Saturday, June 29, 2013

Academics Stand Against Poverty: fundraising campaign

The new campaign Academics Stand Against Poverty (ASAP) is a global network for scholars using research, teaching, and advocacy to accelerate the end of poverty.

They are currently reaching the end of their first campaign, to raise $15,000 dollars to stop illicit financial flows.

Via email:
"One of the greatest problems facing developing economies is the amount of money lost in criminal activity, tax evasion and corruption. It is estimated that $ 1 trillion dollars is lost in this way. In order to bring poverty to an end, we need to stop such financial flows from happening and we need to do it now. Tax havens, financial transparency and regulation have become a prominent feature in global media, discussions and international relations. Indeed, they were one of the main topics at the recent G8 summit. It is for this reason that we believe now is the time to act and to sop illicit financial flows. ASAP intends to bring an end to this corruption by taking a team of world class scholars to the UN,where they will present a plan to close down tax havens and bring transparency to the global financial system. We aim to place this plan on the post-2015 agenda and ensure that the abolishment of tax havens is a goal which all countries strive to achieve. The only way this will become possible is to place this on the global agenda and for our world leaders to act on it once and for all. With only 2 days left to go, to raise $3000 we need your help. Without you, we can't take our scholars to the UN, we cannot present the UN with the resolution to this global financial problem and we cannot stop illicit financial flows. Without you, we will allow poverty to perpetuate."


Friday, June 28, 2013

Oregon fights back against tax havens

From our friends at Orgeon State Public Interest Group  [click on the image to enlarge]

The fight back spreads. 


Nicaragua’s new Cayman/Chinese mega-canal: the world’s biggest tax exemption?

From Martin Hearson, a blog about a proposed new canal to rival (and compete with) Panama's:
"The Reuters story on it notes that the $40bn cost would be four times Nicaragua’s national income"
And the Reuters story explains:
"Nicaragua's Congress last week granted Wang's Cayman Islands-registered HKND company a 50-year concession to develop the canal, following a September agreement with president Daniel Ortega. HKND in turn is a unit of HK Nicaragua Canal Development Investment Co., Ltd, a firm Wang had registered in Hong Kong just a month before the deal with Ortega."
Back to Hearson, who concludes after examining the draft project agreement:
"The government has agreed to an exemption from all taxes, including capital gains and value added tax, for the Chinese firm building the project (which happens to be registered in the Cayman Islands). The exemption extends to withholding taxes on dividends, interest payments and royalties, all import taxes, and any taxes on expatriate employees. The only source of tax revenue left out of the exemption is “existing labour taxes”. And all of this seems to be indefinite.

The Cayman Islands company will apparently pay just US$10m a year for the privilege of owning the waterway, although it should be noted that the ownership of the canal will gradually transfer to the government."
Let's see where this project goes.


Bermuda: tax haven interests 'threaten' to walk out from under London's skirts

Bermuda Governor's flag
Walton Brown, a politician from Bermuda, has written a new article on The Guardian's website entitled Bermuda: we are not a tax haven.

Our standard response to this kind of headline is: pull the other one. With a secrecy score of 85 out of 100, Bermuda is a very secretive tax haven (or, if you prefer, a secrecy jurisdiction).

So far, so tiresomely predictable. But there's more to the article. It is, he writes, about
"UK Prime Minister Cameron "summoning" the leaders from the remnants of the British empire to London."
By 'remnants of the British empire," he is talking about the 14 British Overseas Territories, of which half are tax havens. And this is about the British Prime Minister this month calling them to London to put pressure on them to curb their secrecy practices. Brown provides the usual offshore window-dressing to say 'we are squeaky clean' - every tax haven in the world does that, of course, as part of a theatre of probity to cover up some very unpleasant business - and then he adds:
"in taking this step, Cameron has extended the reach of the UK beyond its constitutional powers with regard to Bermuda. Under Bermuda's constitution – admittedly, merely an order in council of the UK parliament – Bermuda retains power over economic and fiscal matters, not the UK. Cameron's actions have shown little regard for the allocation of powers under our constitution and it does not bode well for the future."
Which is untrue. Take a look at this UK government white paper, for instance, which states:
"As a matter of constitutional law the UK Parliament has unlimited power to legislate for the Territories."
And read plenty more in this report by Christian Aid and the IF campaign.

The problem is: the City of London has been making too much money from Britain's tax haven racket, and so it has made sure that wrist-slapping is usually the worst that happens.

Finally, a kind of threat. Although Brown's not obviously speaking in an official capacity, in our experience of small captured island states like Bermuda, you generally don't speak out so forcefully without at least an informal nod from the powers that be.
"Independence has been an issue little discussed since the 1995 referendum, when a low turnout spurned by a boycott called by one of the two parties saw a firm rejection of nationhood. If Britain continues down the path of meddling in the economic affairs of overseas territories and seeming to dictate a course of action, particularly while the territories are already working to meet international obligations, there will be a battle akin to that of David and Goliath. But for the David that is Bermuda the recourse may simply be the path to autonomy."
This is pure bluff.  Bermuda earns its economic rents from two factors, perhaps equally important: one, its zero-tax environment and secrecy facilities; and two, its very close, half-in, half-out constitutional relationship with the United Kingdom: the constitutional and legal bedrock that reassures all that flighty money that it is safe. If Bermuda were to whip this bedrock out from under its feet, it could still be a secrecy jurisdiction - but it would be a more marginal one.

We have seen this kind of threat before. It is empty.


