Wednesday, October 15, 2008

French Prime Minister attacks tax havens

(see updates on Oct 16, Oc 17, Oct 19, below.)

French Prime Minister François Fillon said in parliament yesterday that he wants tax havens, or "black holes" as he calls them, to "disappear" as a first step towards reforming the international financial architecture.

This is just as we have argued: undermining the regulatory and tax systems of other nation states is the very raison d'être of the secrecy jurisdictions. They must be tackled.

This follows a statement by French budget minister Eric Woerth on September 29 that he intended to organise a meeting of OECD nations to "relaunch the fight against tax havens" in October or November. It seems to have cross-party support. Segolène Royale, the Socialist who lost to Nicolas Sarkozy in the presidential elections last year, supports an attack on tax havens; Arnaud de Montebourg, a parliamentarian who has long studied the phenomenon, outlined in a press release yesterday some measures that need to be taken. Loosely translated, his points are:
  1. Banish bank secrecy.
  2. Suppressing tax havens means suppressing beggar-thy-neighbour tax policies on capital which serve as tools to attract our capital to dubious destinations.
  3. Break the secrecy associated with trusts, Andstalts, or fiducies (a French equivalent to trusts) which block judicial and fiscal co-operation with our own authorities.
  4. We should require the application of the same prudential banking norms that we demand from our own banking establishments.
  5. Violation of all these requirements could be sanctioned in various ways, including by interdiction and embargoes on financial transactions to or from these territories -- something that (a French law,) voted in in June 2000 under Lionel Jospin's government, currently makes it possible to do.
If, Montebourg continued, the current French government cannot convince member countries of the Euroepan Union or its associates to suppress these unfair rules, he would advise them to do as former French President Charles de Gaulle did in 1963 with respect to Monaco, organising a customs blockade. This is reminiscent of what Willem Buiter recently recommended in his article "Blockade the tax havens.")

We should add that these are, so far, just words from the French Prime Minister. We await action. Note that things are happening in Britain, too.

Update: Oct 16 - French President Nicolas Sarkozy:

Sarkozy said there was agreement to hold an international summit on the issue, preferably in November. He said that he would raise the problem of tax havens. “If we provide banks with loans, can we have them working with tax havens?” he said. Sarkozy said he would discuss it with US President George W. Bush when he met him at Camp David on Saturday. “We will take message with us,” he said. “It's a subject we're going to put on the table.”

Update: Oct 17: Christian Chavagneux has his own list of priorities for fighting tax havens. These include:

- Political communications. Breaking investor confidence in them. Politicial declarations, such as those by the French Prime Minister, will introduce uncertainty into the tax haven world.
- Withdrawing despositor protection. Governments which have given guarantees to savers should clarify that these do not apply to deposits held offshore.
- Sharing information: Extend the EU Savings Tax Directive. End witholding taxes and move to full automatic information sharing, and extend it to entities such as trusts. Read more here.
- Relaunch the EU directive on transfer pricing. This concerns prices that related parties charge each other for intra-group transactions. This is often used to minimise taxes, using tax havens. Establish a consolidated tax base at the EU level, so that companies are taxed once, and the income redistributed around the countries where the company operates according to a formula - as happens in the US and Canada.
- Reform accounting standards. Demand country by country reporting. (French and German versions also available here.)

Update: Oct 19: Fillon added this:

"What we want is simply a regulation of the financial system that is coherent and consistent in all parts of the globe.
. . .
Today there are financial institutions that escape regulation. Certain banks aren't regulated at all. Today there are tax havens that avoid all rules. Today there are prudential rules that aren't the same from one country to another, from one continent to another. And that creates imbalances and competitive distortions.
. . .
We don't want those who have led the international financial system to where we are today to be able to start again tomorrow and do exactly the same thing because we haven't made the decisions needed to make the system more effective and fair."


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