and develop a new approach, even while it pursues its task of repairing the leaky sieve. The Tax Justice Network will continue its own work, and would be be happy to contribute to any initiatives aimed at restoring the integrity and efficacy of the international tax system.

Media enquiries
Please contact Professor Sol Picciotto:
Skype: Sol.picciotto
email: s.picciotto@lancs.ac.uk
Phone +34-943-579800

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Thursday, July 18, 2013

Links Jul 18

Tax dodging: we can, and should, do better The Guardian
Mark Zirnsak comments: "As sunlight is the best disinfectant to corruption, so transparency is one of the best deterrents to tax evasion. Australia shouldn't be afraid to demand even more."

U.S. Treasury's Lew: core of Dodd-Frank to be enacted by yr-end Reuters

Rwanda: What second life for Kigali's street vendors? The Africa Report
Cites Alvin Mosioma of Tax Justice Network-Africa: "While we support efforts by African governments such as Rwanda to expand their tax base to collect additional revenue, the focus actually should be on the big fish."

OECD plans attack on tax havens Deutsche Welle
Cites TJN-Germany's Markus Meinzer. See also Corporations oppose new tax laws Süddeutsche.de (In German)

Austria Faces Disappointment Over Swiss Tax Deal Tax-News

Bolivia: Tax Evasion JornadaNet (In Spanish)

French website Mediapart faces crippling judgment Committee to Protect Journalists
French website Mediapart faces crippling judgment. Judicial censorship, with an offshore twist.

Prosecutors Raid Home of Former South Korean President The New York Times

Korean tycoon Lee Jae Hyun who set up Hong Kong shell firms for tax dodging charged with plunder The Standard

Kyrgyzstan’s Dethroned “Prince” Has American Assets Frozen
 EurAsiaNet

The moral offensive against tax avoidance fundweb

Taye Taiwo charged with tax evasion in France StarAfrica
See also: Messi calm over tax evasion case The World Game

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Wednesday, July 17, 2013

Tax Justice Briefing: on the OECD's forthcoming report on corporate tax

TJN today has produced a new briefing to serve as a curtain-raiser ahead of the OECD's planned launch on Friday of a long-awaited report that is supposed to offer new solutions to the problems of taxing multinational corporations.

This blog contains a summary of the TJN report. The full report is available here.

Summary: TJN briefing on the OECD's "BEPS" project on corporate tax avoidance

On Friday 19th July the OECD will publish its long-awaited Action Plan on how to fix the broken international tax system for multinational corporations. An interim report on this project, called “Base Erosion and Profit Shifting (BEPS,)” was published in February with a promise of “holistic and comprehensive” solutions to the problems of taxing multinationals.

We do not, however, expect the OECD to announce any radical new approach on Friday.

What we expect, instead, is a series of piecemeal recommendations for states to apply patches to the increasingly leaky international tax system. The effect would be like trying to plug the holes in a sieve.

The problem, in a nutshell

The OECD plays a co-ordinating role in the international tax system by bringing together national tax officials from rich developed countries, and they have designed international tax rules that many states choose to follow to a greater or lesser degree. But its recommendations are not binding on states. To the extent that the OECD does recommend meaningful changes, all the evidence suggests that these will be a piecemeal patch-up job. They will also face determined opposition from the tax avoidance industry and big business in countries such as the UK, US, Netherlands and Ireland, which have provided special tax breaks and regimes in recent years, in response to such lobbying and pressure by multinationals and their advisers.

Let’s now suppose, however, that the OECD does succeed in persuading governments to row back on their current strategies and strengthen current tax rules. At best, the OECD can only provide loose coordination of the rules. Its piecemeal strategy outlined so far in the BEPS project would result in governments trying to grab what they can of the various parts of the profit of transnational corporations. Conflicts already abound in the current system, and success on BEPS' terms would lead to intensified international tax conflict. A patch-up job, even if the OECD were to achieve its objectives, cannot deal with the fundamental flaws in the current system.

The Solution

Most tax experts agree that a better approach to taxing multinational corporations requires a fundamental philosophical shift in the underpinnings of the international tax system, away from the current approaches, where multinationals are taxed according to convoluted legal forms devised by their accountants and lawyers, towards a system where they are taxed according to the genuine economic substance of what they do and where they do it.

This alternative is to take a Unitary approach to taxing multinational firms. This involves taking a multinational’s total global profits and apportioning them out between the states where it does business according to its genuine economic presence in each country.