UNCTAD, new report on global investment flows

From UNCTAD, a detailed new report on international investment flows. Among other things, it notes:
Investments to OFCs remain at historically high levels. In 2012 FDI flows to OFCs [offshore financial centres] were almost $80 billion, despite a contraction of about $10 billion (-14 per cent) compared with 2011. Flows to OFCs have boomed since 2007, following the start of the financial crisis. The average annual FDI inflows to OFCs in the period 2007–2012 were $75 billion, well above the $15 billion average of the pre-2007 period (2000–2006).
This blog is merely a marker for this report: due to time constraints we cannot currently examine it in detail. Among other things, we'd like to understand what they mean by "OFC" Other useful and fairly recent papers on this subject, include Francis Weyzig's paper on tax treaty shopping here, focusing on the Netherlands, and ActionAid's recent report estimating that:
"one in every two dollars of large corporate investment in developing countries is now being routed from or via a tax haven."


Thursday, June 27, 2013

Delaware corporate law: directors have no obligation to minimise taxes

We have written a fair bit recently about the question of whether or not corporate directors have a fiduciary duty to avoid taxes. Our blog on Wednesday traced profound historical changes in many countries from the high-growth era where corporate directors felt they had wide duties to society and to their shareholders, to the more recent situation where that focus narrowed ever further downwards to a focus on shareholders to the exclusion of society. The latter position, of course, would make corporate tax avoidance more acceptable to them (although it still says little about the fundamental question of just how aggressive they should be in trying to dodge tax.)

But the blog and preceding blogs also showed that while the changes in ideology and corporate culture have been profound, at an official level directors are still required to have regard for wider society, not just a narrow shareholder group, when they make their decisions. There is no duty on directors to dedicate their hours to dodging tax. The blog demonstrates this for the U.K., citing a U.S. professor as saying:

"The ideology of shareholder value maximization lacks any solid foundation in corporate law, corporate economics, or the empirical evidence."

Now, the Financial Times has published a letter by Wasima Khan at Erasmus law school in Rotterdam, pointing to something more specific related to the U.S. state of Delaware, which (through serving as a kind of de facto laissez-faire offshore haven for corporate governance within the United States) has become the most influential state for jurisprudence with respect to corporate governance.  (Hat tip: Katrin McGauran.) It cites Delaware court rulings:
This Court has concluded that “there is no general fiduciary duty to minimize taxes."
We have criticised Delaware for many reasons -- not least its role as a 'captured state' willing to pimp its laws out to financial interests from elsewhere -- but in this case the arguments are rather more nuanced.

The tax stance described above stems from Delaware's "business judgement rule" which gives corporate bosses quite wide leeway to run their businesses. This rule can have negative consequences, in that directors have sometimes been able to get away with some quite egregious abuses of shareholders, such as voting themselves huge compensation packages, and indeed this wide freedom to business bosses is one reason why so many have chosen to incorporate there. (This legal blog, aptly called, has endless material about this.)

But in this particular case the business judgement rule has had a more positive outcome. The same court ruling noted:
"a decision to pursue or forgo tax savings is generally a business decision for the board of directors. Accordingly, despite the Plaintiff’s contentions, Delaware law is clear that there is no separate duty to minimize taxes."
We noted earlier how John Kay described UK company law as requiring directors to have regard to a wide array of stakeholders, not just narrow shareholders, and cited Lynn Stout as saying that this was even more so for the United States. Delaware case seems to confirm that.

One more for our Corporate Responsibility page.

Finally, as a fascinating aside to this debate, which is only tangentially about the 'shareholder value' obsession, see Clayton Christensen's article in Deseret News entitled The New Church of Finance.


Links Jun 27

Global investment falters but tax havens prosper, U.N. finds Reuters

Swiss Parliamentary Committee Backs FATCA IGA Tax-News

Administration, Congress Trying to Give Gensler the Brooksley Born Treatment over Derivatives Reform naked capitalism
See also earlier TJN blog Derivatives WMD: lobbyists seeking to remove 'burdensome' safety catches

Vodafone Asks For More Time On Indian Dispute Tax-News

Arrest threat to journalist pacific.scoop
"The arrival of investigative journalist Nicky Hager and his upcoming talk on the Cook Islands as a tax haven has upset the financial services industry, to the point of making veiled threats to arrest him."

Australian Taxation Office chief warns on profit shifting Sydney Morning Herald

Can the OECD Be Trusted on Base Erosion? Huffington Post

In Monaco, between the real economy and a tax haven black list Worldcrunch/Les Echos
Hat tip: Offshore Watch

Tax havens are here to stay, thanks to 'City UK' Guardian

Pull the other one, Mr Schmidt. It's got bells on. The Financial Crimes
From a few days ago, on the Google tax-dodging story, a good comment to note: 'Now Mr Schmidt may try to sound "perplexed", but the reality is that it is quite tricky to fall outside the scope of corporation tax, unless you really want to.'

The UK Gold – first look review Guardian
"Mark Donne's documentary on the UK tax avoidance industry will outrage and appal"

Bermuda: we are not a tax haven Guardian
A familiar theme

Hip-Hop & Taxes: 10 Artists Targeted By The IRS  The Koalition

Bono defends U2's tax switch MSN


Wednesday, June 26, 2013

Links Jun 26

From the resource curse to the finance curse Thomson Reuters
On the global phenomenon examined in the recently published book co-authored by Nicholas Shaxson and John Christensen.

'Lax' UBS France hit by €10 million fine swissinfo

France Presents National Tax Evasion Action Plan Tax-News

Cayman Islands Issues Action Plan On Beneficial Ownership Tax-News

Isle Of Man Publishes Action Plan On Tax Evasion And Fraud Tax-News

Canada's International Tax Haven Plan: "You made it happen" Canadians for Tax Fairness
See also: Feds introduce new rules to track tax cheats Global News

Uganda: MPs want firms with tax exemptions named New Vision

India: Govt may blacklist tax havens not sharing info on tax evaders Business Standard

DSK's lecture to French senators 'a mockery' The Local
"He hasn’t spoken in public in France for two years, but disgraced former IMF chief Dominique Strauss-Kahn is set to play the role of professor on Wednesday, when he delivers a lecture on tax evasion to French Senators, much to the disgust of certain politicians."

