Friday, March 29, 2013


Stop the tax scam and save Canada, say economists and analysts

New book,The Great Revenue Robbery, calls for fair tax system
Austerity is a bitter pill to swallow. But it is even more galling when we realize that it is the wrong medicine for the economy.  So-called experts say that the benefits of a radical free market agenda will trickle down to regular families. 
Meanwhile, the wealth and income in this country are increasingly concentrated in the hands of the top 1per cent, household debt is at an all-time high, poverty is at unacceptable levels, and the gap between rich and poor is an absolute canyon. Corporate executives are paying themselves multimillion-dollar salaries and bonuses while exploiting tax loopholes, and bankers are being bailed out with our tax dollars. But the tide is turning. Faced with growing inequality and cutback to government programs, public opinion polls show strong support for tax fairness, including raising taxes on the rich and on corporations.
The Great Revenue Robbery shows us how tax policy can help rebuild our social programs, reduce the gap between rich and poor, restore environmental respon sibility, and revitalize our democracy.
-  Prologue by James Clancy
-  Introduction: Tax Fairness Key to Rebuilding Canada by Dennis Howlett
-  Passing On the Torch by Trish Hennessy
-  Pushing the Envelope: The Overton Window and the Left by Diana Gibson
-  The Power of Conventional Thinking: Canada’s Media Join the Anti-Tax Movement by Richard Swift
-  The Trouble with Tax Havens: Whose Shelter? Whose Storm? by Peter Gillespie
-  The Failure of Corporate Tax Cuts to Stimulate Business Investment Spending by Jim Stanford
-  Financial Transaction Taxes: The Battle for a Small but Important Tax by Toby Sanger
-  Taxes and Ecological Justice?  By Joe Gunn
-  Tax Justice and the Civil Economy by John Restakis
-  Conclusion: The Way Out of This Mess by Murray Dobbin

Praise for the Book

“For decades,the right has flooded the airwaves and taken over the political podiums with its anti-taxhysteria. But Canadians are waking up to the simple truth that taxes are the price we pay for civilization, and that scrimping on taxes means scrimping on civilization. This collection of compelling essays deconstructs the misinformation spewing out of right-wing think tanks and media outlets, and reminds us that a far bettersocial order is tantalizingly within reach.”
~ Linda McQuaig, author and journalist
“The Great Revenue Robbery is a rallying cry for a just society. Special-interest lobbying has hollowed out the tax system. Corporations and wealthy elites have shifted their wealth and income to tax havens, and the mainstream media have polluted democratic politics with a trenchantly anti-tax agenda. This book explores this attack on tax and identifies potential progressive counterattacks, for example through financial transaction taxes, environmental taxes, and tackling tax havens. As the climate and economic crises deepen, the case for progressive taxes becomes more compelling by the day. Aux armes citoyens!”
~ John Christensen,
director, Tax Justice Network
“Over the past thirty years the prevailing neo-liberal ideology has framed taxes as fundamentally illegitimate. In exposing this big lie,The Great Revenue Robberycompellingly demonstrates the crucial and varied role oftaxes in a flourishing democracy. If you want to understand what went wrong in Canadian public policy andhow it can be fixed, you should read this book.”
~Neil Brooks,
professor of tax law and co-author ofThe Trouble with Billionaires
“This is a welcome critique of conventional economic wisdom. If you thought tax cuts would solve all of your problems, read The Great Revenue Robbery and think again.”
~Thomas Walkom, political columnist, Toronto Star


Thursday, March 28, 2013

Links Mar 28

Post-2015 agenda must be founded on coherent global framework, says panel The Guardian

Understanding International Tax Havens NPR
Panel for the radio broadcast includes TJN's James S. Henry, lead researcher of the report, "The Price of Offshore Revisited."

Laundry ... TJN Latin America and Caribbean (In Spanish)
A focus on Swiss banking

CBC's The National gives top billing to story on tax havens Canadians for Tax Fairness

See also:
Getting a handle on Canada’s ‘tax gap’ National Post

India: Tax officials told to crack down harder on black money The Times of India

India: Nokia slapped with Rs 2000 cr notice for tax evasion The Economic Times

Cyprus – the next chapter of dysfunctional EU debt crisis management Eurodad

Where will money launderers turn after Cyprus? Marketplace

Mobile Millionaires and the Search for the Holy Grail Tax Jurisdiction Citizens for Tax Justice

Taxing the Wealthy Is Not So Easy The New York Times

Wealthy Say Higher Taxes Haven’t Hurt Spending, Investing CNBC

Why is the Bank of England ignoring the negligence of the auditors who’re signing off accounts that understate losses by £50 billion? Tax Research UK

Why the British Banking Industry has become identical with an Organised Criminal Enterprise. Part 3 Rowans-blog

Oligarchy Exists Inside Our Democracy naked capitalism

IMF will assist Latin America to control the flow of foreign capital El País (In Spanish)
Hat tip: Jorge Gaggero


Reasons to resist the attacks on the corporation tax

The Guardian two years ago carried a piece entitled "Ten reasons to tax corporations," responding to all the devious corporate lobbyists who seek to argue that it's better to let corporations take the benefits provided by society without paying for it.

Now, from Tax Research UK and Economia magazine, a new list that overlaps with the Guardian original but provides of fresh analysis too, with a UK focus.
  • Corporation tax is a core part of our tax system. On average it raises 10% of UK tax revenues.
  • Corporation tax is a backstop to income tax: without it anyone who could incorporate would pay tax at will. We cannot afford that.
  • Tax-free companies would allow those with wealth to accumulate more in a tax-free environment, exacerbating wealth inequality.
  • A tax-free business sector would distort competition, providing much opportunity to large business, but little or none to small enterprise.
  • Corporation tax is source-based. It taxes profits made in or attributable to the UK. If it was abolished and instead company distributions to their recipients were taxed, the ownership of shareholdings would flee the UK and the tax base would collapse.
  • In many cases we don’t know who the owners of companies are – so have no other way of taxing them.
  • Source-based corporation taxes are the contribution paid for the right to trade in and make profit from UK markets. We grant that right by offering limited liability. As a result society shares the risks of capital communally, as the banking crash of 2008 showed.
  • Corporation tax is a distribution to society for the right to have limited liability; as compensation for the costs it imposes, and for the costs of market failure. Unless business pays that, ordinary people will.
There are many other reasons to resist the anti-tax lobbyists. One particularly important argument, particularly in the current economic climate, is provided via the London School of Economics blog, here.

