Monday, October 31, 2011

Links Oct 31

140 governments pledge to tackle dictators’ loot in wake of Arab Spring Global Witness
Oct 28 - "140 governments acknowledged systemic failures in the controls that should stop banks taking dictators’ money ... The resolution, initiated by Egypt and passed at a UN anti-corruption conference which focused heavily on the Arab Spring, also agreed more action was needed to help claw back stolen funds."

See also:
Shell game: Hidden owners and motives CNN

Oct 26 - Stephanie Ostfeld of Global Witness writes an Op-Ed on the laundering of illicit funds through shell companies, and the legislation that would address the issue in the U.S., the Incorporation Transparency and Law Enforcement Assistance Act .

See also:
Department of Justice Seeks to Recover More Than $70.8 Million in Proceeds of Corruption from Government Minister of Equatorial Guinea The United States Department of Justice

Oct 25 - The U.S. government has filed civil forfeiture complaints against approximately $70.8 million in real and personal property, which the government alleges is the proceeds of foreign corruption offenses and was laundered in the United States.

HSBC accused of helping Egypt generals stifle dissent The Independent
Oct 31 - "Human rights groups and NGOs have accused HSBC bank of colluding in a campaign of intimidation which they say is being waged against them by Egypt’s ruling military council." Hat tip Offshore Watch.

Are Nigerians paying a high price for tax havens? The Guardian
Oct 11 - Commentary following the ActionAid report about the use of tax havens by multinational corporations listed on the FTSE 100: "Nigerians need to play their part by demanding greater transparency and accountability in our country. But when we are dealing with multinationals listed in the FTSE 100, decisive action from the UK government and the G20 leaders also needs to be urgently taken."

The evidence that so called tax information exchange agreements with tax havens don't work is mounting Tax Research UK

Oct 27 - Richard Murphy on how the G20's statement in 2009 that tax havenry has ended was wrong, and on how the OECD method of bi-lateral Tax Information Exchange Agreements (TIEA's) is flawed: "And now there’s clear evidence that first of all the number of requests countries can make as a result of those flaws are minuscule (because basically, if you do not know they answer to the question you’re raising it’s almost impossible to ask the question)."

"The U.S. Already Has Blood On Its Hands": CTJ Attorney Fires Back at Opponents of Anti-Tax Evasion Rules During Hearing Citizens for Tax Justice

Oct 28 - "A subcommittee hearing on a proposed IRS rule veered towards the absurd when Citizens for Tax Justice and the Obama administration were accused of supporting dictators, kidnappers and terrorists." See also here for an explanation on the non-perils of information exchange.

Tax cuts, corporate breaks urged by top Republican Reuters

Oct 26 - "Public interest groups immediately attacked the Camp plan ... Tax Justice Network saying the plan's foreign profits provisions would worsen the deficit and encourage companies to shift profits and jobs overseas." Hat-tip Nicole Tichon. See the TJN-USA press release here.

See also:
Rep. Camp Unveils Business-Friendly Corporate Tax Plan
Wall Street Journal
Oct 26 - Countering calls for corporate tax breaks, TJN observes" A `territorial’ tax system would reduce revenue and jobs because it would increase the incentives for U.S. corporations to shift profits and jobs overseas."

See also:
What a “Territorial” Tax System Would Mean, in One Chart Center on Budget and Policy Priorities

Oct 25 - See the chart showing how the territorial system would give a massive tax advantage to foreign profits.


TJN USA and FACT Coalition Issue Press Release on Corporate Tax Reform

October 26, 2011

“Territorial” Tax and “Revenue-Neutral” Corporate Tax Reform Opposed by National Organizations, Labor Unions, and Small Business Groups

Washington – Labor unions, small business associations and good government groups have lined up to oppose proposals to exempt corporations' offshore profits from U.S. taxes on a permanent basis (by enacting a "territorial" tax system) or temporary basis (by enacting a "repatriation" amnesty).

These organizations also oppose any overhaul of the corporate income tax that fails to raise significant revenue. In stark contrast to recent proposals put forth by House Ways and Means Committee Chairman, these groups urge lawmakers to reject any corporate tax reform that exempts corporations’ offshore profits or that fails to raise significant revenue.

In a letter, the groups implore the Members of the Committee to do four things:

  • Reject any proposal to exempt U.S. corporations’ offshore profits from U.S. taxes permanently (by enacting a “territorial” tax system).
  • Reject any proposal to exempt U.S. corporations’ offshore profits from U.S. taxes temporarily (by enacting a “repatriation” amnesty).
  • Require any overhaul of the corporate income tax to raise significant revenue.
  • Require that the revenue-positive result be estimated using traditional revenue scoring procedures as opposed to controversial alternative procedures (often called “dynamic” scoring).

These stances put these organizations at odds with Chairman Camp, who has just proposed a territorial tax system, as well as both Democrats and Republicans in Congress and even officials in the Obama administration who are rumored to be gearing up to propose a corporate tax overhaul that includes a territorial system and is revenue-neutral.

The labor unions signed onto the letter, including ALF-CIO, SEIU and several others, have been speaking with lawmakers for months about their concern that the these changes would only encourage companies to shift more operations and jobs overseas. The small business groups have been pleading with Congress to even the playing field by ending the ability of their multinational competitors to reduce their tax bills by shifting profits into offshore tax havens. The good government groups include organizations like the Tax Justice Network, which works to end offshore tax abuses, and Citizens for Tax Justice, which will release a report on November 3 detailing what Fortune 500 companies actually pay in U.S. corporate income taxes.

Read CTJ’s reports on Raising Revenue and the Territorial System/Repatriation proposals.

Read the FACT Tax Reform Agenda here.

Read the FACT sheet on Tax Haven Abuse here. By the Numbers!

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


What a tax haven really looks like

From the Treasure Islands blog:

I recorded this last Friday (on my, er, Iphone) while in Luxembourg. It's kind of fun. I think this helps highlight the contrast between:
  • real businesses that do real things (ArcelorMittal, whatever you may think of them this is in an industry in Luxembourg that was historically built on local iron ore and steelmaking) and
  • tax haven businesses (Itunes Europe, 8 Rue Heinrich Heine, a subsidiary of Apple, Inc. that I've blogged before.)