Many people, including some experts at the OECD, accept that such a system is desirable. Yet they are refusing, so far, even to investigate it, because they claim that it would be too difficult to obtain global agreement on such a new approach. Another reason, perhaps, is because it would be, as one top U.S. tax expert put it recently, “too effective” – and the tax shock would therefore be too great for multinationals to accept.

But the naysayers are quite wrong. A unitary system can be introduced gradually, in a series of steps, building on elements in the current system. The first step would be merely a transparency requirement, to help countries see and understand the genuine economic substance of what multinationals do and where they do it. Second, apportionment of the total profits could be done by building on so-called “profit-split” methodologies (explained in the main report), which are already accepted in some circumstances. Third, there should be a procedure for resolving disagreements, which could also be based on existing arrangements, although these also should be more transparent.

Setting out on the road towards a unitary approach is not only far more desirable than merely applying sticking plasters to the current system, but it should also be more politically feasible, if governments really want to ensure an effective system.

All the OECD needs to do now is to crack open the door to serious study of this reform, which is the only effective way that we will be able to tax multinational corporations properly in our globalised world.

The full briefing explores this in greater detail.
Media enquiries

Please contact Professor Sol Picciotto:
Skype: Sol.picciotto
email: s.picciotto@lancs.ac.uk
Phone +34-943-579800

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Links Jul 17


Japan Shows How to Stop Corporate Tax Evasion Using Tax Havens Huffington Post
Report by Dennis Howlett of Canadians for Tax Fairness

Bangladesh: Rights activists for increasing corporate & direct tax The New Nation
For more see EquityBD.

Study on Taxation in Cameroon: Identification of key issues related to tax justice Tax Justice Network-Africa

Dutch review double taxation treaties with developing countries Times of Malta. Also see our latest blog on the topic here.

Qatar gov’t fined for UK tax avoidance Arabian Business

USA: Corporate Tax Amnesty Bill to Fund an Infrastructure Bank Slammed in Letter to U.S. House of Representatives - “Repatriation Tax Holiday” Would Reward Tax Dodgers, Groups Say TJN-USA
Read the joint letter to the House of Representatives here.

Ex-Vatican bank officials broke anti-money laundering laws, prosecutors say Reuters

The "Human Touch": The Key To Digging Up Court Records ICIJ

Did Israel drop a terrorism-related money-laundering suit to get closer to China? Quartz

Egypt In Crisis: A Look At Corruption Figures For The Last Two Years Financial Transparency Coalition Blog

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ActionAid's Tax Power campaign: going global

From ActionAid (with a couple of tiny tweaks of our own to make it blogg-able):
"In July ActionAid has increased its efforts in the fight for tax justice by the launch of the Tax Power! Campaign. This effectively enlarges the campaign thatActionaid  have run in a couple of countries for 5 years to almost 20 more countries. The following ActionAid offices have or will be launching ActionAid’s Tax Power! campaign; ActionAid Bangladesh, Actionaid Ghana, Actionaid Kenya, ActionAid Mozambique, ActionAid Nigeria, Actionaid Uganda, Actionaid Zambia, Actionaid Australia, ActionAid Denmark, Actionaid Netherlands, Actionaid Sweden, ActionAid UK, and Actionaid USA - with more countries starting activities throughout 2013.

With this campaign we are joining people in poor communities to stop corporate tax dodging, end tax breaks and demand tax transparency to make sure that enough public funds are available to finance and invest in gender responsive and progressive public services. To learn more please visit our ActionAid website for #TaxPower and…

1.       Read ActionAid’s report ”Give us a break – How big companies are getting tax-free deals” which exclusively reveals that the tax breaks given by developing countries to big companies cost over US$138 billion in tax every year globally. It is so much money, it could put the 57 million children who currently don’t go to primary school, into the classroom, AND meet international targets on basic health care provision, AND provide agricultural investment needed to end hunger.

2.       Watch and share the inspiring 3-minute animated video.



3.       Take part in the global #taxpaysfor photo action. Write your message on a piece of paper including ‘#taxpaysfor’, ask your friend to take a picture of you holding it, and tweet it using #taxpaysfor – or, email your picture with your first and last name to us at digital@actionaid.org and we will tweet it for you and add your picture to the gallery on actionaid.org/tax. Have a look at the #TaxPaysFor Tumblr site and browse through the photos that have been shared so far!

