Tax Justice Network

Pay your taxes, and set your country free

noreply@blogger.com (TJN) — Thu, 17 Dec 2009 09:53:00 +0000

Sylvia Mwichuli, the UN millennium campaign communications coordinator, is being quoted in the Guardian as saying that depending on foreign aid to achieve the Millennium Development Goals (MDGs) does a disservice to Africa.

"African governments must find ways of financing development; we are calling for a paradigm shift in financing of development, not depending on donors," she said.

This short new Christian Aid video highlights some of the things that matter, including on corporate taxation. It quotes David Wood, the executive director of technical policy at the Institute of Chartered Accountants of Scotland (ICAS) as saying:

"Companies are very keen to be seen to have corporate responsibility . . . but it must be the most responsible thing to pay the right amount of tax at the right time."

Quite right. And this issue - of taxpaying as a component of corporate responsibility - is still the invisible elephant in this room. (Read more here.)

Back to the UN's Sylvia Mwichuli:

Once African governments are able to finance their national budgets without foreign aid, which usually comes with strings attached, they would be in a position to allocate resources according to local priorities and would make more headway in meeting the MDGs by 2015.

"I get disgusted with countries that entirely depend on donor budgets," said Mwichuli. "What then do we pride in as African countries, if we have no control over our own national budgets and affairs?"

It reminds us of the words of Michael Waweru, commissioner-general of the Kenya Revenue Authority, in November 2007:

"Pay your taxes, and set your country free."

Only six percent of Kenya's budget is foreign funded. OK, there's a long way to go for many developing countries before they can wean themselves off foreign aid (and, by extension, foreign interference and rulers' accountability to foreigners, rather than to their own people). But at least tax is starting becoming respectable.

Canada's moral transformation on tax?

noreply@blogger.com (TJN) — Thu, 17 Dec 2009 09:50:00 +0000

From Canada's Globe and Mail:

"Canada has undergone a moral transformation when it comes to offshore tax evasion, and what may have been considered exotic is no longer tolerated by the average taxpayer, the Minister of National Revenue said yesterday.

At a certain period of time in this country, and I may say a few years ago, it's like it was excellent to not pay your taxes,” Jean-Pierre Blackburn said. “It's like it was, ‘Oh, you're a lucky person,' – seeing it as good. But it's not like that any more. People, they don't like to see anyone cheating.”

It's a positive development, though this is one person's view. It is hardly surprising that there has been at least some shift:

"We have a deficit this year of $56-billion. People have to pay their due to the government,” he said."

Switzerland bankers determine Swiss policy - again

noreply@blogger.com (TJN) — Thu, 17 Dec 2009 08:28:00 +0000

Update: the FT has an article on the witholding tax we've mentioned.

The Swiss Federal Council has just published a new report, Strategic directions for Switzerland’s financial market policy, which is predictable in its genuflection to Swiss bankers. Indeed, as the accompanying press release notes:

"The Federal Department of Finance (FDF) prepared [it] in consultation with financial market players, defines goals and measures to further strengthen the Swiss financial centre. The responsibility of the Confederation is limited to the creation of an appropriate regulatory framework."

Just as has happened in several other countries, this statement suggests that it is bankers, not a wide array of affected stakeholders, who have been given the task of deciding what is appropriate for the economy as a whole. And yet the report itself seems to contradict this, stating that

"It is not the role of the federal government to practise industrial policy. It has an interest in defending the interests of the Swiss economy at large and, in general, creating favourable conditions for private enterprise."

But promoting one economic sector, especially one decided through a consultation with that sector's market players, is an industrial policy. As we've noted before.

And guess what. The report has decided that Switzerland will continue to defy and insult ordinary citizens around the world, who will have to pay the price of their own élites being afforded Swiss secrecy. As the press release notes:

"The declared goal of the Federal Council is to ensure protection of client privacy. It continues to reject the automatic exchange of information."

This disgrace is, however, leavened by a morsel - no more than that - in terms of co-operating with foreign tax authorities.

"It is willing, however, to expand existing cross-border cooperation within the framework of bilateral negotiations. The precondition for this is, however, that it is linked to better market access and the regularisation of existing accounts with respect to the tax authorities of the state in question, with no repatriation obligation. In return, the Federal Council is willing to consider the introduction of a final withholding tax and the conclusion of a services agreement with the EU, as well as other measures that promote fiscal honesty among bank clients (e.g. introduction of a self-declaration)."

What would be far better is for Switzerland to confess to the error of its ways, institute normal bank confidentiality as in any normal country and get rid of its pernicious bank secrecy arrangements, and start a new relationship with the world on the basis of openness, transparency and co-operation. A full national apology for past crimes would be a good component of any new leaf. The internal logic of the Swiss position is, as this superb and hilarious Daily Show clip exposes, incoherent - even incompatible with reason. And the report itself notes that Switzerland needs to pursue:

"the protection of privacy, and an attractive tax climate for the financial sector and the economy as a whole. . . . The relevant authorities, and FINMA in particular, should ensure that the issue of competitiveness is sufficiently addressed in current and future regulation projects."

In other words, we'll keep your dirty money secret; we'll help you avoid or evade tax on that money, and we'll ensure that we're at the forefront of the race to the bottom on regulation.

Still, if you're interested in this kind of thing, this report does contain some useful facts and figures.

How many banks, accountants, lawyers in tax havens?

noreply@blogger.com (TJN) — Wed, 16 Dec 2009 12:26:00 +0000

TJN's Mapping the Faultlines project has produced a new analysis based on the data it has collected, looking at how many banks, accountants and lawyers are present in secrecy jurisdictions (tax havens) around the world. It is the fourth such report in the series so far.

