Friday, August 31, 2012

The Tea Party says government spending creates jobs, stimulates the economy

The Economist blog (hat tip: Barry Ritholtz) picked up on this delicious bit of cognitive dissonance from Judson Phillips, the Tennessee lawyer who heads Tea Party Nation, a far-right pressure group, objecting to prospective defence cuts proposed by the Obama administration:
"If we decided to build a couple of new carriers, thousands of workers would be hired for the shipyards. Thousands of employees would be hired for the steel mills that would provide the steel for the hull and various sub contractors would hire thousands. Do you know what that means?It means they would receive paychecks and go out and spend that money.

That would help a recovery. That is a shovel ready project! Increasing spending for the military does a couple of things. It not only not only stimulates the economy, it protects our nation."
So there you have it. The Tea Party -- or at least this hardcore Tea Party believer -- believes that government spending creates jobs and stimulates the economy. As The Economist blogger continues:
"The tea-party movement has spent the past year arguing that stimulus doesn't work and cannot, by nature, create more jobs or economic activity. The idea that a major tea-party figure can turn around and make a bog-standard argument for defence spending on Keynesian grounds testifies to a startling capacity for cognitive dissonance. I'm impressed."


Thursday, August 30, 2012

Greece's ex-PM: we'd have avoided bailout if it were not for tax havens

From the UK Telegraph:
"Papandreou told the opening of Socialist International's four-yearly conference that $21 trillion was hidden in tax havens around the world.

"Whether it is in developed or developing nations, it is our citizens that are being robbed," he said, saying this "plain robbery" denied governments the capacity to invest in areas like welfare and education."
That $21 trillion, of course, is our number, which still stands tall now that the world has had the chance to look at it and try to pick it apart. Papandreou has more:
"Yet Europe, the G8, G20, the banking system despite my pleas as prime minister, despite token reference in our council of G20 decisions, have done nothing to change this."
Absolutely, and as we have long argued. Sign that man up to TJN.


Swiss Rubik deals are sliding backwards

Switzerland's useless "Rubik" tax deals seem to be nudging their way back into the news again. These deals ostensibly offer clients a chance to pay a lot of back taxes and ongoing taxes, while preserving their anonymity though we have demonstrated repeatedly that they will not raise even a tenth of what the politicians and the Swiss bankers have been promising.

Politically speaking, Rubik is sliding backwards, though it's not a simple story.

On the one hand, it looks as if the Germans are finally -- finally -- waking up to the gaping holes in the deal, and finding some backbone: they look quite likely now to scupper the whole thing. Germany's highbrow newspaper Die Zeit reports, in an article entitled Back to Square One:
"Most likely, the [Swiss] tax agreement with Germany is doomed to fail."
The article even quotes the head of the head of Switzerland's Basler Kantonalbank as saying that Rubik is a waste of time, and that
"The automatic exchange of information would be more favourable to us."
A few hours ago the former head of the Swiss National Bank, Philipp Hildebrand was more forceful, saying that:
“The Swiss fiscal refuge is over.”
Swiss bankers are certainly sweating. From Swissinfo:
"Today I met several bankers in Zurich. They were all shaking their heads saying, ‘In 40 years of operations we’ve never had a crisis like this one – a war like the one being waged against the Swiss banking system. We’re in the artillery sights of every country and every day there are new attacks’,” recounted Paolo Bernasconi, a business law professor at St Gallen University and former Ticino public prosecutor.

"Many bank directors are unable to leave Switzerland because they risk being arrested.”
For its part, World Radio Switzerland interviewed a range of commentators for their programme, including TJN's John Christensen and Peter Kunz of the University of Bern who recognised that banking secrecy was a major attraction for Swiss Banks, but regards its days as over:
“I would say the banking secrecy is undoubtedly one of the biggest assets Switzerland had. Of course no one really can say how many billions of dollars, or German Deutsche Marks, today euros, came to Switzerland for this protection aspect, but it was at least a big issue. On the other side, I am pretty sure that the political stability, we have peace in Switzerland, we have a strong currency, are also additional assets of our country. These assets, I think, must be strengthened for the future because the bank secrecy as we have known it for the last 40 years that’s done. Banking secrecy, bank secrecy for tax fraud and tax evasion reasons, that’s done.”
Christensen is not won over by the idea that offshore secrecy has been consigned to history. Steps have been taken to tackle banking secrecy, he argues, but little or nothing has been done to tackle the more complex offshore structures used by sophisticated tax evaders:
"I think it is fair to say we are seeing strengthening of transparency on bank account secrecy. That’s well and good, but what we’re not seeing is improvements of transparency in other areas, particularly off-shore companies, and off-shore trusts, and off-shore fiduciaries, and that’s the next big step. Because otherwise, simply tackling bank secrecy will lead to a trend towards much, much more complex secrecy structures involving off-shore trusts, and off-shore companies."
On the other hand, not all is rosy for the citizens of Germany and other countries which are trying to move ahead with their own Rubik deals.

Time has run out for today's blogger; more on this subject very soon.


Tuesday, August 28, 2012

UK public contractors face probe into tax avoidance

Given the 'capture' of British policy-making by the tax avoidance and financial industries we won't hold our breath . . . but the Financial Times is reporting something long overdue:
"Simon Hughes, the Liberal Democrat deputy leader, has joined forces with tax campaigners to call for a probe into government contractors that may be avoiding tax."
Hardly surprising, given that the UK water industry last year paid £1.6 billion in dividends to shareholders - while receiving tax credits worth £200 million. TJN's Richard Murphy weighs in:
“The single biggest problem our government faces is not having enough tax revenue to fund essential spending. One obvious solution is to change the rules on government procurement. As a minimum, anyone offered a government contract must be able to show they’ll pay tax on it in full in the UK and to make sure they do not use tax havens.”
There will be a lot of these contractors to choose from. The UK's Private Finance Initiative would be an excellent place to start, as these general shockers suggest (also see here, for more on the uselessness of PFI, and more excellent work by Simon Hughes here, on a more specific dirty shocker.)

In other words, this is a good thing - and a sign of changing attitudes - but we fear that any resulting 'reforms' will be expertly filleted by financial sector lobbying.


Saturday, August 25, 2012

It's official: Swiss admit purpose of Rubik is to kill EU transparency

The Swiss Bankers' Association has confessed explicitly to what we have been arguing all along: that the pernicious and useless Rubik tax deals it has been trying to sign with a raft of countries is designed to kill the EU's major transparency initiative. It doesn't get much bolder than this:
The EU has clear goals: She wants Switzerland to impose the automatic exchange of information and create transparent citizens. To prevent this, Switzerland has developed an independent counter-concept: the flat tax. [this is the Rubik concept.] All parties accept this solution as a long-lasting alternative to the exchange of information.

Other states will follow. For the first time ever, foreign states recognise the permanent protection of privacy of Swiss banks's clients. With a YES to the tax treaties, this model can be permanently anchored. This preserves the privacy of bank customers."
This is unambigous - and inexcusable. Inexcusable of the Swiss to be allowed to create such a wrecking-ball for transparency, and inexcusable for politicians in Britain, Germany and other states to accept it.