News Links from TJN Germany Blog

Brawl breaks out in Taiwan parliament in row over tax BBC

Advisers Not Fans of Offshore Accounts Wall Street Journal
Financial advisers discourage clients from stashing money abroad.

Wealthy Brits Are Still Stashing Their Cash Offshore iExpats

UK: Sainsbury's boss says corporate tax row is a question of morality not legality Guardian
Warning business leaders that companies with aggressive tax arrangements face boycotts from consumers.

Starbucks can't choose its own tax bill, says MP London Evening Standar

U.S.: Delaney's Delusion - Latest Proposed Tax Amnesty for Repatriated Offshore Profits Would Create Infrastructure Bank Run by Corporate Tax Dodgers Citizens for Tax Justice

Swiss rapporteur denounces Magnitsky ‘cover-up’ swissinfo

Marc Rich, Glencore founder pardoned by Clinton, dies BBC

Cayman: Everyone conflicted on Tempura, says top cop Cayman News Service


Tax & the Civilised Society - Links to the events of the day ( 8th June)

As the dust settles on last week's G8 meeting, it was gratifying to see tax avoidance take its rightful place at the top of the agenda.  Some progress was made on ‘matters of principle and in terms of a serious shift in political will in our direction’. Multinational corporations should disclose the taxes they pay on a country-by-country basis; tax authorities should automatically share information to fight evasion; companies should know who really owns them and tax collectors and law enforcers should be able to obtain this information easily; and G8 countries have “a duty” to help developing countries improve their capacity to enforce tax laws.

But there were lots of ‘conditionals’ in this - what they should do and what they will do are not yet aligned. So there is a very, very long way to go.

A couple of weeks ago Tipping Point Film Fund and Tax Justice Network partnered to create ‘Tax and the Civilised Society'. Central to a full day of activities was a revelatory walking tour of the City of the London where, in glorious sunshine, we heard a range of wonderful speakers explain just how and why the City of London has become the hugely powerful and influential financial force we see today.

So if you’d like to know a bit more about tax avoidance; the challenge that remains and the role of the City of London in all this, (re)visit our recent day of events on 8th June.  We’re sure you’ll find something of interest here.

Take a look at the transcripts from the fascinating talks and discussions on the day:

Maurice Glasman ~ Overview and history of the City of London
John Christensen ~ The Bank of England
Nick Mathiason ~ Mansion House
Robert Palmer ~ HSBC Corporate Banking Centre
Tom Pursey ~ Goldman Sachs and HMRC
Maurice Glasman ~ Guildhall
John Hilary ~ TheCityUK

Panel Discussion: We're Not Broke
Panel Discussion: The Spirit of '45


Tax justice and a short history of the decline of corporate responsibility

The Corporation
June 26: updated from the original blog, with additional details and links.

"We especially need statesman CEOs who are as committed to a prosperous nation as they are committed to themselves and their shareholders and who live their lives with a lot more grace than seems to be the norm today." 
- Leo Hindery, Jr.

The U.S. site Remapping Debate is carrying a long article entitled Citizens without obligations? which looks at changes in corporate citizenship over the years. (Hat tip: Adam Kanzer.)
"In an effort to find out whether American corporations are the kind of “citizens” that believe that they have national obligations, Remapping Debate contacted the representatives of more than 80 corporations.
Most had no comment, a striking finding in and of itself. And among the corporate representatives who did comment, most were unwilling to say that their corporation had any obligations to the United States, let alone to define any such obligations with specificity. "
Although this article focuses on the United States, it seems likely that if similar conclusions would be reached in many other countries. Richard Sylla, economics professor at the Stern School of Business at New York University (NYU), commented on the findings:
"it’s revealing that the benefits they cite are so self-serving. It shows that they think of themselves as opportunistic entities, not participatory members of society.”
Readers of the book The Corporation, by the Canadian law professor Joel Bakan, from which the above image is drawn, would hardly be surprised to hear this. As his book summary notes:
"The corporation lies, steals and kills without remorse and without hesitation when it serves the interests of its shareholders to do so. It obeys the law only when the costs of crime exceed the profits. Corporate social responsibility is impossible except insofar as it is insincere."
That book, though several years old now, is still well worth reading.

But there is still plenty more to be said.

A box early in the story published by Remapping the Debate, entitled "When obligations went with benefits," notes that for most relevant history, U.S. corporations were perceived by both the public and by corporate executives themselves as having a broad range of obligations — including national obligations — that competed with the goals of making profit or creating value for shareholders. This is obviously central to any tax justice agenda: a narrow "shareholder value" approach to corporate responsibility would see managers fighting aggressively to dodge taxes and shirk other responsibilities, while a 'stakeholder value' approach would see a far more balanced responsible approach.

