Tax Justice Network

Links Jan 30

2012-01-30T04:36:00.001-08:00

Petition of 84,000 signatures presented to the German Finance Minister protesting against the Swiss/German tax deal Tax Justice Network Germany blog:
Jan 26 - On the petition protesting the Swiss/German tax deal, organised by a civil society alliance including Tax Justice Network, . See here for a rough Google translation, and here for blog post for reporting on the petition in the Financial Times Germany.

Swiss min: Must tackle problem of tax dodgers-paper Reuters

Jan 28 - Swiss Economy Minister Johann Schneider-Amman is reported as saying: "The problem of untaxed wealth in Switzerland is a serious problem that we need to resolve. Not only with the USA but also with the Europeans - Banking secrecy wasn't invented to create an opportunity for doing business with untaxed money ... We must find a way of dealing with legacy wealth."

U.S.: Top Dem Offshoring Expert Smells Something Fishy In Romney’s Tax Code TPM
Jan 26 - Sen. Carl Levin observes: "There is no such thing as an ordinary Swiss bank account."

Secrecy key to offshore accounts linked to Hot Lotto case The Gazette
Jan 29 - A story with with bizarre twists - "The trust that held the ticket for a jackpot worth $7.5 million after taxes abandoned its claim this week after the Iowa Lottery refused to pay out without knowing who bought the ticket and who was behind the trust. Lottery officials said the would-be winner was a corporation in Belize ... 'known as one of those countries that won’t give information to the United States about its account holders.' "

U.S.: Senate Dems should force GOP to hold vote on Buffett Rule Washington Post
Jan 27 - "Picture this scenario. The Senate holds a high-profile vote on a proposal focused directly on implementing the Buffett Rule, one that would bring the current tax rate for millionaires paying lower rates on investments up to 30 percent. This, at at exactly the moment when the GOP is picking a nominee who is worth $250 million and is personally benefitting to an enormous degree from the current rate — one that’s lower than many middle class taxpayers pay ..."

See also:
CTJ Calculates Buffett Rule Would Raise $50 Billion in One Year and Affect Only the Richest 0.08 Percent of Taxpayers Citizens for Tax Justice
Jan 27 - "Citizens for Tax Justice has calculated that President Obama's "Buffett Rule" would, if in effect this year, raise $50 billion in a single year and affect only the richest 0.08 percent of taxpayers -- that's just eight percent of the richest one percent of taxpayers... "

See also:
But The Top 0.1 Percent Isn’t Diverse The New York Times
Jan 15 - "Basically, the top 0.1 percent is the corporate suits, with a few token sports and film stars thrown in."

Knowledge lies at the heart of western capitalism Financial Times
Jan 29 - Herbando de Soto notes a lot of useful points, including: "To regain its vitality, western capitalism must bring under the rule of law and public memory hundreds of trillions of dollars now swirling mindlessly out of control in the obscure world of financial innovation." - but he makes no mention at all of offshore!

Canadians for Tax Fairness: Tax Justice Newsletter http://www.taxfairness.ca/
Jan 2012 edition:

Included in this issue:

World Bank Reports, Hat tip: Bruno Gurtner:

Coordinating Tax Reforms in the Poorest Countries: Can Lost Tariffs Be Recouped? by Swarnim Wagle

"A revenue-neutral switch from trade taxes to domestic consumption taxes is fraught with implementation challenges in countries with a large informal sector."

Tax Morale and Compliance: Review of Evidence and Case Studies for Europe by Benno Torgler
"The overall findings show the importance of accountability, democratic governance, efficient, and transparent legal structures and therefore trust within the society to enforce tax compliance and tax morale."

Tax Morale, Eastern Europe and European Enlargement by Benno Torgler

This study tries to remedy the current lack of tax compliance research analyzing tax morale in 10 Eastern European countries that joined the European Union in 2004 or 2007. ... The author observes that events and processes at the country level are crucial to understanding tax morale. Factors such as perceived government quality and trust in the justice system and the government are positively correlated with tax morale in 2008."

IPPR proposes tax reforms to make globalisation work for the 99 percent

2012-01-30T03:33:00.000-08:00

The London-based Institute for Public Policy research produced a report on globalisation last week. Written by Will Straw and Alex Glennie, the report is especially strong on the need for corporate tax reform. Having noted that profits are rising as a trend it also notes there is a steady fall in corporate tax receipts as a proportion of profits and realises this is an issue that has to be addressed. It dismisses the alternative to corporate tax proposed by Oxford University and Mirrlees, which is a form of Value Added Tax. As the report rightly notes there is no doubt this would be regressive and hence unacceptable. Instead it suggests five reforms, as follows:

First, the European Union should implement the Common Consolidated Corporate Tax Base (CCCTB). Under the current tax regime, multinationals file separate accounts for each country in which they operate; under the CCCTB, each company would compute only its EU-wide consolidated profit, on a common definition of the tax base. This profit would be allocated to member states on the basis of an apportionment formula containing factors such as shares in employment, payroll, assets and sales. Each member state would retain autonomy to tax its allocated share of profits at its own tax rate. This approach would allow countries to retain their own tax rate and pursue healthy tax competition. But within the EU, companies would have to actually move their staff and physical capital to the lower-tax regimes, rather than relying on the accounting mechanisms outlined above. In time, other jurisdictions could be encouraged to join, paving the way for an eventual global consolidated tax base.

Second, the EU and its member states should begin discussions with the International Accounting Standards Board to introduce a requirement that all multinational corporations report sales, profits and taxes paid in all jurisdictions in their audited annual reports and tax returns in what is known as country-by-country reporting. Country-by-country reporting discloses the profits that companies record in each jurisdiction in which they operate and the taxes that they pay on them. This means that they can be held accountable for what they do and do not pay. The requirement would complement the CCCTB by providing simple transparency on the activities of multinational companies in jurisdictions outside the EU.

Third, other jurisdictions should be encouraged to adopt the EU Savings Taxation Directive as a means of creating an automatic exchange of taxation information. Since 2005, the directive has ensured that paying agents either report interest income received by taxpayers resident in other EU member states or levy a withholding tax on the interest income received. In Cannes, Indian prime minister Manmohan Singh called for the G20 to take a lead on the issue ‘in the spirit of our [2009] London Summit that [said] “the era of bank secrecy is over”’ . But the communiqué only committed to ‘consider exchanging information automatically on a voluntary basis as appropriate’. The EU should also adopt an amendment to the savings directive which would close existing loopholes and prevent tax evasion by stopping taxpayers from channelling interest payments through trusts and intermediate tax-exempted structures.

Fourth, as the Financial Action Task Force has already recommended, the beneficial ownership of companies, trusts and foundations should be on the public record. This would prevent multinational corporations from using networks of international subsidiaries to transfer profits and reduce their tax liability. This reform would also have the added benefit of making money laundering and the handling of illicit funds more difficult.

Fifth, bilateral and multilateral donors should support developing countries in building their tax collection and enforcement agencies.

Taken together, these measures will act to reduce the power of tax competition and lower the incentives on companies to execute tax arbitrage strategies.

The tide is turning: the merit of international cooperation on tax is becoming apparent. It will help get us out of the mess we’re in: that’s now indisputable by all those except the governments of those states that promote tax evasion and those who benefit from it.

(This is a shortened version of a blog posted by Richard Murphy at Tax Research. We blog with his approval).

Mexico Hemorrhages US$872 Billion to Crime, Corruption, Tax Evasion from 1970-2010

2012-01-30T02:26:00.000-08:00

Illicit Financial Outflows Average Over 5% of GDP, Driven by Underground Economy, Spiked in Wake of NAFTA

Study Recommends Policies Be Implemented to Address Trade Mispricing, Money Laundering, Tax Evasion

January 29, 2012 at 13:01 CST / 14:01 EST / 19:01 GMT

MEXICO CITY / WASHINGTON, DC – Crime, corruption and tax evasion cost the Mexican economy US$872 billion between 1970 and 2010 according to a new report from Global Financial Integrity (GFI), a Washington, DC-based research and advocacy organization. The illicit financial outflows, which averaged a massive 5.2% of GDP, grew significantly over the 41-year period studied from just US$1 billion in 1970 to US$68.5 billion in 2010.

“This is a devastatingly large amount of money for any developing country to lose,” said Raymond W. Baker, director of GFI. “$872 billion is gone, which could have been used to develop the Mexican economy, to invest in education, to build roads, or to fight the drug cartels. The negative ramifications are huge for everyday Mexicans.”

The study, which was authored by Dr. Dev Kar, GFI lead economist, saw illicit outflows explode from an annual average of US$3.0 billion in the 1970s, to US$10.4 billion in the 1980s, to US$17.4 billion in the 1990s, and US$49.6 billion in the decade ending 2009.

Underground Economy

Moreover, illicit outflows were found to drive the domestic underground economy, which includes—among other things—drug smuggling, arms trafficking and human trafficking. Thus, illegal capital flight was found to contribute to a deterioration in governance. Likewise, growth in the underground economy was also shown to drive illicit flows, creating “a snowballing effect whereby both the underground economy and illicit flows continue to grow at an increasing rate unless policy measures and institutions intervene,” according to Dr. Kar, who worked as a senior economist at the International Monetary Fund before joining GFI.

Trade Mispricing and NAFTA

The report concluded that policymakers should focus on measures to curtail trade mispricing, a form of trade based money-laundering, which skyrocketed in the years after NAFTA came into effect and which was shown to account for 73.7% of total illicit financial outflows over the 41-year time period.

The study recommends three policy measures to reduce trade mispricing:

· Require the utilization of computer software to detect export and import prices that are clearly out of line with international norms; (49)

· Require that the parties conducting a sale of goods or services in a cross-border transaction sign a statement in the commercial invoice certifying that no trade mispricing has taken place in an attempt to avoid duties or taxes and that the transaction is priced using the OECD arms-length principle; (51) and

· Undertake additional measures to curb abusive transfer pricing. (51)

Further Policy Recommendations

In addition to recommending policies to curtail trade mispricing, the report recommends four additional policy actions to reduce illegal capital flight from Mexico:

· Expand double tax avoidance agreements with other jurisdictions; (53)

· Require automatic cross-border exchange of tax information with other jurisdictions on personal and business accounts; (54)

· Maintain macroeconomic stability, which includes maintaining low budget deficits, low external debt levels, and low and stable inflation rates; (56) and

· Take steps to reign in the role of offshore financial centers (OFCs) and banks. (59)

Destination of Illicit Outflows

While the report cannot specifically breakdown into which jurisdictions illicit outflows from Mexico are deposited, the study does indicate that a majority of Mexican capital outflows, which include both licit and illicit capital, end up in U.S. banks. The large spike in illicit outflows following the implementation of NAFTA would imply that much of those outflows were indeed headed for the United States. This suggests that U.S. policymakers have a significant role to play in curtailing the flow of illicit money out of their southern neighbor.

In addition to the U.S., tax havens in the Caribbean and Europe were the second and third largest recipients of Mexican capital outflows.

Drug Cartels and National Security Risk

A large portion of drug cartel activity is conducted in cash, and none of those cash transactions are detected in GFI’s data, which is one of the reasons why the organization believes its figures to be extremely conservative. That said, drug cartels like many criminal enterprises also utilize legitimate commercial transactions to launder their profits. In fact, the Los Angeles Times reported last month that Mexican drug cartels were utilizing trade-based money laundering techniques to move their money across the U.S.-Mexico border. Those kinds of business transactions would show up in the organizations data, however it cannot be determined exactly how much of the trade mispricing in GFI’s report is attributable to the activities of drug cartels.

As such, the organization believes that this has serious implications for national security.

“The ease with which money can be laundered across the U.S.-Mexico border via trade mispricing poses a major national security risk to both the United States and Mexico,” said Mr. Baker. “Drug traffickers, like kleptocrats, terrorists and tax dodgers, all gain from anonymous shell companies, tax haven secrecy, and nefarious trade mispricing tactics. Taking steps to address these issues would curtail a number of societal ills.”

###

Notes to Editors:

· Download an embargoed full copy of the report in English here and in Spanish here.

· Press briefings will be held in Mexico City and in Washington, DC on Monday January 30, 2012. The Mexico City press briefing will take place at the Hilton Mexico City Reforma Hotel on Monday, January 30, 2012 at 11am CST. To RSVP for the Mexico City press briefing, contact Clark Gascoigne at cgascoigne@gfintegrity.org. The Washington, DC briefing event will take place at 1319 18th Street NW, Suite 200, Washington, DC at 10am EST on Monday January 30, 2012. To RSVP for the Washington, DC launch event, contact EJ Fagan at efagan@gfintegrity.org.

Contact:

English:

Mexico City/Washington, DC:

Clark Gascoigne
cgascoigne@gfintegrity.org
+1 202 293 0740 x222 (office)
+1 216 538 0157 (mobile)

Washington, DC:

EJ Fagan
efagan@gfintegrity.org
+1 202 293 0740 x227

En español:

Mexico City:

Emilene Martínez
emilene17@gmail.com
+52 1 55 6010 0835

The Vodafone India decision – and what we can learn from it

2012-01-30T00:20:00.000-08:00

Following our earlier blog, a useful article from Tax Research, here.

Quote of the day - state capture

2012-01-30T00:16:00.001-08:00

From the UK parliament:

Our newspapers, reflecting the reality that most-with some honourable exceptions-are owned and run by non-UK taxpaying moguls who live all over the place but not the UK, probably do not want to run too many stories about UK tax dodgers. They prefer benefit fraud, as in the Daily Mail. That is a much more attractive story

This is from a much longer and widely ranging discussion of tax avoidance led by Lord Dykes, which is well worth reading in full: stuffed with other quotable quotes.

Links Jan 27

2012-01-27T07:40:00.000-08:00

Pariah regimes play cat and mouse with financial watchdogs Reuters
Jan 27 - " 'Our current arrangements for the creation of trusts and the setting up of companies anonymously have created an environment which is permitting kleptocrats to move their loot around (and commit) tax evasion on a monstrous scale,' said Anthea Lawson, head of the Banks and Corruption Campaign at Global Witness" - " 'It is so easy for extended families or powerful people with tame lawyers to set up fronts which make it immensely difficult to find (them) out,' said John Christensen" - TJN Director.

US tax scandal brings down Wegelin swissinfo
Jan 27 - "Wegelin is the first standalone Swiss bank to sell its operations in Switzerland as a result of US efforts to catch clients who used Swiss banks to evade the taxman ... Banks being probed by US authorities are worried that clients, even in their non-US operations, will pull their money out because of the investigations."

Switzerland, U.S. Aim to Conclude Tax Talks by End of 2012 Bloomberg
Jan 26 - “ 'We’ve said that at the end of 2012 we want to end these negotiations,' Swiss Finance Minister Eveline Widmer-Schlumpf told reporters today in Davos after a meeting with her U.S. counterpart Timothy Geithner ...'Our aim, and he agreed, is to find a solution where we won’t be confronted with a question about the past every year. '” See TJN comment on the U.S. position here.

US Treasury Aims To Lower FATCA Burdens Tax-News
Jan 27 - "The Treasury and the IRS believe that their efforts “to implement FATCA and to resolve the challenges it poses can and should serve as precursors to a more comprehensive multilateral approach to information exchange. For that reason, we believe that FATCA – if implemented appropriately – can serve as a catalyst for further advances in the global effort to improve transparency and combat tax evasion.”

India joins multilateral forum to curb tax evasion Economic Times
Jan 27 - "'By signing the convention, India and the other 31 signatories encourage more countries to join, sending a strong signal that countries are acting together to ensure that individuals and multinational enterprises pay the right amount of tax, at the right time and in the right place,' the finance ministry said." See TJN comment on India and the multilateral convention here.

Greece: The adventures of of Nikos Kassimatis Global Post
Jan 26 - On "The man who owes $1.23 billion to the Greek government".

Hollande Pledges to Rein In France's Banks Wall Street Journal
Jan 26 - On a statement by François Hollande, the opposition Socialist presidential candidate and opinion-poll leader. "To bring the financial sector back under control, Mr. Hollande also said he would forbid banks from doing business in tax havens and raise taxes on their profits."

Russia Reviews Eurobond Tax Rules as Claims Raise Concerns Bloomberg
Jan 6 - "Coupon payments made to foreign debt holders through offshore special purpose vehicles, known as SPVs, are taxable under the current law, although the rules haven’t often been enforced ... 'All we are saying is there’s a law,' Shatalov [Deputy Finance Minister] said ... 'Maybe it’s not good, maybe it’s bad, maybe somebody doesn’t like it, but it should be obeyed.' Read Treasure Islands for an explanation of Eurobonds and their role in the offshore financial system.

See also:
Russia: the taxman targets eurobonds Financial Times
Jan 26 - "This is seen as part of a government assault on offshore tax havens".

A taxing, troubling situation in Ukraine KyivPost
Jan 26 - Ukraine has one of the most onerous and complex tax systems in the world, yet many of the nation's richest people avoid taxes through offshore havens."

U.S.:The President's Speech: Right about Stopping Offshore Tax Dodgers, Wrong about Cutting Taxes for Other Corporations Citizens for Tax Justice
Jan 26 - "During his State of the Union address, President Obama said that 'no American company should be able to avoid paying its fair share of taxes by moving jobs and profits overseas.' ... However, his proposed solutions, which the administration fleshed out with a fact sheet on Wednesday, fail to raise revenue, retain and expand the loopholes that allow corporations to avoid taxes, and mark a further retreat from earlier, stronger proposals"

UK: FSA in crackdown on offshore advice role in listed firms FT Adviser
Jan 26 - "The Financial Services Authority has proposed changes to the requirements for companies to be listed in the UK, including a tightening of the rules around listings for companies managed offshore."

Swiss ink tax deal with Ireland The Local
Jan 27 - "With regard to tracking cases of tax evasion, the agreement “contains provisions on the exchange of information in accordance with the international standards applicable at present,” the Swiss finance department said. The standards referred to are those established by the OECD (Organization for Economic Co-operation and Development)." Read on the flawed OECD standards here.

At Davos, Debating Capitalism’s Future New York Times
Jan 27 - Op-Ed by Ed Miliband, leader of the UK's Labour Party. "Tax authorities need to know about income and wealth hidden behind front companies, trusts and other complex financial products. If these rules cannot be changed by international agreement, progressive governments should go ahead and do it themselves."

Links Jan 26

2012-01-26T08:16:00.001-08:00

India: Black money: India signs multilateral agreement Economic Times
Jan 26 - "Taking another step towards combating blackmoney, India has signed a multi-lateral agreement with economic powers like France and Germany to check both tax evasion and avoidance. See TJN comment on India and the multilateral convention here.

India: Tax information exchange pact signed with Macau The Hindu Business Line
Jan 25 - "India will soon be able to get banking information from Macau for tax administration purposes. A tax information exchange agreement to this effect was recently signed with Macau ... one of the most well-known offshore financial centres and tax havens."

Sweden: Swedfund sets investment conditions Financial News
Jan 26 - "Sweden’s development finance institution, Swedfund, will make commitments to private equity only on condition that funds are domiciled in their home market, according to its new chief executive. The comments come after the firm ceased making third-party fund commitments three years ago following concerns about the tax treatment of funds offshore."

France: This money which corrupts Libération (In French)
Jan 25 - "Finally, there will be no effective fight against dirty money without suspension of any financial relationship with non-cooperative offshore centres ... the new mayor of Seoul and Bogota have been designated to embody the general interest because they have been tireless advocates in the fight against corruption. In India, Brazil and Mexico, civil society is working to restore public credibility. France can, too, lead by example as a force within Europe."

Liechtenstein Has ‘Long Way’ to Shed Tax Image, Bank Chief Says Bloomberg BusinessWeek
Jan 25 - “The world has changed very quickly and massively in the last few years,” Tribelhorn [Liechtenstein Bankers Association Director] said in an interview in Berlin. “For the customer as well as the financial intermediary, undeclared assets have no future.” The article also cites TJN's view on the UK and German Swiss deals.

Austria: Idea to name and shame tax fraudsters met with scepticism Austrian Independent
Jan 26 - The Association of Austrian Taxpayers has spoken out against the creation of a list of tax dodgers ... AK President Herbert Tumpel refused to disclose whether he backed the appeal by fellow AK members but said finance ministry officials should make the names of the Austrian tax dodgers found on a data disc provided by a banker based in Liechtenstein."

Gibralter not by any measure a ‘tax haven’ Picardo tells Miliband Gibralter Chronicle
Jan 26 - "Following Mr Milliband’s [UK Labour Party Leader] recent remarks about 'Tax Havens', the Chief Minister and Mr Licudi briefed Mr Miliband on ... the work of the finance centre as a fully compliant EU financial services hub that operates entirely in keeping with EU directives and regulations, fully compliant with OECD rules also and therefore not by any measure a 'Tax Haven'”. See here for a TJN view on such claims.

U.S.: Business Leaders Agree With President: End Millionaire Tax Breaks and Stop Rewarding Companies That Move Jobs and Profits Abroad Business for Shared Prosperity
Jan 25 - “It’s wrong for millionaires to pay less than middle-class Americans and wrong for multinational corporations to pay less than small businesses,” said Scott Klinger, tax policy director of Business for Shared Prosperity. ... If we want an economy with 21st Century infrastructure, jobs, education, research and economic development, we have to pay for it.”

U.S.: Wealthy tax cheats Asheville's Citizen-Times
Jan 25 - Tax systems that heavily tax the rich are asking for trouble — or so the politicians who cater to the 1 percent incessantly argue. The higher the tax rate on high incomes, their argument goes, the greater the incentive the rich have to waste time and energy figuring out ways to pay less ... these cuts should have boosted tax compliance.Instead, tax evasion actually increased, rising to $385 billion in 2006 from $290 billion five years earlier, according to a new IRS study."

U.S. poised to soften offshore tax crackdown Global and Mail
Jan 25 - U.S. Treasury Department officials are looking at relieving some of the “administrative burden” of the Foreign Account Tax Compliance Act. Hat tip: Offshore Watch.

The World's Next Top (Economic) Model Huffington Post
Jan 24 - On the World Economic Forum in Davos, Sharan Burrow, General Secretary, International Trade Union Confederation observes: "Fair and progressive taxation - it is time to repair the balance sheets of governments through a fair contribution from those that can afford to pay: through making corporations pay their fair share". Hat tip: Liz Nelson.

Exclusive: Senate investigating HSBC for money laundering Reuters
Jan 25 - "HSBC Holdings PLC is under investigation by a Senate panel in a money-laundering inquiry, the latest step in a long-running U.S. effort to halt shadowy money flows through global banks."

Besieged bankers look for signs of hope at Davos Reuters
Jan 26 - "Each one of us is made for goodness, even bankers," Desmond Tutu told the Davos meeting."

Occupy London comment article in FT, seeks tax justice

2012-01-26T07:45:00.000-08:00

Occupy London - those protesters who have been sneered at and smeared as being a bunch marginalised, bearded, out of touch anti-capitalists - have a full comment article in the capitalists' newspaper of choice, the Financial Times. That, in itself, is a very fine thing.

And we are delighted to see them wading in in an area that is very dear to our hearts, tax justice.

First, tax avoidance is endemic in the UK. Companies use complicated structures to hide their earnings from HM Revenue & Customs. Individuals stash money abroad while enjoying all the benefits of living in this country. Tax havens are used by 98 of the FTSE 100 companies, according to Action Aid. Sir Philip Green was reported to have avoided about £285m in tax and still he became a government adviser. In calling for Jersey, Guernsey and the Isle of Man to disclose those with financial affairs on the islands, Ed Miliband, the Labour party leader, is moving towards our position.

Adopting a system of “formulary apportionment” could stop corporations avoiding tax. It would create a tax base for UK companies aligned with a level of activity that actually occurs in this country rather than relative tax advantages."

Spot on (read more about that here.) And crucially important.

It goes right to the heart of two things that are very much a focus of the Occupy movement more generally: the corruption of capitalism, and inequality. More on this later (time has run out for today's blogger.)

Now read on.