We have clearly demonstrated that the Rubik project will be revenue-negative for the countries that adopt it (and for many others that will be victims of it). We have directly and publicly challenged the Swiss Bankers' Association, private practitioners, Switzerland's SIF, and UK's HMRC to demonstrate how our analysis is wrong. None has succeeded.

For the avoidance of doubt, here is the German language version of what the Swiss Bankers' Association says:

Die EU hat klare Ziele: Sie will auch der Schweiz den automatischen Informa- tionsaustausch aufzwingen und den gläsernen Bürger schaffen. Um das zu verhindern, hat die Schweiz ein eigenständiges Gegenkonzept entwickelt: die Abgeltungssteuer. Alle Vertragsstaaten akzeptieren diese Lösung als dauer- hafte Alternative zum Informationsaustausch. Weitere Staaten werden fol- gen. Zum ersten Mal überhaupt anerkennen ausländische Staaten den dauer- haften Schutz der Privatsphäre der Kunden von Schweizer Banken. Mit einem JA zu den Steuerabkommen kann dieses Modell dauerhaft verankert werden. Das bewahrt die Privatsphäre der Bankkunden.


Friday, August 24, 2012

The August taxcast

In our August's Taxcast - a special extended edition - Capital flight in Africa and now in Europe, Olympian Usain Bolt fails to champion his tax affairs, and the Spirit Level writers Kate Pickett and Richard Wilkinson on tax and inequality.

Please share, repost, embed, tweet and ask your favourite radio station to play it.

Update: For latest and previous Taxcasts, see here.


Thursday, August 23, 2012

The Bain Files: massive trove of confidential Romney documents

Update, the following morning: the U.S. media has not found any bombshells here. At least yet.

Sharp intake of breath, followed by a long, low whistle. Take a look at this:
"Gawker has obtained a massive cache of confidential financial documents that shed a great deal of light on those finances, and on the tax-dodging tricks available to the hyper-rich that [Romney] has used to keep his effective tax rate at roughly 13% over the last decade.
. . . Today, we are publishing more than 950 pages of internal audits, financial statements, and private investor letters for 21 cryptically named entities in which Romney had invested.
. . .
Many of them are offshore funds based in the Cayman Islands. Together, they reveal the mind-numbing, maze-like, and deeply opaque complexity with which Romney has handled his wealth, the exotic tax-avoidance schemes available only to the preposterously wealthy that benefit him, the unlikely (for a right-wing religious Mormon) places that his money has ended up, and the deeply hypocritical distance between his own criticisms of Obama's fiscal approach and his money managers' embrace of those same policies."
(Hat tip: various.) And for background reading on the unsavoury Romney thing before this came out, take a look at TJN's Nicholas Shaxson in the August edition of Vanity Fair.

Oceans more on this, from us and probably every financial journalist in the world, in due course.


Top U.S. tax expert in savage attack on transfer pricing rules

Lee Sheppard of Tax Analysts is one of the world's top experts in international tax, as well as being a soccer expert, a formidable intellect, and quite a character.

She has just issued one of the most devastating critiques ever made of the prevailing system for taxing multinational corporations, in a nine-page document entitled Is Transfer Pricing Worth Salvaging? Tax Analysts have kindly given us permission to republish it.

What is the tax problem?, Sheppard asks, in her (fairly U.S.-focused) article.
"In a nutshell, developments in law and planning have enabled U.S. multinationals to deprive the United States of tax revenue, as though it were any other source country."
And the main way they do this is through transfer pricing. The next section is so good it is worth quoting at some length, even if it does require a (very) little advance knowledge of the issues. Our emphasis added:
"Defenders describe it as ‘‘the arm’s-length principle’’ — as though attaining perfection in pricing between fictitious entities would resolve the question of who should pay how much tax where.

Transfer pricing is the leading edge of what is wrong with international taxation. It raises all of the other issues.

The question that needs to be answered is what base Congress wants to tax, now that the international corporate income tax base is largely gone and the U.S. corporate income tax base is seriously at risk. Proposals for territorial taxation would essentially concede what little is left of the international base, while putting the U.S. base at risk.

The purpose of the OECD model treaty was to make life comfortable for American, British, German, and French multinationals by ensuring that the taxation of their operations by host countries is limited by separate company accounting and the permanent establishment concept. Treaties accomplish this task very well — so well, in fact, that many multinationals pay tax nowhere.

Our American readers tend to believe that the OECD model treaty and the transfer pricing guidelines are immutable and permanent fixtures of the tax landscape, rather than clumsy tools that affluent developed countries have used among themselves, to their collective detriment, and seek to impose on developing countries.

The former head of the OECD Centre for Tax Policy and Administration liked to refer to the transfer pricing guidelines as the Bible. There are similarities. Both require a great deal of faith. And the Bible is about as practical a document for tax administrators as the guidelines. Readers, the arm’s-length method did not come down on stone tablets. There is nothing sacrosanct about it."
And, immediately after that:
"The OECD Centre for Tax Policy and Adminis- tration has lost control of the debate. The transfer pricing guidelines are a sorry vestige of a system that will be gone in 10 years."
Astonishing. Then, the very next paragraph:
The OECD cannot justify the results that the current system permits. More rules and more document requirements will send our readers’ kids to private colleges, but continued tinkering will not change the outcomes. More rules will not shore up the corporate tax base in developing countries so their kids can go to school. The problems have reached the public, and opponents ranging from protest groups to governments, are saying no.
We like to think that our recent Helsinki seminar, at which Sheppard was present and provided biting commentary throughout, helped crystallise some of these ideas. (Sheppard also appeared in the powerful film We're Not Broke, which has been making quite a splash across the Atlantic.)