As it notes:

"Having a large number of banks, lawyers and accountants in a jurisdiction is likely to generate two effects. First, bankers, lawyers and accountants offer and support financial
services and, by interaction and collusion, have the knowledge and means to handle and hide illicit financial flows if they so wish. Second, banks, lawyers and accountants active in financial services will have considerable power in any secrecy jurisdiction that is heavily dependent upon financial services. And if bankers, lawyers and accountants are present in high numbers a culture of constructive non-compliance can be created. In effect this means that the appearance of compliance is present but the rate of reporting of potential money laundering offences is low in proportion to the likely risk that they occur."

As the reports, by way of example, only a tiny number of suspicious transaction reports were filed in places like Jersey and Guernsey, relative to the number of depositors. Read on.

Small Island States Hold Keys to Climate Talks

noreply@blogger.com (TJN) — Wed, 16 Dec 2009 09:43:00 +0000

While most commentators look at the role of US and China in the climate talks, as indeed they are the biggest polluting nations, we rarely think of those small islands as having much to put on the table, but a closer look tells us more.

First of all, many small islands will lose significant parts of its territory under water if sea levels rise.

The most extreme example is Tuvalu is the surpricing broker at the COP15 talks, with its highest point at 4.5 metres above sea level, the tiny nation has already established evacuation plans for the 11,600 inhabitants of the nine coral atolls to settle in New Zealand as climate refugees. Tuvalu, in short, has everything to lose from a bad deal in Copenhagen, and should demand a maximum increase of 1.5 C as the acceptable rise in global temperatures.

Already 1,500 of its citizens work as seafarers on the seven seas of the world, trained by the Asian Development Bank, and some 2,000 have settled in New Zealand, more may need to follow.

On the revenue side, according to the Asian Development Outlook 2008 Tuvalu made US$ 5.39 million from the combined sales of its 'extractive' industires of fishing rights and .tv internet domain sales, adminstered via a California-based company called DotTV. Meagre results considering the size of the potential fish catch in its territorial waters. One gap in the revenue graphs was tax, only 31% of all revenues.

Secondly, small island states tend (though not all) to be secrecy jurisdictions that contribute to illicit financial flows. Reversing such flows hold the key to adaptation and mitigation.

The Alliance of Small Island States (AOSIS) have organised a collective lobby at COP15, led by the prime minister of the Grenadines, has the hard task of asking for more aid. But, why not raise taxes home instead on capital gains, corporate taxes, and progressive income taxes? Many of the AOSIS states live on finance and are also secrecy jurisdictions, just like the USA with its state of Delaware, Luxembourg, Switzerland and UK with the city of London.

This doesn't mean that all small island states are culprits of the resource flow from the South to the North. Tuvalu has no financial secrecy provisions, and it may rather be losing from underpriced fish revenues but, for instance, the current president of the AOSIS group of countries, St. Vincent and the Grenadines, is featured on the 39th place (ouf of 60) on the list of secrecy jurisdictions.

It would be about time to evaluate the consequences of secrecy. In this light, 'financial services' are far from bring 'green' industries.

Firms outside London must subsidise City, mayor says

noreply@blogger.com (TJN) — Tue, 15 Dec 2009 09:29:00 +0000

The Mayor of London, Boris Johnson (pictured) who hides his love for bankers and inequality behind a buffoonish, colourful exterior, has been calling for businesses outside London to help pay towards the £11 billion Crossrail ‘super tube’ project. It has worldwide lessons, from a tax perspective.

Crossrail is, to a large degree a project about increasing the profits of London's financial districts at Canary Wharf and the City of London. Among other stakeholders in the Crossrail consortium is the very, very peculiar Corporation of London (or City of London Corporation), which calls the project "essential for London’s competitiveness" and admits that

"The City of London Corporation has agreed to make a direct contribution of £200m to the Crossrail project. In addition, the City Corporation will seek contributions from businesses of £150m, and has guaranteed the first £50m of these contributions."

Now there is often a lot to be said for mass transit projects, especially if they get people out of carbon-belching cars. But it is also essential to understand what other effects they have, such as how they affect wealth distribution in a country. It's interesting, in this context, to hear the words of Professor Michael Hudson in New York, an interesting character who was one of relatively few people issuing specific warnings about the looming economic crisis, ahead of time. Here's an excerpt from something he said in a round-table discussion last year:

"Mass transit in almost every country creates an increase in real estate values along the routes that could actually—the rental increase that’s created by this transportation could actually finance the entire transport system. For instance, in London, when they built the Tube extension to their financial district, they created thirteen billion pounds worth of increased real estate value, and the Tube itself cost only eight billion dollars [sic.]. But they left this thirteen billion of real estate value in the hands of the private landlords.

And note, in this context, what the Corporation of London says:

"the delivery of Crossrail will provide a boost of at least £20 billion to the UK economy . . . it will also help secure London’s position as a world leading financial centre."

Now back to Michael Hudson:

Same thing in Chicago in the United States. There can be a very heavy investment in mass transportation here. This is going to create enormous real estate values. The tax system will leave these in private hands. And I think all of the tax proposals that Mr. Obama has spoken about have to do with income tax, primarily. The rich people prefer not to earn income, because you have to pay taxes on them. They prefer to make capital gains. So the intention of the economic team that Mr. Obama’s brought in is really to create a huge capital gains economy and even more disparity of wealth, while leaving in place the one thing that should have been addressed in the last year, and that’s the enormous debt overhead. Nothing is happening at all on that. He’s adding to debt, not reducing it."

And this is why we should be very, very cautious about projects like Crossrail, and think about their long-term consequences in terms of future tax revenues, and distribution of wealth -- beyond the more obvious effects of concentrating investment and people more strongly still around the City area. And it illustrates another set of reasons why it is essential resist the calls of those like the buffoonish Boris Johnson to get the already heavily deprived rest of the country to subsidise a project that is -- while certainly likely to make lives easier for a significant number of the 350,000-odd workers in the City of London, is more fundamentally and more importantly - though more invisibly - about subsidising the wealthiest sections of society.

