Tuesday, October 30, 2012

Haldane on the financialisation of finance

Another gem from Andrew Haldane's speech, which we've just blogged
At the same time, the ballooning of trading activities was starving basic banking of resources. In consequence, the offering to bank customers became a rather different one. The humble, regional loan officer was pensioned-off, replaced by a centralised credit risk model which neither answered back nor required a pension. Branches were closed in an effort to contain costs. Banking became a transactional business, underpinned by a sales-driven, commission-focussed culture.
Financialisation is a huge topic, which deserves everyone's attention. Whole industries, whether bought out by private equity companies or otherwise, have turned their attention away from seeking long-term, organic growth based on building fantastic products and services, towards shorter-term activities based on financial returns. The result has been weakness and inequality.

And the financial sector itself has been financialised. What Haldane describes here is just an indication of the problem. Finance eats itself.


Bank of England's Haldane: Occupy was right

FT Alphaville last night chaired a discussion on “Socially Useful Banking“, and the key speaker was the Bank of England’s now world famous executive director for financial stability, Andy Haldane. FT Alphaville has provided a long summary of the event, which we wish we'd been able to attend. His speech is here, and the FTA summary contains a number of newspaper headlines, which speak (loudly) for themselves (We have added a couple of our own).
  • BoE’s Haldane says Occupy was right – FT
  • BOE’s Haldane Tells Occupy Libor Furor Prompted Change – Bloomberg
  • Bank of England’s Andrew Haldane: Occupy played key role – BBC
  • Occupy protesters who camped at St Paul’s Cathedral were morally right to attack financial system, says Bank of England official – Daily Mail
  • Occupy protesters were right, says Bank of England official – The Telegraph
  • Bank of England official: Occupy Movement right about global recession – The Guardian
  • UK banks begin to turn over new leaf – BoE’s Haldane – Reuters
  • Top Bank of England director admits Occupy movement had a point – The Independent
  • Too much banking can be a bad thing - Evening Standard. And much more on this subject, fairly soon. Watch this space.
In response to the critics of Occupy, he said:
Occupy’s voice has been both loud and persuasive and that policymakers have listened and are acting in ways which will close those fault-lines.
Occupy has been successful in its efforts to popularise the problems of the global financial system for one very simple reason: they are right.

By this I do not just mean right in a moral sense. . . . it is the analytical, every bit as much as the moral, ground that Occupy has taken."
Haldane went on to point out that most financial sector workers in the UK - and there are a lot of them - aren't to blame for what went wrong; the problem, essentially, is systemic. But he said that Occupy helped prompt a “reformation of finance” that is in its early stages, and proposals to change banking may amount to the biggest change since the 1930s.

We hope he is right about that. There is still a very, very long way to go.

Haldane's speech is here. It will be pored over, for years to come.

See also TJN's edition of Tax Justice Focus, edited by the Occupy movement. See also Occupy's January 2012 comment article in the Financial Times, replete with messages from the Tax Justice Network.

We would also highlight this comment:
"The hard-headed facts suggest that, at the heart of the global financial crisis, were and are problems of deep and rising inequality."


Rowan's blog

Copied from the Treasure Islands blog:

I know I shouldn't be trying to deflect people's attention away from my own blog, but I think Rowan's blog is so important and useful that I think more people should read it, regularly.

I pointed to one of his blogs yesterday, but now, having read a few more of his, I think I'll recommend that people put it into their blog bookmarks.

If you are concerned about that vast nexus where finance and crime meet, in the City of London, then take a look.


Monday, October 29, 2012

Tax Justice conference in Berlin, Nov 27

(Click to enlarge)


Why the UK doesn't want to prosecute financial crimes

Copied from the Treasure Islands blog:

From the blog of Rowan Bosworth-Davies, a former UK detective and legal consultant advising financial institutions:
I have never tried to disguise my contempt for the way in which the lead regulator has consistently failed to use their prosecutorial powers to bring actions against financial criminals.
. . .
Criminalising the bastards is the only way to take them down, and exclude them from the financial sector. It is a solution whose time came of age a long time ago, and I don't know what is stopping it being used aggressively, remorselessly and with maximum prejudice.
. . .
The FSA has routinely ignored the responsibility given to it by Parliament
And among several answers he says, with penetrating insight,
"I think it is a class issue."
Indeed. If you are a grubby housebreaker, you meet the full force of the law. If you are a criminally-inclined City grandee, you are in the clear. He describes the old revolving door factor, and produces some pretty unveiled comments from insiders about how they don't want to prosecute financial crime.
This blog is full of fascinating anecdotes, such as this one:
"I was once approached at a public conference by a young German woman who asked me if she could have a copy of my paper which I had just presented.  I asked her why she wanted it and she told me that she had been seconded to the FSA from Goldman Sachs for a year's sabbatical. The FSA had entrusted her with formulating their Financial Crime policy, but knowing nothing about financial crime, she was going to every conference she could find and blagging copies of papers she had listened to which she thought might be useful to her.

I rang her manager and suggested that the FSA hire me for a couple of weeks to come in and teach this young woman what she needed to know about financial crime so that she could make a genuinely valid contribution to the debate. His answer was interesting. He said;

'...Why on earth would be bother to consult you? If we need any low-level consulting of this kind we can get it all for free from one of the Big 4 consulting firms. They do it for nothing for us because they like to be privy to our thinking...'"
Read the whole blog. It's devastating. This goes a long way towards explaining why the City of London is as big and powerful as it is.

(If you liked that, you might also like Why Does the SEC Protect Banks’ Dirty Secrets?)


A new Tax Haven Toolkit

Some tax justice activists in the UK have put together what they call the Tax Haven Toolkit, offering "everything you need to run meetings, workshops, presentations and discussion groups about tax justice."

We like it, a lot. The toolkit contains:
  • An easy-to use 30 minute PowerPoint presentation  (with guidance notes for the presenter
  • Three Audio clips
  • A printable handout including:
    • Introduction and questions for further discussion
    • A crib sheet: Countering the Arguments
    • A List of further resources
And here is an edited short section from the presentation, giving you an idea of how you might use this toolkit.
It is up to you how you want to use the toolkit; the PowerPoint presentation and related discussion activities. However, we recommend that you try to make the session as interactive as possible. This will work best if you have at least 1 hour for your session.

  1. A willing group
  2. A venue with computer facilities, speakers and preferably a large screen
  3. A printer and some paper
  4. A voice and buckets of enthusiasm

There is no need to become an expert to deliver the presentation - just download and print out the slides, notes and guidelines and make sure you feel comfortable with the content.

All with thanks to Meesha Nehru and designer Ellie Grassick.

The tax haven toolkit has been developed as a tool to accompany TJN's own Tackle Tax Havens website. Watch the video here.


New estimates: Sub Saharan African countries lost $814bn in capital flight

From Léonce Ndikumana and James K. Boyce of the Political Economy Research Institute, University of Massachussets, Amherst, leading world experts in this field:

Capital Flight from Sub-Saharan African Countries: Updated Estimates, 1970 - 2010

Here is the abstract:
"The performance of Sub-Saharan African economies over the past decade has inspired optimism on the region’s prospects. But the region still faces major development challenges, and it is now clear that the majority of its countries will not achieve key millennium development goals.