Sorry about the narrow picture view.


Saturday, October 29, 2011

The Real News: Africa's Odious Debts - part 3

In part 3 of this series by the Real News Network, the authors of Africa's Odious Debts explore the legal basis on which these debts could be repudiated. Part 1 is here, part 2 here.


The Real News: Africa's Odious Debts - part 2

We recently blogged the first of this three-parter by the Real News Network. Here is the second part, in which the authors discuss the human costs imposed on African people. Clicking here will take you to part 3.


Offshore Crime Inc wins Daniel Pearl Award for investigative journalism

TJN is delighted that a long term investigation into how Eastern European criminals and politicians have been using secrecy jurisdictions to hide the proceeds from their crimes has been selected as one of the two overall winners of this year's Daniel Pearl Award for cross-border investigative journalism. TJN has been consulted by some of the journalists involved in this lengthy investigation, along with our colleagues at Global Financial Integrity and Global Witness, and our Financial Secrecy Index, which placed the USA at the top of the rankingm in 2009, and drew specific attention to how Delaware, Nevada and Wyoming provide offshore secrecy, is also cited in the report.

We have always argued that secrecy induces criminality and secrecy jurisdictions provide a supply side environment that encourages criminal activity. In social science terms, secrecy jurisdictions create a 'criminogenic' economy, in which criminal behaviour is significantly more profitable than productive activity. The markets adapt accordingly, which explains why so many major banks have been under investigation for supporting criminal clients. The journalists behind this project came to similar conclusions about how secrecy jurisdictions shape market behaviour:

"East European criminals and corrupt politicians have found in offshore havens a tool so perfect that it has permanently changed how business is done in the region. By using offshore laws that stress secrecy over everything else including crime prevention, they have been able to set up networks of offshore companies where they can hide their assets from police, launder their money and evade taxes all at the same time."

Happy days for criminals, and also for the pinstripe mafia of bankers, accountants and lawyers who cash in magnificently on the fees charged for setting up the complex hybrid offshore structures. From our own experiences of investigating offshore, it is clear that these players are as culpable as the criminals they serve. Commenting on the top award going to the team behind the Organised Crime and Corruption Reporting Project (OCCRP), one of the judges noted how “Reporters from OCCRP went undercover, which allowed them to meet business agents, lawyers and others who advised them how to set up phony offshore accounts, cheat on taxes, even buy turnkey money laundering and tax evasion services.”

Taking a look here at the range of secrecy jurisdictions involved in this project shows just how widely organised crime spreads its activities across the globe, and also confirms our view that small islands are especially vulnerable to being abused by criminals wanting secrecy combined with lax regulation. OCCRP selected the Seychelles to demonstrate the ease with which offshore companies can be formed, but Jason Sharman, who is also cited several times in the report, has shown that lax know your client rules and weak disclosure requirements can also be found in major jurisdictions like the United Kingdom and the United States.

Unsurprisingly, the journalists involved in the OCCRP identify a range of solutions to these problems, and stress the importance of applying these solutions across the board, including to powerful players like the UK and USA. Here are their summary recommendations:

Needed are better laws addressing:
  • Transparency of company ownership. Jurisdictions must have a way to find out who the really owns companies and a method to close loopholes that make shells operate, such as use of proxies or bearer shares.
  • Regulation of agents who set up companies. The US and the UK have no rules on lawyers and others who incorporate companies.
  • Imposition of restrictions on non-residents who want to set up companies in the US and the UK.
  • International standards and cooperation. A mishmash of organizations that are involved in money laundering and economic transparency – from the Financial Action Task Force (FATF), the group of 20 major world economies known as the G20, and the wealthy countries’ club known as the OECD – need to get as tough on their own members as they are on traditional secrecy jurisdictions in the Caribbean.
All good stuff, and perfectly practicable if there were genuine political will on the part of G20, OECD, et al, to carry this agenda forward. Sadly, therein lies the problem: too many politicians tied - financially and otherwise - to the key actors in this process.

Anyway, to end on an upbeat, congratulations to the many journalists involved in the OCCRP for deservedly winning this prestigous award.


Friday, October 28, 2011

London activists plan to Reclaim the City

Activists behind the occupation of London's financial quarter have listed some of their demands, which include democratisation of the City of London Corporation - an organisation with loads and loads of power, cash and political inside tracks, which it doesn't hesitate to use to promote its own interests.

Art Uncut have now announced their plans for an alternative Lord Mayor of London's Parade, scheduled for 12th November.

Read more about the shocking governance arrangements of the City of London here. Better still, read Nick Shaxson's stunning exposé of this squalid throwback to the Dark Ages.


Thursday, October 27, 2011

What the Wall St. protesters are so angry about

Find America. Go on - click on the link, scroll down, and find it. And if you're not a U.S. citizen, check out your own country too.

Source: Information is Beautiful, and the CIA factbook.


Tax advisers still can't explain why our UK-Swiss analysis is wrong

The UK's Telegraph newspaper has written a reasonably fair report about our analysis of the fatally flawed UK-Swiss deal, accurately summarising our position (although they call them 'alleged loopholes' instead of the proper term, 'loopholes'. (Note that nobody, anywhere, has said that we are mistaken on this.)

But we do feel it is worth responding to an opinion in the article given by Fiona Fernie, tax investigations partner at BDO. Sher says our report contains 'sound points' - then goes off in some very strange directions. Such as:
"We have heard from some Swiss banks that they will not be allowing movement of funds between their own branches."
Is she serious? Really?

Even if some Swiss banks do not actively (and there is a slippery word) help their customers move to foreign branches - though they may well do so - customers are quite capable of doing this by themselves. For her proposal to have any chance at all of working, Swiss banks would have to block their customers' funds and prevent them withdrawing anything, to stop them moving money out of their accounts and then on to other branches elsewhere, either with the same bank or a different one. And if the banks were to do that, we would quite soon see terms like 'run on a Swiss bank' and 'Swiss banks default' on a lot of newspaper front pages. We haven't, to be frank, noticed this happening.