The article also refers to a 2013 paper by Gomory and Richard Sylla, entitled The American Corporation, which says:
"The most recent era is marked by a shift away from a stakeholder view of corporate interests and purposes to one dominated by profit and shareholder-value maximization."
Remapping Debate continues:
“The idea that a corporation exists solely to make money is actually quite new,” explained Ralph Gomory, a professor of management at New York University. The broader sense of corporate responsibility was starkly apparent during World War II, when many U.S. companies dramatically changed their operations to aid the war effort, Gomory said, but it also extended through the 1950s, 1960s, and 1970s. “Even in the early ’80s, you would be more likely to hear a CEO talking about his responsibilities to the country or to his employees than his duty to the shareholders.”
Gomory cites main reasons for the erosion in corporate responsibility, starting in the 1970s: the end of the Cold War and the onset of rapid globalization; the alignment of the interests of corporate executives with shareholders through stock-based compensation; and an ideological shift in economics and business schools towards the idea that the purpose of a corporation was the maximize shareholder value.  Milton Friedman's 1970 article in New York magazine, entitled "The Social Responsibility of Business is to Increase its Profits," was an important trigger for the changes that were to come.
"Businessmen [who] speak eloquently about the "social responsibilities of business in a free-enterprise system," Friedman wrote, "are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades."
Though experience has revealed Friedman's arguments to be fatally flawed, his was an influential argument at the time. It was certainly contested: a speech in February by Leo Hindery notes:
Ed Littlefield was my first boss, and indisputably he is the ‘author’ of the view – which Reginald Jones of GE later carried into the broad public domain in 1972 in his inaugural speech as GE’s CEO – that a responsible CEO actually has equal and concurrent responsibility to his employees, shareholders, customers, communities and nation. That’s five constituencies at once, not just the one which Friedman was espousing.
. . .
The ‘70s and early ‘80s was generally an era when simply the privilege of being a CEO or a large public company director rewarded these individuals every bit as much as the cash compensation they received. The proof of this is the fact that dating back to the start of the twentieth century the average public company CEO in the U.S. earned only about 15 to 20 times what his average employee earned.
And Hindery, in a presentation that is well worth reading in full, makes a further point:
"While this sense of broad corporate responsibility was being established for American industry, managers in Europe and Japan were saying the same things and acting similarly. And they continue to do so even today." 
Comments by the head of the UK's Sainsbury's yesterday, who said corporate tax payments are a matter of morality, not just legality, is a case of this old and honourable tradition.

Despite the profound ideological shift that took place, especially from the latter years of Ronald Reagan's presidency, our recent blog on this subject confirms, in fact, that corporations do in fact still have official responsibilities to society, beyond a narrow focus on delivering returns for shareholders. It cites Lynn Stout,  Distinguished Professor of Corporate and Business Law at Cornell Law School, as saying:
"The ideology of shareholder value maximization lacks any solid foundation in corporate law, corporate economics, or the empirical evidence. Contrary to what many believe, U.S. corporate law does not impose any enforceable legal duty on corporate directors or executives of public corporations to maximize profits or share price."
More specifically, in the UK, directors are required to have regard to the long-term consequences of their decisions, the interests of employees, relationships with suppliers and customers, the impact of corporate activities on the community and the environment, the company’s reputation for high standards of business conduct and the need for fairness between different members of the company.

Remapping Debate quotes William Lazonick, a leading business thinker at the University of Massachusetts, Lowell.
“Up until the 1980s, CEOs were extremely reluctant to shut down factories and lay off a large number of workers,” Lazonick said. “Mass layoffs were actually seen as a serious abnegation of corporate responsibility. It was understood that the company had a responsibility to it workers, and that if it failed, soci- ety at large would be on the hook for that failure.”
It also cites Margaret Blair, a law professor at Vanderbilt University, who notes that in the period from World War II to the 1980s, it was far less common to see corporate executives lobbying the government for special rights and benefits, including lower taxes.
“It was accepted that, if the United States was going to be a powerful economy and have a high quality of living, then the corporate sector needed to do its part to supply financial resources to the government,” she said. “There was no sense of it being the corporations versus the government. It was much more about everybody being in it together.
And, we hasten to add, that period was one of high, broad-based economic growth. One can see the change in two statements from the U.S. Business Roundtable, cited by Sylla and Gomory. The first, from 1981, states that corporations have a responsibility to “each of the corporations constituents.” It continues:
"Responsibility to all these constituents in toto constitutes responsibility to society...Business and society have a symbiotic relationship: The long term viability of the corporation depends upon its responsibility to the society of which it is a part. And the well-being of society depends upon profit- able and responsible business enterprises."

By 1997, the Business Roundtable's position had changed to:
"The principal objective of a business enterprise . . . is to generate economic returns to its owners,” that is, its shareholders."
This has been accompanied by a rise in corporations' sense of entitlement, without corresponding obligations: a classic recipe for (among many other things) tax-dodging:
"Sylla said the fact that many American corporations see themselves as entitled to the benefits of citizenship — without incurring reciprocal obligations — is reflective of a fundamental disjunction between how individual and corporate citizenship are perceived.
“We’ve determined that a corporation is legally like a person in lots of ways,” Sylla said. “They have rights, including the right to free speech, and they enjoy an array of benefits. Don’t most of us think that those rights and benefits come attached to obligations? When they say they don’t have any national obligations, it shows we have a double standard.”
Quite so. One for our corporate responsibility page.


Tuesday, June 25, 2013

The June taxcast: G8 - any real action?

In our June 2013 Taxcast: ‘Coulds’ and ‘shoulds’ – but any real action? We analyse what the G8 summit did for tax justice and why some tax havens may get a competitive advantage. And, while the world waits for reform, the Taxcast looks at how some countries are finding creative ways around the current global tax system.

Produced by @Naomi_Fowler for the Tax Justice Network

Home site:
Download link here.

See also our recent G8 blog.

Update: For latest and previous Taxcasts, see here.


Links Jun 25

How Canada's banks help money move in and out of tax havens CBC News

Tax Evasion: Nigerian Court Orders US Oil Firm ExxonMobil To Pay $83 million For 2008-NAN Sahara Reporters

Africa: Offshore Centres, Financial Justice and Multinational Business allAfrica

Nairobi’s tax shelter status booming as firms flee tough laws Standard

Tax protest to turn HSBC branches into food banks Financial Times
See press release from UK Uncut here

The City of London: a giant opportunity cost Treasure Islands

Germany Launches Tax Avoidance Probe on Barclays' 'Dividend Stripping' International Business Times

Credit Suisse faces $1.2-billion US penalty: lawyer The Local

Swiss scramble to get banks off US tax hook Malaya Business Impact

French business tycoon Bernard Tapie arrested for questioning over alleged conspiracy with former President Nicolas Sarkozy to 'defraud' the state The Independent

Cayman: Taylor kicks Tempura to CoP Cayman News Service
Update on the story of Operation Tempura in Cayman, a corruption case highlighting alleged misgovernance between Britain and its offshore financial centre.