A key constraint to SSA’s growth and development is the shortage of financing. At the same time, the sub-region is a source of large-scale capital flight, which escalated during last decade even as the region experienced growth acceleration. The group of 33 SSA countries covered by this report has lost a total of $814 billion dollars from 1970 to 2010. Boyce and Ndikumana compare this to the level of development aid and foreign direct investment received by these countries. Assuming that flight capital could have earned the modest interest rate measured by the short-term U.S. Treasury Bill rate, they find that the accumulated stock of capital flight far exceeds the external liabilities of this group of countries, making the region a “net creditor” to the rest of the world.

This report provides updated estimates of capital flight for 33 SSA countries from 1970 to 2010. It describes the methodology used to estimate capital flight and highlights important methodological differences with other existing studies. The report presents key results on capital flight both in absolute terms and in comparison to other capital flows, especially debt, aid, and foreign direct investment, as well as in relation to the size of the economy (as percentage of GDP and in per capita terms). The report stresses the urgency of efforts to stem capital flight and repatriate stolen assets as a part of the broader goals of scaling up development financing, combating corruption, and improving transparency in the global financial system."
This is an important new piece of research. It follows some research of theirs which we recently blogged (original here) exploring capital flight from North African countries.


List of killer loopholes in the Swiss "Rubik" agreements

We have written plenty about the useless (and immoral) Swiss tax deals with Britain, Austria and Germany, which have been designed to kill moves to greater transparency in Europe and particularly to stymie moves to strengthen the current lead transparency initiative, the European Savings Tax Directive.

Here is a short blog as a reminder, summarising the main loopholes in the Rubik model. 
  • Foundations, discretionary trusts and other ‘ownerless’ structures –standard tax evasion vehicles – are deliberately and explicitly outside Rubik’s scope. Such structures are slippery: while they will ultimately benefit someone (an Italian tycoon, say), that person is not legally identified as the beneficial owner or beneficiary: the assets are ‘ownerless’ and therefore outside the scope of a Rubik deal. See Section 3.1 here. (For an exploration of how trusts work, see our primer In Trusts We Trust.) 
  • Insurance ‘wrappers.’ An insurance ‘wrapper’ is bit like a trust, where the Italian tax evader is entitled to all the economic benefits from the assets in question, but legally speaking it is the insurance company that is the beneficial owner. The legal beneficial owner is not identified as Italian, so it is outside the scope of a Rubik deal. (Section 3.2.)
  • Commercial companies. Only domiciliary companies falling under Swiss definitions are in scope – and that excludes any untaxed offshore company from somewhere like the Cayman Islands, for instance, where it can be pretended they have a ‘commercial’ purpose (Section 3.3).
  • Foreign bank accounts, trustees. Move your assets from a bank's Swiss subsidiary to a Singapore subsidiary, and you fall out of scope. Or if a Swiss-based trustee manages, say, a Bahamas trust with account in the Bahamas, this is outside Rubik's scope. (Section 3.4) 
  • Fees, donations, loans, royalties. Rubik only includes investment gains on “bankable” assets. So if your assets are in a safe deposit box in Zürich, or your profits are distributed as, say, a ‘consulting fee’, these assets are not ‘bankable” and are outside Rubik’s scope (Section 3.5).
  • Take your income as a 'loan' (which never gets paid back.) Section 3.7
  • Defer, then move. Rubik lets you defer all your income until you move to another country. So you might set up a deferred pension – then retire to sunny Portugal with your untaxed pension pot, which no bilateral Swiss- Italian deal could touch. Only the EU’s multilateral approach could work.
For a longer (but still clear and brief) explanation of each of these, see Section 3 in our original analysis of the UK-Swiss Rubik deal. See also:
  1. Oct 25 -  Merkel’s Swiss Tax Pact Faces Veto as SPD Flexes Pre-Vote Power
  2. Oct 22 - Top tax expert Philip Baker skewers UK-Swiss tax deal
  3. Sept 24 - list of expert testimonies at German Bundestag
  4. Sept 23 -  Press Releases: Italy, Belgium, Greece must not sign "Rubik" tax deals with Switzerland. They are a swindle
  5. Sept 18 - Crucial battle on tax transparency in the German Bundestag
  6. Aug 25 - It's official: Swiss admit purpose of Rubik is to kill EU transparency
  7. April 16 - New paper: why automatic exchange is superior over withholding taxes
  8. March 20 - The UK sells its tax sovereignty in a massive boost to offshore tax abuse by Switzerland. Tax Research 
  9. Oct 2011 - Original analysis of the UK-Swiss deal
  10. Tax Justice Network resource on information exchange
  11. Best of Both Worlds - an in-depth expert level resource on the EU Savings Tax Directive, and Rubik
  12. Towards Multilateral information Exchange - an in-depth briefing paper
  13. The Mechanics of Secrecy - TJN page looking at how secrecy works


Friday, October 26, 2012

The New Putney Debates start in London tomorrow

“…the laws ought to be equal, so they must be good and not evidently destructive to the safety and well-being of the people. These things we declare to be our native rights…”
- excerpt from the Agreement of the People, October 1647

From 27 October – 11 November, Occupy London celebrates the 365th year anniversary of the original Putney Debates in 1647, by holding a series of events looking at democracy in 2012. Inspired by the Levellers and Diggers demands for social justice, civil rights and equal access to the land from back then, Occupy London’s New Putney Debates will focus on the challenges facing us now and what is needed now for a more just and equal society.

Contributors include Richard Wilkinson (The Spirit Level), Natalie Bennett (new Leader of the Green Party), Michael Mansfield QC, George Monbiot, Polly Higgins, Jeremy Leggett, John McDonnell MP, Halina Ward and Professor Conor Gearty, Annette Zera, Joseph Choonara, Hilary Koob-Sassen, and many other writers, theorists, artists, and activists.

Full programme at http://thenewputneydebates.wordpress.com. Facebook event is here.

Throughout the New Putney Debates the emphasis will be on public participation, in the spirit of 1647 when it was said that England was “A Nation of Prophets”, with some of the events being held in the original venue – St Mary’s Church in Putney – where the Debates started on 28 October 1647.

Then and now: the fight for real democracy continues
The New Putney Debates will discuss why our so called ‘democracy’ is failing us and how we can address the enormous challenges of our time, as well as learning from the past. We want to reclaim our rights too, and reclaim democracy for the people.  All are welcome to participate in these historic debates.

The Civil War saw our ancestors rise up against oppression by the King and feudal lords to fight for the many of the democratic rights we enjoy today. The Levellers in the New Model Army made radical demands for a more equal society with an expanded franchise, freedom of conscience & speech, equality under the law and for a sovereign parliament that obeyed the will of the people.

Today our civil rights are under threat, our vote no longer seems to count and inequality is increasing. There is no evidence that the lessons have been learnt from the 2008 financial crisis and banking bailout. The needs of the ‘market’ and the banks seem to take priority over people, communities and the environment.