Points to understand and rehearse, and to wheel out wherever necessary.


India and tax havens: new Christian Aid report

Hot on the heels of our "No More Shifty Business" co-signed report responding to the OECD's major new "BEPS" international tax initiatives, Christian Aid have published a new report entitled Multinational Corporations and the Profit-Shifting Lure of Tax Havens, which provides useful new evidence on how tax havens affect developing countries.

Using the Orbis database, they analysed the accounts of over 1,500 MNCs (Multinational Corporations) operating in India, home to 25% of world’s undernourished people, and found out that those MNCs with links to tax havens paid nearly a third less in taxes per unit of profit than those with no tax haven links. More specifically:
"On the basis of our sample of MNCs operating in India, we find that MNCs with tax haven connections:
•    report 1.5 per cent less profits
•    pay 17.4 per cent less in taxes per unit of asset
•    pay 30.3 per cent less in taxes per unit of profit
•    have 11.4 per cent higher debt ratios than MNCs with no connection to tax havens."
These conclusions provide useful empirical confirmation of what many people already know: tax havens help multinational corporations dodge taxes in developing countries, undermining development. Christian Aid continue:
"Our findings strongly suggest that MNCs with connections to tax havens engage in profit shifting more intensively than those MNCs with no tax haven links. This confirms the notion that when corporations have tax haven links they face higher incentives (because of the low tax rates in tax havens) and opportunities (because of the secrecy provisions tax havens offer) to shift income than corporations that do not have any tax haven links.

Profit shifting by MNCs can significantly reduce the tax revenues raised by governments. In countries where taxes raised as a percentage of GDP are very low, the revenue foregone can seriously undermine efforts to tackle poverty and invest in human development."
And their solution? Among other things, unitary taxation with profit apportionment.


Wednesday, March 27, 2013

Links Mar 27

Cyprus disaster shines light on global tax haven industry MSNBC

The effects of Cyprus on other tax havens The Economist

Cyprus's banks have been tamed – are Malta and Luxembourg next? The Guardian

Germany warns Russia tax "raids" on NGOs may harm ties

Five not-so-convincing ways that tax havens justify their existence Quartz

Egypt's top construction firm to pay $1 billion in tax evasion dispute albawaba

Ireland: Not one person prosecuted for Ansbacher scam
Greatest tax evasion scheme in recent history has returned €113m in penalties – but still no criminal convictions

Big companies' tax avoidance blatant and shameless The Sydney Morning Herald

U.S.: IRS Releases 'Dirty Dozen' Tax Scams TaxProf

How to Unlock That Stashed Foreign Cash The New York Times

Post analysis of Dow 30 firms shows declining tax burden as a share of profits Washington Post

Citigroup's Money Laundering Controls Must Be Improved: Fed Huffington Post

Is JPMorgan a farmer? Salon
How the U.S.'s biggest banks use the little-covered House Agriculture Committee to gut regulations

Wikileaks Was Just a Preview: We're Headed for an Even Bigger Showdown Over Secrets Taibblog / Rolling Stone

BRICS reach deal on development bank to rival IMF The Telegraph

Ecclestone, the French race circuit and the real story behind that $44m 'bribe’ The Telegraph


Corruption in Malaysia, Singapore exposed as investigation catches Sarawak’s ruling elite on camera

We are a few days late for a full blog on this Global Witness video (though we linked to it earlier). It has attracted quite a stir in Malaysia, garnering over a million views and, among other things, a mention in today's FT.) As Global Witness say:
"For over thirty years, Sarawak has been governed by Chief Minister Abdul Taib Mahmud, who controls all land classification, forestry and plantation licenses in the state. Under his tenure, Sarawak has experienced some of the most intense rates of logging seen anywhere in the world. The state now has less than five per cent of its forests left in a pristine condition, unaffected by logging or plantations and continues to export more tropical logs than South America and Africa combined.

The film reveals for the first time the instruments used by the ruling Taib family and its lawyers to skirt Malaysia’s laws and taxes. It shows how they cream off huge profits at the expense of indigenous people, and hide their dirty money in Singapore."

One company, for example, was offered for sale through an illegal transaction in Singapore designed to evade Malaysian tax. The lawyer told Global Witness that Singapore has a “Chinese wall,” that it’s impossible for the Malaysian authorities to get any information out of Singapore, and that Singapore is for "people like us."

It's a really good, important investigation. See the original here, and the Global Witness press release here. For a long-time investigator of these and many other matters, see the Sarawak Report.


No More Shifty Business: a response to the OECD's BEPS report on global tax

Last month we blogged a major new initiative by the OECD, a group of rich countries, to tackle tax avoidance by multinational corporations. We have been highly critical of the OECD in the past, but we broadly welcomed the new initiative, called BEPS (Base Erosion and Profit Shifting) initiative, because it appeared to show a real potential change of direction and a new willingness to start thinking of fundamental reform to international tax for the first time.

Now a large number of civil society organisations have jointly produced a document entitled No more shifty business: A response to the OECD’s Base Erosion and Profit Shifting Report on Tax.

It notes, among other things, that the international tax rules first drawn up 80 years ago have not kept pace with the changing business environment; the current rules are not fit for purpose. TJN has been saying this for a long time, and the OECD at last appears to be recognising this truth.

Perhaps the most important section of the report is this part:
"In order for MNCs to be taxed according to their real nature, two measures should be introduced:
  • MNCs should be required to submit a worldwide combined report, including consolidated accounts, to the tax authorities of each country in which they operate.
  • MNCs should be required to provide a country-by- country breakdown of their employees, physical assets, sales, profits and taxes actually due and paid.
These two measures could be the basis of a tax system that would consider the total profits made by a MNC, rather than the profits made by any of its parts. It would then allocate these profits to the different countries in which the MNC conducts its real business, according to transparent criteria. Each country would be free to decide what tax rates to apply to their corresponding tax base.