Questions About Pfizer's Taxes Huffington Post

What happened to Amazon’s tax in Japan? Tax Research UK

Op-Ed: Knowing Your Customer Must Mean Knowing the Real Owner U.S. Dept of Treasury

U.S.: Gensler Staring Down Administration and Banks on Derivatives Reform naked capitalism

U.S.The Political 1% of the 1% in 2012 Sunlight Foundation
"In the 2012 election, 28 percent of all disclosed political contributions came from just 31,385 people. In a nation of 313.85 million, these donors represent the 1% of the 1%, an elite class that increasingly serves as the gatekeepers of public office in the United States." And check out their top employers.

U.S.: On Penny Pritzker, where's the outrage? Politico
President Obama's choice for Commerce secretary "has understated her income by tens of millions of dollars, clashed openly with organized labor, benefited from offshore tax havens and invested in financial instruments that helped precipitate the 2008 financial meltdown."

Italy equal opportunities minister quits over tax evasion scandal Euronews

Italy police launch tax probe into soccer player trades Reuters

Europe shows green light to Gibraltar tax law Gibralter Chronicle

Fat Joe jailed for tax evasion Toronto Sun


Derivatives WMD: lobbyists seeking to remove 'burdensome' safety catches

This urgently important blog is fairly long, so we preface it with a short summary.


The Wild-West $600 trillion unregulated global market in financial derivatives, implicated in numerous financial disasters before, during and since the hottest phase of the global financial crisis in 2008/9, now potentially faces some welcome (if very belated) new regulation in the U.S., Europe and elsewhere. Last week, for instance, the U.S. became the first country in the world to require mandatory clearing of many derivatives contracts, a crucial protection for citizens.

The U.S. Dodd-Frank financial reform bill of 2010, currently the leader in this particular area, envisages that if a derivatives trade has a "direct and significant connection" to the U.S. economy -- in other words, if risky derivatives trading activity could turn around and bite U.S. taxpayers -- then the U.S. should be able to regulate it whether it is nominally located in the U.S., in the City of London or in the Cayman Islands. We at TJN fully support that as a generally useful principle, for all regulators worldwide.

But financial lobbyists and others are now battling to stop this, so that transactions by U.S. companies that are conducted overseas are exempted from the rules. They argue that it is 'burdensome' for global banks in one jurisdiction to have to comply with regulation emanating from another jurisdiction, and they want to get all foreign transactions exempted from regulation. If they succeed, this would constitute a basic and gigantic offshore escape route which would kill effective regulation of this industry, lead to yet another race to the bottom on financial regulation, and strike at the very foundations of global financial reform. The stakes are high.

Worryingly, Michel Barnier, the European Commissioner for Internal Market and Services, and several European and other finance ministers, appear to have sided with the financial lobbyists, and want financial regulation to stop at national borders.

The core question to consider here is: whose priorities are most important here? Should one put the interests of financial stability and the general public first? Or is it more important to make life more convenient for global banks?

We urge any groups and people interested in financial stability issues to take an interest in these crucial issues.

Full blog 

From the Washington Post on Saturday:
"Pop quiz: What do the following financial crises — AIG, Lehman Brothers, Citigroup off-balance sheet SIVs, Bear Stearns, Long-Term Capital Management, and the “London Whale” of JP Morgan — all have in common?"
One thing they have in common, of course, is that these are names for some of the worst financial disasters that have hit the world in recent years. But there's something else they have in common too. The article cites Gary Gensler of the U.S. Commodity Futures Trading Commission (CFTC), one of few U.S. regulators to have tenaciously tried to rein in many Wall Street abuses:  
"According to a speech given by Gensler earlier this month, they all involved exposures to derivatives across countries.
And, in more detail:
"AIG Financial products was run out of London as a branch of a French-registered bank. The U.S. Lehman Brothers Holdings guaranteed 130,000 outstanding swaps contracts from their London affiliate. Citigroup’s off-balance sheet financial instruments were launched from London and incorporated in the Cayman Islands. The two Bear Stearns hedge funds that collapsed, precipitating the firm’s failure and the taxpayer rescue, were incorporated in the Cayman Islands [TJN: and let's not forget the role of Wild West offshore Ireland in that particular debacle]. Long Term Capital Management’s swaps were booked in a Cayman Islands affiliate (that according to Gensler, who was with Treasury at the time of their 1990s collapse, was basically a P.O. Box). And, as the name stipulates, the London Whale trades of JPMorgan Chase were in London."
Our emphasis added. We have written about this before.

Some time before the crisis, derivatives were accurately described by Warren Buffett as 'financial weapons of mass destruction (WMDs)' - and so it turned out. Key to the mess was Wall Street's ability to escape regulation it didn't like by going elsewhere to conduct the trades in jurisdictions (such as London) with laxer regulation.

Our emphasis added, again: those two words 'escape' and 'elsewhere' are close to being definitional for us at TJN. This is quintessentially offshore business.

This gigantic business is currently putting Europe and the rest of the world at grave financial risk - as if there wasn't enough to worry about. The Washington Post continues:
"As Marcus Stanley, of Americans for Financial Reform [AFR], notes to Erika Eichelberger of Mother Jones, “Wall Street banks routinely transact more than half their derivatives through foreign subsidiaries. [TJN: Bloomberg analysis last year discovered that 62 percent of Goldman Sachs' and 77 percent of Morgan Stanley's derivatives operations were foreign.]
How big is this issue? Well, according to a recent letter by [tax justice hero] Carl Levin, Elizabeth Warren, Sherrod Brown and three other U.S. senators, the four largest U.S. commercial bank derivatives dealers alone, accounting for 93 percent of the $223 trillion notional value of the U.S. bank derivatives market (note: that is trillion, not billion), had over 3,300 foreign subsidiaries.