But Fernie has more:
There are also rumours - which have not been confirmed - that for banks who do allow movement to other branches in different countries, they will only allow a percentage of funds to be moved, in case they are found liable by HMRC under the agreement.
Well, ditto our earlier argument on this point. But in any case, she is resorting to unconfirmed rumours to try to counter our study? This is a tax partner?

Next, a slightly more focused point:
"Those who are beneficiaries of genuine discretionary trusts may escape but there are a lot of other foundations and trusts arrangements where it will be quite obvious who the owners are. They are unlikely to escape."
Well, perhaps they might be unlikely to escape if they just sit there (though in any case they may still escape in other ways). But that's just the point: HMRC has given them a leisurely 20 months to do something about this. If they've gone to the trouble to set up a trust in the first place, they will go to the trouble again - especially since the capital charge gives them a massive additional incentive to do so. Once again we should point out: this is not a representative sample of the UK taxpayer population we are talking about here, but a selection of those who have already decided to opt for criminal tax evasion.

But also - it's known that the large majority of tax evaders are already using these structures like discretionary trusts. No, Fernie is absolutely wrong.

And there is more:
"It is also worth noting that the agreement does say that banks will have to provide information to HMRC on where money is being moved to. This will no doubt be utilised by HMRC in order to help them decide 'where next'".
Once again, is this supposed to be serious? Look at Section 4.6 of our report to see how ridiculous this assertion is.

The second last section (6.2) of our report is headlined "This is a Source of shame for the British accountancy profession." We have seen accountants line up to defend HMRC's deal, and yet not a single one of them has offered a substantive and credible rebuttal of any of the particular points made in our report. Not a single one.

This deal cannot be allowed to stand, unless the combined analytical might of the British accountancy profession, and HMRC, or anyone else, are able to come up with a detailed and credible explanation of how we got it wrong.

We await a serious response.

Finally, we are pleased to see the European Commission looks likely to take action (more here) against the Swiss deals with Germany and the UK.

But why does the UK have to put itself in this untenable position in the first place?


Wednesday, October 26, 2011

Swiss-UK/Germany deals: lawyers recommend trusts

Hot on our story about the weaknesses of the Swiss-UK agreement, a legal source draws our attention to this article in The Lawyer, which confirms our suspicions that lawyers stand to gain huge fees from clients restructuring to take advantage of the various loopholes: "Like many other areas that have a negative impact on some, the treaties look set to provide lawyers with work for at least the next year."

And for those who claim we exaggerate the potential for tax criminals to use trusts and foundations, here's Vincent Jeanneret, managing partner of Schellenberg Wittmer suggesting that clients look to trusts and similar hybrid structures as the means of carrying on with business as usual: “We believe it’s quite good for the top end of the market,” he says. “In the long run it may have an impact if the Swiss banks are no longer as powerful as they used to be.”


Tuesday, October 25, 2011

FACT Coalition's U.S. Tax Legislative Asks

The FACT Coalition has released a document detailing their tax legislative asks. The text is below, and you can access a PDF of the document here.


The current tax code is full of perks and preferences that create a great deal of unfairness in the tax system. Some large multinational corporations pay little or no federal income taxes, year after year, while domestic‐based businesses large and small commonly pay a quarter or even a third of their income in federal taxes. Some very wealthy taxpayers pay an effective rate almost half of that paid by middle‐income workers. We need tax reform that:
  • Stops corporations, large and small, and millionaire investors from avoiding the taxes that support the essential goods and services that government provides.
  • Ends the gaming that has turned corporate tax departments into profit centers.
  • Provides sufficient revenues for vital services, job creation, and deficit reduction.
We ask Congress to enact tax reform that:
  1. Ends Corporate Tax Deferral on Foreign Earnings and enacts a true worldwide system of taxing U.S.‐based multinational corporations. Enacts Interim Measures to curtail abuse of current system until a true worldwide system is completely phased in. Rejects a RepatriationTax Holiday that is, in effect, an amnesty for corporations that have dodged their taxes bysending profits and jobs offshore. Rejects a Territorial System that would give multinationals a permanent zero rate on their foreign earnings.
  2. Utilizes a “G.E. Rule” that corporate tax reform should be guided by a principle similar to the “Buffett Rule”: multinational corporations should not be paying tax at a lower rate than the small businesses that line Main Street.
  3. Closes Corporate Tax Loopholes that allow some profitable companies to pay little or no federal income tax while others pay much higher rates.
  4. Limits Use of S Corporation Rules that allow companies with billions of dollars in revenue to reap the benefits created for “small business.”
  5. Requires Publicly‐Traded Companies to Disclose Actual Taxes Paid to the IRS so that the public knows the real story about how little taxes some companies pay.
  6. Improves Enforcement and Closes the “Tax Gap”
  • Combats tax haven abuse
  • Increases Internal Revenue Service resources
  • Requires automatic tax information exchange with other countries
  • Enacts country‐by‐country reporting of financial information by publicly listed companies
  • Requires disclosure of the beneficial owners of all U.S. corporations
  • Enacts measures requiring MORE, not less, third‐party reporting
  • Enacts the Tax Lien Simplification Act
  • Allows the IRS to publish a Tax Delinquents List
7. Changes the Rules and Closes Individual Tax Loopholes that allow millionaires to pay a lower rate than middle‐class workers.


Nick Shaxson's Treasure Islands - events in Bergen and Helsinki

TJN's Nick Shaxson, author of Treasure Islands, spoke in Bergen and Helsinki last week.

For the Bergen event, Follow the money: Financial secrecy, international taxation and development, see here for information and the presentations.

For the Helsinki event, here are some links from the Finnish press (headlines roughly translated via Google):

Half of the world's trade passes through tax havens YLE

The biggest tax havens are in the OECD countries Kansan Uutiset

Tax havens are an integral part of the Greek problem Talous Sanomat

Tax evasion, secrecy and legal protection - "but not for residents"demari

Tax havens are flourishing, the weeding was only half done Talouselämä


European challenge to dodgy deals with Switzerland

Update: the statement issued by Commissioner Semeta is available here.

We note the following:

Member States are free to enter into international agreements with non-EU countries. But they must respect EU law and its principles governing exclusive EU competence.