These measures should be complemented by others in order to foster financial transparency, such as the public disclosure of the beneficial owner of companies, foundations and trusts, and the adoption of automatic information exchange as the new global standard."
We should add that combined reporting, broken down on a country-by-country basis, is at heart a transparency issue. In and of itself it does not force countries into any particular tax policies, and It merely provides them with the information that they need to help tax multinationals. Combined reporting is a central component of the more far-reaching unitary taxation, which our new report also explores in depth, and which was the subject of a recent paper on the topic by Professor Sol Picciotto, who has done much work on this.

John Christensen, director of the Tax Justice Network, said:
"This is a truly historic moment. Issues that have been off the agenda for nearly a century are now finally on the agenda. The OECD can either make history and push forward with thoroughgoing reforms, or it can pander to corporate lobbying and come up with a damp squib. The next 12 months will be crucial for establishing whether or not the OECD is up to the job of establishing a new and more just global economic order, where multinational corporations can no longer free-ride on the backs of the rest of us, channeling wealth upwards into the hands of a privileged few."
Access the full report here or on Christian Aid's website here. This is an important document, which we will add to our home page.  For further reading on combined reporting, see The Use of Combined Reporting by Nation States, by Prof. Michael McIntyre, and a presentation by McIntyre looking at how combined reporting functions in the hands of U.S. states. Read more on this blog entitled Render Unto Caesar, from the Center for Global Development. As it notes:
No less a radical firebrand than the Financial Times notes that corporate tax has become ‘a largely voluntary gesture’, which it thinks ‘scandalous’. The problem is particularly acute for developing countries.
Our new No Shifty Business report contains further reading material.

The organisations that have supported the No Shifty Business document are:
Action for Economic Reforms (Philippines)
African Forum and Network on Debt and Development
(AFRODAD) (Africa)
Alliance Sud – the Swiss Alliance of Development
Organisations (Switzerland)
Attac Norway
Australian Education Union (Australia)
Berne Declaration (Switzerland)
Canadian Council for International Co-operation (CCIC)
Canadians for Tax Fairness (Canada)
Catholic Bishops’ Organisation for Development
Cooperation – Misereor (Germany)
CCFD – Terre Solidaire (France)
Centre for Budget and Governance Accountability (India)
Centre for Social Concern (CFSC) (Malawi)
Centre National de Coopération au Développement,
CNCD –11.11.11 (Belgium)
Centro Internacional para Investigaciones en Derechos
Humanos (CIIDH) (Guatemala)
Ciase (Colombia)
Christian Aid (UK)
Decidamos (Paraguay)
Economic Justice Network (South Africa)
European Network on Debt and Development (Eurodad)
Finnwatch (Finland)
Forum Solidaridad – Peru
Global Policy Forum Europe (Germany)
Halifax Initiative (Canada)
IBIS (Denmark)
Inter Pares (Canada)
International Alliance of Catholic Development
Organisations (CIDSE) (International)
Jubilee – Australia
Kairos (Europe)
Lantidadd (America Latina)
Malawi Economic Justice Network (MEJN) (Malawi)
Methodist Tax Justice Network
National Taxpayers Association (NTA) (Kenya)
Netzwerk Steuergerechtigkeit (Germany)
New Rules (USA)
Norwegian Church Aid (Norway)
Perkumpulan Prakarsa (Indonesia)
Plateforme Paradis Fiscaux et Judiciaire (France)
Red Jubileo – Peru
Red Nicaragüense de Comercio Comunitario (RENICC)
Sherpa (France)
SJ Around the Bay (Australia)
Social Justice (Ivory Coast)
Southern and Eastern African Trade Information and
Negotiations Institute (SEATINI) (Africa)
Secours Catholique – Caritas (France)
Spire (Norway)
Tax Justice Network
Tax Justice Network – Africa
Tax Justice Network – Australia
Tax Justice Network – Europe
Tax Justice Network – Germany
Tax Justice Network – Israel
Tax Justice Network – Netherlands
Tax Justice Network – Norway
Tax Justice Network – USA
Taxpayers Against Poverty (UK)
Union Aid Abroad – APHEDA (Australia)
Uniting Church in Australia, Synod of Victoria and
Tasmania (Australia)
Weltwirtschaft, Ökologie & Entwicklung (WEED)


Tuesday, March 26, 2013

Links Mar 26

Tax and the post 2015 Agenda Christian Aid

Render unto Caesar Centre for Global Development

U.S. Seeks Answers in Liechtenstein on Tax Cheats Bloomberg
“Seeking documents from the Liechtenstein fiduciaries is an important investigative step,” which will shed light on “the roles of banks, of bankers outside of Liechtenstein”

Puerto Rico Creates Tax Shelters in Appeal to the Rich Dealb%k

Cyprus’ absurdly large, dodgy banking system, in three simple charts Quartz

Why did Apple have losses in Spain?  El País (In Spanish)

Why the British Banking Industry has become identical with an Organised Criminal Enterprise Rowan's-blog

HSBC By The Numbers Task Force Blog

World Derivatives Market Estimated As Big As $1.2 Quadrillion Notional, as Banks Fight Efforts to Rein It In naked capitalism

Nick Leeson, the man who bankrupted Barings Bank: "My story is being repeated, but should be avoided" Cronista / Apertura (In Spanish)
Hat tip: Jorge Gaggero

Spring Training Is A Tax Haven For Baseball Players Forbes

Tax-free culture and art haven to open in Beijing in 2014 Shanghaiist


Most foreign investment in BRICs isn’t foreign at all—it’s tycoons using tax havens

From Naomi Rovnick at Quartz:
"Each of the BRICs have big problems with tax dodging, which saps billions from national treasuries and—in the case of Russia, India, and China—suggests the newly rich are failing to share the wealth with the poor.
. . .
The clearest sign that BRICs are leaking tax revenues is that each country’s biggest source of outside investment is a tax haven. China counts the tiny Caribbean bolthole of the British Virgin Islands as its biggest source of foreign investment (not including the Chinese territory of Hong Kong). India has Mauritius, Russia has Cyprus, and Brazil has the Netherlands."
Now read on. It's a great article.

NB: The IMF searchable database that the report cites is excellent. This particular TJN blogger hadn't seen it before.


Taxodus - new online tax dodging game

Now TJN members can work and play video games, simultaneously. We haven't played it yet, but on a cursory inspection it looks quite sophisticated.