We are committed to supporting the global tax justice movement and working in coalitions at the national and global levels.  Please do get in contact with ActionAid if you’d like to get in touch with an ActionAid office working on tax justice in your country."




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Mongolia and tax treaties: the mouse that roared

Recently we blogged a presentation and article by the hard-hitting Lee Sheppard of Tax Analysts, slamming the OECD for allowing and even encouraging a wide arrange of abusive tax practices. The blog is worth reading in its own right, especially given that the OECD will on Friday publish a long-awaited report (previewed here) on how it plans to help countries tackle multinational tax avoidance. We will publish a briefing on this later today.

For now, we will highlight a short part of her speech, delivered in her characteristically forthright style:
Don’t sign OECD model treaties, don’t sign U.N. model treaties
. . .
For multinationals, "there are countries for which there is extraction, and countries where there are customers, and these are all countries from which income has got to be stripped. And the rubric that allows this is the international consensus. It is the whole treaty network. The treaties protect multinationals primarily. That’s all they were ever for: to make life comfortable for multinationals"
. . .
The international consensus is "basically a load of nonsense that protects multinationals." When you sign onto the international consensus, you sign on to a bunch of deleterious consequences.
. . .
"When you sign an OECD model treaty, you say there is no withholding, or hardly any withholding, on outflows of cash to multinationals. Now why in hell do you want to sign that?"
Hard-hitting, important stuff. Our emphasis added. Now, a new special report from Reuters (hat tip: Katrin McGauran) is also well worth reading, in this context. Entitled In tax case, Mongolia is the mouse that roared, it shows one developing country kicking back against the tax abuses that are routinely run out of the Netherlands, just as Sheppard described it. The story begins:
"Turquoise Hill Netherlands is a little-known Amsterdam-based company with three employees, no office, and not even its own mailbox. To the government of Mongolia, though, the company represents billions in taxes that it will never see.
. . .
The Netherlands may help countries like Mongolia with aid, but it also undermines development in poor countries by making it easier for companies to cut taxes."
Turquoise Hill is a 51 percent owned subsidiary of Anglo-Australian mining giant Rio Tinto, which has been stripping income out of Mongolia via the use of its old tax treaty with the Netherlands. This relates to a copper mine that Rio Tinto believes could be the world's third biggest.

Although Mongolia cancelled this treaty in 2011, deeming it unfair (which it clearly was,) it is not clear that this will allow it to start taxing the company appropriately. As the story notes:
A Rio Tinto spokesman told Reuters in an email that the cancellation of the Dutch treaty will not affect [the] use of its Dutch holding company, because the firm has a separate investment agreement with Mongolia which "stabilizes" treaties that were in force in 2009. 
This is unfortunate, but it is heartening that other developing countries are starting to take a look at the unfairness of the international tax treaty system. Last year, Argentina terminated treaties with Switzerland, Spain and Chile. Zambia's new government is also reviewing bilateral treaties. (We looked at some of the issues at play in a blog entitled India: don't sign with Liechtenstein.)

Also take a look at our June Taxcast, looking at Mongolia and its rejection of tax treaties, and providing further details. The section starts about 12 minutes into the taxcast.



Perhaps more surprisingly, the Dutch government is now itself assessing the fairness of some of its treaties.
"Dutch State Secretary of Finance Frans Weekers said he was already reviewing tax treaties with five developing countries to determine if they may be unfair, and will re-negotiate if they are. So far he is not looking at the Mongolia case, but Finance Ministry spokesman Remco Dolstra said that Weekers plans to visit soon and will discuss the matter."
This is welcome, though it remains to be seen how far the Dutch government is prepared to go in confronted the entrenched vested interests at play here.

The report cites our friends at SOMO in the Netherlands, who have done some good work in this area, and cites a Dutch politician making a good point:
"We provide aid to developing countries, but at the same time we make it impossible for them to generate their own income," says Jesse Klaver, a member of parliament for the Green Left party. "It's harmful and unacceptable for us to help multinationals make profits at the expense of developing countries."
Quite so.

More generally, it is time to open up the entire OECD-led global treaty network to greater scrutiny and criticism, for it has enabled corporations around the world to take the benefits from societies in which they operate, without paying their fair contribution to the creation of those benefits.

Coming very soon: our report on the OECD and its "Base Erosion and Profit Shifting" report on tackling corporate tax avoidance.