IMF: race to the bottom on tax in developing world

2012-01-26T00:29:00.000-08:00

From the IMF:

"This paper assembles a new dataset on corporate income tax regimes in 50 emerging and developing economies over 1996-2007 and analyzes their impact on corporate tax revenues and domestic and foreign investment. It computes effective tax rates to take account of complicated special regimes, such as partial tax holidays, temporarily reduced rates and increased investment allowances. There is evidence of a partial race to the bottom: countries have been under pressure to lower tax rates in order to lure and boost investment.

In the case of standard tax systems (i.e. tax rules applying under normal circumstances), the effective tax rate reductions have not been larger than those witnessed in advanced economies, and revenues have held up well over the sample period. However, a race to the bottom is evident among special regimes, most notably in the case of Africa, creating effectively a parallel tax system where rates have fallen to almost zero. Regression analysis reveals higher tax rates adversely affect domestic investment and FDI, but do raise revenues in the short-run."

Note that amid the 'race to the bottom' on tax, even if revenues hold up, the structure of tax systems will inevitably become more regressive than they would otherwise have been - since tax rates on flighty mobile forms of capital (the forms that benefit the wealthiest sections of society) will tend to fall, while taxes on less mobile forms of capital will often rise to compensate.

Read more about this broad area here. In particular, see this post How tax competition harms developing countries, looking at earlier IMF research on this subject.

Still, this has just come out and we haven't had a chance to read it properly yet. More on this soon.

Links Jan 25

2012-01-25T08:24:00.001-08:00

Kenya: Treasury Eyes Tax Reforms to Net Higher Revenues allAfrica.com
Jan 24 - "The Treasury will seal loopholes in tax collections as it seeks to hold government expenditure flat in the transitional budget to be unveiled late next month ... the government expects to net at least Sh100 billion by scrapping a number of exemption schemes and zero-rated goods that it currently extends to attract investment, boost exports and lower cost of essential goods."

Korea, Bermuda to exchange tax info The Korea Herald
Jan 24 - "Korea signed a bilateral agreement Monday with Bermuda on the exchange of tax information ... it is expected to provide the two nations with significant opportunities for mutual direct investment." Some bilateral agreements do sometimes include terms other than tax concerns - and read here why bilateral agreements are ineffective.

Debt-ridden Italy's tax fraud crackdown yields 50 billion euros The Economic Times
Jan 23 - "Heavily indebted Italy uncovered more than 50 billion euros ($65 billion) in undeclared revenues last year after cracking down on tax cheats ... Prime Minister Mario Monti came to power in November calling for a radical change to defend "honest taxpayers".

Italian cardinal brands tax evasion a sin Guardian
Jan 24 - "It has long been regarded as more of a national sport than a misdemeanour. And it has long benefited from the seemingly boundless indulgence of the Italian Roman Catholic church. But now the head of the Italian bishops' conference, Cardinal Angelo Bagnasco, has unambiguously declared that "evading taxes is a sin". He called for "serious, effective and relentless" action against tax dodgers."

Cyprus: Probe launched against Tax Council chief Cyprus Mail
Jan 25 - "The chairman of the Tax Council is himself facing charges of tax evasion ... the Attorney-general has given the green light for the prosecution of the chairman, following an investigation by the Inland Revenue Department."

Austria: SPÖ suggests 'list of tax evasion shame' Austrian Independent
Jan 25 - "Social Democratic (SPÖ) General Secretary Günther Kräuter has said the possible publication of a 'list of disgrace' to increase the pressure on tax dodgers has his party's unequivocal support ... Austria should follow the example of Greece in creating and publishing a list of names of people who evaded taxes in the past years."

USA: Mitt Romney's Bermuda (tax) holiday Politico
Jan 20 - From Dietlind Lerner and E.J. Fagan of the Task Force on Financial Integrity and Economic Development:"As international financial crises threaten governments in Europe and Africa, and Occupy Wall Street protests continue in cities around the country, the measure of a future president should not be that he took advantage of a great business deal. Rather should be that, if elected, he could be trusted to put an end to this entire process of legally sanctioned tax avoidance which is so harmful to our country."

UK: Properties Hidden In Tax Havens Property Mentor
Jan 14 - Helping property owners "to escape the cost of 5% stamp duties and inheritance tax (charged at 40%), in Central London alone £100bn worth of property is believed to be stored in offshore vehicles". The post notes that the trend is spreading.

UK: Harry Redknapp payment to offshore Monaco account 'disguised as loan' Guardian
Jan 24 - High profile football (soccer) manager faces allegations of cheating the public revenue by avoiding tax, having "feigned almost complete ignorance of its existence ... despite the fact he had flown to Monaco personally to open the account in 2002, and had named it Rosie 47 after his pet bulldog and the year of his birth."

Guest blog: VAT loophole abuse, for beginners

2012-01-25T02:00:00.001-08:00

For years UK tax havens such as Jersey have been making hay from an egregious tax loohole called Low Value Consignment Relief (LVCR.) In short, this loophole has enabled UK goods under the value of £18 to be sent in a circular route via the Channel Islands so that they can re-enter the UK from outside the EU free of VAT. It is an absolutely classic example of the way that tax havens can out-compete 'onshore' businesses on a factor that has nothing whatsoever to do with productive efficiency, and everything to do with sucking wealth away from taxpayers. UK Conservative peer Lord Ralph Lucas branded the LVCR loop as "a smuggling exercise... akin to baccy for the parson, brandy for the squire."

Richard Allen, a former businessman who lost his 'onshore' business as a result of this loophole has fought almost single-handedly against this offshore loophole. Richard has written us a short blog illustrating the problem.

Guest blog: LVCR abuse for beginners

There are five market stalls in front of the Houses of Parliament selling CDs. The first four stalls show clear individual prices for their CDs with a note that says “Our price includes VAT of 20% which goes to the UK Government.” The fifth stall shows the prices for the CDs that are displayed along with a note saying “Our price is always up to 20% cheaper than the prices on the other stalls”

A customer goes to the stall selling the cheaper CDs and decides to buy a CD. He pays the attendant who at this point replies “Let me just get this delivered for you with no extra charge”. The attendant puts the CD in a bag, gets into a nearby car with the bag and the CD and then drives to Portsmouth where he gets on a ferry to the Channel Islands. He arrives in Jersey gets off the ferry then hangs around for an hour or so before getting back on the Ferry to Portsmouth. When he arrives he orders a cab to the Houses of Parliament where he then gives the CD to waiting customer with receipt showing NO VAT APPLICABLE.

One year later.....

There are now only two stalls left. A huge crowd of people is gathered around the stall with the discounted prices. The other stall is empty with a sign on it that says “Prices include VAT of 20% which goes to the UK Government.” The nearby Evening Standard news board has the headlines “UK Unemployment up – UK taxes to be increased to account for shortfall”

The attendant for the discounted stall is so busy with orders he now has a lorry to take CDs on the same round trip. Nearby he has parked his brand new Ferrari with the number plate N0 VAT.

Endnote: The loophole has since been modified. As a direct result of the complaints, the UK has removed LVCR from CI mail order items completely as of 1st April 2012 and lowered threshold to £15 from all destinations into the UK.

Further reading on LVCR:

A history of the VAT loophole - LVCR site
Businessman's fight to stop tax loophole taken up by Lords - Telegraph

Tax justice is storming the United States

2012-01-25T01:09:00.000-08:00

At the top of the Financial Times website right now, an article headlined Obama puts tax at heart of election:

"Barack Obama laid down the battle lines for the presidential election Tuesday night as he promised a “fairer” tax regime on the day Mitt Romney, the leading Republican contender, revealed that he paid federal income taxes at an effective rate of just 13.9 per cent in 2010.
. . .
“You can call this class warfare all you want. But asking a billionaire to pay at least as much as his secretary in taxes? Most Americans would call that common sense,” he said."

If you've missed the Mitt Romney story, take a look here; Obama's address is here.

Take a look, if you haven't already, at the video pushing tax justice for the Institute for Policy Studies in Washington. Take a look at our new and invigorating TJN-USA. Take a look, when you can, at the new video We're not Broke. Take a look at the new Tackle Tax Havens project. Take a look at the surging profile of the veteran and excellent Citizens for Tax Justice, also in Washington, D.C. Take a look at the Boston Herald, in an article that pits TJN director John Christensen against Ayn Rand:

This type of aggressive tax avoidance is only available to a few elite who consider themselves above others, said John Christensen, an economist and director of London-based Tax Justice Network.

See Bill Gates of Microsoft fame, following the likes of Warren Buffett, saying he doesn't pay enough tax. "It's just justice." Take a look at Elizabeth Warren on the Daily Show, quoting research by our friends at Citizens for Tax Justice. See this article Business Leaders Agree With President: End Millionaire Tax Breaks. Now take a look at this interview with none other than David Stockman, Ronald Reagan's director of the Office of Management and Budget, tearing apart the business strategy of Mitt Romney's private equity industry. Most remarkable is that he spent years in the private equity industry himself.

"Romney was disingenous when said got grad education in company creation, job creation, growing economy as an LBO [leveraged buyout] artist. LBOS are just financial speculation – I was in the business for the same period of time. I won’t pretend that I learned anything during that tells me how to improve the U.S. economy or how to create jobs.

What I learned was how to strip-mine the cash out of a company to pay the debt. What I learned was how to powder up the pig to sell it in the quickest IPO. I made some very large gains in some cases; I had some bankruptcies in others. The point is: LBOs are not about growing an economy."

And read more about private equity, from an incontrovertible tax justice angle, here.

Not Broke, Just Twisted; USA Under Attack By Tax Havens

2012-01-25T00:48:00.000-08:00

For those who missed this video last time round, its worth seeing again in the context of President Obama's State of the Nation speech. Addressing the Union yesterday, Obama put tax justice firmly onto the agenda which will shape this year's presidential elections.

TJN adviser talks Romney, Cayman on Democracy Now

2012-01-24T11:16:00.000-08:00

TJN Senior Adviser Jack Blum talks on Democracy Now about the offshore escapades of US Republican candidate and private equity mogul Mitt Romney. Latest news: his tax returns reveal a Swiss bank account, albeit one that he's already closed, along with accounts in Cayman (which we recently blogged and in Bermuda.)

Blum also appears in "We’re Not Broke," a documentary that premiered at the Sundance Film Festival. The film examines widespread corporate tax evasion in the United States and the increasing role of offshore tax havens.

For more on Romney's private equity background, see our recent blog looking at the private equity industry.

Links Jan 24

2012-01-24T09:08:00.001-08:00

Singapore, a preferred tax haven The Hindu Business Line
Jan 24 - For India, Mauritius is falling somewhat out of favour following a number of scandals, and Singapore is picking up the slack. See recent TJN Blog on Tax Gateways to India .

USA: State Tax Hikes On Wealthy Proposed By California, Maryland Governors Huff Post Business
Jan 20 - "It's early, but there does seem to be a bit of an uptick in governors proposing tax increases on the rich," said Jon Schure, director of state fiscal strategies at the Center on Budget and Policy Priorities, a Washington think tank. "The public is more receptive to that idea now."

OECD: Using Tax Policy to Reduce Income Inequality, Boost Economic Growth TaxProf
Jan 24 - See the Chapter from the forthcoming Economic Policy Reforms 2012 - Going for Growth: Reducing Income Inequality While Boosting Economic Growth: Can It Be Done?. The answer is: Yes.

Why the OECD’s approach to transfer pricing is a joke Task Force Blog
Jan 17 - About a year ago TJN published two articles summarising longer papers in Tax Notes by Michael Durst, former head of the U.S. Internal Revenue Service (IRS) Advance Pricing program and a world authority on the subject. This blog is a reminder of those two important articles.

Occupy schedules 'flashmob' outside Park City bank Park Record
Jan 24 - People aligned with the Occupy Wall Street movement are planning a protest outside a Wells Fargo branch. The action is scheduled the day after the first showing of the documentary "We're Not Broke," at the Sundance Film Festival. TJN has participated in the making of the movie, and will be represented at Sundance by Jack Blum, VP of TJN-USA.

Greece publishes tax dodger list to name and shame Reuters
Jan 23 - "A famous singer and a retired basketball star were on a list of 4,000 top tax dodgers released by the Greek government as part of a name-and-shame policy to get evaders to pay up. Tax evasion is endemic in Greece and its international lenders, the EU and the IMF, have insisted Athens improve tax collection if they are to continue bankrolling the debt-laden country."

Dangerous Liaisons - Canada's shift towards becoming a tax haven The Dominion
Jan 23 - On how - "By radically integrating its own politics and financial institutions with those of tax shelter states, Canada has transformed itself, without ambiguity, into a tax haven."

Switzerland eyes tax deals, US talks 'not so easy' Reuters
Jan 12 - "Switzerland's long tradition of banking secrecy has allowed rich foreigners to park savings out of sight of their own tax authorities for decades and, for many foreigners, made Swiss bank accounts a byword for dodging taxes. But foreign governments, led by the United States, are forcing tax havens to reveal their secrets, emboldened by efforts to root out suspected terrorist funding and by a need to boost revenues depleted by the global economic crisis."

Switzerland: Banking lobby celebrates centenary swissinfo
Jan 23 - "The [Swiss Bankers] association - founded in Basel in 1912 to represent the interests of the banking industry – is proud of its record ... For years the association has had to devote a lot of energy to conflicts with tax authorities in France and the United States, although this has mainly occurred behind the scenes."

The 10 Cs of an efficient tax system Tax Research UK
Jan 24 - Richard Murphy explains how "An efficient taxation system has nine attributes with one over-riding characteristic to which they all contribute."

Five steps to end global tax evasion

2012-01-24T04:21:00.000-08:00

Nick Mathiason* has the following article on the Guardian's Comment is Free page. With Nick's approval the article is copied in full below:

"'The World Economic Forum helped to set the tone this month when it issued a chilling dystopian vision of mass youth unemployment, wholly inadequate elderly care provision and widening global inequality.'

World leaders are failing us in the face of crisis. A new age of financial transparency could help claw back $3.1tn of unpaid tax.

Rarely have politicians and business leaders met at Davos against such a gloomy backdrop. The World Economic Forum (WEF) helped to set the tone this month when it issued a chilling dystopian vision of mass youth unemployment, wholly inadequate elderly care provision and widening global inequality. WEF's global risks 2012 report suggested fresh economic turmoil and social upheaval could wipe out gains produced by globalisation. Nationalism, populism and protectionism threatened to take root, it warned.

The world is calling for a bold vision of economic justice to counter dislocation and austerity. But since the global economic crisis reasserted its icy grip after a brief Keynesian impasse, world leaders have failed to deliver one. The inability to articulate a narrative beyond a long, hard march out of economic malaise ultimately caused by politicians' and regulators' failure to adequately supervise the financial system is resulting in a widespread disillusionment with mainstream politics that threatens to undermine faith in democracy.

World leaders need to respond quickly, and business must play its role. A good place to start is talking up the idea that there are mechanisms beyond severe budget cuts to eliminate sovereign debt. There is money in the global financial system that, if accessed and used wisely, could go a long way to mop up deficits and reinvigorate the global economy.

That treasure trove is the $3.1tn of tax, equivalent to 5.1% of global GDP, which according to international campaign group Tax Justice Network is illegally evaded in 145 countries, covering 98.2% of the world's population. In December, Washington-based thinktank Global Financial Integrity confirmed the reality of vast sums of cash flowing freely through an unregulated financial system last month. Developing countries, it said, lost $903bn in illicit outflows during 2009 – a year when economic activity was severely constrained.

The majority of these flows are washed through tax havens. These secrecy jurisdictions act as cover from international tax authorities. Disturbingly, the obstacles placed by the global financial system that would allow individual countries to track down and repatriate this cash are prohibitively burdensome. This is why a new age of financial transparency and accountability is required. Five key reforms would lay the foundations for this:

1. The rapid introduction of multilateral automatic tax information exchange between tax agencies in every single jurisdiction. This would ensure money illegally held offshore was easily identified and accounted for.

2. The introduction of new levels of financial transparency requiring the public disclosure of the ultimate human beneficiaries of companies, trusts and foundations. This is needed to prevent the further subversion of countries' tax bases whether by high net worth individuals, businesses, corrupt politicians, criminals or terrorists. It is also required to restore faith in the rule of law and the democratic process as the current non-disclosure of beneficial ownership is corruption's best friend.

3. The global introduction of country-by-country reporting so that every company has to publicly state financial details relating to its turnover, profits, costs, employees and taxes in every jurisdiction it operates in where its revenues exceed $5m. It is astounding that in the 21st century, it is impossible for citizens in many resource-rich nations to establish whether their country has got a fair deal from its oil, gas or minerals.

4. Concerted international action needs to be taken to ensure the hundreds of billions of dollars lost to exchequers by companies artificially inflating their costs and deflating profits through intra-company transactions – known as transfer mispricing – is identified, contained and reduced.

5. The harmonisation and codification of money-laundering laws to a restrictive level. Even the City of London shows brazen disregard for rules to stop money laundering, according to a report last June by the UK's Financial Services Authority.

Together, these reforms would show that world leaders were acting in their citizens' best interests, and would go a long way to averting WEF's dystopian nightmare."

* Nick Mathiason is business correspondent at the Bureau of Investigative Journalism and also works with the Task Force on Financial Integrity and Economic Development. He was previously Business Correspondent at the Guardian and Observer newspapers for 10 years.

Links Jan 23

2012-01-23T08:22:00.000-08:00

Africa losing Billions in Tax Evasion Eurodad
Jan 23 - See the video: ‘Africa losing Billions in Tax Evasion’ based on a report by Eurodad members Forum Syd “Bringing the billions back: how Africa and Europe can end illicit capital flight” talking about transfer mispricing, with Attiya Waris, TJN vice-chair.

New report on tax havens: the case of Luxembourg and impacts on development Eurodad
Jan 7 - "Eurodad member ASTM and other Luxembourg groups within the Cercle de Coopération au Développement have released a new report on the role of Luxemburg as a tax haven and its development implications ... The full report (only in German) and the summary report (in English and French) can be downloaded here"

France: Surprise plan of Finance Ministry to combat tax evasion Les Echos (In French)
Jan 22 - "New measures against tax evasion will be included in the supplementary budget in February. Bercy will confiscate approximately 5% of assets hidden in foreign accounts and greatly increase the penalties for criminal offenses in a tax haven." Welcome developments - and we ask why the UK doesn't get serious on offshore accounts, maybe it's something to do with this.

City of London Corporation: tax havens a ‘core asset’ for the City Treasure Islands
Jan 22 - Nick Shaxson on a communiqué from the government of the Isle of Man ..."Indeed, just exactly as I have always been saying. Tax havens as gigantic, secrecy-suffused offshore conduits to the City of London."

How the bosses paid less tax than their cleaners Daily Mail
Jan 21 - "Multi-million-pound payouts became common in private equity during the boom years. But they are not taxed as income because they represent a rise in the capital value of the fund and are taxed as capital gains. Hat tip: Offshore Watch

Romney’s spox says Cayman isn’t a tax haven. If she believes it, I have a bridge to sell her Treasure Islands
Jan 20 - "They all deny it, because the term ‘tax haven’ conjures up all sorts of really bad images. And rightly so. Read Treasure Islands, and you’ll be left in no doubt as to just how bad it all is."

See also:
Romney’s in deep trouble in Cayman – and he’s not alone Tax Research UK
Jan 23 - Richard Murphy observes: "With the Primary race set to drag on long into the Spring, this renewed scrutiny of his tax affairs is the last thing Romney needs; with Romney’s team even denying the Cayman Islands are a tax haven and more scrutiny of how the murky offshore world works, tax could become a recurring problem for Team Romney."

See also:
More on Mitt Romney's Tax Returns TaxProf
Jan 20 - Nice reference source with a set of links on the Mitt Romney tax dodging shennanigans and implications.

Honey, they shrunk the IRS Reuters
Jan 17 - David Cay Johnston comments: "Congress will spend a trillion dollars more than it levies this year, so how do Washington’s politicians respond to the 11th consecutive year of federal budgets in red ink? They plan to shrink the IRS."

More About Corporate Taxes And The .01 Percent New York Times
Jan 20 - "When people raise questions about big tax cuts for corporations, we’re told not to worry, because corporate taxes mainly fall on labor, not on stockholders. When people raise questions about low taxes on the very rich, we’re told not to worry because once you include all the taxes corporations have paid on their behalf as stockholders, their taxes aren’t really that low." - Having your cake and eating it.

How Citizen’s United and Anonymous Corporations Distort U.S. Politics Task Force Blog
Jan 19 - On the beneficial ownership issue - "Any U.S. voter can go to OpenSecrets.org and see the names of donors to campaigns, political action committees and parties.The protection that disclosure provides breaks down, however, when anonymous, or shell, corporations enter the picture.

For more on beneficial ownership issues, see:
Land Registration etc. (Scotland) Bill and Beneficial Ownership Land Matters
Jan 12 - Interesting commentary on land registration, transparency, accountability and the collection of taxes. Hat tip Carol Wilcox.

One way to claw back HS2 cost Financial Times
Jan 12 - Letter from Carol Wilcox, Labour Land Campaign, observing "All good public infrastructure investment increases local land values", noting how costs of public infrastructure can be covered, and even exceeded, if the self-funding of public infrastructure by public collection of land rent is in place. See editorial by Carol Wilcox in the Taxing Natural Rents Edition of Tax Justice Focus here.

Swiss 'Rubik' deals are dead in the water

2012-01-23T00:44:00.000-08:00

Swiss Info is reporting that the uncertainty surrounding the dodgy and loophole-ridden "Rubik" bilateral deals that Switzerland has negotiated with Germany and Britain, providing immunity to criminal tax evaders in exchange for some secret tax payments, are unravelling under pressure from the EU:

"The tax deals which Switzerland reached last year with Britain and Germany could yet fail in the face of opposition in Europe and in the countries concerned."

This is exactly what we have argued all along (as well as arguing that these deals are not only immoral, and almost useless in terms of raising revenue - they will get thrown out by the EU.) We heard by word of mouth that a top Swiss banker said in the last few days that the deals would die anyway and should be scrapped.)

There's opposition, too, from amongst the Swiss political parties, with some on the Right concerned about the gradual erosion of banking secrecy, while those on the Left see a move towards enhanced information exchange (i.e. automatic information exchange on the EU model) as an inevitability.

As Swiss Info reports:

"It is now by no means certain that the two tax agreements will pass the hurdles of the Swiss parliament either.

The rightwing People’s Party says the negative aspects of the Rubik system outweigh the positive ones. And parties on the left of the political spectrum are in any case relatively sympathetic to EU demands for automatic exchange of information.

Some economists and tax experts have cast doubt on the effectiveness of Rubik. Sergio Rossi, a professor of economics at Fribourg University told Swiss radio and television that it was based on a philosophy that could have worked in the last century, when foreign capital “sat in Switzerland and did not move for decades".

But he sees things moving now in the direction of the automatic exchange of information".

The Swissinfo story isn't quite right, however: this particular story is not, at heart, about exchange of information but about withholding taxes. At the core of the EU objections is that, as we remarked recently:

"that the EU already has legislation regarding withholding taxes on interest. As EU legislation has primacy over bilateral agreements, no EU member State can enter into agreements that impinge on the EU savings tax.
. . .
The withholding taxes levied under the EUSD are merely advance payments against what would ultimately be owed by the taxpayer. Therefore Rubik cannot be regarded as a full and final settlement. The tax evader client can still be liable to penalties, etc. This defeats the one and only purpose of Rubik. Rubik is crippled."

In other words, the key selling point of Rubik is that it enables tax-evading criminals to get off the hook (while paying taxes and back taxes) - but the EU will ensure that even if they do pay those taxes, they are still on the hook. Switzerland has been trying to play some weird little gymnastics behind the scenes to try and get around the EU's objections - by excluding bank interest from the bilateral deals (story only available in German, here, with rough web translation here) - but these typically Alpine subterfuges don't appear to address the core problem here. The whole game is a nonsense.