Taxodus: mapping assets offshore. Original site here.

(We originally embedded the video, but it was launching and playing strong music any time anyone clicked on our side, so we leave you merely with the web link.)


Transfer pricing in Helsinki: videos now available

Last year TJN hosted a major transfer pricing seminar in Helsinki, which brought speakers from around the world and was a great success. We already hosted the presentations on our transfer pricing website.

Selected videos are now available here, and more will be uploaded in due course.

This will be stored permanently on our transfer pricing webpage.


Stern magazine calls Big Four bosses "Legal Enemies of the State"

Germany's Stern magazine has an article, not currently online, whose thrust is summarised in this remarkable picture.

The article names the global heads of the Big Four accountancy firms, and the big headline translates as "Legal Enemies of the State."

Wow. That is a hefty charge. And the basis of the charge? Well, the article opens like this:
"Because of these men, corporations like Amazon, Google etc. pay almost no tax. With their 700 000 staff they skilfully create tax tricks. It is high time to drag them out of their loopholes."
How apt. Absolutely right. The Big Four accountancy firms help multinational corporations (and other wealthy players) escape huge tax bills, shifting the burden of tax onto the shoulders of others: smaller more local businesses, individuals, the victims of public sector cutbacks, and so on. The ability of multinationals to harvest these tax subsidies helps them out-compete their smaller, more locally-based rivals, killing them in markets and driving them out of business. The result is greater market concentration, greater oligopolistic pricing power for the multinationals, greater influence for the tax havens that facilitate all this (thus providing cover for all manner of nefarious activity,) greater economic inequality around the world, and more. All this goes by the name (in the Anglo-Saxon world) of 'tax efficiency' - when these outcomes are all profoundly inefficient. 

The Stern article extensively quotes accountancy expert Prem Sikka, a Senior Adviser to TJN, who for a long time has been calling the Big 4 the "Pin Stripe Mafia" (take a look at this exploration of the problem). Sikka says:
"A lack of transparency and strict secrecy are part of the business model of the Big 4. As with the banks, nobody dares to break the wall of silence."
It is fantastic to see Stern taking this approach. Spot on. Among other things, the authors read and understood our research about the propensity of big 4 firms to locate in jurisdictions which provide a more secretive legal environment. In tiny Cyprus, for instance, PWC alone employs over 1000 staff.

One quote is interesting, from an apparently highly motivated official in the German Ministry of Finance, head of the tax department. Stern says:
"Michael Sell profoundly knows the big tax firms. He can assess the danger arising from the Big Four like few others. "With 32 I was employee of a big-four firm. There, I asked myself: do I want to help foreign firms save taxes in Germany all my life? I then changed to the federal tax administration."  He begun to model and expand the central tax office on the example of the federal criminal investigations office - though he does not accept this comparison."
A US senate report reveals what happens in sales pitches for new tax avoidance schemes: the clients do not receive computer files. Nothing is noted on paper. The sellers write everything on boards, which they wipe off afterwards."

Stern investigates classic tax structures such as the "Double Irish", and lesser-known ones such as Cobra, Soap Picante, and Pita.

Thanks to the Blog Steuergerechtigkeit 


The Tax Free Tour - excellent new tax haven video

The Tax Free Tour, a Dutch television programme, is now available online. A most useful primer on how these things work.

Featuring various TJN officials.


Monday, March 25, 2013

Links Mar 25

ActionAid calls for post-15 development panel to address domestic taxation
Press release on a new ActionAid briefing paper, Bringing taxation info the post-2015 development framework

See also:
Tax emerges as crucial issue in post-2015 development talks The Guardian

Tax Fairness on the agenda but .... Canadians for Tax Fairness
Analysis of The Canadian Federal Budget, tabled on Thursday, March 21. Much more needs to be done, especially on tax havens.

Alvin Mosioma: "For every $1 dollar that flows into Africa, $10 flows back out ' Vice Versa (In Dutch)

Sarkozy under formal investigation Economist Blog
Former French president's involvement in the Bettencourt case, a saga that mixes alleged tax evasion, a tropical island, domestic servants, fabulous wealth and political party-financing.

U.S." Web Money Gets Laundering Rule The Wall Street Journal

Dealing with tax avoidance "down under" economia
Proposing that the UK should look to the Australian model for tackling tax avoidance.

Austrian Lawmakers Back Tax Deals With Liechtenstein Tax-News

Amazon tax petition hits 100,000 signatures The Guardian

Alcoa and Norðurál Pay Little Or No Income Tax In Iceland The Reykjavik Grapevine
Involving complicated chains of ownership, using Delaware and Luxembourg.

Yachts Lured To Croatia By EU Accession VAT Perk Tax-News

The super-rich who have made Cyprus their home The Guardian


March Taxcast

In March 2013's Taxcast: the crisis in Cyprus and the risk tax havens pose to the global economy, a surprise earthquake for UK-affiliated tax havens and a frustrated corporate tax inspector speaks out on the corrupting of the tax system. Now also available on iTunes: Produced by @Naomi_Fowler

Or download it here.

Update: For latest and previous Taxcasts, see here.


Cyprus: what the world's media has missed

April 3: slightly updated, with fresh quotes and modified commentary
Many people have been asking us about Cyprus. Its tax haven status is central to the drama that has seen big depositors there stand to suffer large losses, while small depositors holding amounts below 100,000 Euros, who had previously been threatened with a 6.75 percent levy on the capital value of their deposits, will be spared.

The question is: is this the right deal, from our perspective?

In broad terms, yes. It absolutely is.  And much of the world's media has not taken into account all the factors that are at play here. (Though we do particularly like this recent interpretation of events by Paul Krugman of the New York Times, of course.)

Most notably, Cyprus has been running a pernicious, unpleasant, grubby and often violent tax haven racket for years. As a result, it long since left the community of decent, respectable nations. (We should note here that the ordinary population of a tax haven is different from the financial services industry of a tax haven; but more on this below.)