That's one reason why land value taxes are an essential and important part of any good tax system. And that's a reason why tax competition - which has eroded capital gains taxes (which is, to generalise, what wealthy people pay) downwards while leaving income taxes (which is what ordinary people pay) -- is so very pernicious. And why we should resist the bleatings of those who constantly call for lower capital gains taxes in order to stop people and businesses fleeing offshore. It has been shown that when their bluff is called, their clamour is exposed as fraud.

Postscript: newly added to our quotations page:

People think that taxation is a terribly mundane subject. But what makes it fascinating is that taxation, in reality, is life. If you know the position a person takes on taxes, you can tell their whole philosophy. The tax code, once you get to know it, embodies all the essence of life: greed, politics, power, goodness, charity. Everything's in there. That's why it's so hard to get a simplified tax code.
Sheldon Cohen, former IRS Commissioner

Waste recycling workers: tremendous added value

noreply@blogger.com (TJN) — Mon, 14 Dec 2009 11:59:00 +0000

From the New Economics Foundation:

"In this report nef (the new economics foundation) takes a new approach to looking at the value of work. We go beyond how much different professions are paid to look at what they contribute to society. We use some of the principles and valuation techniques of Social Return on Investment analysis1 to quantify the social, environmental and economic value that these roles produce – or in some cases undermine."

They look at six professions: bankers, childcare workers, advertising executives, hospital cleaners, accountants, waste recycling workers.

Their conclusions?

Waste Recycling Workers: for every £1 of value spent on wages, £12 of value will be generated.
Hospital cleaners: for every £1 they are paid, over £10 in social value is generated.
Childcare workers: For every £1 they are paid, childcare workers generate between £7 and £9.50 worth of benefits to society.
City bankers: While collecting salaries of between £500,000 and £10 million, leading City bankers to destroy £7 of social value for every pound in value they generate.
Advertising executives: For a salary of between £50,000 and £12 million, top advertising executives destroy £11 of value for every pound in value they generate.
Tax accountants: For a salary of between £75,000 and £200,000 tax accountants destroy £47 of value for every pound in value they generate.

Well, of course, many will gripe about the methodology: as anyone can see, it's impossible to really put a monetary value on the value of many things. But it's just as valid an approach as - and maybe more valid than - the mainstream measurements that are routinely used.

Drugs money "saved banks from collapse" in crisis - UNODC

noreply@blogger.com (TJN) — Mon, 14 Dec 2009 11:45:00 +0000

From The Observer:

"Antonio Maria Costa, head of the UN Office on Drugs and Crime, said he has seen evidence that the proceeds of organised crime were "the only liquid investment capital" available to some banks on the brink of collapse last year. He said that a majority of the $352bn (£216bn) of drugs profits was absorbed into the economic system as a result."

This illicit stuff is not, as most people think, peripheral to the global economy. It is central to it. Costa continued:

"The moment [last year] when the system was basically paralysed because of the unwillingness of banks to lend money to one another. The progressive liquidisation to the system and the progressive improvement by some banks of their share values [has meant that] the problem [of illegal money] has become much less serious than it was," he said.

And The Observer added:

"It is understood that evidence that drug money has flowed into banks came from officials in Britain, Switzerland, Italy and the US."

Officials in some of those centres have denied this, saying that the money came substantially from central banks.

EU urges IMF to consider financial transaction taxes

noreply@blogger.com (TJN) — Mon, 14 Dec 2009 11:08:00 +0000

From Reuters:

"European Union leaders urged the International Monetary Fund in a draft statement on Friday to consider imposing a global tax on financial transactions following the economic crisis."

And it provides further detail:

"The European Council encourages the IMF to consider the full range of options including insurance fees, resolution funds, contingent capital arrangements and a global financial transaction levy in its review," they said.

All positive. And we know that the IMF is already considering this.

UK tax moves "so far failed to spark banker exodus"

noreply@blogger.com (TJN) — Mon, 14 Dec 2009 08:50:00 +0000

Last week we highlighted a report from September, highlighting how nearly all the financial sector's scaremongering over tax increases had been exposed as bluff. Now we have something more nuanced, but with a similar message, from the FT:

"Dozens of UK hedge funds have already decamped to (EU oversight-free) Geneva, Zurich and other Swiss cantons in recent months following a marketing push that has included presentations in top London hotels. But it has so far failed to spark the mass exodus some “hedgies” predicted.
. . .
Sweeping changes to Britain’s income tax regime have also had a surprisingly muted impact thus far."

So this update suggests, then, that the scaremongering has been exposed again as bluff, following the recent bankers' bonus tax -- and the fact that other nations are expected to follow suit backs up the government's stance. However, the story itself then, strangely, sets about giving plenty of space to the scaremongerers, with the same dire warnings we've always heard.

Britain's financial sector, which is choking the rest of the economy, and (as the financial crisis has finally made clear) stealing British tax revenues needs to shrink severely. A significant exodus is what's needed. What Britain needs to move towards is a normal financial sector.

Tax system flaws cost UK £40bn a year

noreply@blogger.com (TJN) — Mon, 14 Dec 2009 07:20:00 +0000

From the FT:

"Loopholes, evasion and other flaws in the tax system are costing the country about £40bn in revenue a year, according to an official estimate likely to inflame arguments over how to repair Britain’s biggest ever peacetime deficit."

FT subscribers can see a more detailed breakdown here. But things have been getting better in some respects:

"The sums retrieved from reluctant or error-prone taxpayers have risen 60 per cent over the past three years, according to Revenue & Customs statistics."

and the first story added:

"Richard Murphy, a campaigner and TUC adviser, accused the Revenue of seriously underestimating the scale of the tax gap, which he believed was likely to total about £100bn. “People should be angry about it,” he said.