Now the U.S. 2010 Dodd-Frank financial reform bill has an excellent and potent 'extraterritorial' aspect: a principle that is one of the most powerful generic tools available in global financial regulation. Put simply, Congress granted authority to the CFTC (which regulates around 90 percent of U.S. derivatives markets) to oversee all derivatives transactions if they have a ‘direct and significant connection’ to the U.S. economy -- whether those transactions are nominally located in the U.S. or in  Cayman or in London. This stands to reason: if derivatives cowboys in London are putting U.S. taxpayers at risk, or vice versa, then the home country should be able to regulate that business, wherever it is.

And of course this is not purely a U.S. matter. Far from it.

For one thing, Wall Street is the biggest part of global markets in financial derivatives, and the financial crisis has shows us that in our interconnected world, one big country's problems soon become everyone else's problems. More importantly, there is an essential principle at stake here: that when risky trading activities happen, any country that is seriously at risk from these financial WMDs should not be rendered powerless to regulate to make them safer. The possibility of cross-border regulation is an essential, foundational principle that is worth defending to the last. And, perhaps still more importantly: giving individual countries free rein to regulate as they see fit, without concern for the impacts on other jurisdictions, is a tried and tested recipe for a race to the bottom: where the laxest jurisdictions get the most business, and others then face incentives and pressures to relax their regulation just to keep up in this dangerous race. At TJN we have seen this deadly dynamic again and again and again: on tax, on secrecy, on financial regulation, and otherwise.

So for Dodd-Frank to succeed, this potential for "extraterritorial" reach is absolutely essential: a foundation stone of the whole exercise.

And now comes the problem.

The 'extraterritorial' aspect of Dodd-Frank is now under serious threat, from two main quarters. First, Wall Street and assorted hangers-on in the United States are powerfully attacking the principle. As Marcus Stanley of AFR writes in U.S. News:
"On Monday, the U.S. became the first country in the world to require mandatory clearing of many derivatives contracts, a crucial protection in these previously unregulated markets.
But even as this crucial protection takes effect, Wall Street is mobilizing to create a back door escape route. Its goal is to prevent U.S. regulation of derivatives transactions by U.S. companies that are conducted overseas. This loophole could strike at the foundations of financial reform.
. . .
It would create an incentive for global banks to transact their business through whatever jurisdiction has the weakest regulations – a “regulatory haven” to match the tax havens that international corporations already use.
. . .
If they succeed, entities nominally based in foreign countries but active in U.S. derivatives markets will not have to comply with U.S. derivatives rules. This could potentially include foreign subsidiaries of U.S. banks, the numerous U.S. hedge funds incorporated in places like the Cayman Islands and subsidiaries of major foreign banks that are major dealers in the U.S. markets"
(Read the rest of that article for more details, or see this.)

But, worryingly and more surprisingly, it's not just U.S. lobbyists who are trying to undermine this crucial aspect of Dodd-Frank.

We have now seen an unholy alliance formed between Michel Barnier, European Commissioner for internal market and services, and George Osborne, UK Chancellor; Switzerland's Eveline Widmer-Schlumpf; and several other finance ministers. They, too, want to stop Dodd-Frank at the U.S. borders. In a letter sent to U.S. Treasury Secretary Jacob Lew on April 18th, they stated that:
"we hold the view that as a principle, local regulations should not be extended beyond national borders."
This is the classic recipe for a race to the bottom. Can we trust Switzerland, one of history's top racers-to-the-bottom, to ensure that their derivatives regulations do not create enough of loopholes to lure lots of derivatives business? Of course not. London's history in this respect makes it equally untrustworthy.

While Barnier may have made some useful moves on financial regulation in other areas, this letter goes in exactly, precisely the wrong direction. The justifications that the signatories of the letter for wanting regulation to stop at national borders include:
  • If this happens, derivatives markets will recede into localised and "less efficient" structures.
  • The simultaneous application of multiple rules to cross-border activity will result in conflicting, inconsistent or duplicative requirements on market participants, constituting "burdensome regulatory conditions."
  • (subtext: who do these Americans think they are?)
Now those complaints will carry a lot of weight especially among those who worry a lot about 'burdensome' regulations being applied to this market. For sure, extraterritorial regulation has the potential to make specific regulatory compliance issues more complex. But against this, weigh some other considerations.

First, this is not a story about the United States bullying other jurisdictions, although on the surface it could look that way. This is a case of weary, embattled, outgunned financial regulators facing up to enormously powerful financial interests, under heavy fire, to try and protect their citizens as best they can.

Second, if one is worried about efficiency and complexity, one should consider the complexity and inefficiency (not to mention injustice and disruption) that would result from more gigantic bailouts.

The right approach, of course, is to put financial stability and the fate of ordinary taxpayers around the world at the first order of priority, and the convenience of global banks in complying with regulation after that.

Given this big picture, some important details now need to be taken into account.

Dodd-Frank guidance does envision a role for what is known as ‘substituted compliance’, which would exempt foreign activity from falling under a home country's rules -- just so long as the home country (in this case the U.S.) deems the foreign rules to be good enough and equivalent to its own. In other words, instead of having regulators reaching into other jurisdictions to regulate risky activities, you effectively have regulators handing out certificates of good conduct to other jurisdictions and trusting them to regulate properly.

All this sounds like a good idea in theory - and indeed 'substituted compliance' may be a principle worth taking on board, as a co-operative end goal.

But if carried out too early, and in the wrong way, it could be a total disaster. 

It is essential that this 'substituted compliance' only happens once both the requirements and the enforcement of the foreign regime's derivatives protections are genuinely equivalent and good enough to be able to hand over to that foreign regulator. This approach, among other things, gives foreign regulators powerful incentives to shape up and put genuinely strong regulation in place, so as to get their hard-earned certificate of good conduct. This is a race-to-the-top incentive. This 'strong version' of substituted compliance puts the interests of taxpayers and societies first, and the interests of global banks second.