This deal will, we fervently hope, kill off Cyprus' entire offshore model which goes far beyond banking deposits, and includes offshore companies and other structures. We know, via specific cases, that Cyprus has been harbouring and protecting vast subterranean funds from activities of the Russian Mafia, criminal organisations, common thieves, wholesale tax evaders, insider traders, and much more. We know, for instance, that Cyprus has been harbouring illicit gains obtained (partly) through murder (see this, for instance). Krugman notes that:
"Whatever gloss you put on it, it’s basically about money-laundering."
Quite so.

Cyprus, of course, loudly denies being a tax haven: they all do. It's part of the theatre of probity that is de rigeur among corrupt tax havens that is required to reassure the world's hot money that their money is safe.

The reality is entirely different. This has been, in effect, a substantially criminalised state, and it is now being brought to book. So this is a highly positive development, all things considered, and there are grounds for hope that the offshore model will be effectively killed: as this article notes in the Cyprus Mail:
"The troika has potentially vaporised the Cypriot-based financial services sector and undermined its status as a tax haven, a deliberate act which aimed to police the wilder shores of capital flow in and out of Europe. . . .The financial services sector may now prove dead in the water and the tax haven status of Cyprus has been swiftly and comprehensively compromised. If you have money to hide, you are not going to park it in Cyprus any more.
Or, in the words of a Russian cited in the FT (in an article that deserves a blog all to itself),
“The Cypriots killed their country in one day.”
The Cyprus Mail article is fascinating, for although the authors clearly it describes something that we at TJN have long described and will explore in far greater depth, in a forthcoming long paper: the capture of, and capitulation by, an entire nation state, to the offshore financial services industry. And this is the big point that the world's media has largely missed, and which is perhaps the most fundamental of all. As the same article notes:
"The interest of the Cypriot political elite has, in large part, been tied to the financial services sector since the early 1990s with lawyers, accountants and others massively over represented in public life and wielding inordinate power . . . the broader interests of the Cypriot economy have become, to a significant degree, dependent upon this economic regime."
Take this interesting article about Cyprus, for instance, which noted that the EU had held back on taking action against Cyprus banks because of imminent elections, which EU officials hoped would oust the current President, the Communist Dimitris Christofias, who was "considered too close to the Russian investors." The opposition leader, Nikos Anastasiades, is duly elected, and the article notes that "Anastasiades is a successful investment lawyer, who has several Russian billionaires in his portfolio" and the finance minister Michalis Serris "was also a member of the board of the second bank of Cyprus, the Popular Bank (Laika Bank in Greek.)" And those are just the most obvious examples. 

David Officer, one of the coauthors (along with Yiouli Taki) of the Cyprus Mail article, is an academic who has been conducting a "democratic audit" of Cyprus. Officer told TJN in emails:
"Cyprus is a remarkably un-reflexive society so this issue appeared to have been ignored by every single journalist, academic and political actor on the island. A consensus emerged here that if the goods were being delivered there was nothing to be gained by reflecting on how those resources were secured."
Or, as that same Russian businessman cited in the FT put it:
"They are saying we laundered all the money, but they lived on that money for 10 years and forgot about it.”
Back to Officer and Taki:
The crisis has caught up with us and I have grown inured to international media attention since stories are spreading across the media but with no connection to the context described above. Gave a 45 min interview to [a U.S. newspaper] a couple of days ago which was reduced to two lines on their front page on Saturday. The outsider cannot grasp the context and the Cypriot insider is not in a position to join the dots because they have never been given the conceptual framework or the motivation to do so."
TJN has been told by Cypriot journalists that they had (until the recent crisis) quite literally been afraid to report deeply on the offshore sector, for fear of reprisals. Anyone who has read The Life Offshore chapter in Treasure Islands will instinctively understand what is happening here. Officer and Taki continue:
"Why we can talk about 'state capture' by the financial services industry is how a nominally left-wing party such as AKEL has never once raised any substantive issues about how the economy had become absolutely dependent upon the tax haven model and Cyprus a conduit for the flow of foreign finance capital between jurisdictions. Political consensus emerged around this model because it appeared to deliver the goods and common resistance was forged to any attempt by international organisations - World Bank, IMF, FAFT, EU....the list goes on - to impose an effective regulatory regime which would undermine this particular cash cow."
Officer and Taki clearly have great sympathy with the ordinary citizens of Cyprus, as do we: the EU's response, they say, is
"a cruel and unusual punishment visited upon ordinary Cypriot citizens who have never been informed of the perpetual risks which have accompanied the tax haven strategy of economic development vigorously promoted by the political elite since the 1980s."
Now Cyprus - and ordinary Cypriots - have a huge, existential problem. When an island gets captured by an offshore financial services industry - and we've seen this again and again - it tends to kill off substantial parts of alternative sectors. Among other things, it can create "Dutch Disease" effects where local price levels rise in response to the inflows of money, either via the exchange rate or via inflation, and the resulting higher-cost environment then makes it harder for various other sectors to compete in international markets. They consequently wither. More importantly, though, the salaries in this sector are far higher than in any other, and this leaches the best and most highly skilled people out of other sectors (private and public) and thus further worsens their prospects. In the face of all these adverse trends, policy makers then lose interest in 'difficult' problems such as creating a viable agriculture or manufacturing or tourist industry and instead let the easy money roll in in pursuit of secrecy and lax criminal enforcement, no questions asked. Dissenters are bought out or threatened.This makes the problem worse still. It also tends to criminalise originally law-abiding people who come into contact with this sector, who find that they are required to turn a blind eye to foreign tax evasion and other criminality if they want to prosper.

And here we get to what exactly it is that Cyprus has been selling. Its secrecy score on the Financial Secrecy Index is not especially egregious in comparison to some other havens, but that's not quite the point in this particular case. From our knowledge of what has been going on, Cyprus's top offering has been to peddle non-compliance with its own laws (for an example, see here, at about 10.00-11.00 minutes in.) Officer on our Financial Secrecy Index itself:
"The index indicators through which measurement occurs are incomplete because they concentrate on the formal legal framework rather then the actual practice of lawyers, accountants and others which deviate from the legal norm established.
. . .
The usual vested interests from the President to the financial services industry have been repeating the mantra that 'there is no dirty money in Cyprus' and deflecting attention from implementation issues to the comprehensive legal framework in place - this is the same issue. Small island jurisdictions obscure from view the informal practices which circumvent the law.
. . .
This is the competitive advantage they then use to attract foreign capital to Cyprus."
(We don't disagree with this criticism of our index, other than to say we consider that deviation from the rules that we measure, is exceedingly hard to measure. We would argue that our index is made up of two components: a secrecy score, and a weighting for size, and deliberate non-compliance ends up being captured, indirectly and very roughly, in the scale weighting, which reflects the size of flows that are attracted by the non-compliance.)