Highlights of the New Putney Debates:
  • Rehearsed reading and discussion of Caryl Churchill’s 1976 play in St Marys Church Putney, where the original debates took place. The play looks at the events of the English Revolution with the second half of the play focuses on the conflict within the New Model Army between the senior officers (the Grandees) and the Agitators, who stood for the interests of the ordinary men and women
  • Occupy Economics will host the Bank of England’s Executive Director of Financial Stability, Andy Haldane, for a panel discussion focusing on Socially Useful Banking. Also participating are TUC senior economist Duncan Weldon and Dominic Lindley, Head of  Financial Services Policy for Which?, with the event chaired by Lisa Pollack, FT Alphaville
  • Richard Wilkinson (The Spirit Level), will join the Debates looking at the causes and consequences of inequality and John Christensen (see Treasure Islands) will explain  ‘The Finance Curse.’
  • Michael Mansfield QC and Professor Conor Gearty will be participating in the debates discussing who the legal system benefits
  • Open-space discussion sessions exploring the crisis of capitalism and the possibilities for generating a level of social organisation that is capable of being responsible in all the ways in which the capitalist system is not
  • The new leader of the Green party, Natalie Bennett, George Monbiot and the Runnymede diggers will be considering land and democracy
  • John McDonnell MP will discussing what a real democracy would look like, and we will be asking if the time has come for a new civil rights movement.


TJN challenges Jersey (again!) to open debate

We challenge the authorities of the British Channel Island of Jersey (a secrecy jurisdiction) to open, public debate about our criticisms of that island's role as a tax haven.

Philip Bailhache, assistant chief minister to the island's government has given a fiery speech to that island's Association of Trust Companies, accusing those who criticise tax havenry (that's us) of being motivated by "the green-eyed bug of envy and ignorance."  Ouch!

In 2011 we assessed tax haven Jersey with a secrecy score of 78 out of 100.  This dismal score places the island well into the danger zone where it is likely to host large volumes of illicit financial flows and tax evading money.  We offered the island's authorities plenty of opportunity to demonstrate where our assessment differed from their own.  To date they have not offered a single shred of evidence that undermines our assessment.  And their poor record of non-cooperation with the EU's savings tax directive speaks volumes about how weak their commitment to tackling tax evasion truly is.

Far from demonstrating ignorance on our part, our assessment of Jersey has stood up to scrutiny.  And Bailhache knows this is the case.

In contrast to Bailhache's feeble rant about "envy and ignorance", we repeat our invitation to Philip Bailhache and his fellow ministers in Jersey to engage with us in public debate - on their home turf in Jersey - to discuss our concerns and to allow him full opportunity to respond.  Our director, John Christensen (a former economic adviser to the States of Jersey), campaigning chartered accountant Richard Murphy (who correctly forecast the problems Jersey would incur with their 0/10 corporate tax policies) and Nick Shaxson (author of the critically acclaimed Treasure Islands: Tax Havens and the Men Who Stole the World) are all willing to take part in this debate.

Over to you Philip Bailhache.  Do you have the courage to engage in this debate? Or will you continue to engage in snide back-stabbing in front of your home audiences?  Our contact address is: Tax Justice Network, 38 Stanley Avenue, Chesham, Bucks, HP5 2JG, UK.

We look forward to hearing from you.


Links Oct 26

OECD and ATAF strengthen tax co-operation with Africa OECD
Oct 25 - "The OECD and the African Tax Administration Forum (ATAF) have signed a Memorandum of Co-operation, agreeing to work together to improve tax systems in Africa."

Argentina: International tax transparency: the role of the AFIP Cronista
Oct 24 - On the Argentine tax authority building structural policies against abuse of tax havens, and promoting efficiency in the exchange of information. Hat tip: Jorge Gaggero.

Singapore To Overtake Switzerland In Wealth Centre Rankings By 2020 WealthBriefing

Oct 26 - "Singapore will overtake Switzerland to become the world’s biggest offshore wealth centre by 2020, according to research on global financial trends from WealthInsight." The report notes that the UK and Channel Islands is currently the second largest offshore player,  in third place is the Caribbean and Panama, followed by Singapore, Luxembourg, and Hong Kong.

Latvia sees good and bad as Russian money haven Reuters
Oct 23 - "Offshore funds flowing from crisis-hit Cyprus have helped boost bank deposits in Latvia, strengthening the small Baltic state's position as an offshore banking centre for neighboring Russia and other ex-Soviet states."

Greece fights eternal battle against tax evasion Deutsche Welle
Oct 25 - Giving a view of the struggle against corruption and tax evasion, and reporting on the "list of shame." Hat tip: Offshore Watch.

See also:
Tax-Evasion Allegations Dog Greece Wall Street Journal

Oct 24 - "A former Greek finance minister on Wednesday accused financial-crime investigators of failing to pursue leads against Greeks who salted away more than €1 billion in Swiss bank accounts, fueling a new round of finger-pointing over Athens' alleged failure to move against wealthy tax dodgers. The controversy has become the hottest of Greece's political hot potatoes."

Merkel’s Swiss Tax Pact Faces Veto as SPD Flexes Pre-Vote Power Bloomberg BusinessWeek
Oct 25 - Reporting on the Swiss/German tax deal, blogged frequently here and on the TJN Germany Blog. The piece highlights the importance of this issue on the German political scene.

See also some links from the TJN Germany Blog

Improving international tax cooperation, action Times of Malta
Oct 25 - " ... the achievement of the combating of offshore tax evasion and abusive international tax transactions, ultimately lies in coordinated action taken on a multilateral level – not in just cooperation and information exchanges. Action will improve compliance and service to taxpayers in concrete and significant ways."

Canadian Senator to Parliamentary Budget Officer: Investigate Tax Havens Canadians for Tax Fairness
Oct 25 - C4TF met with Senator Downe earlier this month to discuss the spiraling impact of tax havens on the Canadian economy.

Philippines: Corona finally faces probers in tax case Rappler
Oct 25 - "Dismissed Chief Justice Renato Corona finally faced prosecutors Thursday, October 25, in a preliminary hearing of a tax evasion case filed against him and members of his immediate family."

Accountable companies build better brands Marketing Week
Oct 25 - "Anyone who thinks that arcane discussions of tax law will not effect brand perception is living in a fantasy world."

UK: Tackling Tax Havens: From your local council to the Cayman Islands Ethical Consumer
Sep 28 - Hear audio from the Ethical Consumer Tax Justice Campaign's conference on corporate tax avoidance. See also: Ethical Conumer Proposals For Procurement Policy for Local Authorities: addressing the use of tax havens by suppliers.

EU divided over tax policies The Hindu Business Line

Oct 21 - "The potential implications of Europe’s widely differing rates have not gone unnoticed and there have been several attempts at more harmonisation, so far with little success." Cites TJN's Markus Meinzer.

Amazon to be stripped of tax advantage on sale of ebooks Guardian
Oct 25 - "Amazon is to be stripped of its huge tax advantage on the sales of electronic books after the European commission ordered Luxembourg to close a VAT loophole."

Liechtenstein: More than a Tax Haven Global Atlanta
Oct 25 - More on the spin of "We are not a tax haven".


Thursday, October 25, 2012

Quote of the Day - global plutocrats

To get in the mood for this next quote, read Chrystia Freeland's 2011 Atlantic Magazine article Rise of the Global Plutocrats, which says, among many other things:
"The rich of today are also different from the rich of yesterday. . . . they are becoming a transglobal community of peers who have more in common with one another than with their countrymen back home. Whether they maintain primary residences in New York or Hong Kong, Moscow or Mumbai, today’s super-rich are increasingly a nation unto themselves."
Indeed - but that's not the quote we wanted to point to. The next quote is noted in Freeland's book Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else  (which today's blogger is currently reading.)