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Tuesday, July 16, 2013

Links Jul 16

Australia: Multinationals, wealthy on tax hit-list Financial Review

Bangladesh politician's family set up offshore companies New Age
Emerging through the ICIJ data leak - a story involving BVI companies, an account held with a Swiss bank in Singapore, and New Zealand trusts.

British Virgin Islands data theft stumps Indian tax authorities; offenders could take advantage The Economic Times

India: Tax Havens: Significant progress in probe, sending notices in every case, says FM Indian Express

India: Cobrapost Exposé Leads to Fines on 22 Banks for Violating Money Laundering Norms IndiaWest

FATCA: Foreign Banks Win New Delay in Tax Evasion Rule Dealb%k

US, Europe divided on tough taxation for digital firms domain-b
See also: U.S. 'blocks' tax avoidance reform plans, proposals watered down ZDNet

Activists Arrested Protesting Appearance by General Electric CEO Jeff Immelt Yahoo

Britain considers ban on bearer shares, acts on G8 transparency push Reuters
Britain considers ban on bearer shares. Why were they not outlawed decades ago? See also: Vince Cable fails to step up to the mark on beneficial ownership by asking corporate fraudsters to self certify their identities Tax Research UK

UK To Help Pakistan With Tax Revenue Collection Tax-News

UK: Prince Charles must go public with tax dealings The Conversation
Prem Sikka comments on the UK House of Commons Public Accounts Committee examining financial affairs of Prince Charles, heir to the British throne.

Switzerland: Bank whistleblower faces criminal backlash swissinfo

The Parisian treasures of African tyrants: French government may seize mansions and luxury cars of corrupt regimes The Independent

Vatican Freezes Account of Monsignor 500 after Money Laundering Scandal International Business Times

Luxembourg PM Jean-Claude Juncker calls snap elections amid secret service scandal – risking longest held office for any EU leader The Independent

Here’s the Full Guide to Apple’s Irish Tax Haven Wall St CheatSheet

Antigua Responds To FATF AML/CFT Concerns Tax-News

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Derivatives WMD: some progress on financial regulation. But not enough

Recently we wrote about forthcoming rules in the United States relating to the Wild-West, $600+ trillion global derivatives markets, and joined an international letter urging U.S. lawmakers to hold firm in enforcing 'extraterritorial' (or cross-border) regulation of derivatives activity, to avert the possibility that derivatives trades could simply be shunted to the laxest jurisdiction to escape regulation. It turns out that our joint letter had a demonstrable impact.

As our letter stated:
"Effective regulation of fundamentally international and global financial markets requires that national regulators be able to enforce strong oversight rules for all transactions that seriously impact their economy and their markets, wherever these transactions are nominally located.

A failure to embrace this principle will leave the entire global financial system vulnerable to weak regulations in a single host jurisdiction. Financial institutions located in the under regulated jurisdiction will be able to conduct transactions that affect markets across the globe, and other nations will face incentives to reduce their regulatory oversight as well."
Americans for Financial Reform (AFR) in the U.S., who have been pushing hard to support efforts to close the offshore derivatives loophole, issued a press briefing recently under a headline that summarises the issue nicely:
"Cross-Border Exemption = Backdoor Repeal"
See also the New York Times editorial on this, for more background. Last Friday was the deadline for a decision on this crucial issue related to offshore arbitrage and 'financial weapons of mass destruction (WMD)', and the result has been . . . a mixed bag. We are pleased to see that the Commodity Futures Trade Commission (CFTC), the lead U.S. regulator in this area, referenced our letter four times in guidance notice on Friday (search for "Tax Justice Network", or scroll to pp192-3.) It seems clear that our letter gave the CFTC grounds to support stronger cross-border derivatives rules, and we think we achieved our goals helping provide a civil society voice in the process.

The outcome could certainly have been a whole lot worse, and it is to the credit of CFTC Chair Gary Gensler in particular for fighting so hard against the massed armies of financial lobbyists pushing to open the offshore loophole.