TJN's position is unambiguous: these deals are weak, immoral, and even silly - and they undermine international attempts to tackle tax evasion. Both Germany and Britain should swallow their pride, withdraw from the deals, and put their diplomatic effort into pushing through the EU's enhanced Savings Tax Directive - suitably extended to Switzerland.

New Yorker, FT: the real problem with private equity

2012-01-22T23:44:00.000-08:00

Following our blog about US presidential candidate Mitt Romney, an excellent short article in The New Yorker explaining that the principal problem with private equity firms is not their effect on stripping jobs:

The real reason that we should be concerned about private equity’s expanding power lies in the way these firms have become increasingly adept at using financial gimmicks to line their pockets

And it goes on to explain concisely what the problem is. In essence, it's debt, as we've explained before. Buy a firm, load it with debt, and that leverage increases your returns.

"The rewards can be extraordinary: when Romney was at Bain, it supposedly earned eighty-eight per cent a year for its investors. But piles of debt also increase the risk that companies will go bust."

And it gets worse.

"In the past decade, though, that calculus changed. Having already piled companies high with debt in order to buy them, many private-equity funds had their companies borrow even more, and then used that money to pay themselves huge “special dividends.”

And from 2003 to 2007 private equity funds took over $70bn out of their companies. The New Yorker adds:

These dividends created no economic value—they just redistributed money from the company to the private-equity investors.

Indeed. And it goes on to explain how private equity firms can increasingly profit even if the companies they run go under—an outcome made much likelier by all that extra borrowing. It gives the example of a U.S. company that was bought and eventually went bankrupt, dumping its debts on society and wiping out its workers' pensions obligations - while making a 23 percent profit for the private equity firm (more examples of this, in an in-depth article in the New York Times here). A letter in the Financial Times from Professor Louis Brennan of Trinity College Dublin has more on this:

Private equity “works” not because of accountability but because of the ease with which implicit and explicit contracts may be broken – pension commitments, employee contracts, supplier contracts, and intellectual property stripped out and repackaged.

Private equity “works” not because of greater accountability but because of a reduced accountability that enables a minority to benefit at the expense of a majority. It is not even a zero-sum game but a game that involves both value shifting and value destruction.

(And see some Harvard research on this here.) here we get into an often overlooked aspect of tax havens. Tax havens create laws deliberately to help investors do this, under a veil of secrecy. No wonder Mitt Romney and his former company Bain Capital chose the Cayman Islands to locate their activities.

And all this is destabilising. Take a look, now, at Marty Sullivan's article on Romney, Bain, private equity and taxes, in the highbrow U.S. publication Taxanalysts.

"Bain profited from a dangerous flaw in our corporate tax that subsidizes destabilizing financial structures.
. . .
the tax incentive for leverage goes to the heart of the deal and can cause serious economic damage.
. . .
higher levels of debt threaten macroeconomic stability by leaving the economy more vulnerable to small contractions in business activity."

Now back to the New Yorker:

"That’s not exactly how capitalism is supposed to work."

You don't say. This is a classic example of the corruption of capitalism - which we believe is right at the core of what the Occupy protesters are angry about. Oh, and then there's the very closely related question of tax justice, and another example of this corruption:

"As if this weren’t galling enough, taxpayers are left on the hook. Interest payments on all that debt are tax-deductible; when pensions are dumped, a federal agency called the Pension Benefit Guaranty Corporation picks up the tab; and the money that the dealmakers earn is taxed at a much lower rate than normal income would be, thanks to the so-called “carried interest” loophole."

Ugh, ugh, and thrice ugh. And, to round the New Yorker article off:

"If private-equity firms are as good at remaking companies as they claim, they don’t need tax loopholes to make money."

Absolutely spot on. All you really need know about the private equity industry, in a single page.

If you want responsible capitalism, change the tax system

2012-01-22T02:37:00.000-08:00

The Observer's Heather Stewart has written an economics column which gets right to the heart of how and why Capitalism v.3 is so unfit for purpose: the tax incentives are completely askew, rewarding rent-seeking rather than genuinely productive activity.

Take the leverage buyouts that became the craze among private equity investors in the last decade: few if any of these deals made sense were it not for the debt relief offered on loan finance. As Stewart notes:

"The frenzy of private equity deals that swept through the (British) economy in the noughties was partly because interest rates were unusually low; but it also reflected the structure of the tax system. Companies can claim back debt repayments against their corporate tax bill. That means the 'leveraged buyout' - gobbling up a firm using a loan which the firm itself will then have to repay - has an inbuilt financial advantage over a straight takeover."

Exactly so, and over the years we've met many economists and tax officials who recognise the harmful distortion this creates but shrug their shoulder about the prospect for changing this situation since politicians have had no appetite for taking action. Why not? Well, a quick look at party political funding sources might give a clue.

But the favourable tax treatment given to private equity investors doesn't stop there. In order to encourage their 'wealth-creation', which frequently involves nothing more than debt leveraging companies to reckless levels, cutting staffing numbers, and stripping intellectual property rights to offshore companies, successive governments have allowed private equity managers to treat the bulk of their earnings as capital gains (taxed at 18 percent compared to 50 percent charged as income tax on top-earners).

As Stewart notes in her article, tax frames the way in which economies work. It also shapes the outcomes of economic activity. A well designed tax system will reward certain activities, including investment, and inhibit others (gambling, hydrocarbon abuse, etc). Taxes can also mitigate the harmful income and wealth inequalities that capitalism tends towards.

Any debate about how to reform capitalism must take account of perverse tax incentives at national and international levels. Tax havens are bang at the centre of the problem, as Americans are beginning to realise in the context of revelations about presidential candidate Mitt Romney's tax affairs, which have derailed his campaign in the past week.

Read Stewart's article here.

Vodafone defeats India in landmark $2.9bn tax case

2012-01-20T08:38:00.000-08:00

India's supreme court has found in favour of Vodafone in a landmark tax case, ruling that India can't levy capital gains on its 2007 purchase of Hutchison Whampoa’s India operations. Bloomberg explains:

Vodafone and Hutchison conducted their transaction offshore, with Vodafone’s Dutch subsidiary, Vodafone International Holdings BV, acquiring CGP Ltd., a Cayman Islands holding company controlled by Hong Kong-based Hutchison.

Essentially, the court ruled that India's government can’t levy a capital gains tax on the assets because the transaction occurred between foreign companies.

We'd make a couple of points here. First - while we won't comment on the legal technicalities as we don't have access to them - this means a transfer of wealth away from Indian taxpayers and towards, among others, Vodafone shareholders and top Vodafone executives (in the form of their stock options and other remuneration.)

Next, corporate executives have been lining up to congratulate the Indian courts (of course.) Aside from the question of whether the law is being upheld fairly or not, their loud claims that this ruling - and the more general trend of tax-cutting for corporations - is positive for India and encourage investment and economic growth in India are open to serious question. (Now this dispute was not really about tax rates - it was about tax loopholes - but the same basic calculus holds.

Even the IMF has recognised that lower corporation taxes and tax holidays may not boost growth. Think about it like this. Governments in oil-rich countries, for instance, levy extremely high tax rates - effective marginal tax rates of 90 percent or more are common enough - because investors know that the oil is there, and if they want it, that is where they have to go. Just because profits are reduced by tax doesn't mean there aren't profits. The oil companies will gnash their teeth and threaten to go to where there are more attractive tax regimes - but at the end of the day ExxonMobil knows that if it disinvests in a fit of pique because of high taxes, Sinopec will fill its shoes (and, probably fill its own boots.)

Now in the case of the Indian telecommunications market, a similar calculation applies. Corporate lobbyists will insist that if tax rates are too high they will go somewhere friendlier. But at the back of their minds they know that the Indian telecommunications market is a goldmine. And if they don't like the tax rate, others will be perfectly hard to put up with it.

It is important here not to take the perspective of the single investor (who may well make a risk and return calculation and opt to invest in another country) but to take the perspective of the country concerned. If one investor leaves, another will take its place. It's not quite as simple as this in the real world, of course - but the basic principle holds.

If India's supreme court had ruled that India should have been able to levy those taxes, the corporations would all have huffed and puffed about the investment climate, but at the end of the day they would still get their foreign investors slavering to be the investors to come in.

Finally, an absolutely fundamental principle of international tax was at stake here. As the International Chamber of Commerce said:

"Today’s judgment should be read as a clear endorsement of the view that countries don’t have jurisdiction to tax international transactions based on the location of underlying assets."

This is yet more evidence why the international system for taxing multinational corporations is broken. It needs a complete overhaul.

Broadly, there are two ways to tax multinational corporations. The predominant way, fiercely supported by the OECD and multinational corporations, is to tax them according to the strange legal contortions that their lawyers and accountants twist them into, stuffing profits into tax havens and costs into the high-tax countries. It is a system that uses OECD rules which, as one prominent tax expert recently noted:

“is based on a fundamental misunderstanding of practical economics.”

There is an alternative system, which a growing number of U.S. states are using: unitary taxation. Under such a system, you disregard all the corporate shenanigans and tax companies according to the real economic substance of what they do in the real world. Developing countries like India would do well to take a greater interest in this possibilities - and on others.

More on unitary tax on our transfer pricing page.

Conference - Fraud and Corruption

2012-01-20T08:14:00.000-08:00

The Observatory of Fraud in Economics and Management (OBEGEF) and the Faculty of Economics, University of Porto are co-organising an inter-disciplinary conference on fraud and corruption. The conference will be hosted by the faculty of economics at the University of Porto, and is scheduled for 14-15 September 2012.

The organisers have just issued the following call for papers with details of the keynote speakers and other contributors (including TJN's director John Christensen, who is an invited keynote speaker).

+++++++
The Observatory of Fraud in Economics and Management (OBEGEF) and the Faculty of Economics, University of Porto

1st OBEGEF conference – Interdisciplinary Insights on Fraud and Corruption

In September 14-15, 2012 it will be held at Faculdade de Economia da Universidade do Porto (FEP), the 1st OBEGEF conference – Interdisciplinary Insights on Fraud and Corruption. Please consider submitting an abstract, a poster or a thesis proposal for presentation.

The deadline for abstract/paper/proposal submission is April 9.

The aim of the conference is to study fraud and corruption in an integrated way, to prevent and combat them, comparing experiences from different countries and political and cultural spaces. It is intended as a forum for experts from different scientific areas, an interlacing of experience of businessmen, academics, politicians, policemen and other professionals who may intervene in the process of fighting and preventing; building an interdisciplinary, international and multidimensional perspective.

Topics of interest for the conference are related (but not limited) to:

§ Ethical education and fraud prevention

§ Shadow economy, fraud and money laundering

§ Crime, white-collar crime and fraud

§ Social, institutional and individual dynamic of fraud

§ Fraud: frameworks, types, procedures

§ State and corruption

§ Prevention and detection of fraud. Proof

§ Fraud by social sectors

§ Other aspects of fraud

The conference will assume various forms: plenary and specialized sessions, short courses, presentations of papers and posters, panel discussions and seminars.

Keynote speakers

§ Susan Rose-Ackerman (Professor at Henry R. Luce Professor of Jurisprudence, Law School and Department of Political Science, Yale Law School, USA)

§ John Christensen (CEO Tax Justice Network, UK)

§ Michael Levi (Professor of Criminology, Cardiff University, UK)

§ Friedrich Schneider (Professor of Economics, Chair of the Department of Economics, Johannes Kepler University of Linz, Austria)

Short courses/Master and PhD Tutorials in Forensic Accounting, Criminology and Anti-Fraud Research and Academic Integrity, led by renowned international professors and researchers will precede the conference.

Leading Professors

Forensic Accounting

§ Larry Crumbley (KPMG Endowed Professor, Department of Accounting, Louisiana State University, USA)

Academic Ethics

§ Donald L. McCabe (Professor, Management & Global Business, Rutgers Business School, USA)

§ Deborah C. Poff (President and Vice-Chancellor at Brandon University, Canada; Editor in chief on Journal of Academic Ethics and Editor of Journal of Business Ethics)

Important dates

Pre-conference (short-courses): 13rd September of 2012

Conference: 14th and 15th of September of 2012

Location: Porto, Portugal

Deadline for abstract/poster/proposals submission: 9th April of 2012

Deadline for full paper submission: 30th July of 201

Conference fee: 100 € (normal) / 50 € (students)

Papers will be published in Conference Proceedings with an ISBN number and will be considered for a publication in an edited volume.

Awards of 500€ will be attributed to the best paper, best poster and best thesis proposal.

Contacts

Email: I2FC@fep.up.pt

A Financial Transactions Tax: Inefficient or Needed Systemic Reform?

2012-01-20T07:58:00.000-08:00

That's the title of a new paper looking at the pros and cons of the European Union's efforts to get a financial transactions tax up and running. We haven't read the whole paper, but here's (a slightly shortened version of the abstract:

IMF staff reports . . . concluded that a tax would reduce the efficiency of capital markets, and raise the cost of capital. The efficiency frameworks used in the staff reviews were unduly narrow. Markets work best when there are strong links between market trading and real economic activity. Of late, these links have become increasingly tenuous and latent market and financial system risks are mounting. Carefully calibrated legal and tax responses are required to change market behaviour. Such a tax as part of an integrated policy framework would reduce short-term momentum trading and promote longer-term investment that would better reflect underlying economic fundamentals. So we argue the European Commission is correct in proposing to adopt such a tax.

In other words, an FTT seems like a good idea. Now take a look at that bit in bold. It's rather like something that John Maynard Keynes said a while ago, in his characteristically outdated but still eloquent prose. Compare the two bits in bold, and realise that the two sections are saying someting very similar:

"The divorce between ownership and the real responsibility of management is serious within a country when, as a result of joint-stock enterprise, ownership is broken up between innumerable individuals who buy their interest today and sell it tomorrow and lack altogether both knowledge and responsibility towards what they momentarily own.

But when the same principle is applied internationally, it is, in times of stress, intolerable - I am irresponsible towards what I own and those who operate what I own are irresponsible towards me. There may be some financial calculation which shows it to be advantageous that my savings should be invested in whatever quarter of the habitable globe shows the greatest marginal efficiency of capital or the highest rate of interest. But experience is accumulating that remoteness between ownership and operation is an evil in the relations between men, likely or certain in the long run to set up strains and enmities which will bring to nought the financial calculation."

And in light of all that's happened in the world in the last few years, who could argue?

Read a whole lot more about Keynes, in the context of tax, transparency, and 'remoteness between ownership and operation' here.

Links Jan 20

2012-01-20T04:20:00.000-08:00

Corporate anonymity - Ultimate Privilege The Economist
Jan 20 - A very important report. The piece points out the deficiencies in measures for increasing transparency, especially within the Financial Action Task Force (FATF), the world’s main anti-money-laundering body. "Anthea Lawson of Global Witness ... says that the result is 'carte blanche for tax-evaders, organised crime and the corrupt to carry on business as usual.'” Hat tip: Heather Lowe.

See also:
Incorporation with limited liability is a privilege. It should not include anonymity Tax Research UK
Jan 20 - Richard Murphy points out: " I am convinced legal limited liability is a privilege - after all, if people sign a piece of paper to form a company they no longer have to accept full responsibility for their debts ... like all responsibilities, this one comes at a price. The price is ... to disclose who really owns the company and who really runs it, as well as to say what you do i.e. to put true and fair accounts on public record."

Corporations, Taxes and Responsible Investors Huffington Post
Jan 19 - A piece by TJN Senior Adviser Rev. Séamus P. Finn, OMI. "Shareholders, and especially faith based and socially responsible investors, will need to consider how to engage companies that are identified as the most aggressive in developing legal strategies to either avoid or evade the payment of approved taxes."

Left Behind by the G20? How inequality and environmental degradation threaten to exclude poor people from the benefits of economic growth Oxfam
Jan 19 - Oxfam’s new report Left behind by the G20 reveals that it is falling behind on inequality, and inclusive and sustainable growth, with inequality having increased in 14 of the G20 countries since 1990 as economic growth has too often failed to benefit poor people.

Nepal: Compliance burden fuels tax evasion trend The Himalayan Times
Jan 20 - "Post-1990 movement, the private sector has come forward very actively and in many sectors led alone, without government’s support, but post-2007 movement, the private sector has been in news more all for the wrong reasons. “It’s a trend,” according to finance secretary Krishnahari Baskota, 'though such act will not benefit them in a long run.' "

USA: What the President's Council on Jobs and Competitiveness Got Wrong about Corporate Taxes Citizens for Tax Justice
Jan 18 - "President Obama’s jobs council has released a report full of recommendations, including somewhat misguided points on the federal corporate income tax. The report rightly points out that the corporate income tax is full of loopholes that should be closed, but fails to call for a reform that actually raises revenue to support under-funded public services and investments ..."

USA: IRS Called Easy on Criminal Tax Evaders in Watchdog’s Critique Bloomberg
Jan 20 - "Criminal tax evaders have an easier time coming clean with the Internal Revenue Service than those who didn’t intend to hide money from U.S. authorities, according to Nina Olson, the National Taxpayer Advocate."

Canada: Tax-dodging guru convicted on evasion charges CTV News
Jan 20 - "A B.C. man who earned a solid six-figure income teaching would-be tax dodgers a bogus scheme to evade the Canada Revenue Agency has been found guilty of tax evasion and counselling to commit fraud ... an advocate of the legally flawed "natural person" theory, which suggests that anyone can get out of paying taxes by declaring themselves a "natural person" rather than a taxpayer."

Switzerland: Tax amnesty pays off swissinfo
Jan 19 - Switzerland appears to, er, crack down on tax cheats? "An amnesty for repentant tax cheats in Switzerland brought millions of francs into the federal, cantonal and communal coffers in 2011."

Links Jan 19

2012-01-19T08:31:00.001-08:00

Outflows, Not Aid, Must Be Curtailed to Fight Poverty Huffington Post
Jan 11 - Raymond Baker comments, further to the new study from Global Financial Integrity.

Italy fights tax evasion Business Report
Jan 19 - "Italy's new prime minister has put his country on a strict austerity regime of spending cuts, tax hikes and tighter pensions. But Mario Monti still has one more card up his sleeve - the fight against tax evasion, another tool to cut down the debt mountain of the eurozone's third-largest economy."

Wegelin Bankers Indicted by U.S. in Tax Crackdown, Bank Says Bloomberg BusinessWeek
Jan 19 - " Switzerland’s Wegelin & Co. said three bankers were charged with conspiring to help U.S. clients hide more than $1.2 billion from American tax authorities ... The men told clients their undeclared accounts would stay hidden from the IRS because the bank “had a long tradition of bank secrecy, and, unlike UBS, did not have offices outside Switzerland.”

Swiss banks back Romney and Obama swissinfo
Jan 12 - "UBS and Credit Suisse are, as in the past, playing an important role in the financing of United States presidential campaigns, research has revealed."

USA: A corporate tax code for a different century Reuters
Jan 13 - David Cay Johnston observes: "Big business is lobbying for a major cut in the corporate income tax rate, and both President Barack Obama and key congressional leaders are on their side. But the evidence that a rate cut will boost the economy is weak. What’s needed is comprehensive reform that includes a simpler, fairer and more transparent corporate tax code..."

Nature of international business sector encourages tax accusations The Barbados Advocate
Jan 17 - "The international business sector has been described as a zero-sum game, where the gains in one jurisdictions can result in losses for another. According to Minister of Tourism, Richard Sealy, this outlook of the sector has caused many to make claims and accusations on the taxation structure of Barbados as going against international norms."

The Dirty Thirty: the most egregious corporate tax lobbyists / dodgers in the USA revealed

2012-01-19T02:24:00.001-08:00

In their new report on Representation without Taxation, our colleagues at Citizens for Tax Justice have revealed that two years on from a Supreme Court decision allowing corporations to provide unlimited funding to political candidates, corporate tax lobbying has allowed the Dirty Thirty biggest corporate tax lobbyists and tax dodgers to collect US$10.6 billion in tax rebates from the federal government over a three year period.

According to CTJ:

"These companies so deftly exploited carve outs and loopholes in the tax code that all but one of them enjoyed a negative tax rate over the three year period of the study, while spending nearly half a billion dollars to lobby Congress on issues including tax policy. Altogether they collected $10.6 billion in tax rebates from the federal government."

While this comes as no surprise to those of us engaged in monitoring the tax dodging industry and their clients, the sheer scale and cost to ordinary people is mind-boggling. Again, according to CTJ:

"Ordinary American taxpayers and small businesses must pick up the tab when major corporations avoid their taxes. Spread out over every individual tax filer in America, the taxes avoided by the Dirty Thirty break down to an average of $481 per taxpayer over the three years."

$481 for each and every taxpayer in the US gives some idea of the enormity of the tax injustice being foisted onto ordinary citizens by a tiny and privileged minority; but that's just the Dirty Thirty. Looking at all Fortune 500 companies, CTJ came up with this:

"A total 280 profitable Fortune 500 companies collectively paid an effective federal income tax rate of 18.5 percent, about half of the statutory 35 percent corporate tax rate, while receiving $223 billion in tax subsidies."

How do they get away with this? Well the answer largely lies here:

"These 280 companies spent a total of $2 billion lobbying on tax and other issues between 2008 and 2010."

And, of course, our offshore friends played a major role in foisting this outrage on ordinary people: "at least 22 of the Dirty Thirty reported subsidiaries in offshore tax havens like the Cayman Islands. Since profit artificially shifted offshore is often counted as 'foreign' profits, the data likely underestimates the amount lost due to tax havens."

What can be done about this massive corporate tax lobbying? CTJ proposes the following:

To limit corporate money in elections, lawmakers should:

Require full and honest disclosure – the public should know who is funding what candidates
Empower shareholders – the shareholders that own corporations should have a say in how corporations spend their money on elections
Reverse Citizens United

Read the CTJ report here.

Mitt Romney's Cayman Islands skeletons pop out

2012-01-19T00:26:00.000-08:00

ABC News has a nice little report that Bain capital, the vehicle that built much of the wealth of Republican presidential candidate Mitt Romney, has set up no less than 138 secretive offshore funds in the Cayman Islands. He has several of his own funds invested there too. It's a good bit of digging, and quotes a TJN senior adviser on Romney:

"His personal finances are a poster child of what's wrong with the American tax system," said Jack Blum, a Washington lawyer who is an authority on tax enforcement and offshore banking.

The ABC reporter goes to Romney's post box in the Cayman central post office - see the picture. (It's rather reminiscent of what the centre for Apple Itunes' European operations looks like, revealing of the sheer, bald artificiality of the whole offshore thing; take a look at this very short video, or this picture.)

They then film a hapless British official from the veteran Cayman company Walkers which provides the registered office for Bain (and which has in the past helped write Cayman laws). As ABC describe the encounter:

Asked if he could confirm the existence of the Bain accounts, David Byrne, the chief marketing officer for the law firm Walkers, listed on documents as Bain's Caymans' representative, said he could not. "No, I can't at all," said Byrne. "Unfortunately, I can't comment at all on that."

It's hardly surprising he's so reticent. Cayman's Confidential Relationships (Preservation) Law - its secrecy law - is ferocious. Take a look at this wording:

5. (1)
Subject to section 3(2), whoever-
(a) being in possession of confidential information however obtained-
(i) divulges it; or (ii) attempts, offers or threatens to divulge it; or
(b) wilfully obtains or attempts to obtain confidential information,

is guilty of an offence and liable on summary conviction to a fine of five thousand dollars and to imprisonment for two years.

Our emphasis added. In other words, you can go to prison in Cayman not only for revealing information - but merely for asking for it too! (We've had complaints in person about this very aspect of the law from Cayman private practitioners.)

Romney, it has been reported, pays a lower tax rate than his secretary. Now take a look at his top campaign contributors. That's quite a shocking list: nearly 94 percent of those contributions come from the financial sector or companies (law, accountancy firms) involved in complex (and often offshore-focused) tax avoidance.

The whole thing stinks. Romney's bad enough - but he's part of a much bigger and far nastier global scandal. Romney says he follows all tax laws, which may be true. But what Cayman provides, Blum notes, is that it helps him "avoid a whole series of small traps in the tax code that ordinary people would face if they paid tax on an onshore basis." (Slightly separately, take a look at Robert Reich, for instance, on the Romney Tax Loophole.) One set of rules for the wealthy; another for the rest of us.