From this introduction, the article then ventures onto somewhat more technical ground, examining in detail what different countries (and groups such as TJN) are up to. Here's her summary of the position of developing countries, and particularly Brazil, Russia, India, and China (the BRICs):
"The polite Western fiction is that the BRICs will be brought along to the OECD view when they have their own multinationals stomping around the world. Ain’t happened, ain’t gonna happen. The BRICs sign the treaties and then do what they want."
The stream of devastating commentary continues:
"India is actively undermining [aspects of transfer pricing rules] . . . Brazil is not going to be brought around to the transfer pricing nonsense. . . . China signs the treaties, offers advance pricing agreements, and then lets local tax officials make their own decisions. . . China wants to reclaim some of the advantages of the 'China price' as taxes.
. . .
The CCCTB [European plans for replacing transfer pricing arrangements with the radical alternative, formula apportionment inside Europe, read more here] is for real."
She has kind words for the Occupy movement, which has started to take an interest in transfer pricing:
"These are your kids. These are bright, energetic, self-starting young people who you would like to have as employees. They are the same class of educated people who protested and stopped the Vietnam War. This is serious."
She explores TJN in the context of country-by-country reporting, to which she is mostly sympathetic: it would, among other things,
"prevent multinationals from telling different stories to different governments."
She cites a slew of media articles on Google, say, or into Apple's tax affairs, though she adds:
"The problem with this method is that while it provides a lay- man’s description of transfer pricing abuses, it contributes to the impression that the problem is just a few bad apples, when every multinational is stripping income out of market countries and into tax haven intangibles holding companies."
Quite so. And she notes from Guardian and ActionAid investigations that even in simple cases, the results are unfair, which
"puts the lie to the argument that tax rules have simply failed to keep pace with a high-tech globalized world."
On the transfer of intangibles to tax havens, a transfer pricing staple, she adds:
"What is the solution? The ultimate, most desirable solution is formulary apportionment to countries where intangibles are used — that is, the location of the ultimate consumer. But some new thinking focuses on incremental fixes to the current system, including clawback of excess profits or re-sourcing of the income from intangibles."
And the well-aimed vitriol continues:
"The frightening thing about the shifting of income from relatively simple manufacturing operations to tax haven principal companies is how cheap it is. Contracts are redrafted, lawyers baby-sit, and a few people are assigned to mind things in Switzerland. The OECD transfer pricing guidelines tell tax examiners to respect these self-serving contracts."
With further quote after further quote:
"The point of the treaty-based international consensus was to make it comfortable for multinationals to romp around the world while paying minimal tax."
"A pernicious fiction propagated by the OECD is that the arm’s-length method produces precise results, while all other methods of allocating income are sloppy. The arm’s-length method is illusory.. . . fiction piled on top of fiction"
Can, the big alternative of formula apportionment ever happen? Of course it can:
"Can the United States unilaterally adopt formulary apportionment and expect others to follow? This is the big bogeyman about formulary apportionment. Oh, other countries would never agree! The chief countries that would have to agree — those in Europe — have already agreed to reinstitute formulary apportionment among themselves. The other important countries — the BRICs — have already rejected the arm’s-length method."
She also points out that it is often wrongly assumed that OECD model treaties would need to be changed to accommodate formula apportionment: OECD rules have in fact been misread and do not command transfer pricing approaches. She tackles another bogeyman about formula apportionment: that the formulae used would easily be gamed. No, she explains that it is far harder to move personnel and equipment across borders than it is to shuffle a few numbers in an accountant's workbook.

And for transfer pricing wonks, the article contains much, much more. A final, hopeful note:
"There’s nothing new about the problems discussed in this article. They have been festering for years. What is new is that Europe has turned on the international consensus, and the former voices in the wilderness have entered the mainstream. Public disgust at multinationals being excused from their civic responsibilities is real."
This will be stored permanently on our transfer pricing page, and also on our permanent page on tax treaties.

(Also see Sheppard's earlier, shorter report on transfer pricing.)


Call for Papers Panel on Capital Controls in London in November

Panel on Capital Controls at the 2012 DSA Conference

Panel Title: Reviving the Debate: Capital Controls as Development Policy Instrument? 3rd November 2012 | London

Panel Organisers:
  • Daniela Gabor, University of the West of England
  • Annina Kaltenbrunner, University of Leeds Business School
  • Juan Pablo Painceira, Central Bank of Brazil

A section from the abstract reads:

"This panel aims to explore the role of capital controls as macroeconomic management and development policy tools. To do so, it aims to contrast recent experiences of capital control measures across a diverse set of countries from around the globe. The analytical focus lies on the nature and type of these countries’ financial integration, their consequent capital management techniques, and the evaluation of their success in regaining economic autonomy and managing the exchange rate. In addition, the recent surge in international capital flows has renewed interest in the global governance of capital flows.

The panel thus also welcomes reflections on the political economy of the process of global coordination and regulation of capital flows. The panel aims to make both a contribution to the academic debate on capital controls and to generate important policy implications for developing countries negotiating their financial integration path in the international economy."

Read the full abstract here. Hat tip: Peter Chowla.


Quote of the day - Glencore surprise!

Our quote of the day, from the UK government report we just blogged:
"In his oral evidence to us, Tim Scott, Global Head of Tax at Glencore, stated that "I think this [automatic exchange of information] is a good idea, and something that we would have no problem with."
Goodness, gracious. Support from the most unexpected quarter.


UK development committee reports on tax and development

The British parliamentary International Development Committee has published its report on Tax in Developing Countries and there's much to be enthusiastic about. We won't try to summarise the entire report - it merits reading in its entirety, including the written and oral submissions made by many tax justice supporters (and opponents) during the report preparation - but here are a few recommendations we'd like to highlight:

First, on personal income taxes:
"DfID should seek to support the national revenue authorities of developing countries as they attempt to improve the collection of personal income taxes, VAT and local property taxes. DfIDshould also encourage and support programmes that engage civil society and trade organisations, academics, journalists and parliamentarians in the tax policymaking process." (p9).
This is exactly in line with the oral submission made by TJN's director, John Christensen, when he met the Committee in April 2012 (see pages 31-38 of the attached evidence report).

Next, on tackling tax evasion, the Committee recommends that
"The Government introduce legislation similar to the relevant section of the US Foreign Account Tax Compliance Act (FATCA), requiring tax authorities automatically to exchange information relating to UK citizens or corporations. The Government should also use its influence (via the OECD Tax and Development Task Force, and similar avenues) to persuade other governments to follow suit." (page 17).
Well, we're not likely to disagree with any of this, especially since our written submission to the Committee focussed precisely on the issue of recognising automatic information exchange as the appropriate standard for strengthening international cooperation. It's gratifying to see how far this crucial debate has come in the past 24 months.

And it gets better. Our colleagues at Action Aid raised concerns with the Committee about the impact of British domestic tax policies on other countries; specifically raising concerns about the recent relaxation of rules relating to Controlled Foreign Corporations. The Committee recommends an analysis of this specific issue, and more generally recommends
"there should be an administrative or legislative requirement for the government to assess new primary and secondary UK tax legislation againsts its likely impact on poverty reduction and revenue-raising in development countries, and to publish that assessment alongside the draft legislation." (page 20).
We Like. Bravo Action Aid for persisting on this one.

And proving the old maxim that good things come to those who wait, look at the Committee's recommendation on Country-By-Country Reporting (CBCR):
"Irrespective of whether EU-level agreementis reached, the Government should enact legislation requiring each UK-based multinational corporation to report its financial information on a country-by-country basis."
Yes, you read that right - the Committee proposes unilateral steps towards CBCR for UK-based Multinational corporations. Furthermore, the Committee adds:
"Such information should include the names of all companies belonging to it and trading in each country, its financial performance in each country, its tax liability in each country, the cost and net book value of its fixed assets in each country, and details of its gross and net assets in each country. Additionally, the UK should continue to support the progress of similar legislation at EU level." (page 24).
This blogger well remembers first discussing CBCR with Richard Murphy way back in October 2002, at a seminar in St Helier, Jersey, which is where the idea of CBCR originates. It has come a long way since then.