Read more on Murphy's analysis here.

Tax is the Answer for Climate Financing

noreply@blogger.com (TJN) — Sat, 12 Dec 2009 08:38:00 +0000

The United Nations Climate Change Conference 2009 in Copenhagen (COP15) has a 'global levy on financial transactions' is on the conference document. Such a tax, as we have argued before, would be equitable, and urgently needed.

Currently the COP15 summit is deadlocked on the question of long-term financing:

"Poor countries want a minimum of $400bn (£242bn) a year by 2020 to help them adapt, but rich countries have proposed only €110bn (£100bn) a year."

José Manuel Barroso, the president of the European Commission agrees, he is quoted in the Guardian that the scale of the sums is so huge that it is beyond the scope of traditional national budgets: ‘You need to look at innovative financing. This is an issue of global governance’. Barroso is spot on.

The most prominent of these 'innovative financing mechanisms' is now the global levy on financial transactions, as it is called in Copenhagen, or the financial transactions tax (FTT) as we have called it before. Depending on the rates applied, and the scope of the countries participating, it could raise anything between a modest US$ 20 to a whopping US$ 690 billion a rate of 0.005-0.05 per cent.

Such a levy would be minimal to the financial markets, which now have the volume of trillions of dollars, on the currency transaction market already has the daily volume of about US$ 4 trillion, while currency derivates trading had a daily volume of US$ 2.54 trillion, meanwhile share trading had a daily turnover of US$ 450 billion both also in 2007. Indeed as market trading volumes are so vastly different, it would be efficient to tax share trading at a higher rate than currencies. Also as volumes are likely to decrease as a tax is applied, revenues will actually be somewhat lower than the headline figures.

The second tax being proposed is a Carbon Tax, and a simple of basing it per tonne of emmited emissions would be the simplest way to implement it. Concerns, however, exist on how equitable it would be. Some studies exist in the US for the year 2005, and France for 2009 (in French only) show that the tax burden would be skewed on the top quintile (over 25 per cent), the bottom two would pay less than a quarter of the tax. No studies on the equitability of carbon taxes exist for developing nations.

The Carbon Tax Centre in the USA proposes a flat rate of $50.00 per ton of carbon. This rate is entirely feasible as Finland already taxes carbon at 66.2€ per ton (about US$ 96.8), Sweden at a higher rate of 108€ per tonne, and France has proposed at 32€ per tonne by the Rocard Comission, but to be implemented first at half the rate at 17€ per tonne tax from January 2010. Most of the existing and proposed plans, however, exempt energy production either fully or partially from the tax.

Applied globally and at a flat rate to the 8,230 million metric tonnes of carbon put into the air (2006 estimate), we have between €139 billion €888 billion in revenue (assuming again emissions would not decrease, which we hope they would as a result). The Swedish case demonstrates its feasibility as in 2008, they raised €1.4 billion in revenues -- even while energy production had exemptions.

The problem in each one of the calculations, however, is that the majority of taxes levied would be in the rich nations plus India and China as major emerging economies (and thus major carbon polluters), while it is the poor nations who need to additional financing. Do we really believe all carbon taxes and financial transaction taxes would be given as aid to poor countries?

Pigs must be flying in Copenhagen if we believe that, so better assume only a part would be redistributed, as both a proposed US carbon tax legislation, and the agreed French one both state that the Carbon Tax would be 'revenue neutral', i.e. be compensated by a reduction in the income tax. So no new financing for development there.

The solution, as we have said before, is to allow poor nations to capture their revenue potential, estimated at $160 billion in lost taxes due to trade mispricing, via international tax co-operation.

Stop Illicit Capital Flows to Tackle the Climate Crisis

noreply@blogger.com (TJN) — Fri, 11 Dec 2009 13:22:00 +0000

The European Union has today pledged US$ 10.6 billion (€7.2 billion to be exact), spread over three years to help mitigate climate change in developing countries, in a deal that Gordon Brown hailed as 'helping generations to come.' But do the numbers really add up? The pledges for climate change are around US$ 35 billion (in total committed funds).

The UN Framework Convention on Climate Change (UNFCCC) estimates that adaptation alone in developing countries will cost between US$ 27.75 - 58.25 billion, while the World Bank estimates that adaptation will cost some US$ 75-100 billion. So even on adaptation, i.e. keeping the current level of livelihoods, the funding that is currently pledged falls far short.

What about mitigation, i.e. reversing the trend of increasing CO2 and other greehouse gas (GHG) emissions in the atmosphere? Estimates vary even more here: the UNFCCC estimates US$ 52.4 billion, while the World Bank says US$ 140-175 billion -- with cost of financing even higher if that money has to be borrowed and then repaid (financing cost is estimated anywhere between US$ 265-565 billion), hence the figure of US$ 400 billion to bring the level of CO2 in the climate down to a safer level of 450 parts per million (ppm) of CO2 in the climate.

Meanwhile there is a petition on the 'safe' level actually being 350 ppm, requiring a lot more climate financing.

Whatever the 'magic figure', the demand for climate change finance is huge.

One solution is this: tackle illicit financial flows from developing countries, estimated by Global Financial Integrity (GFI), our colleagues in Washington D.C. annually between US$ 858.6-1060 billion annually for the years 2002-2006.

This point was completely lost in the United Nations Climate Change Conference 2009 in Copenhagen (COP15) -- the 15th climate conference since the first one in Rio de Janeiro in 1992. If we want to adapt to climate change, and further mitigate it, we need to look at the capacity of especially the developing countries in raising domestic climate change financing.