Let's not forget, too, that companies routinely defer their taxes by parking them offshore, tax free. They say they will pay those taxes when they 'bring the money home' - but often they do not. This helps them grow faster than their smaller, onshore-based competitors for reasons that have nothing at all to do with productive efficiency and everything to do with transferring wealth away from ordinary taxpayers. These are, in effect, untargeted subsidies, and they have the same stultifying effect on growth and efficiency. Once again: one set of rules for the big players, and another for the rest of us.

There will be many Republicans of course who support Romney's unfortunate Cayman espapades. But we would bet that there are many, many right-thinking Republicans and potential Republican voters who are uncomfortable with the way that tax havens have distorted global markets, have created a playing field that is skewed towards some and against others, and which provide a secrecy-clad hothouse for crime, insider trading and other kinds of fraud.

This is clearly the potential for a major division in the Republican Party here, especially if Romney wins the nomination. Let's see how far their opponents manage to exploit it.

The time is now for Australia and mining revenue transparency

2012-01-18T08:16:00.000-08:00

Time to level the playing field? - Mine site on Rapu-Rapu Island, the Philippines. Photo: Stuart Highton/ OxfamAUS

Guest blog from Claire Spoors, Publish What You Pay Australia Coordinator

Australia is a global mining giant. Our government and industry consider the country a leader in natural resource governance. However, with more and more Australian mining companies venturing overseas to countries vulnerable to the 'resource curse' – like the Democratic Republic of Congo, where immense natural resource wealth fuels a brutal conflict and most of its 70 million people survive on less than a dollar a day – this belief is being tested, particularly in relation to revenue transparency.

The Publish What You Pay Australia coalition is leading calls for Australia to live up to its self-proclaimed reputation as a world leader in good governance. As part of the global movement to tackle corruption in the extractives industries we are campaigning for the Australian Securities Exchange (ASX) to introduce payment disclosure rules that would require oil, gas and mining companies to publish what they pay governments on a country-by-country and project-by-project basis. This would align ASX requirements with the rules that are set to come in to force in the US as part of the Dodd-Frank Act and the EU through proposed amendments to the European Commission’s Accounting and Transparency Directives.

As part of our efforts we are working with investors who also want to see greater transparency in the extractives sector. By disclosing the size and nature of financial relationships with governments, companies can contribute to the global effort to end corruption and enable citizens of resource-rich countries to hold their governments to account for how resource revenues are spent. Companies benefit as improved disclosure will help mitigate the financial, political and reputational risks that threaten their long-term shareholder value.

The US and EU rules will apply to companies that make up around 55% of global market value of oil, gas and mining companies. The ASX represents a sizeable 5% of the global market, listing over 1,000 companies. Getting the ASX to bring in payment disclosure rules would help level the playing field for companies that act within the law and protect them from unfair competition and having their reputation tarnished by other companies’ which are complicit in corruption that contributes to conflict and poverty.

Publish What You Pay Australia is advocating for the ASX, which is currently consulting on reserves disclosure, to also consider greater revenue transparency in its review. As part of this effort we will draw on the findings of our recent report, The Australian Securities Exchange: extractive industry companies and payment disclosure, which examines the current level of disclosure by the top 100 extractive industry companies listed on the ASX.

With political and investor support for more transparency in the extractive industries and the demand for universal rules requiring payment disclosure growing ever stronger, the time for Australia to act is now.

Another monster Vodafone tax dodge, via Switzerland, Jersey, Luxembourg

2012-01-18T06:31:00.000-08:00

The indefatigable Private Eye has dug up another monster tax dodging scheme by the telecommunications multinational Vodafone. This follows an earlier Private Eye investigation into a multi-billion pound Luxembourg-centred transfer pricing scandal, which was one of the inspirations for the emergence and growth of the campaigning group UK Uncut.

Whereas the previous scandal involved Vodafone’s €180bn takeover of the German group Mannesmann, this one involves:

"a 45 percent stake in US mobile operator Verizon Wireless, acquired in 1999 and held through a US company called Vodafone Holdings Inc and a Luxembourg company that has since “migrated” to Jersey."

The borrowings happened via a detour to Switzerland. As with the Mannesmann deal, it involves a classic transfer pricing arrangement: the 'onshore' part of the company borrows billions from the 'offshore' part, generating billions in interest charges. These charges are offset as costs against onshore taxes, and counted as income in the offshore jurisdictions, where they hardly get taxed at all.

Hey presto! Without producing anything new or better in the real world, Vodafone's tax planners have transferred billions away from hard-pressed taxpayers and into the stock options and bonuses of the company's executives. The artificiality of the arrangement isn't lost on Private Eye:

"By March 2011 the total earned in this way had hit $10.2bn and will by now be around $12.5bn, or £7.5bn. All earned by a company showing, in its latest accounts, a total wage bill of $8,000!"

And, as with the Mannesmann deal, it involves a complete cave-in by the (now beleaguered) Dave Hartnett of Her Majesty's Revenue and Custom's (HMRC.)

Quote of the day - financial liberalisation

2012-01-18T02:34:00.000-08:00

Quote of the day:

"financial liberalisation and financial crises go together like a horse and carriage."

From the Financial Times' chief economics commentator Martin Wolf, in a review in 2009 looking at Carmen Reinhart's and Kenneth Rogoff's historical overview of global financial crises.

No great surprise there, just a nice quote really, based on exhaustive research. But the review is informative.

Jersey's Geoff Cook issues misleading riposte to calls for clamp down on British tax havens

2012-01-18T01:28:00.000-08:00

Today's edition of the Financial Times carries a dreary letter from Geoffrey Cook, chief executive of Jersey Finance (an industry lobbying group supported by the island's government). The content is predictable: Ed Miliband (leader of the UK parliamentary opposition) is wrong to identify Jersey as a tax haven; Jersey is cooperative on tax matters, endorsed by OECD, blah, blah, blah.

In October 2011 we published a detailed assessment of the laws, regulations and international treaty arrangements of Jersey and 72 other countries and micro-jurisdictions. Jersey was assessed with a secrecy score of 78 points out of a potential 100, ranking the island seventh overall on the global index and placing it high in what we would call the danger zone of financial centres prone to attracting nefarious activity (and not just tax dodging).

Our assessment is clear and transparent. Its key findings are summarised as:

1. Jersey does not adequately curtail banking secrecy;
2. Jersey does not put details of trusts on public record;
3. Jersey does not maintain details of company ownership in official records;
4. Jersey only partly requires that ownership of companies is put on public record;
5. Jersey does not require that company accounts be available on public record;
6. Jersey does not require country-by-country financial reporting by companies;
7. Jersey does not require resident paying agents to tell the domestic tax authorities about payments to non-residents;
8. Jersey does not use appropriate tools for effectively analysing tax related information;
9. Jersey does not avoid promoting tax evasion via a tax credit system;
10. Jersey does allow harmful legal vehicles;
11. Jersey only partly complies with international anti-money laundering standards;
12. Jersey does not participate fully in Automatic Information Exchange;
13. Jersey signed a relatively large number of tax information sharing agreements complying with basic OECD requirements, (but these agreements are so weak and ineffective that they serve no purpose whatsoever)
14. Jersey has only partly ratified relevant international treaties relating to financial transparency;
15. Jersey only partly cooperates with other states on money laundering and other criminal issues.

I think you'll agree this is fairly damning. At the time we published the 2011 Financial Secrecy Index, Geoffrey Cook dismissed our findings as "nonsensical" and "contrived propaganda". We invited him to expand on the specifics. To date he hasn't replied, neither would he wish to since he knows our research is factually and analytically correct. That's why he - and representatives of other tax havens - resort to propaganda ("fully cooperative on tax matters", etc, etc) and smears ("the wildly inflated figures produced by self-appointed lobby groups such as the Tax Justice Network").

We stand by our assessment. Jersey is committed to maintaining its role as a secrecy jurisdiction. It refuses to cooperate with international initiatives to tackle tax evasion, e.g the automatic information exchange provisions of the EU's Savings Tax Directive, and its endorsement by the OECD, which white-listed Jersey in April 2009 merely reveals the latter organisation as weak and constrained by the strait-jacket of its membership.

Geoffrey Cook's letter to the FT can be read here. We're confident you'll agree that its nothing more than financial industry propaganda.

Iraq's first EITI report on its oil industry raises questions

2012-01-17T02:11:00.001-08:00

PwC has produced a first report for Iraq under the Extractive Industries Transparency Initiative (EITI,) breaking down some $41.3 billion of sales to 34 international companies in 2009. The report raises a number of questions. (EITI is a global initiative to get mineral-producing countries to be more transparent about their revenues.)

An analysis of the report by consultants OpenOil raises some worrying questions. Among others:

"The result is interesting reading but raises as many questions as it answers, about Iraq’s selling process and the various stages in it, why many company reports were submitted without executive sign-off, as stipulated in the process and, most curiously, why the Federal Reserve Bank of New York failed to send account statements for Iraqi oil receipts despite repeated requests over a period of many months."

Read Open Oil's full executive summary here.

Tax avoidance is rent seeking, not productive activity

2012-01-16T04:26:00.000-08:00

From the Treasure Islands blog:

It's a point I've made repeatedly, in Treasure Islands and elsewhere. But I just looked up 'rent seeking' and this is Wikipedia's contribution:

In economics, rent-seeking is an attempt to obtain economic rent by manipulating the social or political environment in which economic activities occur, rather than by creating new wealth . . . attempting to enrich oneself by increasing one's share of a fixed amount of wealth rather than trying to create wealth . . .the extraction of uncompensated value from others without making any contribution to productivity . . . people accused of rent seeking typically argue that they are indeed creating new wealth

Goodness me. Tax avoidance and evasion: doesn't the shoe just fit perfectly?

(And for those who aren't familiar with 'rent-seeking' - economists regard it unequivocally as a bad thing.)

UK Labour Party gives ultimatum on tax havens

2012-01-16T01:27:00.000-08:00

The Independent says of a speech by the UK Labour Party's leader:

Ed Miliband declares war today on the UK’s secretive offshore tax havens which he says could raise £2.4bn for the Exchequer and help to reduce the deficit.

and the UK's Observer has more:

Ed Miliband, the Labour leader, is to demand that the government forces Jersey, Guernsey and the Isle of Man to reveal the identity of British tax evaders with money hidden on the islands

We have had plenty of beefs with the UK's opposition Labour Party in the past, as we do with the current UK government - but it seems like two things are happening here.

1. The Labour Party is acquiring some backbone.
2. The Labour Party has understood the public mood and captured the spririt of the 99% - if you protest about the corruption of capitalism, you will carry the public with you. And there's nothing like tax havens to corrupt capitalism.

For more in-depth analysis on these welcome development, see TJN Senior Adviser Richard Murphy, who has been influential in this respect. See

What Labour has said on tax havens
Isle of Man 'not worried' about Labour threat
Ed Miliband’s giving an ultimatum to tax havens
Ed Miliband says it's time to come clean on UK tax havens
(slightly separately) KPMG in the Isle of Man admits the island may be used for egregious tax avoidance

More on this from TJN in due course. But taken at face value, this is a fantastic development.

See also Christian Aid's statement on the UK Labour Party, below.

16 January 2012

TAX HAVEN SECRECY IS A GLOBAL CURSE, CHRISTIAN AID URGES ED MILIBAND

Christian Aid welcomes Ed Miliband’s determination to tackle the tax havens which are harming UK public finances but it urges him to go further, because financial secrecy is a curse for poor countries too.

‘It’s great that Mr Miliband has recognised that tax haven secrecy is damaging people in the UK, by providing a cover for people and companies to hide their wealth and avoid paying the taxes that are so urgently needed,’ said Dr David McNair, Christian Aid’s Principal Adviser on Economic Justice.

‘But we hope the Labour leader will also recognise that financial secrecy has devastating effects on public services and people’s lives across the world, especially in poor countries.

‘Christian Aid estimates that tax dodging costs poor countries $160 billion a year, which is much more than they receive in aid. So they, too, need action to shed light on offshore accounts and other wealth which may be liable for tax.

‘This is an international problem and it demands international solutions, starting with a global end to tax haven secrecy.

‘It would be fantastic to see the Labour party join the campaign to End Tax Haven Secrecy, demanding that G20 countries commit to a global deal under which all tax havens have to reveal that information to all tax authorities. Only then will tax dodgers have nowhere to hide.’

In 2011, Christian Aid and its partners delivered a petition to G20 chair Nicolas Sarkozy, which was signed by 40,000 people, and 52 organisations from more than 20 countries.

Dr McNair added: ‘As a first step, we encourage Mr Miliband to doing all he can to reverse the UK’s shameful deal with Switzerland, one of the most globally harmful of all tax havens, which effectively rewards offshore tax evaders and undermines the global call for tax haven transparency.’

Ends

To arrange an interview with David McNair or for more information, please contact Rachel Baird on 0207 523 2446, 07545 501 749 or rbaird @ christian-aid.org

Links Jan 12

2012-01-12T05:38:00.001-08:00

IRS finds U.S. tax evasion $385 billion per year, suggesting Tax Justice Network numbers are right Tax Research UK
Jan - Richard Murphy reports on a piece by Kenneth Thomas, who writes the Middle Class Political Economist blog, and notes: "Time and again people tell me and the Tax Justice Network we get things wrong and time and again we’re proven to be right."

USA: I.R.S. Renews Disclosure Program for Offshore Assets New York Times
Jan 9 - " After collecting $4.4 billion in two previous so-called voluntary disclosure programs for offshore accounts, the Internal Revenue Service said Monday that it would revive the program. Participants will pay as much as 27.5 percent of their most valuable offshore assets or their biggest overseas bank account. They also must disclose the banks and advisers that helped them escape United Sates tax laws."

IRS watchdog accuses agency of "bait-and-switch" Reuters
Jan 12 - "The Internal Revenue Service has persuaded U.S. taxpayers to disclose hidden offshore bank accounts but then sometimes failed to cap the penalties, as promised, an agency watchdog said ... The IRS's offshore voluntary disclosure program bait and switch may undermine trust for the IRS and future compliance programs."

Domestic pressure in Switzerland to cooperate with Indian government in HSBC Geneva case The Financial Express
Jan 12 - "Switzerland’s Social Democratic Party (SDP), the second largest in the Swiss parliament, has proposed that the Swiss government cooperate with the Indian authorities for sharing tax information of more than 700 account holders at HSBC Geneva. Significantly, that the information was based on data theft may not impede exchange of tax information, it has said." Hat tip: Mark Herkenrath

See also:
Black Money: India to knock at Swiss door for details in HSBC Geneva accounts The Economic Times
Jan 12 - India will request Switzerland to provide details of all undisclosed accounts held by Indian nationals in HSBC, Geneva, as the investigation into tax evasion by rich Indian nationals becomes bigger.

Monti Seeks To Squash Italian Tax Evasion Culture Tax-News
Jan 12 - "The Italian tax authority has very publicly embarked on a raid of Cortina d'Ampezzo, one of Italy's most exclusive ski resorts, to demonstrate that Mario Monti's new government is taking a hard-line approach to tax evasion by actively challenging individuals and service sector companies that historically have significantly under-declared earned income."

The seriously rich regard tax as something only silly folk get stung for This is Money
Jan 10 - "Few of us resent high earnings for entrepreneurs who create jobs, and boardroom winners who make wealth trickle down.But when we see unbridled greed grip the entire corporate culture; and when the men in suits seem happy to keep driving their yachts full speed through seas bobbing with the human and financial wreckage of the European economic crisis, something must give."

Banks wary of drop in business swissinfo
Jan 10 - "Switzerland’s bankers are less optimistic about their business than they were a year ago according to accountancy firm Ernst & Young ... they say that revenue is shrinking. However, they are generally not concerned that clients will withdraw funds if new tax treaties are approved, even if banking secrecy suffers."

All you need to know about finance – in five sentences Treasure Islands
Jan 9 - Nicholas Shaxson on Michael Lewis’ The Big Short: Inside the Doomsday Machine, about some of the seeds of the latest global financial crisis. "It’s a brilliant book."

Portuguese angry about Dutch ‘tax haven' Radio Netherlands
Jan 9 - " A debate is raging in the media in Portugal about Portuguese multinational corporations which transfer their assets to accounts held in the Netherlands." Hat tip: Offshore Watch.

How companies avoid tax – a quick summary in 8,000 words Tax Research UK
Jan 6 - Richard Murphy: “I’ve been asked to give examples of how companies avoid tax. Now, that’s a mighty big subject. Can I start by suggesting you read Chapter 4, here?”. For more on corporate taxes, see also the TJN A-Z archive, a huge resource on this issue

City ‘to be offshore currency market for China’ BBC
Jan 11 - There are powerful political reasons why the Chinese would be reluctant to give the putative privilege to Wall Street, the City's closest rival." This is a very bad thing for the UK: it will mean financiers having an even greater stranglehold on British democracy, the further crowding out of alternative economic sectors, and the creation of few jobs. For a better appraisal, see this . (Hat tip: Offshore Watch.)

Global Corporate Taxation and Resources for Quality Public Services

2012-01-10T06:15:00.001-08:00

Education International, on behalf of the Council of Global Unions, has released a new publication Global Corporate Taxation and Resources for Quality Public Services. The report identifies the loopholes which global corporations use to avoid their taxation responsibilities

The report cites John Evans, General Secretary of the Trade Union Advisory Committee to the OECD, making important observations:

As the crisis enters a new and ever more dangerous phase – characterised by sovereign debt traps, capital flight and governments entrenching austerity policies as they try in vain to restore financial market “confidence” – the global trade union movement is calling for a radically different economic strategy that prioritises employment and social justice.

The bedrock for such a strategy is a sound tax system: one that finances the public goods and quality public services needed to stimulate inclusive growth and contributes
to reversing the rise in income inequality that has been the feature of the failed economic growth model of the past twenty years.

The tax reforms undertaken by many countries have shifted the focus of taxation away from corporations, capital and rich individuals who are internationally mobile, and on to the incomes and consumption of working families who are not.

On tax havens, he notes:

The explosion in the growth of off-shore tax havens has further weakened the ability of tax systems to collect tax revenue and further shifted the tax burden on to working
families. It has also produced gross economic distortions. Thanks to their tax haven status, Mauritius is the largest investor in India and the British Virgin Islands one of the largest investors in China. This shows where global corporations keep their money – not where they earn their money. Failure to clamp down on domestic tax evasion has also been revealed as a major governance failure – as today’s Greek tragedy shows only too clearly.

G20 Summits have made successive proclamations on ending bank secrecy and clamping down on tax havens. And OECD- based work on tax havens and money laundering is regularly heralded as a “breakthrough”. But the actions continue to fall short of the words.

His statement closes with the welcome words:

Working together with our civil society allies, the global trade union movement will continue to be at the forefront of public debate and action to restore justice and efficiency to public policy on tax.

Read the full report here.

Hat tip: Markus Meinzer.

India sticks to its guns on information exchange

2012-01-10T04:42:00.000-08:00

A year or so ago we wrote a blog entitled India: don't sign with Liechtenstein arguing that India should not sign an all-singing, all-dancing tax agreement with Liechtenstein. A much narrower tax information exchange agreement would be, while highly imperfect, a far less dangerous approach.

That's the general rule with tax havens: double tax agreements with tax havens open the doors to all sorts of murky shenanigans, while TIEAs open the doors to at least minimal flows of information. Well, we're delighted to see India sticking to its guns in this respect. From the Indian Express:

Liechtenstein, Panama, Seychelles and Bahrain have asked India for a double taxation avoidance treaty instead of tax information exchange arrangement.

Well, it seems, they can't have one. And an Indian official puts the case clearly:

“We don’t have much trade or transactions with these jurisdictions. So it will not be beneficial for us to enter into an arrangement which will lead to a Mauritius-like situation for us,” official sources told The Indian Express.

India wants more of an anti-money laundering treaty and not the one that leads to tax evasion, the official said.

On the other hand, the official added, “They will have more advantage while we would not gain anything apart from information exchange. To suffice our information sharing need, TIEA serves the purpose,” the official added.

Well said. Good to see this tax haven nonsense being resisted.

Tax Competition and Inequality - New Paper

2012-01-10T03:20:00.001-08:00

Thomas Rixen, a leading researcher in the field, has just published an important new paper looking at the subject of tax competition. It is called Tax Competition and Inequality - The Case for Global Tax Governance and its abstract says:

In this article I present the normative case for global tax governance. I argue that, contrary to an influential part of the literature, national tax policy choices cause significant externalities for other nation states. Focusing in business taxation, I show that tax competition undermines the integrity and distributive principles of domestic tax systems, and aggravates the inequality between developed and developing countries. Further, I demonstrate that the effects of international tax competition are unjust irrespective of whether a globalist or less demanding internationalist perspective on justice is adopted. The minimum requirement of justice is to devise global rules which ensure that national tax systems remain capable to implement distributive justice as they see fit. Finally, I present and discuss a concrete proposal for the global governance of business tax competition, namely, unitary taxation with formula apportionment.

The paper itself adds:

There are two reasons why global tax governance has hardly been considered. First, the power to tax is one of the central attributes of state sovereignty. Because of an entrenched belief that to share tax sovereignty internationally is to relinquish an essential part of “stateness,” proposals for global tax governance have been discredited as utopian and even undesirable. Second, an influential part of the political science literature on international taxation has argued that the externalities resulting from domestic tax policy choices on other nation-states are negligible. If this were correct, there would be no need for global tax governance. I show that the second view does not hold and, therefore, it is high time to overcome the first view.

By going it alone in a globalised world, you can actually see your sovereignty erode by the ongoing race to the bottom on tax (and other things); while by contrast, sharing sovereignty with other countries in negotiated arrangements can be a way to shore up that sovereignty. It seems paradoxical at first sight, but it is quite straightforward. And Rixen (pictured) goes on to elaborate on a point we've made before. In measuring the impact of tax competition,

the literature has focused on an inadequate indicator. I show that a significant part of tax competition is not about governments trying to attract real economic activity like direct investment and jobs, but about the assignment of paper profits irrespective of where real economic activity occurs.

and he gets to the nub of the problem here:

the adverse effects are strongest in developing countries. Second, in the industrialized world, the main effect is on the structure of tax systems. As I detail below, tax competition in its current form creates both domestic and international inequalities, and this is the reason why it should be addressed.

Solutions? Well, in a nutshell:

unitary taxation with formula apportionment (UT+FA).

We hate the ugly name, but love the concept. More on this in the paper itself, of course, but also on our Transfer Pricing page.

This is an extremely important contribution to the literature. We will make it a permanent item on our tax competition page.

2012 AABA/TJN Research Workshop - Call for Papers

2012-01-09T09:00:00.000-08:00

Call for Papers for a Workshop on

TAX AVOIDANCE, CORRUPTION AND CRISIS

Essex University, 5th-6th July 2012

The 2012 research workshop co-organised by the Association for Accountancy & Business Affairs and the Tax Justice Network, will explore connections between tax avoidance, corruption and crisis.

The themes that might be explored within this remit are wide, potentially including issues such as how tax avoidance harms progressive tax systems, distorts markets and infringes human rights; the role of financial professionals in promoting financial and legal secrecy; and how secrecy jurisdictions have contributed to economic, financial, political and social crises around the world.

Other related themes are likely to emerge as the workshop programme develops.

The aim of this workshop is to bring together researchers, academics, journalists, policy staff of civil society organisations, consultants and professionals, elected politicians and/or their researchers, and government or international organisation officials to explore issues on these and related themes. The purpose of the workshop is to facilitate research through open-minded debate and discussion, and to generate ideas and proposals to inform and shape the political initiatives and campaigns already under way.

There will be a small charge for attendance at the Workshop. Participants are usually expected to finance their own travel although applications from students and others with limited means for bursary support will be considered. Accommodation at Essex University will be available at modest cost.