It comes from Adam Smith, talking about a shift from wealth derived from land ownership (which tends to root you, geographically speaking) towards stock ownership, which gives you greater mobility.
"He would be apt to abandon the country in which he was exposed to a vexatious inquisition in order to be assessed to a burdensome tax, and would remove his stock to some other country where he could either carry on his business or enjoy his fortune more at ease."
And that is exactly the problem we face today. A globetrotting élite that can dip into societies, cream off the benefits they want, then get everyone else to pay their share of the costs of providing benefits. And that's part of the reason why tax havens cause poverty.

The quote was from year 1804. That's quite some foresight. Time for a vexatious inquisition into the offshore world. And the best place to start is probably here.

One more for our quotations page.


Links Oct 25

IRS delays key start dates for global tax evasion law Reuters
Oct 25 - New developments on the US's Foreign Account Tax Compliance Act (FATCA): "Tax authorities on Wednesday postponed implementation of new rules to force banks and financial institutions to disclose more information about U.S. clients' offshore accounts ... Gaining an additional two years, institutions will now have until January 1, 2017 to begin withholding U.S. tax from clients' investment gains."

Cayman Islands Monitoring FATCA Developments Tax-NewsOct 25 - The Cayman Islands government has released an update on whether the territory will negotiate a government-to-government reporting arrangement with the United States to ease the compliance burden on local financial institutions of complying with the requirements of FATCA.

Hedge Fund Havens Weigh Taxes as Caribbean’s Debt Rivals Greece Bloomberg BusinessWeek
Oct 25 - "From the Cayman Islands to the Bahamas, hedge fund havens are considering a surprising remedy for widening deficits -- higher taxes."

OECD sets 'test' to stamp out international tax avoidance Accountancy Age
Oct 24 - "An OECD party on fiscal affairs has been working to clarify beneficial ownership of dividends, interest and royalties since 2008, and has devised a test in order to establish beneficiaries."

Taxing times in Timor… and the Pacific? Pacific Institute of Public Policy

Oct 17 - "If developed countries really want to help small islands in the Pacific, then one step would be to get bodies like the Australian Tax Office (ATO) to hand over vital information they have on the revenue made by their companies in our territory – or better still help ensure that international companies pay the taxes they should do."

Argentina: Even with a sky high tax burden, proposals to raise taxes on individuals iProfessional
(In Spanish)
Oct 23 - Jorge Gaggero, Cefidar researcher and member of the Phoenix Plan, says that the tax system favors capital flight and the use of tax havens.

Africa losing billions of dollars through illicit financial flows Zambia Daily Mail
Oct 25 - Reporting from the Eighth African Development Forum (ADF-VIII) held in the Ethiopian capital Addis Ababa under the theme: ‘Governing and Harnessing Natural Resources for Africa’s Development’, jointly organised by the United Nations Economic Commission for Africa, the African Union and the African Development Bank. Hat tip: Alvin Mosioma.

See also:
Journalists urged to help stop illicit financial flows from Africa United Nations Economic Commission for Africa

Oct 21 - About 80 journalists from across Africa and Europe were today called upon to assist in halting the illicit financial flows (IFF) from Africa at a media workshop ahead of the Eight African Development Forum (ADF VIII). Hat tip: Ann Njeru.

Money-laundering crackdown should put Nevada on notice Las Vegas Review Journal
Oct 21 - Las Vegas is well-known as a convention hub, but few groups it attracts offered as much unintentional irony as the 11th annual AML and Financial Crime Conference ... Funny they should have such discussions in a city that is no stranger to the subject of money laundering, in a state whose laws of confidential incorporation are widely known as some of the most relaxed in the nation."

A New Score Card in the War on Shell Companies: Do as I Say, Not as I Do? Tax Analysts (via subscription)
Oct 24 - A new study suggests that developed countries -- particularly the United States -- don't practice what they preach when enforcing international rules aimed at increasing tax transparency and preventing the misuse of corporate entities to engage in tax evasion, money laundering, and terrorist financing.

Call for Expressions of Interest: Politics of Domestic Resource Mobilization for Social Development UNRISD
The United Nations Research Institute for Social Development (UNRISD) invites expressions of interest from researchers to collaborate in its new research initiative.

Research Fellow vacancies - Oxford University Centre for Business Taxation
The Centre is seeking outstanding researchers in economics, law, taxation and related fields, such as corporate finance, investment, location, fiscal policy and governance. TJN has clashed with the Centre before (e.g. see here or here); perhaps they are open to new perspectives, however.


Wednesday, October 24, 2012

How to stop Starbucks-style tax avoidance

The still-rumbing Starbucks tax scandal in the UK, prompted by an initial Reuters report on the subject, has had a massive impact, with endless news stories, editorials, television broadcasts, radio discussions, big protests, and outrage from politicians and the general public.  Pollster YouGov said its BrandIndex survey of 2,000 people showed a drop in Starbucks' reputation score to -26 before the Reuters story, from +3.

All this attention is welcome, and long overdue.

On a technical level, what Starbucks has been engaging in is a practice called Transfer Pricing. We have a huge, multi-faceted section on our website dedicated to transfer pricing, looking at the (until recently) globally accepted system guarded jealously by the OECD, a club of rich countries, and offering solutions. The OECD-led global system for taxing multinational corporations is broken: this is "the leading edge of what is wrong with international tax," says US tax expert Lee Sheppard in one of several devastating critiques of the existing international system on our transfer pricing page (see also this or this, for instance.)

Britain remains committed to a race to the bottom on international tax. British politicians on left and right continue to act in the interests of their own paymasters, via a series of revolving doors and party financing: big multinational corporations and especially the City of London. British politics has been thoroughly corrupted by this race to the bottom: politicians quail in the face of threats by multinationals and their supporters in the accountancy professions, who cry "don't tax us too much or we will run away!" Really? In the real world, Starbucks has been making huge profits in the UK: there is no way at all they would jump ship on account of five more pence on the rate of corporation tax. Raise corporation tax rates significantly (and here's one huge reason why you really should, and urgently) and Starbucks will still be making stonking after-tax profits. What's to walk away from?  For an account of the race to the bottom, with an ugly peek into policy-making in the UK, take a look at this.

But for those who don't want to wade through the website and all its links, we'll include a section from a Tax Research blog, edited by us, which offers key pointers as to the way ahead. It's UK-focused, but it has international relevance.

First, the political mood music on corporate tax has to change. We have reached the absurd point where politicians have joined in the race to bottom in international tax regulation that began in tax havens and was first promoted by lawyers, accountants and bankers. Surely we should expect politicians to stand up for the states we vote them to run? And yet now they don't. We have current politicians in the UK who pride themselves on having abandoned our residence basis of tax so suitable to a country that hosts large numbers of parent companies. Instead they promote the whole notion of turning a blind eye to what happens outside the UK by adopting a territorial basis of tax that only taxes income arising in the UK, and asks few questions of how that income arising is determined.

obviously, we need to invest much more heavily in collecting tax. There are only 2,000 or so fully qualified tax inspectors in the UK. That is ridiculously few. And let's recall that total staff in HMRC will have fallen from 100,000 in 2005 to 55,000 in 2015. More high quality, highly paid staff to challenge abuse by the largest corporations is vital. Right now companies and their lawyers are running rings round the Revenue.