There are many more recommendations we'd love to cite - see those on transfer pricing abuse (page 19) and strengthening the EITI to require transparency of contracts (page 22) - but space is short and we'd much prefer you to read the entire report to get a feel for how far the development agenda has shifted in our direction.

Read the report here.


Glaxo SmithKline doth speak with forked tongue

A year or so ago we gushed about some wonderful words from Andrew Witty, the boss of GlaxoSmithKline, who had just made some fabulous general comments about tax avoidance:
one of the reasons we've seen an erosion of trust , broadly, in big companies is they've allowed themselves to be seen as detached from society" says Witty, "and they will float in and out of societies according to what the tax regime is.

I don't buy that you can be this mid-Atlantic floating entity with no allegiance to anybody except the lowest tax rate."
Powerful, and excellent, words. We hadn't investigated GSK's tax affairs at the time, but now David LeLoup in the Belgian mangazine LeVif/L'Express has done some probing. It turns out we shouldn't have been quite so gushy.

The main story is about how the GSK Group used Belgium as a tax haven to avoid tax on over a billion Euros in royalties linked to GSK's worldwide sales of the swine flu vaccine Pandemrix in 2009-2011. In a nutshell, these royalties were taxed at less than 3%, thanks to two Belgian fiscal measures: first, a 80% deduction on royalties earned by the company, and second, the so-called "notional interests", a Belgian tax specialty.

More generally, these two "fiscal gifts" helped GSK (through its Belgian subsidiary GSK Biologicals) to deduct €2.6 billion from its profits before tax between 2008 and 2011, and thus legally avoid 892 million euro of taxes in Belgium on worldwide sales of vaccines (H1N1 + others)


Major US leap on minerals transparency but Germany derails EU efforts

The Financial Times reports:
"Oil and mining groups with US listings will be forced to disclose details of their payments to foreign governments after US regulators rejected most of the industry’s efforts to water down new transparency rules."
This is very good news: essentially the US Securities and Exchange Commission yesterday published its implementing rules for transparency requirements in the extractive industry under the 2010 Dodd-Frank Act on financial report. This legislation is quite a piece of work. For instance, as the FT continues:
"They will also oblige manufacturers such as Apple to verify whether they use so-called conflict minerals from war-torn central Africa in their products."
TJN and particularly its Senior Adviser Richard Murphy have played a central role in getting traction for this concept, worldwide. As Murphy notes:
"This rule is directly inspired by my work on country-by-country reporting. I was the first person to link reporting payments in accounts in the extractive industries and financial reporting as a way to tackle corruption way back in 2005. So let me be honest: what the SEC has delivered is not country-by-country reporting and it’s therefore not all I want.

But it’s one heck of a big way forward."
Global Witness, who launched the Publish What You Pay coalition with help from George Soros in 2002 and has been a leading advocate of the concept ever since, has also published a quick, preliminary analysis of the rules. They came up with a mixed, but overall heartening first diagnosis. They note long delays in the rules, which were originally scheduled to be voted on 16 months ago but were stymied by a massive industry lobbying campaign. But among the positive things they note:
"We welcome the fact that companies will not be able to exempt themselves from reporting in countries where governments do not want revenues disclosed: exemptions represented a ‘tyrants’ charter’. The SEC’s announcement on de minimis requirements looks promising but requires further scrutiny."
On a less positive note, however, we note that the German Government under Angela Merkel has been playing a very different role, trying to trip up and block this transparency concept in Europe apparently under the influence of local industrial lobbies. Christian Humborg of Transparency International as more:
"The European Commission [has] presented similar proposals (called the Transparency and Accounting directives), adding the forestry sector which had been omitted in the Dodd-Frank Act, and also included large unlisted companies.

But Germany’s support is lacking."
What is more, Humborg notes, is that other European nations are baffled by Germany's reservations, since Germany does not really have any substantive extractive industries. The US administration, along with ex-BP boss John Browne, have publicly criticised Germany's blocking role.

He cites the existence of shady-sounding and recently formed German Alliance for Securing Natural Resources (“Allianz zur Rohstoffsicherung”) which includes big German companies such as BASF, Bayer, Daimler and Evonik ThyssenKrupp, and which will work to secure access to new mineral deposits abroad. He also cites the traditional secrecy of German Mittelstand companies as possibly another, more ideological factor behind Germany's spoiling tactics.

He concludes:
"It will be a major blow for the fight against corruption if [these interests] get their way and Germany (along with other governments that seem to be opposing the proposed transparency rules such as Austria, Finland and the Netherlands) helps to prevent transparency of payments of the extractive industries for each and every project they run."
For German readers, see more in the Frankfurter Runschau, and on the Tax Justice German blog, here and here.


Occupy video: The Emperor really is naked, and all you have to do is get people to look.

The Occupy Handbook describes itself as a talked-about source for understanding why 1% of the people in America take almost a quarter of the nation's income and the long-term effects of a protest movement that even the objects of its attack can find little fault with.

Now take a look at this short, accompanying video. In the words of Paul Krugman, talking on the video:
"The Emperor really is naked, and all you have to do is get people to look."


Wednesday, August 22, 2012

Why bank reporting is essential for information exchange

An interview with TJN's Markus Meinzer, in the International Tax Review, reproduced here with permission.
TJN’s Markus Meinzer looks at why bank reporting obligations are vital for AIE

21 August 2012 (Salman Shaheen - ITR) - The Tax Justice Network and CCFD-Terre Solidaire have a new report out today exploring lessons for registries of trusts and foundations and for improving automatic tax information exchange (AIE). International Tax Review talks to the report’s author, Markus Meinzer, on the deficiencies he uncovered, the positive examples he’s found and the challenges to increasing transparency over beneficial ownership.

International Tax Review: Why do you believe bank reporting obligations and bank account registries are a precondition to automatic information exchange?

Markus Meinzer: The overwhelming majority of financial wealth is ultimately held in a bank account or a safe deposit box. In the absence of bank account registries there is a risk that any AIE-system of banking data will not cover all relevant financial accounts, which invites creative non-compliance. The recent banking scandals have shown that some bankers were very creative in hiding subsets of accounts from reporting obligations, for example under the Qualified Intermediaries (QI) programme.

A more recent example concerns the life insurance wrappers offered by Credit Suisse Life Bermuda to German tax evaders. Credit Suisse ran bank accounts in Switzerland in the name of another financial institution, the Credit Suisse Life Insurance, without identifying any beneficial owner. Credit Suisse Life Bermuda in turn provided these life insurance wrapper accounts to their German clients using the disguise that the accounts belonged to a financial institution, thereby avoiding the European Savings Tax Directive (EUSTD) withholding tax. Such an arrangement would avoid the scope of the bilateral Swiss deals with little chance of remedying this problem without a multilateral platform or a bank account registry which allows checking for accounts held allegedly in the name of other financial institutions.