In a statement issued on Friday, AFR summarised the positives:
"We are pleased that the CFTC released a final guidance on the extra-territorial application of CFTC derivatives rules. This finalized guidance implements a principle vital to financial reform: transactions by nominally foreign subsidiaries supported by a U.S. parent, and by foreign entities that are major dealers in U.S. markets, can pose significant risks to the U.S. economy and must fall under U.S. financial regulations. In today’s global financial markets, risk is not bounded by geographic borders but instead flows to whatever entity is ultimately liable for a transaction.
. . .
The finalized guidance leaves no doubt that the Commission intends to exercise its clear Dodd-Frank jurisdiction over many cross-border transactions. Indeed, in a few areas, such as the treatment of foreign-registered U.S. hedge funds and the cross-border application of clearing requirements, the finalized agreement appears stronger than previous proposals. The Commission has succeeded in finalizing this guidance against strong industry pressure."
But there are many negatives, too. There is too much reliance on 'substituted compliance' under which the baton of regulatory oversight is handed to a foreign jurisdiction once its regulation is judged to be good enough. This is an acceptable principle if the foreign jurisdiction's regulation is good enough - but this does not appear to be the case, and leaving too much leeway for substituted compliance risks turning into a rubber-stamping exercise leading to a renewed race to the bottom on financial regulation and another global free-for-all. As AFR summarises:
"The heavy reliance on substituted compliance means that the entire U.S. derivatives framework could be unraveled if the Commission eventually permits inadequate foreign regulations to substitute for U.S. regulation."
Note, too, that the application of cross-border rules has been delayed until December for six major foreign jurisdictions: Australia, Canada, the European Union, Hong Kong, Japan, and Switzerland - some of whose members with a track record for making race-to-the-bottom regulation part of the business model. As AFR describes it:
Several of these jurisdictions are not near completion of their rules and could not possibly be ‘comparable’ to U.S. rules by December.
So there will be much to play for.

One important message has emerged from this, from our perspective. Those in Europe engaged on fighting for financial reform are too few - yet it is possible to make a difference.  We hope that many others can engage on these crucial, if complex, issues.



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Friday, July 12, 2013

Links Jul 12

African tax treaty to combat evasion Business Standard

Zambia Sugar continues to deny tax avoidance claims Lusaka Times

European companies in the paradise of lost taxes Eurodad
A new report by Eurodad member organisation CCFD-Terre Solidaire and the institute CERAS concluded that the 50 biggest companies by turnover in Europe all have a presence in tax havens around the world.

Swiss Banks Near Deal on U.S. Tax Cheats The Wall Street Journal

No tax guarantee from commodity trading hub Geneva Reuters

'Relationships between politicians, top businesspeople helping to drive tax evasion' Go-Jamaica

Barbados PM Says Business Sector Under Threat Tax-News

PwC to cut Caribbean jobs Cayman News Service

Amazon criticized over low German tax bill Reuters

Germany calls on EU to ban "patent box" tax breaks Reuters

In transnational journalism project, Costa Rican team visualizes links between thousands of offshore companies Knight Center for Journalism in the Americas

A villain’s guide to football - Welcome to the beautiful game The Economist

How JLo can you go? Global Witness calls on JLo to donate money from Turkmenistan show to charity

Booksellers call on MP to campaign for 'fairer' tax from multinationals The Guardian
Campaigners press for retailers to join united front in pushing for action after Amazon petition prompts Commons debate

U.S.: Senators Introduce Bill to Separate Trading Activities From Big Banks Dealb%k

IRS Under Fire for Tax Holiday Passed Under Bush Administration SBWire

IKEA founder to return home 40 years after fleeing Swedish taxes Reuters

Irish MPs vote not to grill Google and Apple bosses over tax The Guardian
Irish parliament's finance committee presses ahead with watered down inquiry into Ireland's engagement with global tax

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Financial regulation: internationally competitive = domestically dangerous

Reuters blogger Felix Salmon has a fine short piece on financial regulation which begins like this:
"Here’s a quick and dirty way of judging the quality of your country’s financial regulation: to what extent do you create and impose tougher-than-international standards?

By their nature, international standards are the lowest-common-denominator."
Quite so. This is the consequence of a race to the bottom. (A second consequence, of course is that the lowest common denominator typically gets lower.)

He gives a few examples, and then a pretty bleak conclusion:
"The fact is that regulation is one of those things that doesn’t have a natural political constituency: rich banks are good at lobbying against it, while there are no effective or well-resourced lobbyists on the other side. So while it’s worth celebrating the occasional piece of capital-related good news, the long-term outlook remains exactly the same as it did in 1998: at the margin, the administration — no matter whether it’s Republican or Democrat — is going to help the financial industry be “internationally competitive”. Which is another way of saying domestically dangerous."
Quite so.  And, we should add, internationally dangerous.