Third, we must uphold existing law. We aren't doing enough to challenge the whole structuring of some deals. The law to let us do much of this exists, but we can only do it with a properly resourced and staffed Revenue authority. Cuts to the Revenue services directly increase fiscal deficits.

Fourth, The OECD arm's length pricing method of transfer pricing does not work - and everyone in this field knows it. The FT has promoted the unitary model of taxation this week that I and others in the Tax Justice Network have long promoted. This is a particularly promising avenue to explore, and essentially it involves moving away from the current system - where multinationals are taxed according to the artificial legal forms that their accountants cook up for them - and towards a system where they are taxed according to the real economic substance of what they do. This allocates group profit to countries using a formula based on where the destination of sales is, where people are employed and where real physical assets are. So (to over-simplify) if Starbucks has six percent of its coffee sales, employees and assets in the UK, then you take Starbucks' total global profits and allocate six percent of that to the UK, to tax at whatever rate it likes. This approach has an ugly name - "unitary taxation with formula apportionment," (though 'unitary tax' is more palatable) - and it works: for instance, a growing number of U.S. states are using it, for state-level taxes. For more on this, see our short section on unitary tax on our transfer pricing site; see this (outdated, but still very readable and entirely useful) primer on unitary tax, and a more detailed presentation here; and more wonkish readers might like to look at Michael McIntyre's more academic exploration of how this all works in the United States.

This reform is now essential if we are to demand that global capital is to be accountable locally for tax.

, we have to be honest about the scale of the problem. Not a penny of the abuse the press and parliament are rightly worried about is in the HMRC tax gap figure. That's ludicrous. It suggests that they and their political masters are in denial about what is happening. An honest assessment of the tax gap and what should be in it is vital.

Sixth, our politicians have to go to the EU and argue that we must have change on the lines I have outlined above [see the first part of the original blog for a detailed look at the EU-related issues: essentially, what happens technically within the letter of the law but is abusive can be challenged]: I believe we can demand that the EU Code of Conduct be revisited, and we now must demand that the idea of the abuse of law in these cases must be tested.

Last, but by no means least, we must have country by country reporting in accounting as well. We have to know where corporations are and what they do, and how much tax they pay in each and every country in which they trade. Nothing else will also hold companies to account – and force them to change their behaviour under the glare of pubic, investor and regulator (including tax inspector) scrutiny.

Political will is the first prerequisite for change, but political will has to be built on a basis of solutions. We hope this starter pack can help focus some minds.

A final note. Ellie Mae O'Hagan writes in the Guardian today about her experiences campaigning on these issues with the protest group UK Uncut.
"If there's one thing UK Uncut has taught me it's that campaigning is sometimes inconvenient, and it takes time to see results. I remember the first time I met someone from the Tax Justice Network: he talked to me about campaigns in terms of decades, rather than months. In an age of ultra-convenience, it was a shock – and, I felt, an injustice – to have to wait that long for something I wanted. But what I realise now is that the continuing presence of tax avoidance isn't a sign that UK Uncut has failed: it's a sign that the campaign isn't yet finished."
We should add that this was a conversation between TJN's John Christensen and Ellie Mae on the steps of Top Shop on Oxford Street in London. And quite so. We're in this for the long haul.


Tuesday, October 23, 2012

The October taxcast: Helsinki, Starbucks, and the selling of secrecy

In October's TJN Taxcast: Helsinki declares itself a tax haven-free zone, Starbucks joins the tax avoidance Roll of Dishonour and we follow the money: asset recovery, dictators and the selling of secrecy.

You can find the taxcast here.

Our taxcasts have been nominated for the European Podcast of the Year Award; you can support tax justice by voting for it, here.

Update: For latest and previous Taxcasts, see here.



STEALING AFRICA: How much profit is fair?

Rüschlikon is a village in Switzerland with a very low tax rate and very wealthy residents. But it receives more tax revenue than it can use. This is largely thanks to one resident - Ivan Glasenberg, CEO of Glencore, whose copper mines in Zambia are not generating a large bounty tax revenue for the Zambians. Zambia has the 3rd largest copper reserves in the world, but 60% of the population live on less than $1 a day and 80% are unemployed. Based on original research into public documents, the film describes the tax system employed by multinational companies in Africa.

Director Christoffer Guldbrandsen
Producer Henrik Veileborg
Produced by Guld­brandsen Film

The Why Poverty? series will be broadcast in many countries starting November 2012.  Watch out for it.


Starbucks tax solutions: the FT is ahead of the game

Update: Michael Devereux of the Oxford Centre For Business Taxation, a sparring partner of ours, supports formulary apportionment too. We have slightly amended the text to reflect his letter.

As the latest Starbucks tax scandal in the UK shows, the accepted global methods for taxing multinational corporations is broken, defunct, dead, not much better than useless (etc etc.) There has been a lot of (justified) noise about Starbucks' ability to take the benefits from the UK without paying their share of the costs. But now, (again, thanks to Sol Picciotto) we see the FT coming in with the broad outlines of a solution. It is a workable system already used by many U.S. states for state taxes, known by the name of formulary apportionment.

The FT spells out in simple terms what it entails:
"Public anger might equally be directed at the tax system itself, especially the way it treats multinationals. Current practice has turned tax into a largely voluntary gesture for such businesses. It is all too easy to shuffle income off to low-tax jurisdictions through intra-group debt financing and the transfer pricing of intangibles such as intellectual property.

Rather than relying on the taxman and the public to police the fuzzy boundary between legitimate tax avoidance and illegal evasion, a more rational method of linking the tax multinationals pay to real economic activity must be found. The EU has been considering the adoption of a system of “formulary apportionment” by which multinationals’ tax bases would be divvied up according to where they do business. This agenda, which needs a group of states to join forces, should be keenly pursued."

In very simple terms, the alternative to the dominant global system, protected jealously by the OECD, involves taxing multinational corporations not according to the artificial legal structure into which the corporation's accountants contort it, but instead according to the real economic substance of where it does business. So (to oversimplify quite a lot) if Starbucks sells one fifteenth of its coffee in the UK, then you simply say 'the UK has the right to tax a fifteenth of those global profits, at whatever rate it likes.' And if it sells one millionth of its coffee in a tax haven, then that tax haven gets allocated one millionth of its profits, to tax at whatever rate it likes. And if the haven's tax rate is zero percent, then who cares?

We have blogged before how businesses have supported the general principle of formulary apportionment, at least in the context of Europe's horribly named Common Consolidated Corporate Tax Base (CCCTB). Now, in a follow-up letter to the FT's latest editorial, Michael Devereux of the Oxford Centre Against For Business Taxation supports the FT's line too. When TJN, businesses, the FT and Devereux support the principle, it seems fair to say that it's time for people to sit up and take notice. Particularly when there is so much agreement as to how broken the OECD's dominant system is.

All this would bring another benefit. If the multinationals no longer had an incentive to use tax havens - which they wouldn't under a truly workable system of this kind - then tax havens would lose a whole lot of the political cover that has been keeping them in business for all these years. And they would be far easier to tackle.

When you get down to the nitty gritty, formulary apportionment isn't simple, and it isn't the only alternative approach to the current system, but it is fantastic option to pursue. If you want to understand quite how insane the system is, try this or this.


Monday, October 22, 2012

Links Oct 22

Tax Challenges in Latin America TJN Latin America and Caribbean (In Spanish)
Oct 19 - Luis Moreno explains challenges, and points to the way forward - "Economic integration processes, and political and economic cooperation, can make the debate on fiscal policy acquire a proper regional and global dimension."