Taking into account their wide scope, the bilateral agreements may also cover aspects already covered by the EU Savings Directive and/or the EU-Swiss agreement. Insofar as the bilateral agreements may prove to cover areas of exclusive EU competence, the Commission would take this matter very seriously. It would not hesitate to take the corrective steps if necessary.

In general, Member States must ensure that any bilateral negotiations they foresee or conduct do not cover aspects which are a matter of exclusive EU competence.

We strongly suspect that the bilateral agreements in their current form cover areas that are of exclusive EU competence and will impinge on the future performance of the Savings Tax Directive.

Online news source Europolitics is reporting that later today European Commissioner Algirdas Semeta will be responding to a challenge to the legal status of the dodgy Swiss-UK deal on the grounds that the so-called Rubik agreements (designed to befuddle ordinary people) undermine European Union attempts to tackle tax evasion through the Savings Tax Directive:

MEPs question the compatibility of these Rubik agreements, set to enter into force in 2013, with EU rules on taxatin of savings income, which provides for a 35% withholding tax at the source (not in full discharge of liability) on interest earned on savings. More generally, they wonder whether states have the power to negotiate such bilateral tax agreements and whether the Rubik system may present an "obstacle" to revision of the EU savings taxation directive and of the EU's agreements in this area with Switzerland, Liechtenstein, Andorra, San Marino and Monaco. Will not Rubik agreements "have the effect of halting the move towards an automatic exchange of information for tax purposes," they ask.

The article also draws attention to how Austria and Luxembourg (and, predictably, Jersey) are using the Rubik agreements as a pretext for remaining outside the EU's automatic information exchange. It is more than likely that this is precisely what the UK government seeks to achieve: many of the Eurosceptics within the Conservative party are strong supporters of tax havens and tax dodging.

Read the Europolitics article here


Swiss-UK tax deal: good news coverage, lame responses

We have had good press coverage for this morning's UK-Swiss tax deal analysis, which reveals how the UK government's claims that it will net 4-7 billion pounds in tax revenues are fatally flawed. See, for example:
We are told that we also got a good discussion on the BBC's flagship Today programme.

Of course (of course!) we have had some predictably lame responses to it. The first thing we note is that nobody so far has picked any holes in it, technically speaking. It is early days, of course, and there's not much space in a newspaper to do so, but we are confident in our analysis.

Let's start with slipperiest attempt to rebut our story, from the Swiss Bankers' Association. Here's the first part:
“There is no legal way for a British person to remain entitled to his or her assets in Switzerland in any way while at the same time evading identification,” Sindy Schmiegel Werner, head of U.K. communications at the SBA, told Bloomberg News.
Now if ever there were weasel words, these are them. The whole point about escaping the scope of the deal is that you escape it by escaping being a beneficial owner. You find a way to no longer be entitled to the assets, legally speaking - while in reality (using the devious structures of offshore, as Section ! You use discretionary trusts, insurance wrappers, foundations and so on to make sure that you are not, legally speaking, the beneficial owner. And hey presto! you are outside the deal's scope. See Sections 3.1 or 3.2 to get a better flavour of this. It can be difficult to get one's head around it, at first.

In short, the SBA is deliberately missing the point. They know they are missing the point, but the shame is that many people who aren't familiar with the devious world of offshore trusts and their like will fall for these words. The next thing the SBA says is even more laughable.
“Banks will not actively support their clients to withdraw their assets from Switzerland”
Right. Of course. We should trust them. And through that word 'actively' we will see a coach and horses drive, laden with British taxpayers' money. We won't actively support them. But we won't, ahem, be averse to letting them do this, and we might on occasion whisper in their ears. Or something like that.

In short, this is a laughable set of responses from the SBA, and our study stands intact.

The next point comes from Vanessa Houlder of the FT.
"Much of the disagreement over the merits of the deal revolves around the likelihood of Switzerland ever providing automatic exchange of information."
Absolutely false. It is important to understand this and get the message out there. First, our analysis is designed to compare like for like: i.e. looking at how Switzerland is currently applying a withholding tax, and drawing conclusions from that. We then write about the European Savings Tax Directive as an almost incidental point: things would be far better if the current proposed amendments - very beefy changes that are currently being undermined by the UK-Swiss and UK-German deals - came into force. But these amendments are most fundamentally about taxation, and less about automatic information exchange. The FT simply misunderstood the whole point.

Next, we have a response from the UK's HMRC.
"Revenue insiders said the TJN analysis missed the point. If tax evaders chose to exploit loopholes in the deal, sources said, they would remain open to prosecution and huge penalties."
And they didn't face prosecution and huge penalties before? What has changed here? Let's be clear about this. This is not a representative group of the UK taxpayer population. The assets that are in question are the assets of people who have already decided to break the law and evade tax. The fact that instead of facing a 20% withholding tax under the EU Savings Tax Directive - which is only a modest incentive to evade - this deal will face them with a super-massive 20-35% capital charge (see the report for more details) on the absolute value of their capital. The incentive to escape will be massively, massively higher under the UK-Swiss tax deal. Our calculations show beyond reasonable doubt that it is inconceivable that they will raise more than one billion pounds - most likely a small fraction of that. We think it's unlikely the UK will receive anything beyond the £350 million (500 million Swiss Francs) that Switzerland is due to hand over to the UK in a few days' time as a down-payment to protect their secrecy.

And if HMRC comes back and says 'we have expanded co-operation with Switzerland and the possibility of making up to 500 requests per year- just remember than between 2004 and 2010 the UK made an average of less than three requests to Switzerland per year -- and Switzerland has made an average of precisely zero spontaneous exchanges of information back to the UK.

Do leopards change their spots? Er, not that much. If HMRC thinks there is

HMRC's claims are laughable.

Next, we have had Bill Dodwell of Deloitte, a regular opponent of TJN, dismissing our study. We have just rung up Bill Dodwell but he didn't answer. We want answers from him: what exactly is it that he objects to?