But a weak version of 'substituted compliance' would put the interests of global banks first and protect them from 'burdensome' financial regulation, where jurisdictions generally trust each other to regulate at home, as they see fit, and perhaps a few of the most egregious recalcitrants get slapped on the wrist or even have their certificates of trustworthiness temporarily withdrawn. This would be an appalling, race-to-the-bottom outcome.

So what is the approach reflecteded in the April 18th letter sent to U.S. Treasury Secretary Lew by Barnier and the finance ministers?

The letter does accept 'substituted compliance' as a general principle, which on the face of it is not necessarily in conflict with Dodd-Frank.

But the question now is: are the ministers angling for a weak version of 'substituted compliance', or a strong version? Well, the letter states, in part:
"as a principle, local regulations should not be extended beyond national borders. We expect any deviations from this principle to be narrow, and to exist only where there is a clear and specific justification."
This looks exactly like the weak version, or something perhaps just as bad: a recipe for waiting until all jurisdictions are up to scratch before anyone does anything at all. That could be a recipe for waiting interminably, while the financial derivatives orgy continues unabated. (And there are other things, highlighted in the FT, that are worrying about the letter.)

We urge all organisations in Europe that have an interest in global financial stability to get up to speed on these crucial issues. A good place to start is here.


Monday, June 24, 2013

Links Jun 24

Switzerland Races To Find 'Lex USA' Plan B Tax-News

The G-8: The End of the Beginning on Tackling Financial Secrecy The Center for Global Development

Africa's Tax-dodgers BBC

Taxes, trade, transparency and the development agenda - That G-8 Tax pact The Jamaica Observer

Guernsey Publishes Action Plan On Beneficial Ownership and Jersey Issues Action Plan On Beneficial Ownership Tax-News

The Tax Haven Team in Monaco The New York Times

World Bank: Money Laundering Criminals | Interview with Whistleblower Karen Hudes RT

Barclays under German taxman's gaze over tax credits Reuters

Starbucks pays corporation tax in UK for first time in five years Guardian

Clock ticks on Isle of Man tax haven Financial Times

The evils of tax evasion and tax havens The Philippines Star

Bank of Tokyo-Mitsubishi to pay £162 million for money laundering The Telegraph

Russia’s shadow economy accounts for 15-20% of GDP RT

Cadbury accused of 'highly aggressive' tax avoidance schemes Guardian. Based on some original reporting by the Financial Times.

Inflicting Death and Avoiding Taxes: The G-8 Stalls

Clawback time: tax havens under pressure citywire


Swiss tax deal lowers UK budget gap? Really?

Update, June 28: we thought we'd post this tweet from Richard Brooks, a former UK corporate tax inspector.

There's been a fair bit of news about a supposed £3.2 billion windfall for the UK government in its latest budget. This has relevance far beyond the UK, because -- now that Germany has sensibly rejected its own version of a similar bilateral deal with Switzerland -- this is Switzerland's Exhibit A for claiming that its "anonymous withholding model" of tax collection is the right way forwards for the world. Under this Swiss model, criminal tax evaders are allowed to keep their affairs secret, but they are supposed to pay a hefty up-front capital charge to take account of past missed taxes -- and from then on, their affairs are whitewashed.

This Swiss tax-and-secrecy model is a challenger to the much stronger emerging model of automatic information exchange, recently endorsed (feebly) by world leaders. A seminal paper on this last year noted that:
"The international tax system is in the midst of a contest between automatic information reporting and anonymous withholding models for ensuring that nations have the ability to tax offshore accounts.
. . .
the contest . . . implicates broad questions about the future of tax sovereignty in a globalized economy and the treatment of the wealthiest vis-à-vis other taxpayers."
So there is a lot at stake here.

We noted in a detailed research report in 2011, however, that the deal was absolutely riddled with loopholes, and that official UK forecasts that the deal would raise £4bn - £7bn are likely to be confounded. We reckoned that because of the loopholes - some so egregious as to amount to a flag planted in the agreement saying 'evade me here' - the UK would be lucky to raise much beyond the CHF 500 million Swiss Francs guaranteed downpayment, paid (to the tune of £342 million) in January.

So the news this morning would suggest that our calculations were wrong.  Bloomberg, for instance :
"Britain’s budget deficit narrowed in May as government spending fell and the Treasury got a 3.2 billion-pound ($5 billion) boost from a deal with Switzerland to fight tax evasion."
That is far more than we could ever have contemplated under our analysis. This deal was politically very useful for the UK's embattled Chancellor (finance minister) George Osborne:
"The underlying deficit in May was little changed if money from the tax on Swiss bank accounts held by Britons is excluded."
And the narrowing deficit was taken by a government spokesperson as a reason to say:
“It shows the deficit-reduction plan is working. Obviously that needs to be stuck at."
So: we were wrong.

Or were we?

Let's see, now. From the Office for National Statistics Bulletin, backing the budget documents:
"The payments are currently estimated by the Office for Budget Responsibility to be £3.2 billion and although the cash is anticipated to arrive over the coming year, under National Accounts rules the full cash amount is being accrued to May 2013 when the liability fell due."(With more details provided on p15 here: thanks to Richard Brooks.)
Ah. Well. So -- beyond that guaranteed £342m, the cash has not arrived yet, after all. This is not revenue, but an expectation. Perhaps it would better be called a hope.

So we will stick by our forecast: that the UK-Swiss tax deal, because of its egregious and in some cases deliberate (see e.g. Section 3.1 here, with follow-on story here) loopholes, will fall far, far short of what Dave Hartnett and other UK cheerleaders for the secrecy-riddled deal have been promising. Remember: we sent our analysis to the UK's and the Swiss tax authorities, to the Swiss Bankers' Association, and to private practitioners - and none of them (save this rather feeble effort) was able to explain how our numbers or analysis were wrong.