Stealing Africa Why Poverty?
Brilliant film trailer deals with Glencore and Zambia, trade mispricing and tax dodging. The full film will be broadcast around the world in November, as part of the major Why Poverty? series. Hat tip: Alex Cobham

See also:
Will Africa ever benefit from its natural resources? BBC
Oct 15 - "So why have so many African countries failed to turn natural riches into benefits for the masses? Who is to blame for the foreign exploitation, and whose responsibility is it to put things right? What about possible solutions - renegotiation of contracts, better transparency mechanisms, higher taxation, resource nationalism?"

Country-by-country reporting for banking, construction and telecommunications would help to address corruption, tax evasion and other malpractice Eurodad
Oct 19 - "The European Parliaments Legal Affairs committee has voted for a requirement for country-by-country reporting of payments to governments in the banking, construction and telecommunications sectors. This is a crucial step that comes on top of the requirement for extractive and logging industries to report on a country-by-country and project-by-project basis."

Tax, social protection and development: European proposals paint only half the picture Eurodad

Oct 18 - "In its Communication on Social protection in European Union development cooperation, released last month, the European Commission (EC) emphasises the need for fair and efficient tax systems to support social protection schemes in partner countries, but misses a crucial part of the picture: preventing the enormous illicit financial flows that rob billions each year from the exchequers of those countries..."

Anger grows over large companies' tax bills as attention turns to eBay and Ikea Guardian
Oct 21 - "Pressure is mounting on large multinational companies to pay their fair share of tax following new revelations about the amount of tax paid by eBay and Ikea.The focus on the tax affairs of the internet auction house and the Swedish retailer comes amid increasing anger about Starbucks."

Indonesia - OECD Economic Survey OECD
This economic survey has a strong focus on improving the tax system. But there's something strange: the report says nothing about tax information exchange - it does not even mention the OECD's own information-on-request approach. Hat tip: Francis Weyzig.

Goldman Sachs 'muppet' trader says unsophisticated clients targeted Guardian

Oct 22 - "Greg Smith, the former Goldman Sachs employee who infamously quit Wall Street via a New York Times article in March, says the investment bank routinely took advantage of charities and pension funds in order to increase its profits." - Reporting on an interview on CBS News' 60 Minutes.

U.S.: Tax Cuts for Job Creators The New York Times

Oct 19 - Explaining that Mitt Romney's tax plans would reduce federal revenues by trillions of dollars, and noting that, crucially, "we have found no evidence that such cuts lead to substantially faster employment growth at the national, state or even ZIP-code level."

Income Inequality May Take Toll on Growth The New York Times
Oct 16 -  "“What worries me is the idea that we’re in a vicious cycle,” said Joseph E. Stiglitz, a Nobel laureate in economics who has studied inequality extensively. “Increasing inequality means a weaker economy, which means increasing inequality, which means a weaker economy. That economic inequality feeds into political economy, so the ability to stabilize the economy gets weaker.”


Top tax expert Philip Baker skewers UK-Swiss tax deal

This video entitled Banking Secrecy, Tax Evasion and the "Rubik Agreements" - A New International Tax Order? was presented by Philip Baker of the University of London, also a QC at Gray's Inn Tax Chambers. Baker is a highly respected UK tax professor, at the Università Bocconi, Milan, on February 17th. We apologise for the delay in publishing this; we've only just come across it, courtesy of Sol Picciotto. (For further background on the deals see our earlier reports.)

Baker looks at the UK-Switzerland Tax Cooperation Agreement, the zombie that we have sought to kill several times, but refuses (so far) to die. We hadn't seen this video, but it is a superb, funny and caustic look at the tax agreement, from someone who (presumably) isn't, like most tax advisers working on this issue, conflicted. Beneath it we provide a few choice sentences, followed by a full transcript (with a few bits left out; check against delivery for the proper version.)

Here are a few choice sentences from Baker:


Here is a picture of Dave Hartnett, head of UK revenue, putting his signature, and Frau Schlumpf walking away looking like a very happy lady, walking away with the Crown Jewels.


--> People have commented: it has more loopholes than an Emmental cheese. If the assets are held under a discretionary agreement, you cannot identify the beneficial owners. A discretionary trust, foundation, has no beneficial owner. Corporate assets:  Unless you can effectively look through the company – are not included. Assets held by an insurance company, in an insurance wrapper, are excluded. The other night I happened to attend a lecture in London, I spoke to the person next to me about the Switzerland, and she said ‘oh, we have a solution: a liechtenstein insurance wrapper, if you want to keep evading tax.
(Note: these are just some of the loopholes we identified; see more here.)

The revenue projections

The UK government expects it to yield 4-7 billion, between 10 and 20 percent of our tax gap, but they don’t say over what period. Over the next year, the next 10 years, or the next 100 years? Most people think it is hopelessly, hopelessly, optimistic. Previous disclosure facilities didn’t even raise half a billion. Why should we expect so much more from this one?

The big question mark is whether the UK will ever get any more than that. The general view is: no, they won’t. That is all they will ever get out of this agreement.

The tax rates

The one-off payment has an incomprehensible formula, 19-34%, with the average likely to be about 22%.  Note: if I look over the past ten years, I have paid about 50 to 60 percent of what I charge my clients. If I had known I could get away paying 22 percent, oh I wish I had gone to Switzerland ten years ago.  

The morality of it all

It guarantees future Swiss bank secrecy. If I put my money into a Liechtenstein insurance wrapper, I keep my account secret. Why? Why should the UK government wish to preserve Swiss bank secrecy? No-one has explained to me why we should have this. I bank in the UK and France, and if I am investigated by either authority, I know they can look at my accounts, and I accept that. I expect them to keep that information inside the Revenue, and not leak it into the public domain. 

On the legality

Is it compatible to EU law? It is a big question of whether the UK government even thought about EU law when they entered into this agreement - and what the quality is of the advice they are getting.

On Switzerland promising to help identify where the money has escaped to

There will be a joint UK-Swiss commission to oversee it, and if people take their money out of Switzerland and send it elsewhere, then the Swiss will identify the ten major recipients. Professor Obserson: can I ask you to be a witness please? I am now handing you a list of the ten countries to which the money is going to move. I know, and you know, and he knows what those are. If I get all ten right, xavier will you pay me 10 swiss francs? . . . 
(a short pause)
I don’t think Xavier is dissenting from my list.

To conclude (in front of an Italian audience:)

The big question is: will other countries follow suit? Other countries that have been mentioned include Greece, Italy, which may enter similar agreements. We all do silly things from time to time.

FULL TRANSCRIPT (Note that this is very close to the original but words may have been missed here and there; you can check for accuracy against the original.)

I have been asked to look at the UK Switzerland co-operation agreement. (Background: he discusses the UK tax gap, with estimates ranging at £35 billion at the low end, to £120 billion at the high end.  He discusses the fact that the UK doesn’t do tax amnesties but has disclosure facilities, which typically raise relatively modest sums. He discusses the Liechtenstein Disclosure Facility (LDF)
We don’t do amnesties in the UK, we never have, and we still don’t. But what we do have are disclosure facilities, where you can come forward, pay the tax, pay a fixed penalty, you don’t go to jail, and you regularise the past. We have had a number of these facilities – we had one between 07-08, that raised £400m in undisclosed taxes, a relatively low figure. We backed that up by disclosure from a significant number of banks with overseas branches: 146 UK banks disclosed information about offshore branch accounts, that led to a second new disclosure facility starting in 2009 which so far has raised a tiny amount, £85 million.