And if anyone wants to read more on the politics of all this, read this article in Europolitics (though we wouldn't quite agree with all the technical analysis, the politics is very interesting.) The article starts like this - this is dynamite.
The European Commission is planning to attack the tax agreements concluded by Switzerland with Germany and the United Kingdom, on 25 October in Strasbourg. It finds that Berlin and London have encroached upon the Union's powers by negotiating bilateral arrangements with Berne that interfere with savings taxation rules.
. . .
Commissioner Semeta plans to take a very hard line and to denounce an abuse of power by Germany and the UK.
Fiery stuff. This happens to confirm Section 4.4 of our analyis. These 'Rubik' agreements are a disaster from start to finish. HMRC should simply give in, and cancel them, to save further embarrassment.


Puppet Masters: How the Corrupt Use Legal Structures to Hide Stolen Assets and What to Do About It

A new World Bank document entitled The Puppet Masters looks at all the various different secrecy facilities. Co-authored by (among others) Jason Sharman, who has written a lot of interesting things in this area, it looks very interesting. We haven't read it yet, but it looks as if it dovetails nicely with our UK-Swiss document. Hat tip: Lucy Komisar.


Monday, October 24, 2011

Revealed: the loopholes which destroy HMRC’s claim that Swiss tax deal will see a £4-7bn Treasury windfall

  • UK/Swiss tax deal could see UK lose money
  • 10 loopholes identified that mean this agreement won’t deliver
  • TJN urges immediate cancellation of agreement
An agreement between the UK and Swiss governments, which permanent secretary for tax Dave Hartnett has stated will raise between £4bn - £7bn, is so fundamentally flawed it could actually lose the UK tax revenue.

A forensic analysis of the agreement by the Tax Justice Network reveals a series of fatal flaws in the two-week old tax deal. Though the analysis focuses on the UK, it is of great relevance to Germany, which recently signed a near-identical deal with Switzerland under similar false promises, as well as for other countries considering signing similar bilateral deals.

The UK-Swiss deal, signed on 6 October, is supposedly designed to capture assets held by wealthy UK residents who have evaded taxes by secreting their fortunes in Swiss banks.

But the 10 loopholes identified by TJN – and we believe there are more loopholes than that – means there is virtually no chance the agreement will raise anywhere near the £4-7bn suggested by Dave Hartnett.

The loopholes provide numerous ways for accountants, lawyers and bankers to help their UK clients escape the new rules.

Loopholes include:
  1. Provisions which allow UK wealthy individuals who hold their assets in so-called discretionary trusts, foundations and similar structures to evade the new rules. These structures are extremely popular with wealthy tax evaders and make it impossible to identify who currently owns the assets. Accountants and lawyers who set these structures up are poised to do a roaring trade.
  2. Wealthy UK individuals can side-step the rules by creating trading, manufacturing or commercial operations as these fall outside the scope of the new deal.
  3. Branches of Swiss banks in other countries are not included in the provisions so UK Swiss banks account holders can simply move their assets to a foreign branch of a Swiss bank to escape the agreement’s scope.
  4. While the new deal includes interest, dividends and capital gains on ‘bankable assets’, it crucially does not extend to:
    - Wages;
    - Royalties;
    - Income on property;
    - Directors’ fees; and
    - Loans
    This allows advisers to UK residents to siphon out benefits through these routes, untaxed.
The deal does not come into force until May 2013 allowing 17 months for advisers to make alternative arrangements and move assets to escape the deal.

These loopholes and more besides (see accompanying in-depth report) leads the Tax Justice Network to challenge claims by HM Revenue and Customs (HMRC) that this agreement will see a £4-£7bn inflow of tax receipts into the UK.

TJN regards this as a major over-estimation which misleads the British public. In fact, as we argue in our report, there is a real likelihood the serious loopholes, flaws and knock-on effects will actually reduce the already pitiful tax take from UK individuals keeping their assets in Swiss banks in the medium and long-term.

TJN fears this deal will also undermine ongoing efforts to improve transparency and tackle tax evasion through the European Union Savings Tax Directive. An initiative that Switzerland – along with Austria, Luxembourg and Jersey – are doing everything in their power to scupper.

John Christensen, director of the Tax Justice Network, said:
“It’s hard to see how the British public will benefit in any way from this flawed agreement. Worse, it will reverse years of progress made by the EU towards tackling tax evasion through automatic information exchange. It is impossible to see how the HMRC can describe this deal as being in Britain’s interests.”

Nicholas Shaxson, author of Treasure Islands - tax havens and the men who stole the world, said:
“There is a very strong likelihood that that this deal which guarantees tax haven secrecy, will spread like a cancer through the global financial system. This is because many countries are now considering similar agreements. They are either tax havens that want to copy Switzerland, or victims of tax evasion that want to copy the UK. This deal has to be killed.”

Dr David McNair, Economic Adviser at Christian Aid, said:
"This stunning analysis from the Tax Justice Network shows that the UK's deal with the global headquarters of bank secrecy is likely to undermine the UK's tax revenues as well as those across the developing world. It's no wonder Swiss bankers and their clients are delighted. But everyday people in the UK and developing countries will lose out. It is imperative that the UK now takes strong action on financial secrecy at the G20 in Cannes.”


Nick Shaxson +41 79 477 1070

John Christensen +44 797 986 8302

Richard Murphy +44 777 552 1797

Notes for Editors

1) The Swiss-UK tax deal retains the principle of Swiss banking secrecy. In return, tax evading UK citizens will pay a charge of 19% - 34% of the absolute value of their account. In addition, they will pay taxes on subsequent income of between 27% and 48% annually. Switzerland will pay the UK 500 million Swiss Francs (about £350 million) of this up front.

2) Estimates of the amount of UK taxpayer assets in Switzerland range between £40bn and £125bn. In 2010, the UK received £16.9m in tax from Switzerland under a withholding tax arrangement in the context of the EU Savings Tax Directive. That Directive is also full of loopholes, which are being patched up.

3) Historical revenues from the EU Savings Tax Directive are the only realistic benchmark against which estimates can be made for the UK-Swiss deal. Our calculations show that the absolute maximum revenue for this deal is £1 billion from the capital charge – but almost certainly it will be far lower than that. Future income will most likely be lower than under the current EU Savings Tax Directive. Britain’s only certain revenue from this deal is the CHF 500 million (£350 million) up-front payment.