If regulators and tax administrations allow discretion over what kinds of account can be operated by banks, this invites bankers to devise new kinds of accounts which are beyond the scope of reporting obligations. Germany for instance operates 582 million financial accounts and the Financial Action Task Force estimates that around €1.3 billion ($1.6 billion) of wealth owned by non-residents is invested in German financial institutions. Without a minimal bank account registry recording basic data of all of these financial accounts in Germany, we would not be able to ascertain how many accounts there are, nor start any serious supervision of reporting obligations.

Countries which politically push most consistently for AIE, such as Australia, Denmark, Finland, France, the Netherlands, Norway and Spain, are countries which have far-reaching bank reporting obligations. There seems to be a tendency to bilaterally share with selected foreign tax administrations information that has been collected. Without information being collected, AIE is technically and politically more costly to implement.

ITR: What are the most serious deficiencies your study has uncovered in terms of reporting obligations?

MM: A principal finding is the wide range of observed differences in bank reporting obligations, ranging from the complete absence of reporting obligations to far-reaching registration requirements of bank accounts. This puts barriers in the way of reining in the financial sector and tackling excessive inequality because international differences in banking practices will slow down any coordination and cooperation.

Clearly, the absence of stringent reporting obligations such as in Austria and the US is a major problem. It is of paramount importance to ensure that countries have in place a system of bank account registration. Without such a system, it may be impossible to assess a bank’s compliance with reporting and anti-money laundering and similar obligations. This principle is fully in line with a recent recommendation issued by the UN and the World Bank.

While most countries except Austria and Germany require at least some interest payments on bank deposits to be reported routinely to the tax administration, only five countries operate one central database of bank accounts at the tax administration level: Argentina, Denmark, France, the Netherlands and Spain. Four countries do not operate such a database, but have sometimes multiple databases at bank level with very basic account information (Germany) or a database of taxpayers which incorporates all interest payments (Finland). Two countries do not operate any comprehensive system (Austria and the US).

In technical terms, the major problem seems to centre on the definition and identification of the “beneficial owner” of financial accounts and interest payments, the full details of whom are sometimes not covered by the reporting obligations even when banks are obliged to collect the information. Another weakness concerns the frequent absence of criminal sanctions for failure to correctly comply with reporting and registration obligations. Only Denmark, the US and the Netherlands have criminal sanctions for failure to correctly report. In Germany, a breach of the reporting obligations for the bank account registry is classified as a misdemeanor even in cases of willful misreporting and is punishable by a maximum fine of €150,000. Also, it is questionable whether the scope of the reported information is broad enough if only interest payments are included. The average account balance in addition to interest payments appears to allow better prevention of tax evasion in view of zero-interest accounts to hide wealth in a low interest environment.

ITR: Are there any particularly positive examples other countries could learn from?

MM: Of the six countries for which full information was available on all reviewed criteria (Argentina, Denmark, Finland, Germany, the Netherlands, US), Denmark stands out because it imposes identical reporting obligations for residents and non-residents. In all other surveyed countries, less stringent obligations apply when non-resident beneficial owners/recipients of bank accounts/interest payments are involved. This highlights the endemic nature of tax haven behaviour in today’s world – countries dispense with central beneficial ownership registration across the board, and/or they impose less stringent identification requirements for non-residents. Denmark’s bank account reporting and registry serves as the current benchmark for other countries.

ITR: Have there been any notable improvements since the OECD 2000 report?

I found that some of the reviewed countries have improved and expanded their reporting obligations and thereby enhanced financial transparency since the last OECD report in 2000. Important progress was made by Australia, Spain and the Netherlands. Modest improvements were made by Denmark and Germany, though Germany has subsequently backslid since 2009 when it narrowed access to bank account registries in the case of non-resident accountholders and beneficiaries.

No substantial and apparent improvements were made by Austria, Finland, France and Norway, with the important proviso that Austria has no bank account reporting or registry mechanism whatsoever, while Finland, France and Norway have far-reaching bank account reporting obligations.

Since 2000, the US has experienced an overall deterioration in the reporting obligations through the introduction of the QI programme in 2001. While in the year 2000, interest payments to non-resident aliens were not reported by failure to include them in the reporting obligations, the QI-rules were designed to bypass the usual reporting regime and created anonymous investment opportunities in financial assets and accounts by non-residents as a carrot to induce foreign financial institutions to cooperate with the IRS on US financial accounts. This situation with QI has not been remedied by recent 2012 IRS regulations to require the regular reporting of bank interest about certain non-residents from January 1 2013.

There is a risk that some countries, such as Austria, the US, and Switzerland, are attempting to exploit the general thrust of improving transparency by failing to engage in the race to the top and by continuing the disastrous race to the bottom instead.

ITR: What are the main challenges to increasing transparency when it comes to beneficial ownership?

The key challenge is ensuring implementation of existing customer due diligence requirements by banks and the creation of registries of beneficial owners not only of bank accounts, but also of legal entities and arrangements such as limited liability companies and trusts and foundations. While it is a good start to impose strict beneficial owner identification requirements on banks for financial accounts, this is not sufficient by itself. The implementation, supervision and enforcement of these obligations are a great, unresolved challenge both with respect to the FATF recommendations and the EU-anti money laundering directive. Part of this problem consists of a lack of meaningful statistical data for instance about the numbers of accounts held in the name of legal entities, of accounts with beneficial owners different from the accountholders, or of accounts held by legal arrangements without a known beneficial owner.

Banks are not under sufficient pressure to ask searching questions about the real people hiding behind legal structures, and any single humanly designed system cannot be expected to perfectly overcome this problem. Therefore, there are good reasons to create a second line of defense by requiring beneficial ownership of legal entities and arrangements to be registered separately, and it would be wise to have properly staffed and resourced public registries in charge of this task.

If, as the current Global Forum standard does, private agents are made the responsible agents instead, the agents will almost invariably follow self-interest rather than public interest, which means the standard will inevitably fail.

The full report can be read here.


Tuesday, August 21, 2012

Tax Justice: progress in Australia

We just received an email from Tax Justice Network Australia, which we paste below, with associated links added:
"Yesterday the Tax Laws Amendment (Cross-Border Transfer Pricing) Bill passed through the Senate, which offers some minor strengthening in tackling transfer mispricing by multinational companies. [Link here.]

Secondly, the Joint Standing Committee on Treaties released a report recommending that Australia ratify the Convention on Mutual Administrative Assistance in Tax Matters, which is likely to increase Australia's participation in automatic information exchange of tax related information if the government follows through on the recommendation.

Finally, the Illegal Logging Prohibition Bill passed the House of Representatives yesterday (with some of us spending much time last week frantically lobbying to make sure the government had the numbers to get the Bill through). This will help combat the importation of illegally logged timber, much of which involves tax evasion costing governments (particularly in developing countries) between $10 billion and $15 billion a year. The Bill is expected to make it through the Senate when the Government brings it on, as it has the support of the Greens. We are still targeting the Coalition with a postcard campaign seeking to get them to support the Bill (as it was their policy in the lead up to the last election).

We (TJN-Australia) did submissions supporting the first two of these actions and thanks to all of those that contributed to both submissions. Thanks also to those who helped with the campaigning on the Illegal Logging Prohibition Bill."