Internationally competitive = domestically dangerous. This could be a maxim for our times.

And it also applies to tax.

PS: We recently wrote about all of this with respect to derivatives. This comes to a head today. And although we currently only have a superficial understanding of the fast-changing action, it looks like the bad guys are winning.

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Latvia: an emerging European tax haven

Updated from the original version, with additional comments from Michael Hudson.
 
Germany's Spiegel has an important article today entitled Latvia and the Euro: Meet the EU's Newest Tax Haven. It begins:
Latvia will become the common currency area's newest member in January 2014 -- the same time that new tax laws go into effect allowing the country to compete with the likes of Cyprus and Malta. This could further destabilize the European economy.
It quotes Sven Giegold, a founder of TJN and now a Member of the European Parliament:
"Instead of eliminating established tax havens, we have added a new one to the euro zone."
TJN has no problems with Latvia joining the Euro zone per se, but it does have problems with its abusive incoming tax laws.

What is Latvia offering? Well, it's 15 percent corporate tax rate is what will get talked about most, and while that is significant, it is -as with Ireland's 12.5 percent tax rate - a distraction from the real issues. Also:
"Holding companies -- firms that hold stock of other companies -- enjoy further benefits in Latvia. Since the beginning of 2013, their foreign profits earned via dividends and stock sales have been tax free. Transferring such profits out of country is also not taxed. Furthermore, as of 2014 Latvian holding companies will no longer have to pay taxes on interest and licensing fees they pay to foreign companies."
This will allow large numbers of wealthy people and corporations to escape tax, and intensify the race to the bottom. The article cites TJN's Markus Meinzer as describing Latvia as a "Luxembourg for the poor."

Worryingly, it's not just about offering tax loopholes: it's about dirty money too.

Latvia doesn't have a particularly high secrecy score on our Financial Secrecy Index. But it has fairly lax standards on dirty money, and - as with Cyprus - a long history of not adhering to its own standards. (This is a common tax haven ploy: set up nice laws, get off the blacklists, then simply disregard your own laws, and watch the dirty money roll in!) The pressure of almost unlimited quantities of questionable money from the former Soviet Union - and Latvia is quite strongly Russian-speaking - will, most likely, encourage Latvia pursue an ask-no-questions, see-no-evil attitude to dirty money, as far as possible. And the fact that it's a fairly small country (population: 2 million) will practically ensure that this becomes even more of a 'captured state' whose laws are dictated by the financial sector, with little or no democratic consultation on those laws, and great damage to the rule of law in that part of the world in particular. The fact of its being an EU member will take the hardest edges off some of this, but it also gives investors an added encouragement to use Latvia because of its Euro membership.

Professor Michael Hudson, a well known U.S. economic commentator and an expert on Latvia, co-wrote a very useful piece a few months ago skewering much of the commentary on Latvia and adding:
"Although not in the league with London, New York and Zurich as a criminogenic flight capital center, Latvia has carved out a substantial niche in the global money laundering system.
. . .
Latvia’s correspondent (offshore) banking sector that attracts and processes capital flight. Already a site for illicit transfer of Soviet oil and metals to world markets before independence, Latvia became a major destination for oligarch hot money. The Latvian port of Ventspils was an export terminal for Russian oil, providing foreign exchange that was a Soviet and later Russian embezzler’s dream. Figures such as the notorious Grigory Loutchansky of Latvia and his Nordex became notorious for money laundering. Even Americans were involved, such as Loutchansky’s partner, Marc Rich (later pardoned by Bill Clinton) who later took over the Nordex operation.

The Latvian government signaled its intentions to defend this offshore banking sector at all costs (including imposing austerity on its people) when it bailed out Latvia’s biggest offshore bank, Parex. European Commission and IMF authorities gave a massive foreign loan for Latvia that in part enabled the government to function after bailing out Parex and thus its correspondent (offshore) accounts and continued payment of above-market interest rates to “favored” (read: “well connected”) customers."
Anyone who is reminded here of Cyprus is not alone.

Luxembourg and Austria inside the Eurozone (in league with Switzerland, outside it) have already played appalling roles in blocking powerful transparency reforms in Europe, and it will be very worrying if -- as seems likely -- Latvia begins to work inside Europe in alliance with these obstructive, secretive players.