Anyone interested in participating should provide details of the nature of their interest, affiliations and any relevant research or publications to: John Christensen, Tax Justice Network International Secretariat, john@taxjustice.net

Offers of papers are especially welcome and early submission is encouraged since applicants have exceeded available spaces in recent years. Any submissions will be actively considered by the organising committee which comprises:

• John Christensen (Tax Justice Network)
• Jo Marie Griesgraber (New Rules for Global Finance)
• Prem Sikka (Essex University)
• Richard Murphy (Tax Research LLP)
• Ronen Palan (Birmingham University)
• Sol Picciotto (Lancaster University)

Tax Freedom Day Comes Early For Belgium's Mega-Rich Residents

2012-01-06T01:01:00.000-08:00

This photo, just in from our colleagues in Brussels, was taken earlier this week when demonstrators took to the streets around the gated community of Square du Bois (locally known as Miljonairssquare - Millionaires Square).

The protest targeted rampant tax evasion, special tax treatments and unnecessary exemptions given to Mega-Rich people who pay no or virtually no tax, hence their Tax Freedom Day comes right at the start of the year while ordinary people end up paying close to half their total income in direct or indirect taxes and don't reach their Tax Freedom Day until approximately mid-year.

The concept of Tax Freedom Day goes way back to the late 1940s when anti-government groups in the United States started to calculate the first day in the calendar year when the federal government had received sufficient income from tax revenue to fund its budget. Every cent of official income is included, and every payment to the state - at federal, state or local levels - that is officially considered a tax is included.

Much has changed since the 1940s, but from a tax justice perspective the most important changes across the world include the regressive trend towards indirect taxation, the huge increase in the use of offshore facilities to evade and avoid tax, and the general increase in exemptions aimed at subsidising rich people, which has led to the outrageous situation in which the poorest people in many countries (Britain for example) pay more tax as a proportion of household income than the richest people pay. This is the point that the protesters in Brussels are seeking to highlight.

You can read more about the protest here.

Petition the UK Prime Minister about the Great British Tax Scandal

2012-01-06T00:44:00.000-08:00

Avaaz is running the following petition which they aim to present to Prime Minister David Cameron next week. Sign up here, and please, please pass the link on to your friends and colleagues: our politicians are very sensitive on this issue and petitions make a huge difference both in terms of generating pressure and raising public awareness.

+++++++

The Great British Tax Scandal

Our tax chief had secret lunches with Vodafone and Goldman Sachs and then handed them billions in tax breaks – while keeping Parliament in the dark!

MPs are outraged, claiming we are owed over 25 billion pounds in back taxes from these and similar dodgy deals. But the tax agency has blocked an inquiry into the scandal and refuses to release documents to shed light on why these tax breaks were ordered in the first place.

By acting together now we can ensure full transparency on the Goldman Sachs and Vodafone deals, and get them to pay the tax they owe. Let’s turn up the heat -- sign the petition to David Cameron for tax justice -- we’ll deliver it with a splash next week.

COMING SOON - WE'RE NOT BROKE: THE MOVIE

2012-01-05T03:45:00.001-08:00

TJN is proud to have been able to participate in the making of We're Not Broke, a new film about how corporate tax avoidance has depleted US tax revenues and contributed to the colossal economic stresses facing the United States.

We're Not Broke gets its first public screening at the Sundance Festival later this month where it is entered in the US documentary section. TJN will be represented at Sundance by Jack Blum, VP of TJN-USA. Here is an interview with film makers Karin Hayes and Victoria Bruce:

We wish Karin, Victoria, Jack and Charles Davidson and the rest of the production team every success at Sundance.

More about We're Not Broke here.

A New Year message from the Bishop of Derby, England

2012-01-05T03:18:00.000-08:00

In his New Year 2012 message the Bishop of Derby, the Right Reverend Dr Alastair Redfern, outlines the importance of tax justice and calls on people of faith to enter dialogue with companies about the harmful impacts of tax avoidance (starts approximately two minutes 45 seconds into the interview):

Links Jan 4

2012-01-04T09:33:00.001-08:00

You can run, but fewer places to hide tax Sydney Morning Herald
Jan 5 - "It has been a long, expensive and occasionally brutal war but as Project Wickenby enters its sixth year there are signs the federal government's much-pilloried multi-agency taskforce investigating the abuse of tax havens by rich Australians is beginning to scare people straight." See more on Project Wickenby here.

If you don’t believe Tax Justice Network has changed the Isle of Man then read what they say Tax Research UK
Jan 4 - Richard Murphy on: "The Isle of Man News has a fascinating article asking whether the pressure has been taken off the Isle of Man now on tax matters", and he highlights how Tax Justice Network has generated change.

Philippines: Tax evaders, smugglers getting more sophisticated ABS CBN news
Jan 2 - "Topping the list of schemes used by corrupt officials is the formation of dummies.Often these individuals set up corporations, law offices and third persons for their properties so that they do not have to declare these properties in their statement of assets and liabilities management (SALM). The dummies become the owners on paper of land assets, vehicles, and other accumulated wealth instead of the individuals themselves"

Barclays 'risks backlash' unless tax affairs simplified The Telegraph
Jan 3 - Barclays has been warned that its reputation is being "tarnished" by the persistent use of "complicated financial structures" to boost profits. Hat tip: Offshore Watch.

Meet the 2012 Sundance Filmmakers #2: Karin Hayes and Victoria Bruce, 'We're Not Broke' Indie Wire
Jan 4 - " 'We're Not Broke' (competing in the U.S. Documentary Program) is a documentary from New York filmmakers Karin Hayes and Victoria Bruce, who initially wondered if anyone would ever want to watch a movie about corporate income tax." FACT Coalition members have been supporting this documentary film.

Corporations shouldn't be people - Congressmen and women should be Hattiesburg American
Jan 2 - On a "tenet that arises from a U.S. Supreme Court ruling ... individuals entitled to the same rights and privileges as you and I. If this is so, then perhaps Mr. General Electric and Mrs. Exxon Mobil could pay federal income taxes at least at the same rate as do retirees living on Social Security and pensions..."

THREE SWISS BANKERS CHARGED WITH CONSPIRING TO HIDE MORE THAN $1.2 BILLION IN US TAXPAYER ACCOUNTS FROM THE IRS

2012-01-04T08:05:00.000-08:00

While German and UK tax officials still toy with utterly useless and even counterproductive agreements with the Swiss government (see here, here and here), the Washington Post reports that indictments have been issued against three bankers (all Swiss residents) alleged to have been involved in conspiring with US citizens to hide assets offshore.

These indictments contrast starkly with the lily-livered way in which European governments have failed to tackle the criminality of social elites, which in turn contrasts with their aggressive stance on benefit fraudsters at the other end of the social spectrum. We applaud the clear message of these indictments: bankers engaged in encouraging and facilitating tax evasion are engaged in criminal activity, and should be treated accordingly.

Here is a copy of the indictment released by the Department of Justice:

United States Attorney Preet Bharara

Southern District of New York

_______________________________________

FOR IMMEDIATE RELEASE CONTACT: ELLEN DAVIS

TUESDAY, JANUARY 3, 2012 (212) 637-2600

WWW.JUSTICE.GOV/USAO/NYS

THREE SWISS BANKERS CHARGED WITH CONSPIRING TO HIDE MORE THAN $1.2 BILLION IN US TAXPAYER ACCOUNTS FROM THE IRS

NEW YORK – Three Swiss bankers Michael Berlinka, Urs Frei and Roger Keller were indicted today for conspiring with U.S. taxpayers and others to hide more than $1.2 billion in assets from the IRS, announced Preet Bharara, the U.S. Attorney for the Southern District of New York, and Charles R. Pine, the Special Agent-in-Charge of the New York Field Office of the Internal Revenue Service-Criminal Investigation (IRS-CI). These assets were hidden in undeclared accounts of U.S. taxpayers at the Swiss bank (Swiss Bank A) where Berlinka, Frei and Keller worked as client advisers. The case has been assigned to U.S. District Judge Jed S. Rakoff.

According to the indictment filed today in Manhattan federal court:

Berlinka, Frei and Keller worked as client advisers at the Zurich branch of Swiss Bank A, which provides private banking, asset management and other services to clients around the world. Berlinka, Frei and Keller began working at the bank in 2008, 2006 and 2007 respectively.

During their time at Swiss Bank A, Berlinka, Frei and Keller allegedly conspired with various U.S. taxpayers and others to hide from the IRS both the existence of certain Swiss bank accounts, as well as the income they generated. In particular, Berlinka, Frei and Keller opened and serviced dozens of undeclared accounts for U.S. taxpayers in 2008 and 2009, in an effort to capture business lost by UBS AG and another large international Swiss bank (Swiss Bank B) in the wake of widespread news reports that the IRS was investigating UBS for helping U.S. taxpayers evade taxes and hide assets in Swiss bank accounts. After the reports, both UBS and Swiss Bank B stopped servicing undeclared accounts for U.S. taxpayers.

To capitalize on the business lost by UBS and Swiss Bank B and to otherwise increase the assets under management at Swiss Bank A, and fees earned from those assets, Berlinka, Frei, Keller and other client advisers allegedly told various U.S. taxpayer-clients that their undeclared accounts at Swiss Bank A would not be disclosed to the U.S. authorities because Swiss Bank A had a long tradition of bank secrecy. The defendants and other client advisers at Swiss Bank A also told their U.S. taxpayer-clients that the bank was less vulnerable to United States law enforcement pressure because, unlike UBS, the bank did not have offices outside Switzerland. Members of Swiss Bank A’s senior management participated in some of these sales pitches to U.S. taxpayer-clients who were fleeing UBS. Additionally, to further the conspiracy, Berlinka, Frei, Keller and/or other client advisers allegedly took steps that included the following:

· They opened and serviced undeclared accounts for U.S. taxpayer-clients in the names of sham corporations and foundations formed under the laws of Liechtenstein, Panama, Hong Kong and other jurisdictions for the purpose of concealing the identities of the U.S. taxpayer-clients from the IRS;

· They received and retained at Swiss Bank A documents that falsely declared that the sham entities were the beneficial owners of certain accounts, when in fact, the accounts were owned by U.S. taxpayers;

· They permitted certain U.S. taxpayer-clients to open and maintain undeclared accounts at Swiss Bank A using code names and numbers to minimize references to the actual names of the U.S. taxpayers on Swiss bank documents;

· They ensured that account statements and other mail for U.S. taxpayer-clients were not mailed to them in the United States; and

· They sometimes communicated with U.S. taxpayer-clients using their personal email accounts to reduce the risk of detection by law enforcement.

U.S. taxpayers are required to report the existence of any foreign bank account on their federal income tax returns if it holds more than $10,000 at any time during a given year, as well as any income it earns. By 2010, the collective maximum value of the assets in undeclared accounts beneficially owned by U.S. taxpayer-clients of Berlinka, Frei, Keller and other client advisers at Swiss Bank A was more than $1.2 billion, with many accounts holding in excess of $10,000 in any one year.

Berlinka, Frei and Keller, 41, 51 and 47 respectively, reside in Switzerland. The defendants each face a maximum term of five years in prison, a maximum term of three years of supervised release, and a fine of the greatest of $250,000, or twice the gross gain derived from the offense or twice the gross loss to the victims.

U.S. Attorney Bharara praised the outstanding efforts of IRS-CI in the investigation, which he noted is ongoing. He also thanked U.S. Department of Justice’s Tax Division for their significant assistance in the investigation.

This case is being handled by the Office of U.S. Attorney’s Complex Frauds Unit. Assistant U.S. Attorneys David B. Massey, Daniel W. Levy and Jason H. Cowley are in charge of the prosecution.

The charges and allegations contained in the indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

###

Unlicensed football agent hides behind UK bearer share company

2012-01-03T01:15:00.000-08:00

In yet another example of how the UK operates as a secrecy jurisdiction, journalist David Leloup has revealed how a non-FIFA licensed football agent, Lucian D'Onofrio (pictured above) used a UK letterbox company with a single bearer share as a means of hiding his identity as recipient of a €1.5M commission on the transfers to FC Porto of French centre back Mangala and Belgian midfielder Steven Defour from Standard Liege last summer.

Bearer shares are simply a share document indicating that the person having possession of the document has title to the related shares. Bearer shares differ from normal share instruments in so far as there is no requirement for a record to be kept of who actually owns the shares or how and when they took possession of the shares.

This lack of records makes bearer shares anonymous and therefore useful for money-laundering, tax evasion, and other corrupt practices. Bearer shares have been banned by most jurisdictions, but their use is allowed under section 779 of the UK Companies Act 2006. This is one of the reasons why we consider the UK a secrecy jurisdiction.

Read more about David LeLoup's findings (in French) here.

The Great Corporate Tax Dodge - new website

2011-12-22T11:32:00.001-08:00

Bloomberg has a new and excellent-looking website, called The Great Corporate Tax Dodge, featuring Jesse Drucker. Enjoy.

We will post it as a permanent link on our Transfer Pricing webpage.

And, so as not to show favouritism between competing news agencies, we highlight two other important stories from Reuters in its excellent and important Shell Games series.

And a follow-up to an earlier Shell Games report: Exclusive: On the run, U.S. financier finds Spanish refuge.

We will located these Shell Games stories in our webpage The Mechanics of Secrecy.

TJN blogging will be pretty thin for the next little while, due to the Christmas Holidays

A merry Christmas to all from today's blogger, Nicholas Shaxson.

Guardian letter: reclaim the culture of upright taxpaying

2011-12-22T01:18:00.000-08:00

The Guardian is carrying a letter today co-signed by John Christensen, director and founder of TJN; Richard Murphy, Senior Adviser to TJN, and Nicholas Shaxson, TJN writer and author of the bestselling Treasure Islands. Here is the letter, entitled Tax avoidance must become taboo:

The public accounts committee's report into HMRC's tax settlements made for compelling reading (Revenue hid 'sweetheart' tax deals for big business, MPs say, 20 December). But more fascinating was the feeble response by HMRC and the striking lack of response from either Vodafone or Goldman Sachs.

Gone are the days when HMRC and Vodafone would come together as an unstoppable dream team proffering denials of tax avoidance as an "urban myth". Now, we see HMRC weakly saying the committee is misinformed and is basing its conclusions on partial information. We know that the committee did everything in its power to get to the truth, but HMRC obstructed the inquiry by using the veil of secrecy that is taxpayer confidentiality.

It is imperative that the UK's political and business culture changes so that rich individuals and corporations treat tax avoidance as taboo. It is also crucial that the culture at HMRC changes so that it clamps down on tax avoidance. If this were the norm, the UK could raise sufficient income to protect the services currently under threat from cuts, set an international standard for tax justice, and make progress towards achieving equality in the UK and around the world.

So while we support the efforts of the public accounts committee, we also support the action by UK Uncut Legal Action to challenge HMRC in the high court so that the decision to let Goldman Sachs off its unpaid tax is declared unlawful and the £20m is given back to the taxpayer. It is undeniably in the public interest that this case should go through the courts in order to ensure transparency, accountability and fairness.

Katy Clark MP, Virendra Sharma MP, Jeremy Corbyn MP, John McDonnell MP, Caroline Lucas MP Jonathan Edwards MP, Diane Abbott MP, Paul Kenny GMB, Mark Serwotka PCS, Christine Blower National Union of Teachers, Len McCluskey Unite, Nicholas Shaxson author of Treasure Islands: Tax Havens and the Men Who Stole the World, Richard Murphy, Tax Research, Clifford Singer False Economy, Neal Lawson Compass, Greg Muttitt War on Want, John Christensen Tax Justice Network

Guest blog: time for tax transparency

2011-12-21T08:34:00.000-08:00

Guest blog: Oliver Huitson, writing about the UK's widely reported Public Accounts Committee report on Her Majesty's Revenue & Customs (HMRC, the UK's tax authorities.) Cross-posted from the New Statesman, with permission (also see the Tackle Tax Havens blog.)

Another Public Accounts Committee report, another sad indictment of the probity of our governance… This time it was HMRC, who, by the sounds of it, appear to be publicly funded tax accountants working devilishly hard to minimise the contributions of our corporate giants. At this rate, the “Big 4” accountancy cartel will be suing the government for loss of earnings.
Perhaps, in a fit of Big Society zeal, George Osborne will simply outsource HMRC’s work to PwC and cut out the middle man. But there are other ways of approaching the “tax gap” problem than simply calling it a day over a glass of wine on the Goldman’s expenses card.
Both Prem Sikka and Richard Murphy argue for a simple yet effective measure to help stem the flow of lost tax: corporate tax returns should be made publicly available. Avoiding the privacy issues of individuals, there is little reason why this cannot be done as it already is in Scandinavia. As Murphy says, “such disclosure [should be] a corollary of the right to limited liability – which demands transparency in exchange for the privileges granted”. In unprecedented economic times it is no longer tenable that corporations can be protected from the full liabilities of their actions whilst simultaneously hiding their contributions; it’s all take and no give.
In his Code of Conduct for tax, republished today, Murphy makes a number of important suggestions as to what a sound, democratic tax structure should look like – a structure that would, for that very reason, be strongly resisted by both the City and the CBI. One of the key proposals is a lighter touch approach to auditing for those firms signing up to the code:
Any taxpayer or agent wishing to comply with the Code may do so. A State should presume that a person professing compliance with the Code has done so when dealing with any tax return they submit. In consequence the administrative burdens imposed upon that person should be reduced. In the event of evidence of non-compliance being found any consequential penalty imposed should be doubled… Those not signing up should expect the consequences.And we’d need to know who is who [my bolds]
Public information is the critical issue. Murphy cites the FT’s concerns over public disclosure of corporate returns, namely that due to the complexity of the issue public access may be ineffective. Firstly, the FT understate the growing resources of the public in holding firms to account, whether through UkUncut, Murphy’s own Tax Research UK site, the impact and popularity of Nick Shaxson’s Treasure Islands, and the recently formed Tackle Tax Havens project. The public is mobilizing, not just in the UK, but across the Western world. Online tax returns would not escape scrutiny.
But there is a limit to how far the general consumer will acquaint themselves with the returns published and the problem of “we need to know” would, to a lesser degree, still remain. What seems to be needed, in conjunction with public returns, is a simple, visible indicator of tax probity at the transaction level. The “green, amber, red” nutritional information provided on food packaging could potentially be adapted for tax purposes for all firms over a certain size and/or all publicly listed companies. If firms lack a physical good for packaging, they can be required to display their tax rating prominently on all literature and websites. We already have substantial amounts of compulsory information we require UK firms to provide. Costs of implementation, both to the state and the firm, would be relatively miniscule in comparison to the scale of tax lost – currently estimated at around £25bn a year, or around 15% of the deficit (the figure is just for avoidance, not evasion). There is no reason why only food producers should have to show consumers the information they would rather hide.
In the land of market efficiency knowledge is king, and those who purport to uphold free-market principles should recognise the importance of tax knowledge; consumers have a right to know who they are dealing with if they are to arrive at rational outcomes for their purchases. For we don’t simply rely on the goods and services we purchase, we rely also, to a great extent, on citizens and firms contributing to the collective costs of running a civilized society. More than ever, we need transparency and knowledge to empower the public to make the right choices on which firms to do business with.

Corporate tax: EU bears down on Switzerland

2011-12-21T00:19:00.000-08:00

Following our article about a month ago looking at European moves to challenge Swiss corporate tax policies, we are encouraged to see the normally well informed Europolitics, in an article headlined Corporate taxation: Union bares teeth, reporting that the European Union is moving forwards smartly with its plans.

We have already showed that the EU is likely to all but destroy Switzerland's immoral and useless, loophole-riddled Rubik deals with Germany and the UK in the area of personal taxation. Now this, in the field of corporate taxation:

In a report adopted on 19 December, the 27 member states make veiled threats of retaliation measures against Berne if the «dialogue» they wish to engage in on application of a code of conduct should fail to produce «satisfactory» results by next summer. . . . a clash looks inevitable, unless Switzerland makes concessions and acts quickly.

Note that the European Union has a lot of leverage over countries like Switzerland who aren't member states: it can deny access to its markets, and so on. The report that Europolitics describes is one that looks at the Code of Conduct on taxation that has been applied since 1998, and which it says has already obliged the 27 member states to dismantle around 100 tax schemes that encouraged company relocations. It's not clear if this number includes schemes such as this in Jersey (which is outside the European Union but has a special relationship with it.)

For more background on the Swiss-EU corporate tax dispute, see Thomas Cottier's article on p8 of our October 2010 edition of Tax Justice Focus, which also notes that not everyone in Switzerland is happy about what is happening at home, pointing out that "the Swiss public at large generally dislike tax privileges for the rich and wealthy."

Despite the turmoil in Europe, it is likely that the 27 member states will continue to fight to protect their sovereignty from these attacks mounted from the Alpine foothills of Geneva and Zurich.

Tweet of the day - UK Uncut

2011-12-20T01:04:00.000-08:00

Kind of speaks for itself.

@UKuncut
To think it all began with 40 people sitting in a Vodafone store on a rainy Wednesday morning in October 2010. People said we were mad...

If you don't know what this is all about, read this.

Note that UK Uncut Legal Action have launched legal proceedings against HMRC over the Goldman Sachs tax deal. Read it here.

The U.S. and the U.K. - poles apart on tackling tax abuse

2011-12-19T23:41:00.000-08:00

From Douglas H. Shulman, U.S. Commissioner of Internal Revenue, looking at how the I.R.S. has been going after offshore tax abuse:

"Our approach to offshore tax evasion follows a natural course. . .cleaning up the abuses of the past and then mining and leveraging the data we receive to mount a greater attack on the abuse.

Indeed, we have been scouring the vast quantity of data we received from all of our different offshore programs and other sources. This data mining has already proved invaluable in supplementing and corroborating prior leads, as well as developing new leads, involving numerous banks, advisors and promoters from around the world. I can tell you that we now have additional cases and banks in our sights."

The first paragraph kind of says it all. You find some crooks, put pressure on them and, crucially, on their bankers and other intermediaries - then you squeeze out information on others. The net widens. For all the faults of the I.R.S., this general approach marks a stunning contrast to the approach taken by the tax authorities in the U.K. which have instead of pursuing known criminals, have signed cosy sweetheart deals with Switzerland and other tax authorities.

In the U.S. you also have the Foreign Account Tax Compliance Act (FATCA) which is a ferocious and excellent device for rooting out offshore tax evasion, coming in soon. There have been a lot of screams about FATCA, mostly for illegitimate reasons, but some with arguably more reasonable objections that the reporting requirements are extremely complicated, especially for those less able to afford tax advisers to fill in their forms with them. Shulman notes that these concerns are being taken very seriously, and are being addressed.

Then there is corporation tax. The U.S. isn't particularly good at taxing corporations, it has to be admitted. But a damning new report out today from the British parliamentary Public Accounts Committee reveals just how bad the U.K. has been. The first words summarise it:

"This report is a damning indictment of HMRC and the way its senior officials handle tax disputes with large corporations. We uncovered both specific and systemic failures which must be addressed."

The release goes on. Just look at this, for instance:

"It is extremely disappointing that senior HMRC officials were not prepared to cooperate with our inquiry in a spirit of openness. We accept that there is a need for confidentiality to protect individual taxpayers, but this must not be used as a cloak to protect the Department from scrutiny.
. . .
It is absurd that we had to rely on the media and the actions of a whistleblower to find out about the details of individual settlements. Parliament and the public have legitimate concerns that large companies are being treated more favourably than ordinary taxpayers, whether they be small businesses or hard-working families."

And this:

"The Department's working practices must be seen by the taxpaying public to be absolutely impartial. The impression being given at the moment is quite the opposite, of far too cosy a relationship between HMRC and large companies."

Indeed - as TJN has been saying for some time, and as outlined in Treasure Islands. And then there is this disgrace, outlined by Richard Brooks in the UK parliament.

This is not to put the U.S. I.R.S. on a pedestal - far from it. But in the U.K., something has gone very, very badly wrong. It's good to see some proper light being shone on this subject at last. Credit to UK Uncut, Richard Brooks and others (including TJN) for bringing this tricky, worthwhile argument to national prominence.