In summary, though, when dirty money comes in, Cyprus' regulators and forces of law and order have deliberately turned their face away.  That is what happens when you allow criminal financial interests to 'capture' your state. And international initiatives have not helped much, it seems: like so much that happens in offshore, it's easy to get good marks. Look beneath the hood, though, and a very different reality appears.

A new report in the EU Observer, focusing on the EU money laundering body Moneyval, is worth quoting at some length:
"Moneyval in 2005 noted that Cyprus also hosts 14,000 offshore firms, 12,000 of which have no physical presence on the island. . . . It [Moneyval] operates by sending a questionnaire to the Cypriot government, which evaluates itself on compliance with international anti-money laundering standards.

It then sends six or so experts who spend three to eight days talking to people in Cypriot government institutions, such as the central bank, Cysec (its main financial regulator) and Mokas (the Cypriot attorney general's anti-money laundering division).

Its last report, in 2011, was described by an independent expert, Tommy Helsby, from the US-based audit firm Kroll, as full of "glowing words."
That sounds good. But what did they actually find?
"Despite the size of Cyprus' financial sector, it said that since 2005 authorities convicted just two people and issued nine orders to freeze accounts in cases focused on money laundering. It noted that "sanctions imposed in practice have been mainly in the form of warning letters." It also said Cyprus lacks the IT and human resources to implement laws."
This EU Observer article is worth reading in full: it's a shocker. Just for instance, in light of the  Magnitsky case:
The plot involved the theft of three Russian firms, which were owned by two Cypriot companies, which in turn belonged to a UK-based investment firm called Hermitage Capital.

The directors of the Cypriot firms in June 2008 sent a complaint and two affidavits, seen by EUobserver, to the Cypriot authorities asking for help. The authorities never replied.

When EUobserver phoned the Cypriot attorney general in January to ask why, he said he is too busy to explain. . . . the Cypriot attorney general did not open a money laundering case until six months after he got the information and now appears keen for it go away." 
Officer and Taki continue:
"Small, close knit societies like Cyprus thrive on a lack of transparency and inadequate regulatory regimes in dealing with their own population. This is the competitive advantage they then use to attract foreign capital."
Quite so. And there's another hard piece of evidence of state capture, which will probably surprise few Cypriots. From Greece's Ekathimerini
"According to the revelations, Bank of Cyprus, Cyprus Popular Bank (Laiki) and Hellenic Bank -- which were earlier this week acquired by Greece's Piraeus Bank -- has forgiven companies, MPs and local authority officials millions of euros in loans over the past five years."
That would constitute outright bribery, as a direct route to state capture.

This is exactly, exactly, the sort of thing that Treasure Islands, and our forthcoming paper, describe. The trouble that Cyprus now faces is that there is no plan B now. Other sectors have withered, skills have been lost, none of the polliticians know what to do, the rest of economy has been hollowed out, and even the banking sector is unable to function, since it was only ever a business in pursuit of those easy, secrecy-suffused rents, cosying up to Russians, Ukraininans and others.  Cyprus turned itself into into a dodgy wealth management economy, and many of those skills aren’t transferable to other sectors.

As alternatives wither, political capture deepens, in a self-reinforcing dynamic.

And now, the consequences.

One final note. The countries pointing the finger at Cyprus are vast, unprincipled hypocrites. The UK, Germany, the United States, and many others are all tax havens in their own right. This is true, and raising this issue is our bread and butter. But this does not in any way change the arguments about Cyprus.


Quote of the day: the descent of Britain

From Jonathan Ford's Financial Times review of Richard Brooks' book The Great Tax Robbery, a book about how the UK is increasingly turning itself into a tax haven (something that TJN readers will be wearily familiar with.)
"While the government is only too happy to put the populist boot into the tax affairs of Jimmy Carr or Starbucks, it is rather cagier about the curious twists of policy that allow swaths of the corporate tax code to be written by companies with help from the very accountants who design avoidance schemes.
. . .
Britain, far from ruling the waves, may be condemned increasingly just to waive the rules. At the end one is left with a slight whiff of nostalgia – for the days when governments could crack the whip over even the biggest companies."
It's a really positive review. Our quote of the day in bold. Right on the money.

(On the same subject, also see Over Here and Undertaxed.)


UK Uncut asks "Who Wants to Evict a Millionaire?"

Amidst growing pressure on the government over the bedroom tax, UK Uncut, the anti cuts direct action network, has today announced that it plans to 'ramp up the resistance' to the benefits cap and the bedroom tax by undertaking civil disobedience across the country next month: Saturday 13 April.

UK Uncut would not be drawn on the exact nature of their plans dubbed 'Who wants to evict a millionaire?' but a statement on their website states they will be 'bringing the cuts home to millionaire misery makers' who they describe as millionaires with loads of spare rooms, who are avoiding tax, or politicians or business people who are directly pushing or benefiting from the cuts. This hints that they will be targeting individuals' homes, as they did last summer when the targeted Nick Clegg's home in Richmond. They say that their plans could include bedtime stories for children, bed blockades, and eviction notices.

The government has made minor concessions over the bedroom tax, but campaigners argue that this is not enough and are calling for a complete U turn. Foster carers, disabled people and single parents are expected to be hit hardest by the bedroom tax. The plans will make 670,000 people worse off and will see forced evictions of people from their homes, forcibly moved to another part or the country and onto the streets.

Sam Atkinson, UK Uncut supporter said: "We must resist the attack on benefits for everyone, not just a few exceptions. The cap on benefits and the bedroom tax will have disastrous affects for people. It will make them poorer and potentially homeless.

"People on benefits are not the problem as the government would have us believe. We know it?s the banking system, tax avoidance, and the government's austerity policies that are designed to make rich people richer and everyone else poorer.