Not only that, but Latvian Prime Minister Valdis Dombrovskis recently used that weasel word 'competitivness' to describe Latvia's policies. We have written extensively all about that, here and here

While efforts continue to tackle the offshore cancer in the global economy, it continues to metastasise.


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Thursday, July 11, 2013

Links Jul 11

French HSBC tax case report reveals $5 billion in Swiss funds Reuters
See also: Everything has been done to hush up the affair of HSBC tax evaders Interview with Hervé Falciani, Libération (In French)

Switzerland: Inheritance tax deal signed with France swissinfo

Swiss Insurers May Be Next in U.S. Crackdown on Tax Evasion Insurance Journal

Russia convicts dead lawyer of tax evasion Al Jazeera
Court delivers guilty verdict for whistleblower Sergei Magnitsky

Russia passes money-laundering law Russia Beyond the Headlines
The government encroaches on banking privacy, in an attempt to fight money laundering and tax evasion. Experts believe the new legislation brings Russia closer to the “civilized world.”

Singapore finance minister urges U.S. and Europe to harmonize financial rules Reuters

BVI Issues Action Plan On Transparency Tax-News

Tanzania: TRA Sets Goals, Aims to Curb Tax Evasion allAfrica

Buy a football club, and you have a money-laundering and embezzlement machine at your disposal
The Economist

Botswana: Net closes in on tax evaders Mmegi

Senator joins network advocating for financial transparency Ottawa Citizen
A Liberal senator whose name has been attached to an offshore tax haven has been elected to sit on an international board that advocates for greater transparency among the world’s financial institutions.

Berlusconi's Supreme Court Tax Fraud Trial Appeal Set for July 30 Hollywood Reporter

Unlikely partners: Artworks used to create slush funds The Korea Herald

Have tax havens had their day in the sun? fundweb

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Do lower top taxes raise growth? (episode 273,000)

Via @Frances_Coppola, a fun little post about taxes and growth. It starts by looking at the interminable arguments about whether higher taxes raise or reduce growth. Our answer usually is: there seems to be only a very weak effect, at best, though there are mild suggestions that tax cuts have been associated with somewhat lower growth. (See here, or here, or here, or here, just for instance.)

But this new post makes some interesting points. It looks at the UK, which saw a big cut in the top marginal tax rate from 60 to 40 percent in 1988. In the previous 22 years, real GDP grew by 2.6% per year, and in the following 22 years slowed to 2.4% a year*.
"There are three possible reactions to this:

1. The tax cut actually made no difference to growth: 0.2 percentage points is well within the sort of difference we'd expect from random fluctations. Indeed, it's possible that there are almost no feasible policies which noticeably affect trend growth.

2. The tax cut actually reduced GDP growth. This might be because the income effect encouraged wealth creators to retire early, or because it incentivized rent-seeking or the growth of a banking sector which thrived only by creating risk pollution.

3. The tax cut on its own would have raised GDP growth, but other factors offset this benefit."
So far, so good.

Now the tax-cutters-at-all-costs need to argue point 3.

But here they get straight into choppy waters - because the relentless tax-cutting ideology is traditionally served up alongside a lot of other baggage: that the Thatcherite reforms of the 1980s and 1990s -- a reduction in trades union power; privatisation; the abandonment of wage and price controls; rapid financial and trade globalisation, the explosive growth in tax havens, lower corporate tax rates; and perhaps inflation targeting - must have been good for growth. But it wasn't: growth slowed slightly. So:
"To claim that Lawson's tax cuts boosted GDP growth thus requires one to argue either that the many pro-market reforms of the 80s and 90s had no great beneficial effect or even a negative effect, or that some other factor greatly depressed growth and offset all these benefits. This requires some arguing."
TJN doesn't generally take a view one way or another on that kind of Thatcher-styled 'baggage,' as it's outside our core focus, but, well, the argument here seems logical.

And one more thing. The tax-cutters aren't really tax-cutters at all: what they routinely call for is for taxes on the rich to be cut (that is, corporation taxes, capital taxes, top marginal income tax rates) while raising taxes on the poor (VAT, say, which has risen from 8%, first introduced in 1973, to 20%, since January 2011.) And the end result? This picture gives a flavour.


To understand what the picture is saying, it is from this graph, from the UK's Office for National Statistics, which explains the overall picture of apparently ever more regressive taxation. (Update, July 12: with more details available here.)

These tax-cutters-at-all-costs may well be paid-up members of the evidence-averse New Church of Finance.


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