Russia: companies urged to return from "offshore shadows

2011-12-19T23:16:00.000-08:00

From Reuters:

Prime Minister Vladimir Putin on Monday decried the illicit use of offshore structures by Russian state businesses to spirit cash out of the country and ordered them to return from the "offshore shadows".

The comments by Putin, who has launched a bid to return to the Kremlin next March, mark his clearest indication to date of concern that accelerating capital flight is being partly driven by corrupt schemes run.

Good to see the words. Now let's see the deeds. Nothing would do as much to mark seriousness in the fight against corruption than a crackdown on the use of offshore.

Now here are a couple of interesting statistics:

"Some 55 percent of accumulated foreign direct investment into Russia comes from companies registered in Cyprus or the Netherlands - some $70 billion in total. Most of that is believed to be money of Russian origin."

That latter sentence refers to so-called "round tripping." Now Reuters goes on:

The companies counter that they prefer to base themselves offshore because they cannot get adequate redress in the Russian courts and consider the protection of property rights at home to be inadequate.

Nonsense. It is one thing to put your money overseas. There are a range of reasons why one might do that, some more legitimate than others. But putting your money overseas doesn't mean you have to put it offshore through a mucky tax haven like Cyprus. Using Cyprus is usually not about investor protection, but about tax abuse or outright crime.

Next:

"Returning the Russian economy's strategic sectors from the offshore shadows to the national economy is our priority task for the next period," Putin said

Indeed. Mr. Putin's advisers might like to start, perhaps, by reading this, then this, then this, then this.

Hat tip: David McNair

UK banks ‘cheat’ Europe in €600m tax scheme

2011-12-19T00:20:00.001-08:00

From the Bureau of Investigative Journalism:

Some of the city of London’s biggest banks are behind a huge tax avoidance trade ‘cheating’ European countries of hundreds of millions of euros a year in a development that sheds fresh light on David Cameron’s decision to wield Britain’s EU veto to protect the Square Mile.

A two-month study by the Bureau has uncovered a discreet $102bn market in European shares whose ‘central’ purpose is tax avoidance. The Bureau’s analysis suggests the European tax loss – mainly to France, Germany and Italy – is up to €595m a year. The scale of tax avoidance will fuel further anger within the EU towards the Square Mile, where the vast majority of the trade known as dividend arbitrage is conducted.

And TJN's opinions are involved:

"Markus Meinzer, applied researcher and analyst at the Tax Justice Network, said: ’This issue highlights a structural flaw in our current international financial system. Governments refuse to institute robust transparency and cooperation mechanisms in view of aggressive financial sector lobbying and because of the bizarre, yet largely unchallenged view of alleged benefits flowing from competition between states.’ "

Well said. Now read on. And see Nick Mathiason's story in The Observer.

Oh, and then there's this, which was also in the UK news. Revealed: how City fees are eating into our pensions. Makes you love 'em even more . . .

UK government inquiry into tax and development

2011-12-16T05:47:00.000-08:00

The UK government's International Development Committee has just announced a new inquiry into tax and development. The scope of the inquiry, which we copy below, covers many issues close to TJN's key areas of concerns. The Committee is inviting written submissions by no later than 6th February 2012. Get writing!

The link between taxation and development is fundamental. The failure to collect tax in developing countries is therefore a major concern. Poor revenue collection of property, wealth, income and sales taxes leaves developing countries with highly constrained budgets for the provision of basic services and poverty reduction. It also represents a missed opportunity to redistribute wealth and improve governance.

Developing countries lose an estimated $160 billion each year through tax avoidance by multinational companies (including those based in the UK). Of particular concern are the extractive industries where payments to governments are often not disclosed and may not contribute to development or poverty reduction.

The International Development Committee is to begin an inquiry into tax in developing countries. The Committee will use Zambia as a case study due to its aid dependence (18% of the Government’s budget), high poverty levels (64% of the Zambian population live below the poverty line) and the large mining sector. The UK’s Department for International Development (DFID) is spending £59 million in the country each year until 2015.

Key issues for the inquiry include:

how DFID can better support developing countries to improve revenue collection
how DFID can support developing countries to use the revenue base responsibly in order to improve service delivery and development outcomes
tax evasion and avoidance in developing countries by private individuals and companies
how effective international efforts to promote tax disclosure and transparency are likely to be
capital flight and its implications for developing countries

The deadline for submitting written evidence is Monday 6 February 2012.

Written evidence submitted should:

Be no longer that 3000 words in length
Be provided electronically in MS Word (no PDFs e-mail to indcom@parliament.uk. Submissions can also be sent by post to International Development Committee, House of Commons, 7 Millbank, London, SW1P 3JA.

A guide for written submissions to Select Committees may be found on the parliamentary website at: http://www.parliament.uk/commons/selcom/witguide.htm

UK Uncut to shut down high street stores Saturday 17th December

2011-12-16T03:40:00.000-08:00

From UK Uncut:

UK UNCUT TO SHUT DOWN HIGH STREET TAX DODGERS THIS SATURDAY 17th DECEMBER

For immediate release
Tel 07415063231
Email ukuncut (at) gmail.com

UK Uncut, the anti-austerity direct action group [1], will shut down scores of high street stores of tax dodging companies across the country this Saturday 17th December, with Vodafone at the top of its list of targets.

Thousands of supporters voted in a Facebook poll [2] to decide which 'tax-avoiding Scrooge or big-banking Grinch' should be 'crowned UK Uncut’s Christmas Turkey', the headline target for the day [3]. After a tense run-off, Vodafone pipped Sir Philip Green's Arcadia empire to the 'prize' of bearing the brunt of activists' ire.

People from Glasgow to Poole [4] will hit high street stores to demand the government collects the tax avoided by corporations and rich individuals instead of slashing public services. In London, protesters will stage a 'flash freeze-in' in the huge Topshop on Oxford Circus before donning UK Uncut-branded Santa suits and heading to Vodafone's flagship store on Oxford Street [5].

The nationwide day of action comes ahead of a report next week by parliament's Public Accounts Committee which is expected to be highly critical of the way HMRC struck deals with multinational corporations allowing them to avoid billions of pound in tax [6]. The report will pave the way for a National Audit Office investigation into ten large corporate tax deals, including Vodafone's let off of between £6-8billion [7].

UK Uncut supporter Daisy Cooper, 26, said: "Over the past 14 months, direct action by UK Uncut has put the issue of tax avoidance on to the political agenda with the head of HMRC forced to retire due to the dodgy deals he's struck. In the words of a Labour MP uttered just days ago: "Cosy tax deals between the government, the banks and other global corporations cannot go unchallenged.". The government's claim that 'there is no alternative' to the cuts has been exposed as a lie."

Rachel Stevens, 22, who will be taking part in the 'Freeze-In' in London, said: "Thanks to a combination of savage welfare cuts, reductions in the winter fuel allowance and outrageous profiteering from the big energy companies gone unchecked by the government, one county estimates its seasonal death rate could jump 20% as temperatures plummet. The government tell us they have no alternative to letting people freeze. It's a lie. Here's one alternative: collect the tax avoided by corporations and rich individuals, starting with Vodafone's £6bn."

Notes to editors:

[1] The day of action will see UK Uncut return to the high streets for the first time since May. Since that time, the group has closed Westminster Bridge in protest the government's NHS reforms, helped give birth to the Occupy movement, staged a creative intervention of a speech by HMRC boss Dave Hartnett with over 12,000 views on Youtube (Hartnett recently took unexpected 'retirement') and supported the public sector strikes of 30 June and 30 November. See http://www.ukuncut.org.uk
[2] http://www.facebook.com/questions/274984065882862/
[3] http://www.ukuncut.org.uk/blog/christmas-special
[4] http://www.ukuncut.org.uk/actions
[5] The 'freeze-in' will start at 1pm on the ground floor of Topshop's Oxford Circus store. See http://www.ukuncut.org.uk/actions/772 for full details
[6] http://www.thetimes.co.uk/tto/news/politics/article3258754.ece
[7] UK Uncut first accused Vodafone of avoiding a £6bn tax bill relating to the purchase of German engineering firm Mannesmann in October last year. At the time, the claim was dismissed by the company and HMRC as an 'urban myth'. In the last month, however, a parliamentary committee has said the deal 'may have been illegal' and could have been worth up to £8bn. The deal will now be investigated as part of the judge-led review of corporate tax deals struck by HMRC. See
- http://www.thisismoney.co.uk/money/news/article-1704527/Taxman-let-Vodafone-off-6bn-bill.html
- http://www.telegraph.co.uk/news/politics/8875360/Taxman-accused-of-letting-Vodafone-off-8-billion.html
- http://www.guardian.co.uk/money/2011/dec/06/hmrc-tax-deal-vodafone

And note this useful commentary on the protests, from Richard Murphy. As he says:

"HMRC has been corrupted from the top down."

And much more.

Center for Freedom and Prosperity should read this

2011-12-16T00:00:00.000-08:00

The Center for Freedom and Prosperity, a pro-tax haven, pro-secrecy, pro-tax 'competition', libertarian anti-government organisation based in Washington, would do well to take a long, hard look at the evidence presented in this blog, entitled:

Nine Reasons that Progressive Policies Deliver Prosperity and Freedom

We kind of wish they'd entitled it Nine Reasons that Progressive Policies Deliver Freedom and Prosperity, but hey.

Links Dec 15

2011-12-15T06:13:00.001-08:00

New Data Show Corporate Offshore Funds Not “Trapped” Abroad: Nearly Half of So-Called “Offshore” Funds Already in the United States U.S. Senate Permanent Subcommittee on Investigations
Dec 14 - Press Release: New data released today by Sen. Carl Levin, D-Mich., chairman of the U.S. Senate Permanent Subcommittee on Investigations, show that large multinational U.S. corporations with substantial offshore funds have already placed nearly half of those funds in U.S. bank accounts and U.S. investments without paying any U.S. tax on those foreign earnings. Hat tip: Nicole Tichon. See our earlier blog today on Sen. Levin.

Insight: In Greece, playing cat and mouse with tax evaders Reuters
Dec 15 - "Earlier there was no political will by governments to get to the bottom of this ... Now that we've reached the edge of the cliff, they've decided to implement measures against tax evasion." Interesting commentary on the culture of tax evasion.

Greek tax collectors accused over bribes Financial Times
Dec 14 - "Greek tax collectors routinely pocket 40 per cent of fines imposed in disputed tax cases in return for lowering the penalties paid by miscreants, a former senior Greek finance ministry official has revealed." Hat tip: Offshore Watch.

Panama's tax battle with the French parliament La Tribune (In French)
Dec 14 - On the debate within the French parliament as to whether to include Panama within its list of tax havens - non-cooperative jurisdictions - renewed each January 1. The Finance Committee in the French senate has rejected the bill for ratification of the Tax Information Agreement signed earlier this year with Panama. Interesting implications for Panama, as signing of the agreement with France had them removed from the OECD's "grey" to "white" list.

Banker Contempt Tax Research UK
Dec 15 - Richard Murphy comments on "FT Alphaville has reported this morning that: A senior UBS private banker allegedly sanctioned the creation of an illegal offshore investment vehicle for one of India’s most powerful businessmen, saying that Anil Ambani’s status as a “mega-client” could justify waiving the rules, a London tribunal has been told."

India: CBDT, DRI & ED told to probe exports to tax havens Bahamas & Cyprus Economic Times
Dec 11 - "The finance ministry has asked three of its investigating arms to probe all exports to tax havens Bahamas and Cyprus, an official in the ministry told ET on the condition of anonymity. The ministry is concerned about the sudden surge in exports to the tax havens and has asked the agencies to ascertain whether the exports are genuine."

Billions lost in trade-related in tax evasion, says think tank Malaya Business Insight
Dec 15 - "Illicit activities in the Philippines are estimated to have cost the government $142 billion in taxes evaded between 2000 and 2009. This was enough to put the Philippine among the top 15 countries with the highest amount of illicit money to have been laundered out of the country for the period, according to Washington-based Global Financial Integrity. " See press release on the study blogged here.

Cayman seeking to escape tax haven shadow Caribbean360
Dec 15 - "Long characterised as a secrecy jurisdiction, the Cayman Islands are trying to shake off their tax haven label in favour of being recognised as a global hedge fund player."

Kamikaze Cameron? Huffington Post UK
Dec 12 - "Meanwhile, the fat cats at the top of the financial pile remain relatively unscathed and untouched. They continue to bask in a semi-monopolistic bonus culture where tax evasion, tax avoidance and tax havens, masterminded by the major accountancy firms and banks, bleed off billions of potential tax revenues every week - billions which are sorely needed to reduce the deficits of the national economies concerned. It is no surprise that the global street protest movement has gained such momentum with their increasing focus on corporate greed."

Madoff scandal: tax haven Luxembourg behind it all

2011-12-15T03:16:00.000-08:00

From the Treasure Islands blog:

This searing letter on to Luxembourg Finance Minister Luc Frieden, on behalf of 2,500 ripped-off Madoff investors kind of speaks for itself. Three years on, and:

"none of these institutions has been held accountable to date."

Note that the defrauded investors have fought battles in courtrooms around the world - but keep getting directed to Luxembourg. And in Luxembourg, the financial sector has closed ranks and continued to hide behind the classic offshore attitude, elegantly summed up by Jerome Turquey, a Luxembourg critic:

"Up yours! Let's make money!

Offshore Accounts: Insider’s Summary of FATCA and its Potential Future

2011-12-15T01:10:00.000-08:00

For FATCA wonks (that is U.S. legislation designed to protect U.S. taxpayers against offshore tax erosion), this paper looks interesting.

hat tip: A. Nonymouse.

Despite Global Financial Crisis, Illicit Financial Outflows from Developing World Remain High, Finds New Report

2011-12-15T00:27:00.000-08:00

Another release from Global Financial Integrity:

Over US$900 Billion Illicitly Drained from Developing Countries in 2009, Says Annual GFI Study

Report Finds Developing World Lost US$8.44 Trillion over the Decade 2000-2009

WASHINGTON, DC – Developing countries lost US$903 billion in illicit financial outflows in 2009 despite the massive slowdown in economic activity which rocked world markets in late 2008, finds a new study by Global Financial Integrity (GFI), a Washington-based research and advocacy organization.

“Illicit Financial Flows from Developing Countries over the Decade Ending 2009,” which estimates the developing world lost US$8.44 trillion over the decade ending in 2009, is GFI’s annual update on the amount of money flowing out of developing economies via crime, corruption and tax evasion, and it is the first of GFI’s reports to include data for the year 2009.

“This is a breathtakingly large sum at a time when developing and developed countries alike are struggling to make ends meet,” said GFI Director Raymond Baker. “This report should be a wake-up call to world leaders that more must be done to address these harmful outflows.”

While US$903 billion marks a drop from the US$1.55 trillion1 that illicitly flowed out of the developing world in 2008, the study finds the decrease is almost entirely attributable to the global financial crisis rather than any governance improvements or economic reforms.

The study, which was co-authored by GFI Lead Economist Dev Kar and GFI Economist Sarah Freitas, tracks the amount of illegal capital flowing out of 157 different developing countries over the 10-year period from 2000 through 2009, and it ranks the countries by magnitude of illicit outflows. According to the report, the 20 biggest victims of illicit financial flows over the decade are:

China ............................................. $2.74 trillion
Mexico ............................................ $504 billion
Russia ............................................ $501 billion
Saudi Arabia ................................. $380 billion
Malaysia ........................................ $350 billion
United Arab Emirates................... $296 billion
Kuwait ............................................ $271 billion
Nigeria ........................................... $182 billion
Venezuela ..................................... $179 billion
Qatar .............................................. $175 billion
Poland ............................................ $162 billion
Indonesia ....................................... $145 billion
Philippines .................................... $142 billion
Kazakhstan ................................... $131 billion
India ................................................ $128 billion
Chile .............................................. $97.5 billion
Ukraine ......................................... $95.8 billion
Argentina ...................................... $95.8 billion
South Africa .................................. $85.5 billion
Turkey............................................ $79.1 billion
For a complete ranking of average annual illicit financial outflows over the decade by country, please refer to Table 5 of the report’s appendix.

The report also reveals the top victims of illegal capital flight in 2009. The top 20 countries suffering the highest illicit outflows in 2009 were:

China ............................................. $291 billion
Saudi Arabia ................................. $82.3 billion
Poland ........................................... $66.3 billion
Malaysia ....................................... $46.8 billion
Mexico .......................................... $34.6 billion
Nigeria ......................................... $33.4 billion
Russia ........................................... $23.4 billion
Indonesia ...................................... $20.5 billion
United Arab Emirates .................. $19.5 billion
Venezuela ..................................... $18.8 billion
Iran .............................................. $18.1 billion
Azerbaijan .................................... $14.3 billion
Chile ............................................. $13.1 billion
South Africa ................................. $12.9 billion
Vietnam ....................................... $12.5 billion
Philippines .................................... $12.1 billion
Argentina ..................................... $11.7 billion
Thailand ....................................... $10.8 billion
Romania ...................................... $10.0 billion
Ukraine ........................................ $9.8 billion
To schedule an interview with GFI spokespersons on this report, contact Clark Gascoigne at +1 202 293 0740, ext. 222 or cgascoigne@gfintegrity.org. On-camera spokespersons are available in Washington, DC.

For more information on the report, visit here.

###

Footnotes:

GFI’s previous annual study of illicit financial flows out of developing countries, “Illicit Financial Flows from Developing Countries: 2000-2009,” published in January 2011, found that US$1.44 trillion had flown out of developing economies in 2008. Due to revised/improved World Bank and IMF data, GFI’s new report estimates that US$1.55 trillion is a more accurate measurement of illicit financial outflows in 2008.
Notes to Editors:

The full embargoed report can be downloaded here [PDF 2.90 MB].
A tip-sheet for journalists can be downloaded here [PDF 155 KB].
Contact:

Clark Gascoigne
cgascoigne (at) gfintegrity.org
+1 202 293 0740, ext. 222

Global Financial Integrity (GFI) is a Washington, DC-based research and advocacy organization which promotes transparency in the international financial system.

Global Financial Integrity Honours US Senator Carl Levin with 2011 Annual leadership Award

2011-12-15T00:20:00.000-08:00

From Global Financial Integrity, an award which TJN applauds:

Global Financial Integrity Honors Senator Carl Levin (D-MI) with 2011 Annual Award for Exemplary Leadership
Senator to Accept Award Tonight at Gala Dinner in Washington, DC

WASHINGTON, DC – Global Financial Integrity (GFI) will tonight present Senator Carl Levin (D-MI) with the organization’s 2011 annual Award for Exemplary Leadership in acknowledgement of his untiring efforts on behalf of financial integrity in the U.S. and abroad. Sen. Levin will accept the award this evening at a gala dinner hosted by GFI in his honor at The Army and Navy Club in Washington, DC.

“We are thrilled to honor Sen. Levin’s many distinguished contributions in pursuit of transparency and accountability in our financial system,” said GFI Director Raymond Baker. “For many years, Senator Levin has been at the forefront of both foreign and domestic anticorruption and tax justice efforts.”

“As chairman and ranking member of the U.S. Senate Permanent Subcommittee on Investigations, Sen. Levin has played a pivotal role in exposing many of the biggest financial fraud schemes of the past decade. He led efforts to investigate offshore abuse in the collapse of Enron, exposed rampant money-laundering facilitation on behalf of foreign dictators at Riggs National Bank, and more recently, held hearings revealing how both UBS and LGT Bank helped thousands of wealthy Americans evade paying taxes to the IRS,” added Mr. Baker.

In the current Congress, GFI notes that Senator Levin has sponsored three pieces of legislation which would promote financial integrity. They are:
The Stop Tax Haven Abuse Act (S. 1346);
The Incorporation Transparency and Law Enforcement Assistance Act (S. 1483); and
The Equal Access to Tax Planning Act (S. 139).
Senator Levin is the third person to receive this honor from GFI. The award was first given in December 2009 to then-retiring New York District Attorney Robert M. Morgenthau. Eva Joly, chairperson of the European Parliament’s Development Committee, received the 2010 award.

Contact:

Clark Gascoigne
cgascoigne (at) gfintegrity.org
+1 202 293 0740 ext.222

Global Financial Integrity (GFI) is a Washington, DC-based research and advocacy organization which promotes transparency in the international financial system.

Quote of the day from Sarkozy: City of London is offshore

2011-12-15T00:16:00.001-08:00

From Nicolas Sarkozy, widely reported yesterday, on UK Premier David Cameron's European snub, on behalf of the City of London:

"Cameron behaved like an obstinate kid, with a single obsession: protecting the City, which wants to carry on behaving like an off-shore centre. No country supported him."

We have our disagreements with Sarkozy but this reference to the City as an offshore centre is spot on. May the realisation continue to spread. More on this here.

Links Dec 14

2011-12-14T07:59:00.000-08:00

Human rights abuses? Blame the parents Guardian
Dec 9 - Action is needed to stop companies avoiding legal liability for alleged human rights violations by hiding behind subsidiaries. As Nick Mathiason observes. "For those campaigning for economic transparency, like the Task Force on Financial Integrity and Economic Development, it seems the same intractable problems of corporate secrecy and difficulties establishing beneficial ownership also play out in the human rights arena."

Gordhan thanks tax compliant SA BusinessLive
Nov 30 - "Minister of Finance Pravin Gordhan has thanked South Africans for being tax compliant ... 'Look what has happened in Greece and other countries where there is an absence of compliance culture ...This shows that refusal by some to meet their obligations can have disastrous effects when fiscal difficulties arise.' "

Activists Want Illicit Cash Flows From Africa Stopped Voice of America
Dec 7 - "Lawyer Attiya Waris, vice-chair of the British-based Tax Justice Network, explains that tax evasion by multinational companies accounts for two-thirds of sub-Saharan Africa’s estimated $480 billion per year capital flight. She says trade mispricing, false invoicing and manipulation of tax policies are the most common methods."

India: Black money debate: Who said what IBNLive
Dec 14 - "The Opposition and the Government were involved in a heated debate over black money in Parliament on Wednesday." - transcript provided here.

Eight Former Senior Executives and Agents of Siemens Charged in Alleged $100 Million Foreign Bribe Scheme U.S. Department of Justice
Dec 13 - "Bock made cash withdrawals from Siemens AG general-purpose accounts in Germany totaling approximately $10 million, transported the cash across the border into Switzerland and deposited the funds into Swiss bank accounts for transfer to officials. . . . the conspirators allegedly relied on at least 17 off-shore shell companies . . . to disguise and launder the funds, often documenting the payments through fake consulting contracts." Hat tip: Lucy Komisar.

Where’s the fraud, Mr. President? Reuters
Dec 13 - David Cay Johnston observes: "Tax evasion equals 18 percent of global tax collections, a new report by British accountant Richard Murphy shows. His report for the Tax Justice Network cleverly lined up a World Bank Report on the size of shadow economies with a Heritage Foundation report on average tax burdens by country to reach that figure."

See also:
Will the U.S. wake up to the financial black hole in London? Treasure Islands
Dec 14 - "David Cay Johnston is on form again, this time on the Dylan Ratigan show alongside Bill Black, a thoughtful former banking regulator."

Senate approves US double taxation measures swissinfo
Dec 13 - "United States authorities may be granted assistance on alleged tax evasion without providing personal details of suspects under measures agreed by the Senate."

Should Britain become the new Switzerland? Guardian
Dec 13 - A debate whether Britain should base its relationship with Europe on the Swiss model. Richard Murphy asserts: "The Swiss business model may itself already be bust."

Britain is ruled by the banks, for the banks Guardian
Dec 12 - "In a poorer country, the cosiness of relations between bankers and politicians would be scrutinised by an official from the World Bank and disdainfully pronounced as pure cronyism. In Britain, we need to come up with a new word for this type of dysfunctional capitalism – where banks neither lend nor pay their way in taxes, yet retain a stranglehold on policy-making. We could try bankocracy: ruled by the banks, for the banks."