We have a special arrangement with Liechtenstein: this started with the theft of information about liechtenstein bank accounts bought by the German secret service, then sold on to the British. So we reached an agreement with the Liechtenstein government to introduce a disclosure facility for just over five years. Someone who uses this facility pays 40% at an average rate, or less if they can show their tax would be less. They pay a 10 percent penalty, they have a guarantee of non-prosecution, it is currently available, and amazingly it applies to worldwide activities. Anyone who wants to actually use this can go to Liechtenstein now, create a “meaningful relationship” – that is the term used – with a Liechtenstein banker, then go to the Revenue and you can legitimise your money, anywhere in the world. So: I have been evading tax for years, I have my money in Panama, I have never been to Liechtenstein, I don’t even know where it is - but I form a ‘meaningful relationshiip’ with a Liechtenstein banker, then go to UK revenue and say “I would like to regularise this, would you give me my get out of jail free card?” And you get that under this facility.


So the UK doesn’t do amnesties – we do disclosure facilities, we don’t have any constitutional restriction on any of these arrangements, though perhaps we ought to be more aware than we are about EU law. We do traditonally settle many of our tax disputes by agreements, and we seldom prosecute (though the Revenue is not the only body that can prosecute tax matters.) Importantly, in the last year there has been a great deal of disquiet about the Revenue settling tax disputes for a fraction of the tax due. Vodafone, Goldman Sachs, big companies that settled large tax bills with relatively small payments. This is all background to the agreement.


Here is a picture of Dave Hartnett, head of UK revenue, putting his signature, and Frau Schlumpf walking away looking like a very happy lady, walking away with the Crown Jewels.

So what did the agreement contain?

There are actually five parts to the document

a)    the main agreement
b)    Joint declaration concerning equivalence, saying that the agreement will have ‘an enduring effect, equivalent to the outcome that would be achieved through an agreement to exchange information on an audomatica basis. This is supposed to be the same as automatic exchange.  I will leave you to judge whether that is true or not.
c)    A declaration on stolen data. The UK promises that in the future, we will not actively seek to acquire data “stolen” from Swiss banks. We have acquired stolen data in the past: you may ask whether it is right or not, but clearly Swiss banks don’t like it.
d)    Side letter about criminal investigations, saying that somebody who uses this Swiss facility is highly unlikely to be subject to a criminal investigation by HMRC. That is not an absolute guarantee. With Li, you get an absolute guarantee. Frau Schlumpf missed a bit here.
e)    Memorandum on financial services by Swiss firms. Swiss firms believe they have not had full market access, this memo explains how Swiss banks should go about marketing financial services.

The main core of it, though, is the agreement signed on Oct 6, not yet in force, so you can’t yet use this facility.


It will probably come in force on Jan 1 next year. The key implementation is by the Swiss bank, the Swiss paying agent. The taxpayer remains anonymous. The bank does everything on their behalf. It applies to assets that were already in Switzerland at the end of Dec 2010, and have remained there. So you can’t move yourself into this agreement, you have to have been evading tax in Switzerland at the end fo 2010, then you can use it. It only applies to individuals who are the beneficial owners of assets in Switzerland.

People have commented: it has more loopholes than an Emmental cheese. If the assets are held under a discretionary agreement, you cannot identify the beneficial owners. A discretionary trust, foundation, has no beneficial owner. Corporate assets:  Unless you can effectively look through the company – are not included.

Assets held by an insurance company, in an insurance wrapper, are excluded. The other night I happened to attend a lecture in London, I spoke to the person next to me about the Switzerland, and she said ‘oh, we have a solution: a liechtenstein insurance wrapper, if you want to keep evading tax. (That also by the way means having a ‘meaningful relationship’ with a liechtenstein insurance person.)

What are the elements of the agreement? Very similar to the agreement with Germany.

The first element is clearing the past, by the custyomer telling the bank to exercise one of two options:
a)    the one off payments
b)    disclosing the customer’s details to the UK government.

The one-off payment has an incomprehensible formula, 19-34%, average likely to be about 22%.  Note: if I look over the past ten years, I have paid about 50 to 60 percent of what I charge my clients. If I had known I could get away paying 22 percent, oh I wish I had gone to Switzerland ten years ago.

It applies to all major direct taxes, and as a sign of ‘good faith’, the Swiss paying agents have agreed to apy the UK government an  up front payment of CHF 500m in advance. The big question mark is whether the UK will ever get any more than that. The general view is: no, they won’t. That is all they will ever get out of this agreement.


Second element: if you choose secrecy, and don’t disclose, then the cost of that is that tax will be withheld by the Swiss bank on different types of income, and paid over to the UK. The rate is slightly less than the top UK rate of 50 Percent; it’ll be 48 percent withheld; dividends, other income have other rates.

The third element of the agreement is co-operation between the Swiss authorities and the UK, we already have provision under our treaty for exchange on request, that is now elaborated: the UK can request information if they have identified a tax risk and have identified and notified the taxpayer they are investigating. But if that taxpayer has elected to have the one-off payment and the WHT, then no information is to be supplied. So you maintain your secrecy, by agreeing to have a one-off payment and the Withholding Tax.

There is a maximum number of requests that can be made: 500, but if we make bad requests, and they are unsuccessful, the number drops. If we make 100 requests and less than one third are successful, then our maximum drops for future years. So we can only make good requests, or we are penalised.

Swiss banks promise not to encourage the use of artificial arrangements for the sole purpose of tax avoidance. You might have thought it was the purpose of bankers to bank, rather than sell artificial tax avoidance arrangements: they promise not to do that in future. Swiss banks will be audited to see if they are maintaining this, there will be a joint UK-Swiss commission to oversee it, and if people take their money out of Switzerland and send it elsewhere, then the Swiss will identify the ten major recipients.

Professor Obserson: can I ask you to be a witness please? I am now handing you a list of the ten countries to which the money is going to move. I know, and you know, and he knows what those are. If I get all ten right, xavier will you pay me 10 swiss francs, If I get none of them right, I will pay you 100 pounds.
(a short pause)
I don’t think Xavier is dissenting from my list.


the UK government expects it to yield 4-7 billion, between 10 and 20 percent of our tax gap, but they don’t say over what period. Over the next year, the next 10 years, or the next 100 years? Most people think it is hopelessly, hopelessly, optimistic. Previous disclosure facilities didn’t even raise half a billion. Why should we expect so much more from this one?

It guarantees future Swiss bank secrecy. If I put my money into a Li insurance wrapper, I keep my account secret. Why? Why should the UK government wish to preserve Swiss bank secrecy? No-one has explained to me why we should have this. I bank in the UK and France, and if I am investigated by either authority, I know they can look at my accounts, and I accept that. I expect them to keep that information inside the revenue, and not leak it into the public domain.

There are major loopholes to the agreement. Big question mark is whether people will actually use this, given that the Li facility is so much more attractive, it is now available and gives a guarantee of no prosecution, but it doesn’t keep secrecy. It does give disclosure.

Is it compatible to EU law? It is a big question of whether the UK government even thought about EU law when they entered into this agreement, and what the quality is of the advice they are getting.