Many thanks to our colleagues for their vigorous actions.


Maldives political turmoil - was this a tax coup?

The last-but-one edition of the UK satirical (but highly respected) publication Private Eye has an article about the Maldives, explaining how the Maldives' first freely-elected president Nasheed sent four bills to parliament, including corporate and income tax legislation that would have required those earning above £6,000 per year to pay tax for the very first time.

Previously, resorts had paid only a nominal fee for each bed, with no requirements for verification.

Nasheed was overthrown in a coup in February by a military-backed and increasingly Islamist regime, whose leadership has extremely close links to Maldives tourism tycoons.

Since the coup, Private Eye reported, the tax bills have been buried and there seems to be no interest in pushing them through.
"The reality is that the Maldives - already favoured by footballers, Russian Gangsters and off-duty Israeli arms dealers . . . has given us an unlikely alliance between hoteliers promoting bikini-clad, cocktail-fuelled luxury and a government that incldues two imams, wants to bring back the death penalty . . hundreds have been arrested since the coup, and Amnesty has repeatedly expressed concern over police brutality and impuity. Journalists are being beaten up, and violent crimes, including murder, have risen sharply.

But at least the evils of income tax are off the agenda."
For more on the tourism sector and taxation, we have just also uploaded a very different but nevertheless interesting short case study on tax, tourism and the Dominican Republic. More on that, too, on our transfer pricing page.

(As an aside, the Private Eye page also carries a letter pointing out that "Mitt Romney" is an anagram of My, I'm Rotten.")


Vema - another freakish tax haven project goes awry

We have been pointed to a bizarre website proclaiming the republic of Vema, based on the so-called Vema Seamount off the coast of South Africa. This appears to be a submerged volcano, on which they plan to dump some sand, then build skyscrapers and all sorts of wonderful things.

It is a highly elaborate website - there is already, apparently, a King of Vema (King Peter Goldishman), a government in waiting, Veman Embassy in London based at the grand-sounding address of 1 Northumberland Avenue, Trafalgar Square (an address which appears to be currently held by these people, notorious providers of supposedly above-board office space, a real-sounding address and phone listing); a national anthem, a unilateral declaration of independence from 2006 (backed, they claim, by an ICJ ruling on Kosovo which states that "general international law contains no applicable prohibition of declaration of independence" but which contains no reference to anything Vema-esque.)

We have seen this kind of thing many times before. Despite the strenuous website-building, we don't expect to see this translate into skyscrapers.

In fact, things in Vema appear to be going badly awry already.


Monday, August 20, 2012

NPR's Planet Money sets up offshore companies

From National Public Radio in the U.S.:
"Right now, the team here at Planet Money are the proud owners of two companies. Unbelizable Inc., in Belize City, and Delawho?, right here in the United States."
and they add
We have a packet of incorporation documents and a lot of questions about what exactly people do with these kind of companies. Our plan is to find out.
The entire story is worth reading and listening to.


Intertax - An Apology (UPDATED)

Updated, August 21, after internal investigations

We would like to apologise to our Intertax subscribers - and others who never asked to receive any communications from us - who have suffered a stream of emails bouncing through the system since the early evening of Friday 17th August.

We were alerted to this problem early on Saturday morning, but not before hundreds of emails had bounced across the system - many from people who are not on the system. We have checked the system and can rule out technical failures, which suggests the problem may well have stemmed from an email generating an inordinate number of responses, flooding inboxes and catalysing some less than polite language from one or two respondents. Some more emails appeared on Monday morning, but we think that outbreak has now been contained.

We are confident that the problem has now been solved definitively. Once again, our sincerest apologies for all the irritation it has caused.


Ronen Palan's history on the City of London as an offshore centre

From the New Left Project, an interview with Ronen Palan, Professor of International Political Economy at City University London and co-author of Tax Havens: How Globalisation Really Works.

For anyone who wants to understand how the City of London emerged in its modern form, and the links to the British Empire, this article is an essential introduction to the theme of the City of London as an offshore centre.

This article will be housed permanently in the Tax Justice Network's Offshore History page.


Friday, August 17, 2012

OECD Insight Blog: Tax paying made easier

How do you spell it?

In a telling sign of how the general line of thinking might be travelling our way, the OECD Insight Blog is carrying a blog about automatic information exchange, which the OECD recently conceded is an effective tool for tackling tax evasion.   Titled Tax paying made easier, the blog opens with a quirkily spun story about how cross-border information flows sometimes just don't work, in this instance concerning the case of Prawo Jazdy, surely one of Poland's worst drivers ever, terrorising the streets of Ireland:

"Prawo Jazdy was the most reckless driver Ireland had ever known, travelling at unlawfully high speed around the country, pausing only to park illegally. And yet despite getting caught innumerable times, he avoided prosecution simply by changing address. Then one day a particularly gifted member of the Garda began to wonder if it all might not be a hideous mistake and looked up the Polish bandit’s name, not in the Interpol database, but a dictionary. Imagine his surprise when, as the Irish Times relates, he learned that Prawo Jazdy means “driving license”. Case solved."

The blog also picks up on points we have previously covered, including Denmark's lead position as the country making most effective use of automatic information exchange to tackle evasion, and notes that "EU experience with the Savings Directive suggests that without automatic information exchange, over three-quarters of taxpayers may not have complied with their tax obligations in their country of residence."

We are also pleased to see the blog citing our own research into the Price of Offshore:

"The Tax Justice Network estimates that individuals hold about $21 trillion of unreported wealth offshore, the equivalent of the combined GDP of the US and Japan. They think the figure may be even higher ($32 trillion) but even a previous, far lower estimate of $11 trillion still represents around $250 billion dollars in lost tax revenue each year – five times what the World Bank calculated was needed to address the UN Millennium Development Goal of halving world poverty by 2015. The usual term for these places offering low or zero taxes is tax haven, but TJN thinks that “secrecy jurisdiction” is a better description, since they provide facilities to get around the rules of other jurisdictions using secrecy as their prime tool."

After so many years of promoting automatic information exchange as the effective global standard, it is gratifying to read such support on OECD Insight.  Read the full blog, and drive safely.


Wednesday, August 15, 2012

On the dangers of tax farming

Marcus Licinius Crassus: tax farmer and power broker

The tax payer funded farce formerly known as the British railway system is probably the most expensive railway in the modern world.  While consumers suffer overcrowded services, the train leasing companies are making killings whilst also using offshore subsidiaries to shift the profits from their leasing activities.  And tax payer and rail travellers pick up the bills.

In an article in today's edition of the Times Literary Supplement, classics scholar Mary Beard explores the striking similarities between the contemporary world and ancient Rome in its dying days as a republic, and warns of the dangers to democracy opened up by tax farming. Read the full article here, what follows is the opening extract:

Modern tax farming: and the Roman dangers of private enterprise


In an hour or so we shall hear which bid has been accepted to run the West Coast Mainline  railway route: First Group's or Virgin's (and by the time you read this, you'll probably already know). And the news broadcasts are full of dire warnings about how the government should decide. It's not just a question of accepting the highest bid to run the service. If a company bids too high for the contract then, they find it much harder to make a profit -- so they start cutting services and the public get cross (= political votes lost), or worse, they have to renege before the contract is finished (=more egg on face, and more votes lost).