India: OECD seems to warm to multilateral, automatic information exchange

2011-12-13T11:41:00.001-08:00

TJN has, so far, reserved comment on the OECD's Multilateral Convention on Mutual Administrative Assistance in Tax Matters. This is largely because, despite the OECD trumpeting of tax transparency, the practical effect of this Convention is pretty opaque.

Recent news from India, however, we feel is worth noting now. Jeffrey Owens, Director, Centre for Tax Policy and Administration, OECD, together with other senior OECD officials, met on Dec 7 with India's Finance Minister, Mr Pranab Mukherjee and his top officials.The Hindu BusinessLine reported, in Tax convention: OECD wants India to speed up ratification:

The OECD, a grouping of wealthy nations, hopes that India would go in for quick ratification of the Multilateral Convention on mutual administrative assistance in tax matters—a multilateral agreement that is now being seen as the ‘gold standard’ for co-operation in tax administration.

G20 countries are moving from bilateral to multilateral agreements. At the recent G20 leaders summit at Cannes, India had along with 12 other G20 countries associated with this convention. India has already signed a letter of intent and now quick ratification is required, Mr Owens told Businessline here today.

We disagree that the Multilateral Convention is a "gold standard". We can view the Multilateral Convention as a step forward in that the OECD is now publicly acknowledging that a patchwork of bilateral agreements is ineffective, and that an approach that is multilateral in nature is essential for an effective fight against tax dodging by the wealthy in secrecy jurisdictions. (After all, as we pointed out in our analysis of the UK-Swiss tax deal: some of the major flaws in the deal are quite simply impossible to fix without a multilateral approach.) As The Hindu BusinessLine cites:

In a global economy, where high networth individuals and multinational enterprises operate in many jurisdictions, it is now being recognised that bilateral agreements may be inadequate to address multilateral issues, Mr Owens pointed out.

So, Jeffrey Owens of the OECD has said that bilateral agreements may be inadequate, a point that TJN has been asserting (in more forceful terms) all along. Click here for a suggested response to Mr. Owen's statement (no religious bias intended).

Although it includes an apparent obligation for automatic exchange of information which we welcome, this depends on further administrative agreements between the states involved. There appears to be no publicly available information on which states have actually concluded such agreements and are therefore in a position to exchange information automatically. Still, the Multilateral Convention does seem to create some useful momentum towards automatic exchange of information, and this certainly helps invalidate further the notion of the hopelessly inadequate "upon request" exchange of information mechanism being, as the OECD puts it, the 'internationally agreed standard.'

USA: FACT and Partners Send Strong Message Opposing Repatriation Holiday

2011-12-13T10:20:00.000-08:00

Press Release from the FACT Coalition:

December 13, 2011

America Cannot Afford Another Tax Holiday for

Corporations Offshoring Profits and Jobs

Groups Representing Over 17 Million Taxpayers from Across the Country

Send a Message

Washington – As Congress wrestles with a number of tax-related issues to close out the year, faith-based, small business, union and public interest organizations from California to Maine sent a letter to Senate and House leaders railing against a tax break that previously failed to produce jobs and largely benefited a small percentage of corporations. Not to be confused with the payroll tax holiday for workers, the corporate tax holiday would allow businesses to pay an extremely low rate of tax for money (5.25%) kept offshore – rewarding those who keep jobs and profits outside of the U.S. The groups who sent the letter, representing over 17 million taxpayers, stand in square opposition to the large corporations and their lobbyists who seek this sizable tax break.

Think tanks and organizations from across the political spectrum have continued to debunk the myths that any corporate tax holiday will benefit the government, taxpayers, job creators or workers. In fact, they argue it would make matters worse.

An excerpt from the letter, which is also signed by government transparency, tax, human rights, anti-corruption, environmental and economic justice groups, reads:

“If Congress repeats the 2004 holiday, multinational corporations will quite rightfully expect that another holiday will be enacted in a few years. They will have enormous incentive to engage in ever more aggressive tax schemes that move their profits to foreign jurisdictions. In fact, the 20 companies who repatriated the most earnings under the 2004 holiday are already anticipating the next holiday – they now have three times as much in foreign profits parked offshore as they did at the end of 2005.

We urge you to reject the proposals for a repatriation holiday. The multinationals who are lobbying hard for this tax break offer numerous reasons why you should give them this generous reprieve. But their plea for a repatriation holiday is nothing more than a blatant attempt to escape their tax obligations and shift the burden onto the taxpaying American public.”

The FACT coalition includes a broad range of organizations with an interest in seeing the loopholes closed due to their impact on jobs, critical programs, small businesses, human rights, corruption and national security. For a full list of member organizations and campaign information visit http://www.tjn-usa.org/current-campaigns.

###

CONTACT: Nicole Tichon

Executive Director

Tax Justice Network USA

nicole@tjn-usa.org

202-758-9552

CONTACT: Rebecca Wilkins

Senior Counsel, Federal Tax Policy

Citizens for Tax Justice

rwilkins@ctj.org

202-299-1066 x 32

UK-US 'special relationship' is alive and well - it runs from City of London to Wall St.

2011-12-13T03:48:00.000-08:00

Cross-posted from the Treasure Islands blog:

Some of the more thoughtful articles about the UK's recent Euro snub have lamented the fact that the UK has not only lost influence in Europe, but it no longer has the relationship with Washington to fall back on in reserve. An FT op-ed on Sunday by Jonathan Powell, Tony Blair's influential former chief of staff, notes:

"Britain will now be excluded from all decision-making on the key economic policies of Europe. . . . this catastrophic decision is all the more serious because we do not even have a “special relationship” on which to fall back."

The previous transatlantic ties, the article notes - Churchill's close links with F.D.Roosevelt; Margaret Thatcher's love-in with Ronald Reagan; and the close friendship between Tony Blair and Bill Clinton – are just not there. There is no Cameron-Obama warmth, and Cameron's latest ploy in defence of the City of London will have cooled things further. The United States has always valued Britain as a voice in Europe, and now that voice is diminished. So, as the FT continues

"We have kicked away both props of our traditional foreign policy – Europe and the transatlantic relationship. I have no idea how the government thinks we are going to make our way in the world without either, and neither does it."

Members of the coalition government said:

David Cameron went into last week's talks with "no intelligence, no friends and no flexibility" . . . [another] described Cameron's negotiating strategy as "unbelievably cackhanded",.

I agree with these articles, most of the way. But there is one thing that everyone overlooks here. In a sense, the special relationship is not dead at all.There is a special relationship that is in rude, exuberant health.

It is the Special Financial Relationship between Wall Street and the City of London.

In essence, London offers itself as an offshore escape route for Wall Street, a source of loopholes to get around U.S. financial regulation (see my last blog, for yet another shocking, appalling example of that.) The relationship began in the mid 1950s just as the British Empire crumbled (read Treasure Islands to know more about this) when the City of London discovered that it could rebuild itself by hosting offshore "Eurodollar" trading. What happened was that banks wishing to trade in this market were 'deemed' to be offshore by the Bank of England, and therefore outside the purview of regulation.

This market was, in effect, regulated nowhere. It grew explosively, and created the platform for Wall Street to grow far faster than the rest of the economy, eventually rebounding back into the United States to capture the political process there and bring the economy to its knees in an orgy of libertarian excess. The market spread widely, and had similar effects in other countries too. For over 50 years now, the Special Financial Relationship between the City and Wall Street has been going from strength to strength.

This relationship is pure poison, for both countries.

It is a purely financial relationship whose cross-border nature means it is extremely hard to tax or to regulate. It is thus directly at odds with democracy, and fosters giant inequality, in each country. Bring Britain's spider's web of Overseas Territories and Crown Dependencies into the equation - which include some of the world's biggest tax havens and are umbilically connected to the City of London - then the size of the threat begins to become apparent. A giant zone of transatlantic impunity for some of the world's wealthiest citizens and corporations.

If citizens of the U.S. want to know why Wall Street has become so powerful and difficult to reform, the London escape route is, alongside libertarian ideology, probably the biggest single explanation. "Don't tax or regulate us too much or we'll go offshore!" is probably the most powerful financial lobbying tool there is.

If citizens of the UK want to know why their economy is so unbalanced and has caused so much damage to the rest of the country (much more on this soon), then in my view the biggest single reason is Britain's willingness to prostitute itself to all comers with its pernicious 'light touch' regulation.

The New York Times is also running an excellent op-ed on the whole British-European mess, entitled "The British Euro Farce." It's another searing article, with judgements on the Eurosceptics such as:

Their nostalgia for British greatness is often no more than the trumpeting of a bunch of insular snobs who seem to have a hard time restraining their inner-fascist (those last two words are explained earlier in the article)

And the author, NY Times columnist Roger Cohen, notes the same as the FT op-ed:

The mid-Atlantic, as America pivots to Asia, could prove a lonely place for Britain, whose economy is heavily dependent on the euro zone.

Indeed. To his credit, his description of Britain as a "giant offshore hedge fund" gets closer to acknowledging the nature of the relationship between Britain and the U.S.. As The Independent put it, Britain is closer to becoming "Like the Cayman Islands, minus the weather."

EU Commission melts Swiss Rubik plans

2011-12-13T01:49:00.000-08:00

By a non-TJN guest blogger familiar with European tax issues, who wishes to remain anonymous. (TJN has added the links.)

To all intents and purposes, Switzerland’s ill advised attempt to use its Rubik tax agreements to alleviate EU pressure for automatic exchange of information seem to have failed before it could get off the ground.

The EU Savings Tax Directive which commenced operations in 2005 had so many loopholes that tax returns in every country electing the withholding option was less than 10% than what was expected. Potential taxpayers in some countries were so efficient at avoiding the directive that less than 1% of interest was subject to withholding tax.

Consequently, some Member States such as Germany, France and Italy began demanding automatic exchange of information from the usual suspects. The Swiss bankers' association, rightly sensing the demise of their industry (see here, for an example of their terror) if they were obliged to spill the beans, devised a scheme to “fix” the loophole-riddled EU saving tax directive. They said that the low withholding tax results were due to the narrow definition of which income should be taxed. So they proposed that the withholding tax should be expanded to include capital gains, dividends and other investment related income. As a sweetener, they also proposed a withholding tax on amounts held in the past.

Beware of Swiss bearing 'gifts.'

The whole purpose of offering to “fix” the savings tax was to stave off pressure for automatic exchange of information. Therefore, the crucial condition for EU member states accepting this "gift" was that the withholding tax should be a full and final settlement of any taxes owed. In effect, the Swiss would get to keep their sacred banking secrecy.

The EU Commission, no doubt peeved about Switzerland’s divide-and-conquer strategy against future improvements to the savings tax directive, and against demands for automatic exchange of information, has now warned any EU Member State contemplating a Rubik deal, that the EU already has legislation regarding withholding taxes on interest. As EU legislation has primacy over bilateral agreements, no EU member State can enter into agreements that impinge on the EU savings tax.

The withholding taxes levied under the EUSD are merely advance payments against what would ultimately be owed by the taxpayer. Therefore Rubik cannot be regarded as a full and final settlement. The tax evader client can still be liable to penalties, etc. This defeats the one and only purpose of Rubik. Rubik is crippled.

Rubik's Loopholes.

The amendments to the Savings Tax Directive, still to be introduced, are a far more ferocious set of provisions which, while still containing some loopholes, will nevertheless capture large revenues. Even though the proposed saving tax amendments were published in 2008, however the Swiss ignored these improvements and inexplicably introduced a loophole-riddled agreement, such as explicitly exempting discretionary trusts, foundations, establishments and all other entities and arrangements without an immediate identifiable beneficiary.

Furthermore, all offshore entities and arrangements that can show they have commercial purpose is inexplicably and spectacularly exempt (remember those shoes you shipped to your Uncle in Malta or that “consulting” invoice you gave your cousin in Spain for helping him set up a facebook page”? Well, you have a commercial operation, then, and you are henceforth exempt. And it's not as if Swiss bankers, who are supposed to police these agreements, will be falling over themselves to check up on you!).

And the much touted "inclusion" of insurance wrappers only relates to Swiss insurers. Therefore all you have to do is to use an Irish, Liechtenstein or a Luxembourg insurer, for example, which can offer Swiss banks bancassurance wrappers till the cows come home, without being in scope.

All those trustees in Geneva managing Bahamas trusts with Bahamas accounts can breathe a sigh of relief as Rubik didn’t even contemplate their inclusion.

The intervention by the EU Commission that EU Member States must not touch withholding tax legislation on interest plus the fact that the EU savings tax amendments would close Rubik’s loopholes means Rubik is melting before our very eyes.

TJN: See our recent article making similar points, here, an independent analysis on the political aspects of the disagreement between the EU and the Rubik participants here, a good FT editorial on the subject here, For more details on the loopholes in Rubik, see our report here, and note that our subsequent efforts to find anyone, anywhere, to find a single fault in our report have so far proved fruitless.

Links Dec 9

2011-12-09T07:45:00.001-08:00

30 Major U.S. Corporations Paid More to Lobby Congress Than Income Taxes, 2008-2010 International Business Times
Dec 9 - "By employing a plethora of tax-dodging techniques, 30 multi-million dollar American corporations expended more money lobbying Congress than they paid in federal income taxes between 2008 and 2010, ultimately spending approximately $400,000 every day -- including weekends -- during that three-year period to lobby lawmakers and influence political elections, according to a new report from the non-partisan Public Campaign." Hat tip: Holly Sklar.

On the run, U.S. financier finds Spanish refuge Reuters
Dec 8 - "Spargo's case shows how tough it is for regulators and law enforcement agencies to track and punish alleged financial crimes across borders. Networks of 'shell companies' -- paper-only firms with few real operations -- make it hard enough to identify suspects. Even if regulators can identify them, they are often hard to bring to justice."

The Money Carousel KyivPost
Dec 9 - "Ukraine is a nation in which billions of dollars a year escape abroad in offshore tax havens, both through legal and illegal schemes ... With so few authorities across so many borders willing to investigate such alleged financial funny business, it’s no wonder that the success rate figures of combating money laundering worldwide give no reason to be optimistic. An obvious question: Are top authorities in many of the countries themselves complicit?"

India for greater global cooperation to deal with black money livemint
Dec 7 - “The opacity of tax systems in some of the jurisdictions is adding to the challenges. There has been some movement on these issues in response to the initiative by the G-20. We need to pursue this to its logical end,” finance minister Pranab Mukherjee said addressing a global conference on tax and equality."

Black money: BJP to step up pressure on Govt IBNLive
Dec 9 - "It is being marked as International Anti-Corruption Day around the world on Friday, and the Bharatiya Janata Party (BJP) is taking advantage of the occasion to step up pressure on the government to act on black money. In fact, BJP MPs will be submitting declarations ... The declarations state that they do not have any unaccounted money stashed away in secret accounts and tax havens overseas. "

Goldman Sachs whistleblower threatened with the sack Guardian
Dec 8 - "Osita Mba, who disclosed that [UK's Revenue and Customs] managers had let off Goldman Sachs with tax penalties, is facing disciplinary procedures" He is supported within the UK Parliament: "Mr Mba's evidence has been crucial in uncovering not just specific but systemic problems in HMRC's secretive relationship with big corporations. This is harassment and is completely unacceptable."' See recent TJN blogs here and here and here.

UK: A three-step programme to re-civilise capitalism Guardian
Dec - "Restrict tax loopholes for the rich and the financial sector, including via tax havens. Tax evasion and insufficient tax on the rich, as well as on large corporations, prevent equalisation, impoverish welfare states, and contribute to unsustainable debt. Tax havens not only facilitate tax evasion but, more important, regulatory avoidance. Britain controls havens with over half this money and can lead on this.

Alex Telegraph
Dec 5 - In its witty and wise style, the Alex cartoon comments on City of London culture and tax dodging.

Africa Tax Spotlight - Taxation and Human Rights

2011-12-09T06:12:00.000-08:00

The latest edition of Africa Tax Spotlight explores tax and human rights issues, and explains that inappropriate taxation of poor people in a context of economic cronyism and widespread human rights violations is a causal factor of growing dissent.

You can download the edition here, and we list the contents below:

Editorial - "The message is clear: connecting the dots between development and human rights is fundamentally rooted in tax (as the main source of non-aid development revenue) ... Major lessons to learn? Africa – comprised of countries large and small, free, un-free and somewhere in between – has the foundation of justice embedded in the characters of our peoples, our histories, and our various instruments of representation. Without bridging the gap between democracy, human rights, development and tax – the latter, limited not simply to just legislation, but also the political will required to enforce the law, we will already have lost."
A human rights approach to taxation: some brief comments - "Articulates the procedural, substantive and other shape of a rights-based approach to taxation."
When ‘rights’ undermine ‘right’: Exploring the reality of South Africa’s constitutional right to water - "Unveils how the guarantee of rights does little good when resources are limited because of corporate tax exemptions and cheap state services to rich people that are all too often subsidized by the labour of the most impoverished."
Transparency and rights: who benefits? - "The article on Zambia’s copper industry describes how the neoliberal understanding of ‘development’ – and the ‘accountability’ industry, such as the Extractive Industries Transparency Initiative (EITI), deployed to monitor revenue flows - enables the use of national resources for private, corrupt gain, rather than equitable national development."
Human Rights and tax justice - "Explains the quality of citizenship as the means of assessing the realization of economic and social rights."
News and events - Includes Civil Society Organisation (CSO) Tax Justice Training Workshop, in Zambia May 2011, and the 13th Annual Strategy Meeting of the African Initiative on Mining, Environment and Society (AIMES), in Zimbabwe June 2011
Profile: The centre for research and development – Zimbabwe - "As exemplified by the Zimbabwe-based Center for Research and Development (CRD),arguably billions of dollars’ worth of diamond wealth has been misappropriated, under the guise of development via the vehicle of the ‘resource curse’ (i.e. opaque exploitation of resources).

The report is published by the Tax Justice Network-Africa, with Guest Editor Khadija Sharife and Contributing Editors TJN-A's Sandra Kidwingira and Vera Mshana.

Russia's Illicit Financial Outflows - GFI Reports

2011-12-09T01:48:00.000-08:00

Press Release from Global Financial Integrity
December 8, 2011

Amid Unrest in Moscow, New Research Finds Russia Lost US$501.3 Billion in Illicit Financial Outflows from 2000-2009

Nation Was Third Largest Hemorrhager of Illicit Flows Worldwide According to Forthcoming Global Financial Integrity Report

WASHINGTON, DC – Russia hemorrhaged over US$501 billion in illicit financial outflows in the ten years following Vladimir Putin’s rise to power according to a forthcoming report from Global Financial Integrity (GFI), a Washington-based research and advocacy organization. The study, Illicit Financial Flows from Developing Countries over the Decade Ending 2009, finds the nation lost more than US$50 billion per year from 2000 through 2009—making it the third largest victim of illegal capital flight.

The data, revealed in a blog post today by GFI Economist Sarah Freitas on the website of the Task Force on Financial Integrity & Economic Development (financialtaskforce.org), is even more damning, writes Ms. Freitas, in the wake of Sunday’s Parliamentary elections, which have been met with wide-spread allegations of fraud.

Elaborating on her findings, Ms. Freitas, who co-authored the upcoming GFI report with GFI Lead Economist Dev Kar, writes:

There are several reasons as to why capital flight could increase this year. First, Putin’s promise to restructure his cabinet post-presidential elections in March worries companies that have shady dealings with bureaucrats. Second, in a country where tax evasion and transfer pricing are commonplace pastimes, Russia is finding that its revenues are not quite up to par for debt repayment—especially when one considers the projected drop in oil prices. A global recession has caused investors to look to the dollar as a safe haven, implying a fall for weaker currencies like the ruble. In an attempt to avert a depletion of reserves, Russia has capped purchases of foreign currency. In a lucky twist, food and commodity prices have moderated, leading to a decline in consumer inflation deceleration. Despite this, we see two unsustainable outcomes from illicit money transactions: step-wise devaluations in the Russian currency and increases in rates of core inflation (which abstract from food prices).

It is clear that Russia, a country with growing income inequality, cannot continue to hemorrhage scarce capital without serious consequences. Russians should demand that their government fight tax avoidance through automatic tax information exchange and strengthening anti-money laundering laws. With efforts to strengthen regulation and oversight in these two areas, Russia can better monitor corrupt practices, improve corporate governance and responsibility, and increase tax collections.

The full blog post can be read here.

Russia will not be the only nation featured in the organization’s upcoming report. Indeed, in similar blog posts published within the past week, Ms. Freitas reveled illicit outflow data on Syria and Ethiopia—two more of the 160 different developing nations included in the study. The report, which is scheduled to be published Thursday, December 15, 2011, is the annual update to GFI’s previous studies measuring the illicit financial flows from the developing world. This will be the first of GFI’s studies to include data for the year 2009.

###

Journalist Contact:

Clark Gascoigne
cgascoigne@gfintegrity.org
+1 202 293 0740 ext.222

Switzerland's useless tax deals face more hurdles

2011-12-09T00:00:00.000-08:00

We note this, from the tax haven cheerleaders Geneva Lunch:

Italy’s new prime minister, Mario Monti, has told the country’s parliament, through his minister for relations with that body, that Italy should not seek a double taxation agreement with Switzerland along the lines of those with Germany and the UK.

That is excellent news. The Italians have recognised that the agreements are not only wrong, but useless. As we have demonstrated beyond doubt, and as the FT and others are starting to recognise, they won't raise a fraction of what has been claimed they will.

Now there is this, from Money Marketing:

The UK Government will have to rework a tax deal struck with Switzerland because it falls foul of EU law.
. . .
Speaking to Money Marketing, EU taxation and customs spokeswoman Emer Traynor says the UK’s agreement is out of line with EU agreements with Switzerland and, due to the primacy of EU law, the UK’s contract will have to be reworked.
. . .
An HM Treasury spokeswoman says: “We are working closely with the European Commission to address the concerns.”

That last sentence looks very much as if the UK is already in the process of reworking the agreement. This latest move looks like a shabby political fudge, as described here.

Scrapping seems quite likely, actually. More, from the Money Marketing article:

"The EU agreement also allows people to reclaim from the relevant member state the difference between that 35 per cent and the tax which should be paid. Traynor says the UK’s agreement is a softer approach. She says: “It is implicitly considered as final and a slightly softer stance on tax evasion. It says the Swiss will tax you, we will take the money, no questions asked, and your due is paid. We say if there is no transparency, you will have to pay the 35 per cent tax and we can still come after you.”

Traynor was clearly being highly diplomatic here. "Slightly" is an understatement. And 'implicit' is not quite right either - it is explicit - after all, it's called a Final Withholding Tax. But the most important point about what she is saying is that the EU is not likely to accept the fact that this is a 'final' tax, and that all your dues are then paid off. In other words, you might pay the tax - but still your obligations might not be fulfilled. In which case, it's hard to see what the point of the deals would be at all.

These deals, designed by the Swiss Bankers' Association and presented to the UK, should be buried in a shallow grave somewhere in one of the wooded parts of the Alps near Zürich.

They are a source of deep shame for the countries that have signed them, not only for moral reasons, but for technical reasons too.

Links Dec 8

2011-12-08T08:58:00.001-08:00

Four tax havens are classed AAA Le Monde (In French)
Dec 7 - "While credit rating agencies condemn public deficits in most countries, they praise those who siphon off their tax revenues". Before tax havens crow about their ratings, note the key difference: a) will tax havens steal/lose your money? b) will tax havens help you steal / lose someone else's money? The answer to (a) may be no, but that isn't the point. The point is (b).

Google India gets Income-Tax Dept notice for not revealing correct revenues The Economic Times

Dec 8 - "Google India's businesses ... are 'dictated by Google Ireland' and Google India 'only gets a mark-up on marketing expenses in India and not any share of India generated profits from Adwords programme'."

10 countries providing tax-related information to India The Hindu Business Line
Dec 7 - "When asked if India was getting information under the renegotiated double tax avoidance agreements (DTAAs), Mr Gujral [Finance Secretary] said, 'The answer is yes'. He, however, declined to name the countries or the revenues mobilised from such information sharing with India." Hat tip: Offshore Watch.