Alongside tax evasion, illicit flows, and avoidance, there are questions such as low royalties and imbalanced mineral contracts, sources of large losses. Ghana, for instance, in a report titled 'Breaking the Curse' says the state could have raised further US$ 54.46-163.39 million due in mining royalties if a range of 6-12 per cent were applied instead of the current minimum rate of 3 per cent, that all mining companies pay due to low reported profits from gold, diamonds, manganese and bauxite mining. Meanwhile, in Sierra Leone, it is estimated in another report titled 'Sierra Leone at Cross-Roads' that US$ 110 million more could be raised annually by 2020 in the future from the mining sector. This potential for mobilising further domestic resources is there.

Indeed, just as we argued at the Doha Financing for Development (UNFfD) conference in Doha in November-December 2008, involving pledges to reinforce international tax co-operation, to tackle illicit financial flows and to work towards a multilateral framework of automatic information exchange. These will be productive ways of tackling the financial costs of the climate crisis.

So here are the proposals:

- Reinforce in principle the role of domestic resource mobilisation in climate change financing, by means of:

1) Support for country-by-country accounting of all companies, listing their turnover, profits, liabilities, other financial information, including the beneficial ownership of all affiliates, subsidiaries, or any incorporated entities including trusts in all jurisdictions.

2) We must also account for carbon and other green house gas (GHG) emissions in all company accounts on a country-by-country basis, which can then serve as a basis for environmental taxation, and the distribution of future revenue streams.

3) Support multilateral and automatic tax information exchange, helping curb illicit financial flows from developing countries and regions, and letting them to use the resources for their own developmental and environmental priorities.

4) Give developing country governments and civil societies support for reinforcing their tax authorities, and better tax dialogue to enhance developmental and sustainability goals.

We must campaign, as we did at the Doha FfD, to have domestic resource mobilisation included in the final text of the COP15.

Banking hotspots: new research into banks and secrecy jurisdictions

noreply@blogger.com (TJN) — Fri, 11 Dec 2009 12:23:00 +0000

Tax Justice Network has just published new research into the use of secrecy jurisdictions by banks, lawyers and accounting firms. This research builds on data captured during our investigations into how secrecy jurisdictions create fault-lines in the global financial architecture.

Earlier this year the chairman of UK's Financial Services Authority, Lord Adair Turner, a former banker, commented that the City of London has "grown beyond reasonable size" and carries out activities that are "socially useless". London is the world's largest international financial centre, and the UK as a whole has 397 licensed banks, which interestingly appears relatively modest compared to the 870 licensed banks in Austria (see graph 2).

But if you take a look at how banks, law firms and accounting businesses accumulate in offshore
financial centres a quite startling picture emerges. Rather than looking at the absolute numbers of licensed banks, we've enumerated the numbers of licensed banks for each 100,000 of population in these places. And lo and behold the small island economies emerge as having an excess of banks which takes Lord Turner's comment about 'beyond reasonable size' into an entirely different league.

At the extreme, Cayman has 450 licensed banks, for a population of just short of 48,000. That's 940 banks for each 100,000 population (chart 3). Or take Bahamas: 139 licensed banks serving a population of 307,451 (45 banks per 100,000 people). Since there's not much in the way of productive investment being made in either Cayman or the Bahamas, this smells less like socially useless and more like monkey business. By way of comparison, industrial giant Germany has 3.4 banks per 100,000 population, while France has 2.9.

What does this tell us? Well as Markus Meinzer and Richard Murphy explain in their report:

"Firstly, bankers, lawyers and accountants offer and support financial services and, by interaction and collusion, have the knowledge and means to handle and hide illicit financial flows if they so wish. Secondly, banks, lawyers and accountants active in financial services will have considerable power in any secrecy jurisdiction that is heavily dependent upon financial services."

These considerable powers are likely to be all the greater in smaller islands, which are more vulnerable to capture by economic elites and where the range of checks of balances required for democratic accountability, e.g. opposition parties, competitive and independent media, a strong civil society, are not always present. In these circumstances it is all the more likely that the presence of a large number of banks, employing a significant proportion of the local workforce in clerical positions, will shape a culture of secrecy and non-cooperation with the outside world:

"the overall outcome of a dominant financial services sector in secrecy jurisdictions is likely to be an enhanced criminogenic environment in which financial regulations and transparency are undermined and kept at the lowest level so as to attract the maximum of foreign funds."

Read more here. And for more background on the vulnerability of microstates and small island economies to political capture see here.

Free Speech is for Sale in a Town Called Sue

noreply@blogger.com (TJN) — Fri, 11 Dec 2009 12:00:00 +0000

Free speech is for sale in London, sometimes known, in a bitter journalists' joke, as A Town Called Sue. We have blogged about English libel laws several times before, and explained why it is a tax justice issue, and now we're delighted to link to an important recent publication by English PEN, a writers' group, and Index on Censorship.

The core recommendations, which we fully support, are:

1. In libel, the defendant is guilty until proven innocent
We recommend: Require the claimant to demonstrate damage and falsity

2. English libel law is more about making money than saving a reputation
We recommend: Cap damages at £10,000

3. The definition of ‘publication’ defies common sense
We recommend: Abolish the Duke of Brunswick rule and introduce a single publication rule.

4 . London has become an international libel tribunal
We recommend: No case should be heard in this jurisdiction unless at least 10 per cent
of copies of the relevant publication have been circulated here

5. There are few viable alternatives to a full trial
We recommend: Establish a libel tribunal as a low-cost forum for hearings

6. There is no robust public interest defence in libel law
We recommend: Strengthen the public interest defence

7. Comment is not free
We recommend: Expand the definition of fair comment

8. The potential cost of defending a libel action is prohibitive
We recommend: Cap base costs and make success fees and ‘After the Event’
(ATE) insurance premiums non-recoverable

9. The law does not reflect the arrival of the internet
We recommend: Exempt interactive online services and interactive chat from liability

10. Not everything deserves a reputation
We recommend: Exempt large and medium-sized corporate bodies and associations from libel law unless they can prove malicious falsehood

As the report notes, free speech is vital for democracy, for holding leaders to account, for the pursuit of knowledge, and for a strong and independent media. As the report notes, as we have noted:

English libel law imposes unnecessary and disproportionate restrictions on free speech, sending a chilling effect through the publishing and journalism sectors in the UK. This effect now
reaches around the world.