4) Some loopholes stem from the fact that this is a bilateral deal, unlike the EU’s multilateral arrangements. Any countries considering similar deals should be aware that it is impossible to close these loopholes without a multilateral approach.

5) The analysis of the UK-Swiss Tax Agreement was conducted by Nicholas Shaxson, author of Treasure Islands - Tax Havens and the Men who Stole the World, in consultation with several people inside and outside TJN.


The Real News: Africa's Odious Debts - part 1

We recently blogged the launch of this new book on Africa's Odious Debts. Now watch the following interview with the authors, followed by part 2 here, and part 3 here


Jersey Finance attacks "contrived propaganda"

Last week, following the publication of our Financial Secrecy Index, which placed Jersey at number 7 in the global ranking, Mr Geoff Cook of Jersey Finance dismissed the index as "contrived propaganda", using a lengthy article in Jersey's Evening Post to describe this massive and powerful piece of research as "lobbying disguised as research". The irony of a lobbying organisation (Jersey Finance) representing a prominent tax haven dismissing independent research as "lobbying" seems lost on Mr Cook.

Anyway, we have replied to Mr Cook by letter to the Jersey Evening Post - posted in full below - and we look forward to his reply to our invitation to provide a detailed criticism of our research.

We also hope that people in Jersey will take up our request that Jersey Finance be called to account for the weak secrecy score allocated to the island. Jersey people might also call Mr Cook to account for the arrogant way in which he dismisses civil society concerns and his outright refusal to engage in proper discussion. Its hard to see how the island's interests are served by such an attitude.

To the Letters Editor, Jersey Evening Post (published 22nd October 2011)

Dear Sir

Mr Geoff Cook of Jersey Finance criticises the Financial Secrecy Index published by the Tax Justice Network as "contrived propaganda" (JEP, Wednesday 19 October 2011) adding that we mix a "cocktail of a little bit of fact and add in standards of (our) own invention which is likely to mislead the reader in to thinking that it all comes from international documents." Readers can make up their own minds about the standards we have adopted since our methodology is easily downloaded, along with all the accompanying documents relating to where we source our facts and how we construct our indicators, from the index website at

Readers can also download and read the explanatory reports on all 15 indicators used in the compilation of the index, and can judge for themselves whether we are correct in our argument that many of the existing standards applied by international organisations are unfit for purpose. Mr Cook boasts that Jersey meets international standards: we argue that the standards he boasts about are hopelessly inadequate to the task of curtailing illicit financial flows and tax evasion.

Mr Geoff Cook is welcome to explain the specifics of where and how we have got the index wrong. The two years since we first published the index have given him ample time to prepare a detailed criticism of our research, and we can only assume that the reason he says nothing more than the index is "nonsensical" is because he cannot substantiate his criticism.

Jersey ranks seventh overall on the index, after Switzerland, Cayman, Luxembourg, Hong Kong, USA and Singapore. Jersey's secrecy score of 78 out of 100 is poor in comparison with Guernsey and the Isle of Man, both of which scored 65. Importantly, both Guernsey and the Isle of Man have recently adopted full automatic information exchange with EU countries, and accordingly gained transparency credits on the index. Sadly, Jersey continues to refuse automatic information exchange. Perhaps Mr Cook should be called to account to explain why Jersey scores so poorly and what measures he intends to take to improve on this score.

Yours sincerely

John Christensen

Director, Tax Justice Network


McIntyre: Remembering the 1986 U.S. tax reform act

Bob Mcintyre of Citizens for Tax Justice has written an article for Tax Notes looking at his role in the great tax reform effort of 1986. We've already noted McIntyre's major role in that reform, and quoted from Showdown at Gucci Gulch: Lawmakers, Lobbyists, and the Unlikely Triumph of Tax Reform, by Jeffrey H. Birnbum and Alan S. Murray:
A little-known public-interest lawyer named Robert McIntyre . . sitting at his computer in a cluttered little office in Washington, the scruffy McIntyre spent endless hours combing through the annual reports of the largest corporations in America. . . his result: 128 out of 250 large and profitable companies paid no federal income taxes in at least one year between 1981 and 1983."
. . .
He did not dine at plush, expense-account restaurants, nor did he spend much time buttonholing members of Congress. His $38,000 salary was a mere fraction of the much larger sums earned by his corporate lobbying foes. No matter. In the tax debates ahead, Bob McIntyre's one-man report would turn out to be more influential than all the firepower the corporate lobbyists could muster.
Now take a look at his view of the full story. One for our Offshore History page.


Sunday, October 23, 2011

Occupy LSX cite tax justice as a key demand

On Sunday 16th October an assembly of over 500 people on the steps of St Paul’s collectively agreed the initial statement below for the Occupy London movement.
Please note, like all forms of direct democracy, the statement will always be a work in progress.

1 The current system is unsustainable. It is undemocratic and unjust. We need alternatives; this is where we work towards them.

2 We are of all ethnicities, backgrounds, genders, generations, sexualities dis/abilities and faiths. We stand together with occupations all over the world.

3 We refuse to pay for the banks’ crisis.

4 We do not accept the cuts as either necessary or inevitable. We demand an end to global tax injustice and our democracy representing corporations instead of the people.

5 We want regulators to be genuinely independent of the industries they regulate.

6 We support the strike on the 30th November and the student action on the 9thNovember, and actions to defend our health services, welfare, education and employment, and to stop wars and arms dealing.

7 We want structural change towards authentic global equality. The world’s resources must go towards caring for people and the planet, not the military, corporate profits or the rich.

8 We stand in solidarity with the global oppressed and we call for an end to the actions of our government and others in causing this oppression.

9 This is what democracy looks like. Come and join us!


Dave Hartnett: Time to Resign

UK Uncut is mounting an action in London tomorrow calling for the resignation of Dave Hartnett, Whitehall's permanent secretary for tax.

Hartnett has been behind a whole host of dodgy tax deals in the past few years, including the deal struck with Vodafone, which has cost the British public billions of pounds in lost revenue.

He also struck the 'sweetheart' deal with Goldman Sachs, which lost the British public millions upon millions of interest due on tax back payments.