Ex-UBS Client Indicted for Hiding Accounts Bloomberg
Dec 7 - The indicted client is cited: "“What is also interesting or perhaps appalling is that the laws of a country and perhaps its tradition is being broken to save a bank’s ass for selling out its own clients who have been trusting and feeding them for years!”

Big business tax holidays are bad for small business, bad for America The Hill
Dec 8 - Comment by Margot Dorfman, CEO of the U.S. Women's Chamber of Commerce: "If small business owners decided to stop paying our fair share of taxes, we'd be sent to jail. Big business tax dodgers want Congress to reward them with a tax holiday." Hat tip: Holly Sklar.

Chambers Tries Bribing Shareholders To Help Cisco Get A Tax Break Business Insider
Dec 7 -"Cisco CEO urged shareholders to lobby congress for a big corporate tax break. In return, he promised to increase their dividend if the tax break comes through. He was talking specifically about repatriation". See FACT sheet on repatriation. Hat tip: Holly Sklar.

Big Firms Limit Paying State Taxes, Study Finds New York Times
Dec 7 - One the CTJ/ITEP study blogged here. "As states have struggled to balance their budgets by cutting services, laying off workers and raising taxes, a study ... suggests that many profitable Fortune 500 companies have not been paying as much in state corporate income taxes as the average levied on American companies, with some big firms paying none at all in recent years."

See also:

Biz Beat: State firms named in tax avoidance report The Cap Times
Dec 7 - "The problem, says Bruce Speight, the director of the Wisconsin Public Interest Research Group (WISPIRG) is that other taxpayers have to make up the difference ... WISPIRG's own study last year of offshore tax havens found that households in Wisconsin pay on average $372 in additional federal taxes to make up for that revenue lost."

Canada: Ottawa awaits U.S. accommodation on tax law Reuters
Dec 7 - On the U.S. the Foreign Account Tax Compliance Act (FATCA): "We're not a tax haven in Canada and the American provisions are really designed to get at people hiding money in tax havens," Flaherty [Canada's Finance Minister] told reporters." See some recent blogs on FATCA here, here and here.

Eurozone: France and Germany urge common taxes BBC
Dec 7 - "The leaders of France and Germany have called jointly for eurozone countries to have common corporation and financial transaction taxes."

UK: HMRC tax deal with Vodafone 'may have been illegal' Guardian
Dec 7 - "A highly controversial tax deal which cost the public purse billions may have been illegal, according to allegations being examined by a powerful parliamentary committee." See recent TJN blogs here and here and here.

Yet more evidence of the London financial black hole Treasure Islands
Dec 8 - Nick Shaxson on an example of how London is an offshore jurisdiction for financial regulation (as well as for many other things), as observed in Zero Hedge.

USA: Corporate Tax Dodging in the Fifty States: New Report from CTJ and ITEP

2011-12-08T05:50:00.001-08:00

From Citizens for Tax Justice:

Good Morning CTJ Friends,

Today we are releasing the follow up to our report on the federal taxes U.S. corporations pay with “Corporate Tax Dodging in the Fifty States, 2008-2010.”

The New York Times published a story about it this morning which you can read here.

The full report is here.

From our press release:

“A comprehensive new study that profiles 265 consistently profitable Fortune 500 companies finds that 68 of them paid no state corporate income tax in at least one of the last three years and 20 of them averaged a tax rate of zero or less during the 2008-2010 period. These are among the findings in “Corporate Tax Dodging in the Fifty States, 2008-2010” released today by the Institute on Taxation and Economic Policy (ITEP) and Citizens for Tax Justice (CTJ).

“Our report shows these corporations raked in a combined $1.33 trillion in profits in the last three years, and far too many have managed to shelter half or more of their profits from state taxes,” said Matthew Gardner, Executive Director at the Institute on Taxation and Economic Policy and the report’s co-author. “They’re so busy avoiding taxes, it’s no wonder they’re not creating any new jobs.”

Among the 20 corporations who paid zero or less in state corporate income taxes over the three year period are: Utility provider Pepco Holdings (DC); pharmaceutical giant Baxter International (IL); chemical maker DuPont (DE); fast food behemoth Yum Brands (KY); high tech manufacturer Intel (CA).

“Corporate Tax Dodging in the Fifty States, 2008-2010” concludes that these 265 corporations cost states $42.7 billion in lost revenues in the last three years, and Gardner identifies three chief causes for state corporate tax revenues steadily declining for two decades.

Read the rest at www.ctj.org/corporatetaxdodgers50states.

Links Dec 7

2011-12-07T09:22:00.001-08:00

OECD calls time on trickle-down theory Financial Times
Dec 5 - "Trickle-down theory is dead. The belief fostered by Ronald Reagan in the US and Margaret Thatcher in the UK in the 1980s, that if the rich got richer their income and wealth would trickle down the income scale so that a rising tide lifted all the boats, has had the last rites pronounced on it – by the OECD". See the report Divided We Stand: Why Inequality Keeps Rising.

Tax evasion costs Namibia billions The Namibian
Dec 6 - "Avoiding the tax man robs State coffers of about nine per cent of Namibia’s gross domestic product (GDP) a year, a new World Bank study has found ... The majority of suspicious transaction reports (STRs) reported to the Financial Intelligence Centre (FIC) between May 5, 2009 and December 15, 2010 were related to tax evasion".

India presses for cooperation to deal with tax evasion, black money The Economic Times
Dec 7 - Finance Minister Pranab Mukherjee stated: "Tax evasion undermines the intended benefits of a progressive tax policy ... resolution of these issues requires international cooperation and alignment of tax systems for better cross-border compliance". See TJN blog on India's position as stated at Nov 2011 G20 meetings here.

Olympus banker sells home for $10, heads to Cayman Cayman News Service
Dec 6 - Banker involved in the scandal involving the Japanese camera mulitnational's funneling of funds through Cayman companies that subsequently vanished, appears to have vanished himself now in Cayman.

Rising Tax Cheats Alarm Australia International Business Times
Dec 5 - "Despite the tax authorities' high-profile campaign against tax evasion, the country has recorded a 20 percent spike on tax offenses, according to the latest report issued by the Australian Taxation office (ATO)."

Jersey Businesses Challenge Altered Transparency Goalposts Tax-News
Dec 7 - "The Jersey Chamber of Commerce, which represents Jersey private sector businesses, has urged the island's decision-makers to pause for thought prior to agreeing to a new raft of demands from advanced nations on tax information exchange." Some weasel words from Jersey powers, holding out against moves towards automatic exchange of information for tax purposes.

Quakers in Britain call for greater tax justice Ekklesia
Dec 6 - "Quakers in Britain, as members of the ‘Close the Gap Campaign’, have called for greater tax justice in a letter to the Chancellor of the Exchequer." The article talks about the epetition seeking to secure a parliamentary debate on the Tax Transparency Bill, that we blogged here. Hat tip: Offshore Watch.

Editorial: Tax cheats steal from us all Dominion Post
Dec 5 - "Just as taxpayers rightly condemn beneficiaries who commit welfare fraud, big corporations that try to get out of paying the tax they owe and others who arrange their affairs to pay less than they should, so, too, they should condemn tradespeople and small businesses who are also ripping off the system." Hat tip: Tax Research UK

The Goldman Saching of Europe ABC
Dec 7 - "I don't want to sound alarmist but it looks like Goldman Sachs has taken over Europe. The continent has succumbed to the dictates of global finance, there was no choice. The bankers are holding us all to ransom ... "

Barney Frank, farewell in 2012

2011-12-07T00:51:00.000-08:00

Citizens for Tax Justice are bidding an early farewell to U.S. Representative Barney Frank, co-author of the Dodd-Frank bill, who announced last week that he will not seek re-election in 2012, They publish two fine quotes from him.

“Tax cuts are fun, but I never saw a tax cut put out a fire. I never saw a tax cut make a bridge” Barney Frank, MSNBC, August 1, 2011

“Remember that our debt crisis began when someone decided to get the joint prize, Nobel Prize, for economics and fiction by putting forward the theory that you could finance two wars with five tax cuts. That's what put us in the hole.”
Barney Frank, CNBC, January 29, 2011

For our quotations page.

Raising Taxes on the Rich: Not Whether, but How

2011-12-07T00:39:00.001-08:00

Following astonishing displays of political cowardice in the U.S. about tax hikes for the wealthiest Americans Bruce Bartlett has a useful article on the New York Times Economix site. It's a useful article not just for its core argument - that cutting taxes for lower- and middle-income people and paying for it with higher taxes for higher-income people, as Democrats have proposed, is unambiguously stimulative to the economy.

It notes:

Studies by the Congressional Budget Office (CBO) showing that certain spending programs are highly stimulative, whereas tax cuts provide very little bang for the buck.
Studies by the CBO and by Anthony Atkinson, Thomas Piketty and Emmanuel Saez demonstrating beyond doubt that there has been a sharp rise in the income and wealth of the ultra-rich while everyone else’s income has stagnated.
Work by the Tax Policy Center demonstrating that higher tax rates don't necessarily lead to a race to the exits by the rich, and that they do raise revenue.
Recent studies by Peter Diamond and Emmanuel Saez and by A.B. Atkinson and Andrew Leigh find that increasing the top income tax rate would raise net additional revenue at least until it reached 63 percent and probably much higher (this is the so-called "Laffer Curve" debate).
Studies (here and here) showing that tax cuts for the rich have not raised the rate of economic growth.

And there is plenty more in there. Bartlett notes:

Republicans like to pretend that cutting spending is economically costless, even stimulative, whereas raising taxes in any way whatsoever is so economically debilitating that it dare not be contemplated. This view is complete nonsense.

Overall, a useful article.

Links Dec 6

2011-12-06T08:38:00.001-08:00

Public outcry “set to topple banking secrecy” swissinfo
Dec 5 - An interview with TJN's Nick Shaxson, author of Treasure Islands. "Switzerland’s prized banking secrecy, already under pressure from multiple countries, faces its biggest threat from public opinion."

UK: Nick Clegg's plan for shareholders to tackle fat-cat pay won't work Guardian
Dec - Prem Sikka comments in response to the UK government proposals for empowering shareholders to control runaway executive pay. The article calls for democratisation of big business and workers to have seats on company boards.

Corporate tax: UK unveils yet another offshore disgrace Treasure Islands
Dec 6 - On a completely one-sided article in the Financial Times on the UK government's "bid to make the corporate tax system the most competitive in the G20 group of nations." Race to the bottom, careering ahead.

Insight: African leader's son tests U.S. anti-corruption push Reuters
Dec 2 - "The wealthy son of Equatorial Guinea's president squared off this week against the U.S. government in a legal battle over efforts to seize his $30 million California mansion, exotic cars, a private jet and an extensive collection of Michael Jackson memorabilia."

Loopholes And Corporate Tax Dodging Costing Developing Countries Billions Huffington Post
Dec 5 - "It's no secret that many multinationals have become particularly adept at exploiting tax loopholes. Nor is it a surprising that the U.S. federal deficit is widening as a result. What's not as publicized, however, is that developing nations are also feeling the heat."

Amazon's Special Deals With States Unconstitutional, Law Profs Say Forbes
Dec 5 - "Here’s a delicious irony for those following the Internet sales tax wars ..."

U.S.: Baucus, Camp to Convene Joint Hearing on Tax Treatment of Financial Products Committee on Ways and Means
Dec 6 - On a Hearing that "will examine the complex relationship between the tax code and financial products." See also letter from the American Bar Association Section of Taxation, hat tip TaxProf.

EU Commissioner takes court action to prevent access to bank accounts Flanders News
Dec 3 - "Belgium's European Commissioner, Karel De Gucht, and his wife Mireille Schreurs, a judge, are taking court action against Belgian legislation that relaxes banking secrecy rules ... Flemish socialist lawmaker Dirk Vandermaelen suggests the EU commissioner is keeping rather suspect company: Antwerp diamond traders who were caught with undeclared funds in Switzerland."

Ethiopia suffered US$11.7 illegal capital flight in the past decade

2011-12-06T01:30:00.000-08:00

FOR IMMEDIATE RELEASE:
December 5, 2011

Illicit Financial Ouflows from Ethiopia Nearly Doubled in 2009 to US$3.26 Billion, Reveals New Global Financial Integrity Report

African Nation Lost US$11.7 Billion in Illegal Capital Flight from 2000 through 2009, Writes GFI Economist

WASHINGTON, DC – Corruption, kickbacks and bribery are on the rise in Ethiopia, according to a forthcoming report from Global Financial Integrity, a Washington-based research and advocacy organization. According to the study, illicit financial flows out of the African nation nearly doubled to US$3.26 Billion in 2009 over the previous year, with corruption, kickbacks and bribery accounting for the vast majority of that increase.

GFI Economist Sarah Freitas, who co-authored the upcoming report with GFI Lead Economist Dev Kar, revealed the data in a blog post today on the website of the Task Force on Financial Integrity & Economic Development (financialtaskforce.org).

Ms. Freitas wrote:

"An upcoming report by Global Financial Integrity finds that Ethiopia, which has a per-capita GDP of just US$365, lost US$11.7 billion to illicit financial outflows between 2000 and 2009. More worrying is that the study shows Ethiopia’s losses due to illicit capital flows are on the rise. In 2009, illicit money leaving the economy totaled US$3.26 billion, which is double the amount in each of the two previous years."

The report, titled Illicit Financial Flows from Developing Countries over the Decade Ending 2009, shows that the vast majority of the rise in illicit financial flows is a result of increased corruption, kickbacks, and bribery while the remainder stems from trade mispricing.

Ethiopia is one of the poorest countries on earth. Plagued by famine, war, and political oppression, 38.9% of Ethiopians live in poverty, and life expectancy in 2009 was just 58 years. In 2008, Ethiopia received US$829 million in official development assistance, but this was swamped by the massive illicit outflows. The scope of Ethiopia's capital flight is so severe that our conservative US$3.26 billion estimate greatly exceeds the US$2 billion value of Ethiopia's total exports in 2009.

The people of Ethiopia are being bled dry. No matter how hard they try to fight their way out of absolute destitution and poverty, they will be swimming upstream against the current of illicit capital leakage. The global shadow financial system happily absorbs money that corrupt public officials, tax evaders, and abusive multi-national corporations siphon away from the Ethiopian people.

The full article can be read here.

Ethiopia is not the only country to be highlighted in the organization’s upcoming study. Indeed, in a similar blog post published last week, Ms. Freitas revealed that the report, titled Illicit Financial Flows from Developing Countries over the Decade Ending 2009, found that Syria had lost US$23.6 billion in illegal capital flight from 2000-2009. The report is the annual update to GFI’s previous studies measuring the illicit financial flows out of 160 different developing nations. This will be the first of GFI’s studies to include data for the year 2009.

Fiscal Transparency and Citizenship Index planned in Brazil

2011-12-05T15:48:00.000-08:00

News just in - the Interamerican Development Bank (IADB) is planning to finance the development of an index of fiscal transparency and citizenship. In a piece published in Valor Econômico, a Brazilian economics weekly (in Portuguese, requires free registration,) it is noted that:

"the tool will be used by Brazilian states to evaluate two important aspects: efficiency of public spending and the quality of access and comprehensiveness of information accessible on the Internet" .

This is part of a partnership with the IABD where they are investing in strengthening fiscal systems across Latin America. The index is being developed by the Nucleus of Fiscal Studies (NEF) at the Getulio Vargas Foundation University (FGV in Portuguese initials), and the index should be ready by end of 2012.

The index is supposed to be accessible to ordinary citizens, in the hope that more public scrutiny would lead to more transparent and accountable fiscal systems.It is also hoped that more transparency would help reduce the complexity of paying taxes in Brazil, which is a problem in itself, rather than high taxes per se.

It will also look at how the government collects taxes, in contrast to some existing indexes, such as that produced by the International Budget Project (IBP), which looks at how tax money is spent, and Transparency International (TI) which focuses on perceptions of corruption.

We hope that the Brazilian index will include some of the points from TJN's own Financial Secrecy Index (FSI) - such as availability of beneficial ownership information -- as well as effectiveness of information exchange agreements that Brazil has signed with other countries.

We wish all best for the team at the NEF-FGV in shedding light in how taxes are being collected in Brazil, and we will wait with interest for the results.

Meltdown Britain - Tax Office Staff Ready to Rebel

2011-12-05T04:59:00.000-08:00

Britain's Daily Mail is reporting that rebel staff at Her Majesty's Revenue & Customs offices up and down the Kingdom have set up a whistleblower network to expose "corruption, ineptitude and mismanagement" within the tax department. According to the Mail: "The group, calling themselves Dissent, claim to have 324 members and ‘a presence in every office across the UK".

HMR&C has been in a state of meltdown since well before the current government took office in 2010. Staff cutbacks launched by former Prime Minister Gordon Brown have weakened capacity to tackle Britain's yawning tax gap (see photo), and senior management have displayed extraordinary weak judgement, most recently in respect of the special deal done with Goldman Sachs. It was this deal, according to the Mail, which triggered the launch of Dissent:

"Dissent appear to have formed after it emerged the country’s top tax official signed off a deal which let investment bank Goldman Sachs off a £10million tax bill."

The official in question is David Hartnett, who has recently been the target of civil society demands for his resignation. Hartnett and his advisers are also responsible for the appalling agreement between switzerland and the UK, which appeases tax evaders while undermining international attempts to cooperate against organised tax evasion.

On this matter, the dissenters at HMR&C are clearly infuriated by the double standards of successive UK governments which crack down hard on (mainly less-well-off) benefit fraudsters, while doing nothing about (mainly wealthy) tax dodgers:

"We wish to speak out against the bad practice and double standards that operate in Revenue & Customs. We wish for a fair tax system that does not reward the wealthy elite and big business.

‘We have amassed a comprehensive database of personal information on staff members including expenses, benefits, conflicts of interest etc."

The tax justice agenda is deepening in unexpected ways. Revenue officials are better placed than most to expose tax injustices at the coalface. We hope the UK government will carefully review the complaints raised by the dissenters at HMR&C and take action against the causes of the complaint. Tax justice is a fundamental of parliamentary democracy, and when tax officials turn whistleblowers there are strong grounds for concluding that something rotten is at hand.

The original Mail article can be read here.

Monaco launches a charm campaign

2011-12-03T01:39:00.000-08:00

Monaco, the French tax haven enclave, has launched a charm campaign to argue for its legitimacy as a nation state. A website titled Playing a Special Role in the World presents some dubious reasons why the mini-state known as a notorious secrecy jurisdiction for corrupt leaders, and a tax haven for the rich and famous plays a positive role in the world.

Concerning talents it states that "in order for talents of 119 nationalities to c0-exist in the same territory, it is necessary to be a large country". Maybe this is an indirect referral for the tentacles of offshore accounts that makes the country much 'larger' than what it actually is.

Among the arguments for Monaco's contribution towards a better world are a reminder that efforts have been made to save the Blue Fin Tuna, that the principality is a full member of the United Nations, has an active role in achieving the Millennium Development Goals (MDGs) and that they engage in fiscal co-operation having signed agreements with 24 countries.

More glaring are the omissions: no mention of zero taxation of non-resident incomes, or the 'prete-nom' accounts where a Monagesgue resident lends his or her name for concealing real beneficiary ownership of assets held in Monaco's banks.

It has been alledged by the French NGOs Sherpa and Transparency International France, that Edith Bongo the widow of the late Gabonese leader Omar Bongo, would have held ill-gotten assets in this manner in the Principality, contributing to ilicit financial flows.

The recent advertising campaign by Monaco shows that anti-tax haven campaigns like Tackle Tax Havens, are having an impact, putting secrecy jurisdictions like Monaco on their toes. Let's keep up the pressure.

Perceptions of Corruption

2011-12-01T14:37:00.000-08:00

Transparency International has just published its annual Corruption Perceptions Index. The results are here. Switzerland ranks at number 8, placing it amongst the least corrupt countries in the world.

Click here for an alternative perspective on corruption which ranks Switzerland at #1 - at the other end of the spectrum. TJN's 2011 ranking, which does not rely on the "perceptions" of businesses and business-funded think-tanks, tells a very, very different story about the supply side of corruption services. Read more here.

Swiss tax deals with UK, Germany - where is the EU going with this?

2011-12-01T00:55:00.000-08:00

The European Union has said clearly that it does not like the UK-Swiss and German-Swiss tax deals - which we have demonstrated will raise only a fraction of what has been promised and would be profoundly harmful to democracy in both of the countries, UK and Germany, that will be victims of the deals. It has raised the clear possibility of legal action to strike these down.

Now World Radio Switzerland is carrying a useful interview with Jean Russotto, a partner in the Brussels office of Steptoe & Johnson LLP and a close observer of EU-Swiss relations, who gives his insider opinions on what is currently happening, and where things might lead. We provide a transcript of the interview:

WRS: What does the Commission see wrong with the deals?

For the last two months the Commission has been looking into these two agreements and has largely concluded that probably, not definitely, both the UK and Germany have gone beyond what is appropriate and legally possible in negotiating two tax treaties with a third country, Switzerland, whereas these competences are basically reserved to the EU. Therefore it is a very basic fundamental issue of EU law: do these two country member states have the right to enter into an agreement on a subject which is basically, said the Commission, reserved to the EU. That is the crux of the matter.

WRS: Are they within their rights to do this?.

The analysis is going on in Brussels, the commnuity machine has started, legal opinions are being issue right and left; and at the same time negotiations and discussions are going on between the EU namely the Commission and Germany and the UK at the same time.

WRS: what if the Commission does officially block these accords

Well, there is a rather lengthy procedure which is referred to as an infringement procedure. Whereby the Commission approaches member states, discussed the pros and cons, then after a few weeks or months, probably shorter, if no progress is being made on both sides, negotiations are failing, which is not the case right now by the way, the Commission prepares an issue: what is called a reason opinion - that is a writ sent to the two countries, here Germany and the UK, saying let’s assume you have 2 or three months to comply. The negotiation goes on, and if nothing happens after the expiration of the deadline, then the Commission begins proeedings before the European Court of Justice. But we are not yet there.

WRS: What is the status of accords between EU and Switzerland?

Right now you have two things, you have the EU STD which is a Directive permitting automatic exchange of info within the EU, with two exceptions Austria and Luxembourg. At the same time, in parallel, the EU has entered an agreement with switzerland, and four others, such as Monaco, San Marino etc.

These two bodies of laws which are essentially similar are part of harmonised European law, and that is why the Commission is saying ‘that does exist’ and Germany cannot go too far because there is already a body of law: that is why the infringement procedure is being considered. Germany is being considered to have somehow transgressed what has already been put together by the EU. And the core of the dispute is to know: 1) whether it is possible or not to enter into an agreement of that sort while EU law is being harmonised, and 2) assuming that is the case, which part of this agreement could be viewed as contravening European law - and that decision has not been made yet.

WRS: Where do you think the case will go in the end?

I think experience says that in really complex cases involving third countries and by the way, large sums of money for the future which are key to the EU member states right now, discussions are always a way to resolve a particular sensitive issue. My view is that the Commission, although its case sounds legally rather strong – there is no doubt about it – is not about I think to launch a formal procedure against two significant member states. Therefore were are heading I think towards a possible compomise where the agreement may continue to stay, but would have to be amended.

The real issue is: will Germany and the UK accept that. But the more complex aspect is whether or not this is satisfactory to Switzerland, and I don’t think it is. Because the deal is a very subtle, compex and very refined machinery and construct, and I don’t know how a negotiation could amend such a very refined machine. It will take time. So it will be on one hand a complex legal issue, and at the same time a question of generating additional income for the treasuries of the UK and Germany.

END

We also note, via Faisal Islam, that the UK's Office for Budget Responsibility has declined to endorse the UK's inflated estimate of the UK-Swiss deal. The Financial Times has seen through the deal too. More are waking up all the time.

We would be disappointed to see a weak mish-mash compromise come out of this. The deals should be scrapped.

New Report Puts Spotlight on Corporate Tax Avoidance

2011-11-29T09:36:00.000-08:00

From the International Trade Union Confederation

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

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

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

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