Britain calls financiers' bluff - and is vindicated

noreply@blogger.com (TJN) — Thu, 10 Dec 2009 16:09:00 +0000

We missed this superb story from TaxAnalysts in September - but it's still worth publicising now, especially following news that Britain's tax authorities are targeting bankers' bonuses.

"The results are in -- London's hedge funds are staying put despite Prime Minister Gordon Brown's controversial tax hike. That news directly conflicts with all we were told when the U.K. announced it was raising the top individual tax rate from 40% to 50%. The higher rate applies to taxable income in excess of £150,000 per year (about $248,000 at current exchange rates) and bears a resemblance to President Barack Obama's proposal to increase U.S. taxes on those making over $250,000 per year.

The episode underscores a valuable lesson for policymakers around the world who fear their actions could trigger an exodus of local businesses.

Cast your mind back a few months to April 2009. The U.K. budget was just released to the public and news of the big tax hike was met with a chorus of hissing from British financiers who argued that even the slightest increase in their taxes was unacceptable. They warned that such a move would transform downtown London from a thriving metropolis into a dismal ghost town.
. . .
As the Wall Street Journal recently reported, consultancies were swamped over the spring and summer with requests from clients looking to ditch London and move overseas to more accommodating tax environments. After considering the costs and inconveniences of business relocation, however, less than 2% of those client inquiries moved beyond the level of preliminary feasibility studies. In the end, hardly any financial firms have actually moved out of London. It just wasn't worth it.

Yes, there is Dubai -- but it's 120 degrees in the shade and despite the posh shopping malls you're still stuck in the middle of a desert. Yes, there is Zurich -- but it's boring and British bankers don't want to learn German. Yes, there is Singapore -- but do you really want to uproot your family and move halfway around the world? Besides, your kids might get arrested for skateboarding and caned by the police"

Not too much seems to have changed since that was written. Read on. Valuable lessons, indeed.

A tale of two cultures

noreply@blogger.com (TJN) — Thu, 10 Dec 2009 07:46:00 +0000

Yesterday we blogged on German millionaires who have stirred up a terrific debate in that country about the responsibility of wealth. Concerned about social cohesion and ecological sustainability, these citizens are actually calling for higher taxes on the wealthy.

The Times newspaper, which reported the story in the first place, raised the question 'could this happen in Britain?' Well, we're not holding our breath. The response in Britain to the financial crisis, which has its roots in profound systemic faults of the Anglo-American model of de-regulated financial capitalism, has largely involved a motley collection of celebrities (think Tracey Emin) threatening to quit the country rather than pay more tax.

Today the Daily Telegraph reports that plumber Charlie Mullins is the latest person to threaten to leave the UK rather than contribute towards maintaining its public services.

The differences between Germany and the UK become increasingly stark. The former has a diversified industrial base, a huge depth of investment in highly productive social capital, a formidable investment in physical infrastructure, and a world class manufacturing base. The UK is overly dependent on its financial services sector, lags behind most of Europe in its investment in social capital, its physical infrastructure creaks in every joint, and the entire nation is being held hostage to the selfishness of a tiny elite.

As Richard Wilkinson and Kate Pickett have demonstrated in their compelling book The Spirit Level, the huge inequalities that have built up within Britain, the US, and other countries that adopted fundamentalist neo-liberalism, have catalysed profound social problems. Look carefully at how Britain compares to Germany across a wide range of indicators, including health, child well-being, trust, mental health, drug abuse, life expectancy, infant mortality, obesity, teenage births, homicide rates, family conflict, and social mobility. The statistics reveal a very clear pattern of success and failure.

The contrast in attitudes between German and British millionaires is also revealing. We are not so deluded as to think that all German millionaires want to pay more towards social cohesion. We know this is not the case. But a sufficient number do feel this way to have triggered a major and important debate in that country. Nothing comparable has happened in Britain. We wonder why not.

France protects HSBC whistleblower

noreply@blogger.com (TJN) — Thu, 10 Dec 2009 07:32:00 +0000

An HSBC whistleblower has been providing information to the French tax authorities about potential tax evaders. We don't know for sure the motivations of the whistleblower, though his lawyer describes him as

"an idealist who wanted to use transparency to fight financial crime."

The 38 year old man reportedly foiled HSBC's internal security systems to get the information to do it, and the case has parallels with an earlier high-profile whistleblower case involving Liechtenstein and Germany.

We have two issues here: one, the possible actions of a single individual who may or may not have broken (we won't prejudge the case) a Swiss law on breaking bank secrecy - a law which is itself a massive inducement to criminality. The other issue is the fact that a giant, globetrotting bank and an entire nation state may or may not have sought to induce and perpetrate criminal tax evasion on an industrial scale. It's fairly obvious where the massive weight of criminality lies.

So it is a a shock to see how some newspapers have reacted to this story. The Financial Times, for example, leads like this:

"The French government on Wednesday admitted it may have used stolen details of Swiss bank accounts held with HSBC to launch a crackdown on French tax evaders earlier this year."

Several other newspapers have led the story with this angle too. Well, perhaps the story is sexier when dressed up that way, but one would expect a mostly sober financial newspaper to approach this story with the correct balance.