I'm surprised that no-one has mentioned the ancient Roman precedent here. Because they had just these problems and their form of private enterprise gone mad was one of the factors that led to the end of Roman republican democracy and ultimately the rise of autocracy.

The jewel in the crown of Roman private enterprise was tax farming. When the republican Romans wanted to (say) impose taxes on a province, they didn't collect the taxes through state officials, but by offering the tax contract to rival bidding companies -- of "tax-farmers" or publicani (the 'publicans' of the King James Bible).

Read on here.

Hat tip: Jonathan Davies


Tuesday, August 14, 2012

ITR: TJN-study unveils progress on automatic information exchange

Very shortly we are going to publish a new study into the experiences made with automatic information exchange. International Tax Review has reported today about the key findings and with permission we reproduce the full Q&A below:

Salman Shaheen, ITR

International Tax Review: What has your study told you about how AIE is already operating in various jurisdictions?

Markus Meinzer: For our study we reviewed the experiences with AIE of 12 countries and also analysed research by the EU-Commission into the functioning of the European Savings Tax Directive (EUSTD).
Our study confirms some of OECD’s findings from June 2012 that AIE is now common practice not only among, but also beyond OECD nations. We looked at 12 countries and found that only one, Austria, does not participate in AIE on bank interest. Every other reviewed European countries plus the US and Australia engage in AIE on bank interest, and Argentina at least collects all the relevant information for transmission of this data, and is likely to send AIE records, too.
Scandinavian countries are champions of AIE. They use this data to prefill tax returns and thus save their citizens valuable time on filing. Denmark excels as a champion of AIE, not only for the number of countries it exchanges data on capital income with (69), but also for the quality of data it is sending. For interest payments, it was the only country reviewed which was found to always collect beneficial owner information for non-resident investors, and sends this information in all of their AIE-processes.
An evaluation and analysis by the European Commission into the functioning of the EUSTD suggests that compliance issues arise with British Overseas Territories and UK Crown Dependencies as well as with Switzerland. More importantly, the Commission found extraordinary and unexplained low ratios of interest payments being reported by the UK.
The question about the supervision and sanction regime in place to ensure compliance with reporting obligations has been largely ignored by the international community. There is no public and comparative information available on what happens if banks fail to properly comply with routine reporting obligations, either as required by law or in statistical terms as empirically observed. The latter information appears not even to be available in meaningful breakdowns in the national context. The EUSTD does not prescribe any sanction mechanism for failure to report even if economic operators acted in bad faith, and the proposal for amending the EUSTD still fails to amend this omission.
As a result, banks are negligent in complying with the EUSTD: for example in Germany where the maximum fine for a failure to properly report EUSTD payments is €5000 even for willful misreporting. A recent study by an economics professor underlines the relevance of criminal sanctions for bankers who fail to comply with reporting and other obligations.
ITR: What systems are most effective? Is AIE more effective when there is a multilateral system in place such as under EUSTD? 
MM: It is of overwhelming importance to have a clear and strict common protocol for data exchange, and the only existing and working protocol today that to some extent fits this requirement is a multilateral protocol, the EUSTD. It seems that the political cost to create enough clarity through a strict protocol is only assumed if this effort is embedded in a multilateral process. Furthermore, when an agreement is merely bilateral, legal structures involving third countries can easily be deployed to hide the true recipients of payments.
But it would be wrong to portray the EUSTD as being the best possible solution. The existing loopholes are widely known, and though effective remedies have been on the table since 2008, these have been consistently blocked by vetoes of Austria and Luxembourg, aided by UK and German bilateral Swiss deals which were designed to undermine EU positions.
ITR: What do you think would be the most effective way to move forward with AIE on a global level? 
MM: There is no single quick fix, so we need to remain flexible and pragmatic. Three possible multilateral platforms and processes are underway. The first is the Council of Europe/OECD Convention on Mutual Administrative Assistance in Tax Matters. However, this platform only allows, but does not require, its members to engage in AIE. There is also no indication that this Convention is used for AIE, nor that it would develop multilateral structures for AIE. Rather, it seems to rely on optional, additional bilateral agreements to implement AIE. As such, it is vulnerable to being undermined by structures stretching across multiple jurisdictions. Furthermore, transparency and governance questions about the Convention remain unaddressed.
The second and third existing initiatives are the EUSTD and the efforts to multilateralise FATCA. Technically and politically speaking, both have strengths and weaknesses. As a matter of principle and good practice it is important to involve emerging economies such as India and Argentina, to find out whether they are happy to proceed on the basis of either of these two mechanisms, or whether we need a political process at the UN instead. Also, it is important to draw the right lessons from the recent banking scandals. It must be acknowledged that banks need strict frameworks for operating, including for operating financial accounts. Whichever multilateral system is tougher in ensuring that all accounts opened at a bank are actually covered by reporting obligations should be given preference, subject to the involvement of developing countries.
While the opportunities for making progress appear promising, the location of FATCA efforts at the OECD’s Committee of Fiscal Affairs risks creating an unacceptably slow political process, as their record on AIE and creating international protocols on taxpayer identification numbers, indicates. The outspoken and implacable opponents of AIE are members of the OECD’s Committee (Austria, Luxembourg and Switzerland) and are therefore well placed to play a fatal delaying role. The OECD also lacks proper representation of developing country interests, yet OECD countries continue to block attempts to give the UN Tax Committee a more prominent role in formulating measures for strengthening international tax cooperation.
ITR: What are the main obstacles to AIE?
MM: It is sad but unavoidable that this question can only be answered by naming names. There is no doubt that Austria, Luxembourg and Switzerland act as an unholy trinity, with support from other countries like Germany. The means through which these countries have colluded to delay or derail AIE involve the bilateral deals proposed initially by the Swiss Bankers’ Association, and later by the Swiss State Secretary for International Financial Matters, headed by Michael Ambühl. As our analysis has shown, these bilateral treaties are riddled with subtle, but powerful loopholes and were launched as a means to divide the EU to delay and derail the far better EUSTD amendments. It is similar to siblings who quarrel about getting a soft drink in a restaurant: if the other gets one, I also want one. These bilateral deals have given Austria and Luxembourg a convenient pretext for vetoing progress on the EUSTD, arguing that they want an anonymous withholding tax instead of AIE to avoid conceding an unfair advantage to Swiss banks.
In addition, there seems to be a sentiment among those German-speaking bank secrecy havens that they have been duped by Anglo-Saxon secrecy jurisdictions through the G20 crackdown on banking secrecy since 2008, because the main change allegedly came at their cost, by removing their reservations on Article 26 on the exchange of banking information. While there may be a kernel of truth in this statement, in so far as there has not been a strong determination and little success in requiring the public registration of trusts and limited liability companies, and to exchange this information automatically, it appears rather hypocritical since the envisaged EUSTD amendments, for instance, would require the creation of such trust registries and therefore would address their concerns. 
Why are these nations then vetoing progress on the EUSTD and devising a strategy to derail the EUSTD through the bilateral Swiss deals? It is inconsistent, and sadly shows the determination of Austria and Luxembourg to preserve their secrecy industry.