Even more damningly, Hartnett is deeply complicit in the toxic agreement between the UK and Switzerland, which will allow thousands of criminals off the hook for tax evasion crimes and risks scuppering decades of attempts to crack down on secrecy and tax evasion. We will be publishing a major report on this tomorrow, revealing how the deal will fail to raise even a fraction of the revenue that has been promised.

The British public simply cannot afford such incompetence. Instead of some wimp who caves into special interests over private suppers, the public deserve a champion who can strike the best deal on their behalf. UK Uncut are right to call for his resignation.


The Flat Tax Fraud: Robert Reich joins the fray

We have been saying for years that the Flat Tax proposals are a wolf in sheep's clothing: sold on the basis of "simplifying" tax codes they are nothing more nor less than a blatant exercise in reducing tax contributions by rich people and increased tax contributions by poor people. With Republican Party candidates for the 2012 US presidential campaign coming out in favour of Flat Taxes, Robert Reich argues the case for strengthening progressive taxation:

Herman Cain’s bizarre 9-9-9 plan would replace much of the current tax code with a 9 percent individual income tax and a 9 percent sales tax. He calls it a “flat tax.”

Next week Rick Perry is set to announce his own version of a flat tax. Former House majority leader Dick Armey – now chairman of Freedom Works, a major backer of the Tea Party funded by the Koch Brothers and other portly felines (I didn’t say “fat cats”) — predicts this will give Perry “a big boost.” Steve Forbes, one of America’s richest billionaires, who’s on the board of the Freedom Works foundation, is delighted. He’s been pushing the flat tax for years.

The flat tax is a fraud. It raises taxes on the poor and lowers them on the rich.

Read on here.


Saturday, October 22, 2011

India notes the trouble with Swiss tax deals

A good article (hat tip Mark Herkenrath) in India's Business Standard, outlining how slippery it can be trying to sign a decent tax treaty with Switzerland. Here are just a couple of excerpts:
What would it really take to get black money back from tax havens to India? The first thing would be to understand one simple thing about tax havens: they are extremely hard to crack. They are not just waiting to hand over information and money; they are doing all in their might to do exactly the opposite.
Indeed. Instead of commenting further, we'd suggest just reading the article in full. Still, here is a taster:
Interestingly, in a unilateral amendment Switzerland made to the DTA with India on the October 6, it was spelt out that a person under investigation may be identified, if necessary, by means “other than name and address” and the bank connection must be identified only “to the extent known”. This sounds good. But the same paragraph notes that Switzerland will, in practice, apply the principles of “proportionality” and “practicability”. This means that Switzerland can still decline any request without a clear indication of which bank exactly is holding the requested information. Confusing, isn’t it?
Yes it is. It's worse than that. More here.




Call for Papers for a Workshop on

Essex University, 5-6 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 (at)

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)


Friday, October 21, 2011

Revealed: the truth about the UK-Swiss tax deal

TJN has produced a long report analysing the UK-Swiss tax deal, which concludes that it will not yield the billions in tax revenues that have been forecast.

Although the analysis has been made with specific reference to the UK, the core arguments can be applied to the German-Swiss tax deal too - and need to be considered by any country that is thinking about signing an agreement with Switzerland.

The analysis has been sent out to a number of journalists, under embargo for first thing Tuesday morning (25th October). If any bona fide journalists wish to see the document but have not received it, please contact john (at) and he will send you a copy, on condition that the embargo is respected.


OccupyLSX: Big Event planned this weekend

OccupyLSX: London Occupation

Media Phone: 0845 299 6175

+44 (0) 7447 449236 / (0) 7592 424578 / (0) 7428 076610 / (0) 7780 572995 / (0)7719 626890


Twitter:; Hashtag #OccupyLSX

  • Occupy London Stock Exchange expect thousands to gather for a public assembly in the heart of London’s financial centre on first week anniversary of the occupation.

  • Len McCluskey, General Secretary of UNITE, Britain’s largest trade union adds his voice to the call for direct action by visiting the occupation.

  • Artists to perform and specials event confirmed, ‘Meet the Movement’ a session with personal testimonies from individuals including a banker who has joined the occupation and the parents behind ‘Occupy Half Term’

This Saturday, over a thousand people are expected to join the occupation (OccupyLSX) based near London Stock Exchange by St. Paul’s Cathedral to add their voices to growing anger against the government and what people assembled at the occupation call ‘an unsustainable system that is undemocratic and unjust’.

To mark one week since the occupation began, OccupyLSX - based near St Paul’s at the heart of London’s financial centre – is inviting Londoners to visit the occupation on Saturday 22th October, to meet members of the movement that is challenging social and economic injustices in the UK and around the world, as part of the global movement for real democracy [1].

In a sign of growing support for the occupation, Len McCluskey, General Secretary of Britain’s largest trade union attended the regular outdoor lunchtime public meeting on (Thursday 20th) and offered support, saying: “People here are standing up to protect the heritage that their mothers, fathers and grandfathers have built for them - so well done for everything you are doing. There are millions of people watching their television and wishing there were here with you” [2].

After a week that has seen numerous offers of support and donations from members of the public, local business-people [3] and city-workers, OccupyLSX now expect there to be a huge turn-out on Saturday bringing people together from across the political spectrum, united in the call for change.

Preparations are underway for a ‘Meet the movement’ session and a Public Assembly meeting with the public, occupiers and social justice groups giving personal testimonies of inequalities in the UK [4]. Musicians are confirmed to perform and there will be a state of the economy discussion focussing on ways of bringing about real change organised by the resident ‘Tent City University’.

On Saturday 15th October, up to 5000 people took to the streets in London to stage a peaceful demonstration in London’s Square Mile, voicing their anger at the social and economic inequality in the UK and around the world; and their lack of control over the decisions shaping their lives. People occupied the area outside St Paul’s cathedral from just after 12pm (15th) after the police blocked entry into their intended location of Paternoster Square. More than 250 people and 70 tents peacefully occupied on the first night and on Sunday morning (16th), just before the morning service, Canon Giles Fraser addressed the people occupying, informing them that he had instructed the police to leave the site and defending their right to protest [5]. On Sunday 16th October at an assembly on the steps of St Paul’s Cathedral collectively agreed its first initial statement outlining some of key concerns [6].