We are, at least, heartened to see, following what's already reported:

"(French Budget Minister Eric) Woerth launched his tax evasion clampdown in August with much fanfare, saying he was on the trail of 3,000 French citizens wth undeclared accounts in Switzerland holding a total of €3bn."

that

"Officials said in August that two banks operating in France had volunteered most of the information on the 3,000 account holders, while the rest came from its own tax probe."

and that, as The Times reports,

"Patrick Rizzo, the man’s lawyer, said that the man had been given a false identity and a new passport by the French authorities. . . . The inquiry has fuelled tension between France and Switzerland, with Paris refusing a request by Berne to hand over the suspect.

France has the right approach.

Support the U.S. Tax Extenders Act

noreply@blogger.com (TJN) — Wed, 09 Dec 2009 18:06:00 +0000

TJN-USA has co-signed a letter supporting a U.S. bill calling for swift passage of H.R. 4213, the Tax Extenders Act of 2009, expected to go to the floor of the House of Representatives today for a vote. It includes language that would tackle banking secrecy and tax evasion.

The letter states:

"H.R. 4213 also includes a proposal introduced by Finance Committee Chairman Max Baucus and Ways and Means Committee Chairman Charles Rangel to prevent wealthy Americans from cheating on their U.S. taxes by hiding their income in offshore tax havens.

While this proposal is not as strong as we would prefer, it would be an important step forward to ensure that all Americans pay their fair share in taxes. Middle-income Americans typically have few opportunities to hide their income from the IRS. But wealthy Americans have access to lawyers and accountants who help them hide their income in offshore tax havens. Tax havens are countries that have a very low income tax (or no income tax) and laws that prevent their banks from cooperating with IRS enforcement efforts.

While the vast majority of taxpayers at all income levels do the right thing and pay their fair share, a minority of wealthy Americans are engaging in these activities that are both illegal and unfair. The Baucus-Rangel proposal would create strong incentives for foreign banks to provide information that would help the IRS identify tax cheats without creating any significant burden on the banks or their honest customers."

Click here to read the full letter.

The millionaires who want to pay more tax

noreply@blogger.com (TJN) — Wed, 09 Dec 2009 17:55:00 +0000

Britain's Times newspaper has a fascinating article about a group of German millionaires who want major redistribution of wealth. It starts:

Let’s try to imagine, against the odds, that this is a story set in Britain: a group of wealthy heirs, industrialists and entrepreneurs, men and women who are rich enough not to work, who have enough money, property or dividends to allow them to live comfortably for the rest of their lives, decide instead to give their money away.

They decide to do this not out of guilt but because they believe that their wealth carries with it responsibility and because they are seriously worried about the widening gap between rich and poor that they see opening up before them in the society in which they live. They want to give their money away, but they do not want to do so in occasional fits of philanthropy, or through endowments, or via the series of charity bashes that has always formed the backbone of the wealthy person’s social calendar, but quite systematically — by publicly campaigning to pay more tax. Taxation, in their opinion, is unfairly skewed in their favour"

Now that's an intriguing story, almost unbelievable to those of us accustomed to the idea that rich people are inevitably greedy and grasping for tax breaks.

"The German initiative, the Vermögende für eine Vermögensabgabe (Wealthy people in favour of a wealth tax), was launched last spring: 21 wealthy individuals signed up to the campaign, which aimed to convince the grand coalition Government to reinstate meaningful levels of property tax."

And we are delighted to see this:

"On top of the tax increase, he and his members want to see tax havens shut down and strict regulation of the financial markets."

This initiative has stirred a country-wide debate in Germany, but nothing comparable has happened in the UK, which has an even more unequal society and performs far less well than Germany on a wide variety of social indicators. Why not? One reason, according to TJN's John Christensen, lies with the free-rider mentality that has emerged in Britain in the past 30 years. He also suggests that while modern Germany is alert to the dangers posed by inequality, the issue is scarcely discussed in Britain: "There is a debate going on there about inequality and its repercussions that desperately needs to happen here."

Read the whole article. We'll leave you this, from one of the millionaires:

“People talk here about a split between East and West, or between rich and poor, or between immigrants and those who have been born and brought up here,” Vollmer says. “But the most decisive split is the one that exists between those who feel that wealth is a social responsibility and those who do not."

Bankers howl as bonus tax introduced

noreply@blogger.com (TJN) — Wed, 09 Dec 2009 13:48:00 +0000

In Britain's budget, Reuters reports:

"banks would be charged a 50 percent tax rate on bonuses they pay to their staff above 25,000 pounds starting today until April 5, 2010, a powerful disincentive for big payouts in this year's Christmas bonus round. The new tax would apply to all banks, building societies and branches of foreign banks operating in Britain.

The government hopes the move will encourage banks to use additional cash to shore up their capital bases, rather than pay high salaries."

It's a good start. This bit -- including no corporation tax relief -- looks good, it should be possible to put in strong measures to stop dodgers, and some interesting moves on offshore tax evasion. A higher windfall tax would have been better. Of course bankers, many of them groaning with a sense of self-entitlement, are howling.

"This is extreme victimisation," says one.

Get used to it. And let's hope there's more like this to come. Let's start with the United States.

The cost of tax breaks in Ireland

noreply@blogger.com (TJN) — Wed, 09 Dec 2009 11:13:00 +0000

The Irish independent think tank Tasc has issued a pre-budget report which estimates that:

"Tax breaks will cost the State approximately €7.4 billion in 2009. If tax breaks on personal income tax and corporation tax were reduced to EU average levels, they would only cost €2.2 billion in 2009, a difference of €5.2 billion. Hence, the Government should cut tax breaks, not social welfare payments."

Ireland's economy is in as bad a mess as almost anyone's, and it has an unusually high share of tax breaks nested into its tax system: as it notes:

"In 2005, Ireland spent three times as much through tax breaks on personal income tax as the average of 22 EU countries, and seven times as much through tax breaks on corporation tax."