The full study will be available here


Thursday, August 09, 2012

Interview: our $21-32 trillion offshore estimates

ADVISORY - some people have had problems accessing our reports. We have a technical glitch on our main website, which we are still trying to fix. In the meantime, you can find all the reports here.

On Democracy Now! An interview with James Henry, author of TJN's report The Price of Offshore, Revisited.

Exhaustive Study Finds Global Elite Hiding Up to $32 Trillion in Offshore Accounts


Voice of Art Presents: The Tax Dodgers: Part 1 & Part 2

Via email, from Rebecca Wilkins at Citizens for Tax Justice in Washington, D.C.:
Voice of Art Presents: The Tax Dodgers: Part 1 & Part 2
Voice of Art, the documentary series on Pharrell Williams' YouTube channel I Am Other, is releasing its new episode titled “The Tax Dodgers”. The episode features the mock-baseball team called The Tax Dodgers as they unleash their guerrilla street theater to raise public awareness of some of today’s most important social issues: corporate tax evasion and corporate control of the political system.

Appearing with the Tax Dodgers members throughout the episode are Andy Bichlbaum of The Yes Men, former Philadelphia police Captain Ray Lewis, corporate crime writer Matt Taibbi of Rolling Stone, Carol Wells of the Center for the Study of Political Graphics, Bob McIntyre of Citizens for Tax Justice, Doug Clopp of Common Cause and the protesters of Occupy Wall Street.


Viewers meet artist Gan Golan: co-creator of the NYT bestseller Goodnight Bush, The Adventures of Unemployed Man, and the Tax Dodgers baseball performance team. His subversive art tactics develop through his student-activist years at MIT, battling the World Trade Organization in Cancun, Mexico, and eventually taking on powerful corporations alongside Occupy Wall Street.


Wall Street's least favorite baseball team "The Tax Dodgers" prepare their performance tactics for a big upcoming game. Citizens for Tax Justice illustrate the problem of corporate tax dodging, a former police captain fights against "corporate sociopaths," and The Yes Men and Common Cause detail the corporate hijacking of the US political system through devious means.

The episode will be released in four parts, on the following Friday schedule:
Part 1: 7/27, Part 2: 8/3, Part 3: 8/10, Part 4: 8/17


Tuesday, August 07, 2012

Guest blog on EU’s emerging strategy on tax havens: ambitious enough?

Guest blog by Javier Pereira and Alex Marriage from Eurodad

DG TAXUD, the taxation and customs department of the EU civil service, is working on a strategy on tax havens and unfair tax competition to be released in the last quarter of the year. This is an extremely welcome step, as the communication addresses several key issues. It recognises that not only double taxation but also double non-taxation is a problem when working out how to tax cross border wealth and income; proposes the introduction of automatic information exchange at EU level; and explores several concrete measures against non-cooperative tax jurisdictions and aggressive tax planning. However, in many ways the outline strategy that is being proposed looks incomplete, it seems that this strategy would not be capable of fully addressing the problem unless some omissions and weaknesses are addressed. The communication, was the subject of a seminar held in Brussels on 17 July. This article outlines some of the highlights of the discussion, both civil society and private sector had with the Commission.

Developing countries  are largely absent from the current discussion, despite being particularly vulnerable to the problems this communication seeks to address. Moreover, their tax authorities usually lack the resources and regulation to effectively battle against unscrupulous tax planning, as recognised by the European Commission in the Communication on tax and development from 2010). In addition, the impact of EU tax regulation on developing countries is something that should be considered under the EU’s commitment to Policy Coherence for Development.

Turning a blind eye to EU tax havens? TAXUD Communication focuses on non-EU countries and territories. Although a very political issue, several major tax havens are found within the borders of the EU. It is important that any measures adopted by the EU also apply to these jurisdictions. If not, the effect would be a relocation of financial flows from international to European tax havens.

More focus on the specific role of multinational companies. During the discussion there seemed to be a broad acceptance that Automatic Information Exchange (AIE) is necessary. However, there is still a long way to go TAXUD appealed to the European Council to finally agree on the extension of the European Savings Tax Directive (EUSD) to other legal entities and capital gains. However this is threatened by the Rubik deals a set of agreements devised by Switzerland based financiers in order prevent automatic information exchange from being applied to other income streams.

The EU is moving forward with the Common Consolidated Corporate Tax Base. This is a very welcome initiative in that it is based on the idea of calculating tax bases where there is actual economic activity is taking place. This would help to prevent companies from using techniques such as profit shifting to minimise taxation. However, the fact that this is optional will allow companies to only chose to use it over national systems when it is cheaper for them, rendering it counter-productive for revenue collection.

Towards a European definition of tax havens? Having a strong EU definition of tax havens would be a significant step towards tackling the problem. In terms of the technical definition of a tax haven, the Commissions should build on the wording of the AIFM Directive’s. Secrecy, including failure to collect information on the human beings, who own and control, corporations, trusts, foundations and other legal entities must be a key consideration. Measures which give foreigners preferential treatment to attract their money should also be essential criteria. It must be remembered that Tax havens specialise, some focus on secrecy and some on low tax rates but most tax havens do not tick all the boxes.

Implementing a toolbox of carrots and sticks for tax haven reform. The idea was raised at the 2009 G20 for a package of measures to punish and reward non-cooperative jurisdictions into compliance. This is a useful idea but it depends on the detail, the EU toolbox cannot limit itself to incentives and defensive measures.  The EU also needs to introduce legislation such as the formal adoption of unitary taxation for multinational corporations (now a voluntary measure under CCCTB, see above) introducing full country-by-country reporting for European companies and adopting automatic information exchange as the default option (see above).

In general the EC should aim to put in place measures to prevent Member States benefiting from tax havens, including the prevalent practice of using tax havens to channel investments made by their development finance institutions.  This toolbox should also be put to use within the EU.

The idea of using double tax conventions to address tax fraud is problematic as developing countries are often excluded from these treaty networks and when they are included do not have the power to negotiate terms which are not detrimental. Equally many tax havens do not participate in these treaty networks. Instead the EU should use its considerable economic clout, to forge workable multilateral frameworks whilst making non participation by tax havens increasingly unviable.
Overall, the language is encouraging and TAXUD is making laudable efforts to offer solutions. However, TAXUD’s hands are probably tied. According to the EU treaties, all tax decisions to be taken at European level are subject to the unanimity rule. This means that any member state can veto any proposal made by the EU institutions.

All these issues and a few more would be part of a joint submission by European CSOs. For more information on this matter, please contact or