Is the UK way better? Is it better to prosecute a few Swiss bankers from time to time, pour encourager les autres. Candide. The big question is: will other countries follow suit? Mentioned Greece, Italy, may enter similar agreements. We all do silly things from time to time. Will you follow suit on this question.

Last comment: we have the agreement, but we need legislation in parliament to support it. That legislation will be passed, the UK government has a majority, but it is a question of how much damage it may do to them if they push ahead with this agreement. It is not an absolute certainty we will have this agreement. 


Friday, October 19, 2012

Links Oct 19

Civil society calls for measures to stop the drain of resources Eurodad
Oct 18 - Reporting on an event organised by Latindadd, highlighting serious challenges faced by developing countries trying to mobilise their own resources for development.

Cayman: Mac ‘knocking on doors’ Cayman News Service
Oct 18 - 'The premier said he was “knocking on doors” in Asia, a “land of expanding economies where investors are looking for new opportunities.”  ... “We have to go to the right places, to knock on the right doors; whether that is to try to stop the EU from forcing us to 'converge' our financial services legislation with theirs, as we have had to go all the way to Greenland to do, or it is to seek the right kind of investment."'

Tax Fairness is a Key to Addressing Poverty Canadians for Tax Fairness
Oct 18 - "Until recently many progressive groups, including progressive political parties, have shied away from advocating for tax fairness and tax reform fearing that the issue was political dynamite. ... But the tide is turning."

Glaxo Canada Wins Key Transfer Pricing Case Tax-News
Oct 19 - "Canada's highest court has backed pharmaceuticals giant GlaxoSmithKline Plc in a landmark battle over the use of transfer pricing rules to reduce its federal tax bill. ... The saga is not completely over, however. In its judgment, the Federal Court of Appeal had declared that the case should be returned to the Tax Court, for a further re-assessment."

A look at tax havens by the Fortune 500 Business Insider
Oct 18 - On a new report from Citizens for Tax Justice - "the 285 members of the Fortune 500 that have parked money overseas would owe an estimated $433 billion in taxes if and when it is repatriated. No wonder these companies are working so hard to get a "repatriation holiday" even though the one given in 2004 did not yield any significant new investment, but lots of dividends and stock buybacks."

U.S.: Levin Writes to Bipartisan Leaders on Closing Offshore Loopholes, Avoiding ‘Fiscal Cliff’ Sen Carl Levin website
Oct 17 - "Seeking to help step back from the “fiscal cliff,” Sen. Carl Levin, D-Mich., chairman of the Senate Permanent Subcommittee on Investigations, has written to congressional and administration leaders on the need to address offshore tax abuses as part of a balanced deficit-reduction package."

Bank secrecy targeted in money laundering case swissinfo
Oct 17 - 'A spectacular case involving French and Swiss citizens and linking drug smuggling, money laundering and tax evasion is likely to further tarnish Switzerland’s image as a “tax haven”, only too ready to accept “dirty money” ... the well-known investigating magistrate, Eva Joly, described drug smuggling and tax evasion as "two sides of the same coin".'

Switzerland/U.S.: Bank heads’ “immoral behaviour” riles staff swissinfo
Oct 17 - More on the story of "thousands of bank staff and consultants whose names have been turned over to the U.S. Justice Department by Swiss banks suspected of tax offences across the Atlantic"-  reporting that the strategy was decided by those at the top, who remain protected.

See also:
Ex-Swiss banker may be helping U.S. in tax probe-lawyers Reuters

Oct 17 - "A former Swiss banker accused of helping rich Americans dodge taxes may be cooperating with a broad U.S. government investigation of Swiss banks for providing tax evasion services."

African Nations Join OECD Tax Transparency Initiative Tax-News
Oct 19 - "The OECD has welcomed Burkina Faso and Cameroon to the Global Forum on Transparency and Exchange of Information for Tax Purposes."


Wednesday, October 17, 2012

Links Oct 17

Argentina's Taxman Clamps Down On Grain Exporters Tax-News
Oct 17 - "The announcement from AFIP comes as part of efforts to tackle tax avoidance and evasion among the nation's largest companies. In previous years, AFIP pursued a handful of major exporters for triangulating trades through other nations and using illegitimate accounting ploys to cut taxable profits." See here for background.

Denmark Toughens Rules On Holding Companies Tax-News
Oct 16 - "The legislation also seeks to ensure that foreign companies do not use Danish companies as conduit companies to achieve tax-free dividend distributions between foreign companies and non-European Union (EU) parent companies." See the Financial Secrecy Index for information on Denmark as a secrecy jurisdiction.

Global Witness condemns API lawsuit to strike down Dodd-Frank oil, gas and mining transparency provision Global Witness
Oct 12 - "Global Witness is outraged by a lawsuit filed by the American Petroleum Institute (API), the U.S. Chamber of Commerce and others to gut Section 1504, an important anti-corruption provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act."

Cayman Financial Crimes Unit: Not enough SARs filed Cayman News Service
Oct 15 - "The volume of suspicious activity reports (SARs) being filed in the Cayman Islands is far too low considering that the jurisdiction is the fifth largest in the world, according to Detective Superintendent Brian Donley, lead in the RCIPS Financial Crimes Unit. DS Donley said that there had to be more suspicious activity taking place in Cayman and compliance officers were either being prevented from reporting such suspicious activity or were just not seeing it." Compliance officers are, in general, conscientious - so this highlights interesting questions.

Bank staff data handover grates in Switzerland swissinfo
Oct 17 - "The Swiss government’s authorisation to hand over bank employee details to the United States as part of a large tax probe has riled banking circles and divided politicians back home ... Five banks have now delivered the names of thousands of their staff and consultants, who in many cases were not even informed in advance and could take no recourse."

Monaco: Prince Albert's Taxing Issue CNN
Oct 16 - More on the topic of "We are not a tax haven".

See also:
Singapore - Full disclosure The Economist

Oct 17 - As reported in Oct 15 links, Singapore's real story is here.

Occupy London celebrates first birthday with launch of The Little Book of Ideas Occupy London

Oct 15 - ‘The Little Book of Ideas’, the free pocket sized book – written by the Economics Working Group of Occupy London – is now available for download. Includes chapters on Tax Avoidance, Tax Havens, and Accounting Transparency.

U.S.: States battle Levin effort to unmask beneficial owners, as US agencies make historic funding offer ACFCS
Oct 16 - "United States law enforcement agencies and prosecutors believe so strongly in a law that would help uncover the true beneficial owners of corporations formed in the various states that they have taken the unprecedented step of offering to fund state expenses with federal forfeiture funds. To facilitate passage of the legislation, the Treasury and Justice Departments have offered $30 million in forfeiture funds over three years to defray the expenses the states say would result from the legislation."

Double Taxation Agreement Germany/Liechtenstein TJN Germany Blog
Oct 17 - A press release of the Federal Parliament summarizes the public technical discussion in the finance committee of the Bundestag. TJN's statement is here.

Starbucks facing boycott over tax Daily Mail
Oct 17 - More on the UK Starbucks story - "Protest groups threaten to try and close branches over revelations it hasn't paid for three years."

See also:

UK committees to examine Starbucks tax strategies Reuters
Oct 17 - "The legislators said such investigations should also lead to recommendations on how to change tax law to prevent companies from shifting profits overseas."