And it notes a 2009 OECD report which states that

“While personal allowances take the lower earners out of income tax system, the distributional nature of the other reliefs goes against progressivity as they only affect those who pay tax and benefit the highest earners the most."

It also causes sunset clauses and equality and efficiency audits on tax breaks, which are not reported in budgets, so the government has to justify their continuation.

Tax Havens: How Globalization Really Works

noreply@blogger.com (TJN) — Wed, 09 Dec 2009 08:58:00 +0000

Cornell University Press is soon to launch a major new book about tax havens, co-written by Ronen Palan, Richard Murphy and Christian Chavagneux. As the blurb indicates:

"From the Cayman Islands and the Isle of Man to the Principality of Liechtenstein and the state of Delaware, tax havens offer lower tax rates, less stringent regulations and enforcement, and promises of strict secrecy to individuals and corporations alike. In recent years government regulators, hoping to remedy economic crisis by diverting capital from hidden channels back into taxable view, have undertaken sustained and serious efforts to force tax havens into compliance.

In Tax Havens, Ronen Palan, Richard Murphy, and Christian Chavagneux provide an up-to-date evaluation of the role and function of tax havens in the global financial system-their history, inner workings, impact, extent, and enforcement. They make clear that while, individually, tax havens may appear insignificant, together they have a major impact on the global economy. Holding up to $13 trillion of personal wealth—the equivalent of the annual U.S. Gross National Product—and serving as the legal home of two million corporate entities and half of all international lending banks, tax havens also skew the distribution of globalization's costs and benefits to the detriment of developing economies.

The first comprehensive account of these entities, this book challenges much of the conventional wisdom about tax havens. The authors reveal that, rather than operating at the margins of the world economy, tax havens are integral to it. More than simple conduits for tax avoidance and evasion, tax havens actually belong to the broad world of finance, to the business of managing the monetary resources of individuals, organizations, and countries. They have become among the most powerful instruments of globalization, one of the principal causes of global financial instability, and one of the large political issues of our times."

Look forward to it.

Reviews

Is the International Finance Corporation supporting tax-evading companies?

noreply@blogger.com (TJN) — Wed, 09 Dec 2009 08:52:00 +0000

Eurodad has a useful piece examining this question, here.

Gibraltar losing its tax haven image? Maybe not

noreply@blogger.com (TJN) — Tue, 08 Dec 2009 19:48:00 +0000

Financial Times journalist Victor Mallet has reported that Gibraltar, a British overseas territory, is trying to lose its image as a tax haven. His article quotes Peter Caruana, chief minister of Gibraltar, saying:

“We have been repositioning Gibraltar away from the tax haven, the brass plate, the place where people just hide their money in the hope that nobody else will see it, much more into a financial centre of the onshore European variety, and we are 98 per cent complete in that task.”

As evidence of the changes underway, the FT notes that the Gibraltar administration will be abolishing its exempt company regime, under which companies not trading in Gibraltar are not liable for tax, and adopting a single rate 10 per cent corporation tax applicable to all companies. The administration has also signed tax information exchange agreements with 13 other jurisdictions and will be signing four more agreements before year-end 2009.

So why are we not celebrating? Well, just four weeks ago we published a report which showed that Gibraltar is assessed as opaque or non-cooperative in respect of all but one of the twelve key indicators used in the preparation of the Financial Secrecy Index.

On the positive side, Gibraltar does not have a law to protect banking secrecy.

But, take a look at the negatives:

1. Gibraltar does not put details of trusts on public record;
2. Gibraltar does not comply sufficiently with international regulatory requirements
3. Gibraltar does not require that company accounts be available on public record;
4. Gibraltar does not require that beneficial ownership of companies is recorded on public record;
5. Gibraltar does not maintain company ownership details in official records;
6. Gibraltar did not respond to Tax Justice Network requests for information;
7. Gibraltar does not participate in the European Union Savings Tax Directive;
8. Gibraltar has few tax information agreements;
9. Gibraltar does not have adequate access to banking information;
10. Gibraltar allows company redomiciliation;
11. Gibraltar allows protected cell companies.

Does this strike you as a place that is seriously shedding its image as a bolthole for people trying to hide illicit financial flows? Despite its tiny population of just 27,495 people, Gibraltar hosts 18 licensed international banks, which is far more than can possibly be required to serve domestic needs, so we can safely assume that the secrecy arrangements outlined above make Gibraltar a convenient place to hide capital in flight from the law, tax, and similar inconveniences.

On the basis of our assessment Gibraltar was awarded just 8 transparency credits out of a potential total score of 100. Far from repositioning itself away from 'brass plate' operations, Gibraltar remains wedded to legalised secrecy and conforms in almost all respects to our definition of a secrecy jurisdiction (a more useful term than 'tax haven', since this more accurately describes the services provided to the non-resident clients of such places). For more details about Gibraltar's legalised secrecy arrangements, check here.

None of the changes cited by the FT will substantively alter our assessment, not even the recently signed information exchange treaties, which are distinctly sub-prime in terms of effectiveness and fall far short of the minimum threshold of 60 agreements which should be required of an international financial centre.

We know that many secrecy jurisdictions are working flat out to shed their tax haven image. Jersey, for example, has retained the services of London-based public relations company Brunswick Group. Cayman is also trying to burnish its image. Caruana's assertions to the FT are part of this process. But FT readers (this blogger included) expect more than uncritical puffs put out by political spin-meisters.

The basis for international concern about Gibraltar (and other secrecy jurisdictions) lies more with the legalised secrecy provisions they offer to non-residents than with whether or not they charge VAT on goods and services bought within their borders. In this respect Victor Mallet is clearly not up to speed with current debate and his article is unbalanced and misleading.

Caruana claims to be 98 per cent on target towards Gibraltar losing its tax haven status. We assess Gibraltar as 92 per cent opaque. Check the facts underlying our assessment and judge for yourself.