Gemma Edwards, supporter of OccupyLSX, comments: “People who come together here come from all political persuasions - from the left, right and neither, we’ve seen bankers and accountants here voicing their recognition of a broken economic system and joining in to discuss the problems inherent in our unsustainable financial system as well as the need for change. It is clear that we need alternatives; and this is where we are working towards them.”

In only six days, the area outside the cathedral has now become a functional, organised space, with up to 200 tents and at least 1,000 people in attendance each day for public meetings, educational workshops and lively political debate. Members of the public and local business people have contributed food for the camp, marquees, media and technical equipment, portaloos, refuse disposal systems, first aid and camp provisions and books for the onsite library [7]. “I think the camp is inspiring, I love the way that there is a real desire to provoke important and deeply significant question for our society” said Rev John Valentine whilst visiting the area.

Adam Weaver, an OccupyLSX volunteer adds: “This occupation has been able to grow because of both the generosity shown to us by from members of the public and through the hard-work of staff, volunteers and executives at St. Pauls Cathedral for respecting our right to protest and assisting us in meeting the safety requirements needed for us to remain in place; we’re working very closely with St. Paul's Cathedral to minimise disruption to the normal life of the Cathedral and extend our gratitude to them”.


The Big Debate: Should Companies Use Tax Havens?

London Loves Business has just published an article pitching TJN's John Christensen against Philip Booth of the Institute of Economic Affairs (a think tank closely associated with economic libertarianism) in a discussion about the corporate use of tax havens.

John argues the economic - both micro and macro - case against tax havens, pointing out how secrecy creates a criminogenic environment that stimulates illicit financial flows and tax evasion.

Philip concedes that such criticisms are valid, but justifies corporate tax avoidance on the grounds that tax havens are a "competitive spur to other countries to keep taxes down".

Have your say by adding a comment here


Paris: a Haka against tax havens

Some excellent photos of an event on October 8th.


Stolen Money and Lost Lives: How Capital Flight Drains Africa

Guest blog by James K. Boyce and Léonce Ndikumana - originally published here

In most financial scams, the victims simply lose their money. In Africa, some lose their lives.

Sub-Saharan Africa experienced an exodus of more than $700 billion in capital flight since 1970, a sum that far surpasses the region’s external debt outstanding of roughly $175 billion. Some of the money wound up in private accounts at the same banks that were making loans to African governments.

Inflows of foreign borrowing and outflows of capital flight are closely intertwined. As we document in Africa’s Odious Debts, there is a strong correlation between the two. For every dollar of foreign borrowing, on average more than 50 cents leaves the borrower country in the same year. This tight relationship suggests that Africa’s public external debts and private external assets are connected by a financial revolving door.

How does it work? Common mechanisms include inflated procurement contracts for goods and services, kickbacks to government officials, and diversion of public funds into the bank accounts of politically influential individuals. Some of Africa’s flight capital comes from other sources, too, such as earnings from oil and mineral exports. But foreign loans make an exceptionally easy mark in that there is no need to bother with the messy business of extracting natural resources to convert them into cash.

Principals and agents

The history of finance is littered with examples of the hazards of lending other people’s money and borrowing in other people’s names. In theory, bankers are meant to serve the interests of their depositors and shareholders by making prudent loans that will be repaid with interest. In practice, however, they often are rewarded above all for “moving the money,” getting loans out the door. In the wake of the U.S. financial crisis, this issue belatedly began to attract attention at the U.S. Fed.

An analogous principal-agent problem operates on the borrower side, where government officials negotiate and disburse loans on behalf of their citizens. Some borrow in the name of the government, line their pockets and those of their cronies, and saddle the public with the debt.

When a fraction of foreign borrowing is siphoned abroad, Africa still receives an inflow of money, albeit less than the face value of the debt. The net drain comes in subsequent years when the creditors are repaid with interest.

Using World Bank data, we estimate that each additional dollar of external debt service means that 29 fewer cents are spent on public health, and that each $40,000 reduction in health expenditure translates into one additional infant death. Putting these together, we calculate that debt-service payments on loans that fueled capital flight translate into more than 75,000 extra infant deaths annually. It is not only money that is being stolen in Africa: it is human lives.

What is to be done?

The hemorrhage of scarce resources from Africa can be curbed. Efforts by some African governments to recover wealth stolen by past officials have won international backing in the Stolen Asset Recovery Initiative launched by the World Bank and United Nations Office on Drugs and Crime. More can and should be done to identify looters and their accomplices and to repatriate stolen funds.

Tougher anti-money laundering laws and enforcement are needed to staunch the illicit financial flows from Africa into safe havens abroad. In the United States, Treasury Department officials concede that banks routinely accept deposits of funds that enter the country in violation of existing laws. Moreover, the banks currently are not prohibited from handling proceeds from many activities, such as tax evasion, that would be considered crimes if committed within the U.S.

More transparent information about financial inflows to African governments would also help. Much as the Publish What You Pay campaign launched by international NGOs promotes disclosure of corporate payments for natural resource extraction, a Publish What You Lend campaign could strengthen transparency and accountability in financial markets.

Last but not least, African governments should be encouraged to selectively repudiate debts incurred by past regimes that cannot be shown to have been used for legitimate purposes. The doctrine of odious debt in international law provides a basis for repudiation of debts from which the public derived no benefit, when creditors knew or should have known this to be the case. Added legal grounds for selective repudiation are found in the principle of domestic agency in British and American law, which requires agents to act in good faith in the interest of their principals.

These steps would not only benefit Africa’s people today. They also would help to repair our dysfunctional international financial architecture, strengthening incentives for the exercise of due diligence by creditors and for responsible borrowing by governments. Without these changes, debt relief can offer only a temporary palliative. In the world of international finance, Africa needs justice, not just charity.

James K. Boyce and Léonce Ndikumana are the authors of Africa’s Odious Debts: How Foreign Loans and Capital Flight Bled a Continent, published by Zed Books in association with the Royal African Society, the International African Institute and the Social Science Research Council.