"There have been protests across the country and now it's time to hit the streets again and take civil disobedience so we can't be ignored. We're going to bring our protest to the the homes of millionaires who have got loads of spare rooms and are directly benefiting from or pushing the cuts to housing benefits that are making people homeless. We are going to show them that we will not accept their unnecessary cuts."


Notes to editors

- UK Uncut's day of action will take place on Saturday 13 April. Further details can be found on our website

- People around the country will be organising their own actions where they live - these will be listed on our website over the next 3 weeks.

- Further details about the London action have been released on facebook :


Sunday, March 24, 2013

And we have lift off . . . TJN celebrates a major anniversary

The Tax Justice Network was launched on 24th March 2003 at a special event at the British Houses of Parliament.  The launch came just months after the founding meeting in Florence, Italy, in November 2002, and followed a frantic period of drafting TJN's founding Declaration and Mission Statement. 

The launch was hosted by Austin Mitchell MP, and organised under the banner of Prem Sikka's Association for Accountancy & Business Affairs, which was also represented by AABA members John Christensen and Richard Murphy.  The latter chaired the launch meeting.  John subsequently became TJN's first Coordinator (later Director) alongside War on Want's Pete Coleman.

A wide range of activists from across Europe attended the launch, including Sven Giegold, Bruno Gurtner and Andreas Missbach who had convened the founding meeting in Florence.  The launch meeting included presentations from Andreas Missbach (Berne Declaration), Pete Coleman (War on Want), Bruno Gurtner (Swiss Coalition of Development Organisations, now AllianceSud), John Christensen (AABA), and Pat Lucas from ATTAC-Jersey.

In her presentation, titled From Paradise to Pariah: Jersey's Road to Perdition, Pat lamented Jersey's take-over by international bankers and lawyers, and explained how sky-high house prices and a cost of living amongst the highest in the world had wrecked the island's domestic economy and corrupted the political processes. 

Pat and her colleagues from Jersey went on to play an amazing role in getting TJN started.  We knew that funding was never going to be easy to source. Rich philanthrophists and corporate donors weren't exactly knocking on our doors, but neither were civil society organisations and cash-strapped progressive NGOs.

Happily, Pat (on the right of the photo above) and her colleagues Jean Andersson, Sister Peter, and Rosemary Pestana, plus many, many other friends from Jersey, just rolled up their sleeves and got to work.  They organised tombolas, book stores, fund-raisers and all manner of whatnot.  Within a matter of months they provided the financial means to get us started, plus a simple instruction: "rescue our island and close down these tax havens."

We had lift off . . .


Credit Suisse chief: bankers' threats are overblown

From March 15, a quote that we missed, from Credit Suisse chief Bradley Dougan, in the context of Swiss plans for strict curbs on executive pay:
"People are always writing about bankers leaving. In the end, not so many tend to move and I think that will also be the case this time."
Quite so, and the same applies to tax. We've seen the threats again and again, but the number of bankers who actually do rip their children out of their schools in a fit of pique at not getting quite as much as their peers, and relocating to soulless places like Monaco, is always at least an order of magnitude smaller than the number who threaten to do so.

For more on this, read our recent blog Financial Times finds evidence of huge flight of rich after French tax hikes.


Friday, March 22, 2013

Links Mar 22

Why I would go to jail for my journalistic beliefs The Guardian
: "Journalism in Greece has had nothing to do with the truth of late, as my trial for publishing a list of potential tax dodgers shows."

Former Cayman Islands premier charged in corruption probe Reuters
Charges highlight the corruption risk to the offshore sector.

Germany’s offshore money and the hacker who helped expose it Quartz
Particularly embarrassing time for Germany’s elite to have their offshore investments exposed, due to the role their country played in Europe’s bungled Cyprus bailout.

See also:
Panama 'tax haven' for wealthy Germans The Local

EU fails to agree oil, gas anti-corruption law TrustLaw

US gets more access to Credit Suisse client data swissinfo
See also: Swiss banks face US Libor lawsuit and Credit Suisse CEO’s pay rises by one third

Switzerland Must Remain Competitive, Swiss Bankers Association Survey Underlines Tax-News
Survey "found that protecting financial privacy and addressing unresolved tax and market access issues remains vitally important for the Swiss population as a whole".

A historic vote: French Senate adopts a new amendment on country-by-country transparency in banking law Alternatives Economiques (In French) See also: Senate targets tax havens and hedge funds Les Echos

Singapore denies being haven for Malaysian tax cheats Inquirer
Yet more of "We are not a tax haven". The claim follows the Global Witness report, linked earlier.

Canada: Whistleblowers will get cash rewards for helping nab tax cheats Montreal Gazette

Treasure Island Trauma: Cyprus Treasure Islands

UK: Auditing the auditor-general Private Eye
Hat tip: Richard Brooks "Britain's dodgiest tax deal and the big cover-up"

Jersey, Guernsey and the Isle of Man: the UK’s official estimate of their personal tax abuse Tax Research UK

Ghostbusting: phantom firms and dodgy deals ONE

U.S. Treasury wants banks to peer behind shell companies Reuters

Slovak PM denounces ‘fashion’ of not paying taxes EurActiv

Links from TJN Germany Blog

Finance and the future: post 2015 global development goals require new economic norms and targets Eurodad

Global financial flows, aid and development Eurodad

Investigative Dashboard
Looks interesting: a space for investigators to find resources, share information, and learn new ‘tricks of the trade’.


Tax lawyer calls for UK disclosure regime to be used to help developing countries

In 2004 the UK enacted legislation, now known as DOTAS (Disclosure of tax avoidance schemes),  to require peddlers of tax avoidance schemes to disclose them to the UK tax authorities, rather than cook them up in secret and simply hope nobody would notice (other countries, such as the U.S., Canada, Portugal and Ireland, have similar schemes). In his new book The Great Tax Robbery, UK author Richard Brooks described the new disclosure regime as having rapidly produced "a massive information dump" for the tax authorities and added that despite the system's flaws,
"before long it had proved the most effective single piece of anti tax avoidance measure on record."
He should know: he is a former UK tax inspector; OK officials estimated that it enabled the UK to collect an additional £12.5 billion in just a few years. 

Now, from the Tax Journal, a very interesting idea:
"A City tax lawyer has backed calls for an extension of the UK’s disclosure of tax avoidance schemes (DOTAS) regime to include ‘abusive’ cross-border transactions affecting vulnerable tax jurisdictions.
. . .
Action Aid, Oxfam, Save the Children and Christian Aid proposed that DOTAS should incorporate an additional hallmark covering indicators of possible ‘abusive tax behaviour’ outside the UK. UK-resident taxpayers and UK-based tax advisers would be required to disclose to HMRC transactions and arrangements displaying the additional hallmark."
How would this work?
"David Quentin, a consultant at the law firm Farrer & Co, provided technical tax advice to the charities. ‘Where international mechanisms allow, HMRC will pass on the information to the tax authority in the developing country concerned,’ they wrote."
A simple, yet powerful idea. Developing countries could, of course, consider introducing DOTAS-like legislation themselves too.

Questions have been asked in parliament:
"Last week the Labour peer and shadow spokesperson for international development, Lord Collins of Highbury, asked whether the government would consider ‘new measures to force British companies to disclose any tax avoidance schemes that could be detrimental to poorer countries, and to support them in taking corrective action’."
The responses (as reported in the Tax Journal) were negative, but it's likely that the legal implications of this, and the possibilities, have yet to be prodded and pushed and explored.

One to watch closely.


U.S. Support Growing for Closing Offshore Tax Loopholes as Budget Debate Begins

From the FACT coalition in the United States:
As the Senate begins its debate on the budget resolution, 100 national, state and local organizations have announced their support for closing offshore tax loopholes as a way of achieving the growth needed to create jobs and responsibly protect fiscal and program priorities. The priorities of these groups provide a stark contrast to proposals by large multi- national corporations that seek to retain and even extend offshore tax loopholes that cost the U.S.Treasury $90 billion per year.
Read the rest of the release here. These are important proposals.

CONTACT: Nicole Tichon Executive Director Tax Justice Network USA 202-758-9552


Wednesday, March 20, 2013

Links Mar 20

The Senate’s Muckraker The New York Times
Op-ed on Senator Carl Levin and his forthcoming retirement.

Tax havens and global impoverishment Al Jazeera
"People of the world are uniting to end the tax theft at the heart of global inequality and impoverishment."  See also earlier report Taking on the tax havens

Argentina: Denouncing the conspiracy between HSBC and businesses to evade taxes TJN Latin America and Caribbean (In Spanish)

HSBC Faces Criminal Charges in Argentina The Progressive Press

Cyprus Isn't Even Such a Big Offshore Bank Haven BloombergBusinessweek. True, in relative terms, though the story seriously underestimates the true scale of offshore.

The Cypriot government has betrayed its people The Telegraph

EU Chooses Bank Runs Over Fighting Tax Haven Cyprus Business Insider
Note the closing point here - "Cyprus was already a tax haven when it joined the EU in 2004. Germany, and the other 14 members of the EU at the time, knew this when they voted to approve Cyprus' membership ..."

Indian firms' subsidiaries in Cyprus face bank tax hit Business Standard

French Budget Minister Jerome Cahuzac resigns after tax fraud probe The Telegraph

Jersey signs Fatca agreement with UK Citywire
See comment by Richard Murphy here

Promoting investigative journalism in Pakistan, one tax return at a time Reuters
On the investigative journalist who exposed Pakistan's tax cheating politicians, and the dangers he confronts.

The European Parliament Secures Bank Transparency Task Force Blog

Picking Through The Rubble Of Wegelin's Demise In US WealthBriefing

Switzerland: Tax and banking cause concern for expats swissinfo

Apple Seen Raising Dividend More Than 50% BloombergBusinessweek

UK: National Audit Office chief accused of undermining judge's tax review Guardian
Britain's most senior auditor said inquiry into 'sweetheart' multi-million pound deals between HM Revenue & Customs (HMRC) and corporations would find 'nothing of substance'

No tax for Castle Howard painting as judge rules it is 'plant or machinery' The Telegraph

One of the secrets to Carnival Cruise’s unsinkable business model: free Coast Guard rescues Quartz
See also: Ship Isn't The Only Thing That Stinks At Carnival: Low Tax Rate Stirs Ire Forbes


Tuesday, March 19, 2013

Links Mar 19

Cypriot Tax Regime Sabotaged In EU Bailout Tax-News

Global Wealthy Question Tax Havens After Cyprus CNBC
If your account is secret, where can you go for recourse when things go badly wrong?

Jersey and Guernsey are circling like vultures over the carcass of Cyprus Tax Research UK

HSBC accused of aiding tax evasion in Argentina The Independent

A paradise for money laundering Pagina12 (In Spanish)
On the Vatican's money laundering scandals, and measures to address the issue that do not appear to have shown much in the way of progress. Hat tip: Jorge Gaggero

See also:
Vatican Financial Oversight Director: 'Church Strengthens Position By Combating Money Laundering' Der Spiegel
Interview: with René Brülhart, director of the Vatican's Financial Information Authority (FIA), Swiss lawyer, and former head of Liechtenstein's financial intelligence unit.

TJN-opinion on cross-border tax planning in the finance committee of the Bundestag TJN Germany Blog

Corruption in Malaysia laid bare as investigation catches Sarawak’s ruling elite on camera Global Witness
A film, shot undercover during the investigation, shows the instruments used by the ruling Taib family and its lawyers to skirt Malaysia’s laws and taxes.

Shell knew that US$1.1 billion payment was destined for convicted money launderer Global Witness

India: Money laundering case - Forty bankers face axe if inquiry proves violation The Economic Times

Tanzania: War against capital flight vital in taming poverty The Citizen

Cayman To Conclude Model 1 US, UK FATCA Pacts Tax-News

Guernsey Commits To UK 'Son Of FATCA' Pact Tax-News

UK: You think the government is fighting tax avoidance? Think again The Guardian
UK Chancellor of the Exchequer, George Osborne, has pulled off a stunning confidence trick: he has bamboozled people into thinking he is fighting tax dodgers

US: House Budget Chairman Paul Ryan's Latest Budget Plan Would Give Millionaires a Tax Cut of $200,000 or More Citizens for Tax Justice

US: Business Roundtable CEOs Push To Limit Taxes On Record-Breaking Offshore Profits Huffington Post

The cult of the superstar banker is alive and well The Guardian