Is this an exercise in counting chickens before they hatch?

We shall see.


Saturday, June 22, 2013

Report: 92 percent of Americans would rather be Swedes

Well, not quite. Not at all, in fact (among other things, they'd miss all their friends back home.)

But still. Here's an interesting short little presentation drawn from a report called A Political History of Inequality, which focuses on the United States. (Hat tip: Naked Capitalism.) The 92 percent figure starts at around 1:30.

The report summary notes:
"The conventional wisdom describes this collapse [of the highly successful, high-growth, egalitarian, post-New Deal structures] as an unfortunate but necessary response to changing economic conditions.  The world has become a leaner and meaner and more competitive place, so the argument goes.  As a result, the policies of the New Deal—and the costs they imposed on business—had to go.

But there is little evidence to actually support this account.  Indeed the initial handwringing over American economic decline came at a time when our principal competitors, Japan and Germany, boasted both higher wages and more expansive social programs than the United States. Political choices, not economic necessity, dismantled the New Deal."
That 'competitive' word again.

Even if it is a U.S.-focused report, its implications are widespread. Tax, of course, is part of the story. Now read on.


Friday, June 21, 2013

Links Jun 21

African Union Chair Dlamini-Zuma Complains That Discussions On Tax "Always Take Place At the End of the G8" allAfrica

Liberia Booked? Illicit Financial Flows From Africa Shows Trail in UN Panel Report allAfrica
"A recent background paper by the United Nations Commission for Africa and the High Level Panel on Illicit Financial Flows from Africa has listed Liberia among a number of countries serving as a hub for offshore banking centers used by multinationals for tax havens to set up shell companies that can be used for a variety of tax evasion schemes."

Resource companies ripping off Africa - AfDB chief Reuters
President of the African Development Bank, Donald Kaberuka, says mining and energy companies operating in Africa should pay more taxes.

Angola Reduces Illegal Capital Outflows, Finance Ministry Says Bloomberg Businessweek

Guinea Says U.K. Is Helping U.S. Probe Into Corruption in Guinea The Wall Street Journal

Mauritius: tax status on the radar Financial Times (subscription)

India:The UBS link in offshore accounts Business Standard

Mexico applies to be first non-EU country in new international tax agreement STEP

EU orders five countries to apply new laws on tax evasion Reuters

Council of the European Union Requests ICIJ Offshore Data

France Readies Tax Haven 'Black List' Tax-News
French Finance Minister Pierre Moscovici revealed plans to submit an amendment to the anti-tax evasion bill, providing that any countries that elect not to adopt an automatic exchange of information in 2015 will be placed on France's "black list."

Jersey court dismisses first-ever appeal under TIEA regs International Adviser

US Publishes G8 Beneficial Ownership Plan Tax-News

Stop these havens being the first port of call for avoidance Tribune Magazine
Prem Sikka outlines how politicians with the will to do so could make a serious dent in corporate tax avoidance

U.S. and Other G8 Governments Move to Prevent Tax Evasion and Avoidance, But Is It Enough? Citizens for Tax Justice

OECD says Ireland must apply 12.5% corporate tax rate not 2% Finfacts

OECD official optimistic G8 tax plans mark beginning of end to secret money Thomson Reuters

Caribbean islands in tax evasion clampdown Trinidad and Tobago Newsday
See also: FactCheck update: another tax haven loophole Channel 4 News "For obscure historical reasons, it appears that  the Channel Island of Sark has quietly managed to dodge David Cameron’s efforts to rein in the offshore havens."

‘Monstrous uncertainty’ hangs over Swiss banks Financial Times (subscription)
See also: Swiss - U.S. Stalemate Over Bank Information on U.S. Clients -- Next Move - U.S. Federal Tax Crimes

Liechtenstein Adopts Consultation On Austrian Tax Deal Tax-News

Italy court rejects bid to block Berlusconi tax fraud verdict Reuters

Messi summons over Spain tax fraud BBC

Tax havens may soon lose their charm The Hindu Business Line

A Cautionary Tale CBC
The allure of investing in offshore tax havens made many fall prey to a con man that scammed millions from Canadians.

Ireland Has Nothing to Fear From G8 Tax Proposals -Irish Finance Minister The Wall Street Journal

FATCA Rebels Battling To Stop Tax Law Starting iExpats

How Wall Street Fraudsters Plunder Public Finances, And How to Fight Back naked capitalism


Thursday, June 20, 2013

Links Jun 20

Talk point: did the G8 campaigns achieve anything? Guardian
See also: It’s gone quiet after G8 tax promises Bdaily

OECD reports to G8 on global system of automatic exchange of tax information
On the release of the new OECD report, A Step Change in Tax Transparency. See also TJN blog yesterday on G8 and tax havens: a helpful beginning, but only a beginning

At the G8, Switzerland is the elephant in the room New Statesman

Switzerland: Surveying the wreckage of torpedoed US tax deal swissinfo
See also: US tax bill rejection fails to ignite press

Swiss money laundering case buried once and for all Pakistan Daily Times
"The Swiss government has in a letter to the government of Pakistan refused to reopen graft cases against President Asif Ali Zardari."

Use Swiss Law Courts To Unravel Mystery Of Supposed Oman Ghana Trust Billions In Switzerland Vibe Ghana

The Fair Tax Mark: dealing with criticisms of our methodology

Canada: Finally, Tax Havens Taken Seriously Huffington Post
Commentary by Dennis Howlett of Canadians for Tax Fairness

Russia Vows to Crack Down on Offshore Zones Ria Novosti

Don’t blame the havens – tax dodging is everyone else’s fault Financial Times (subscription)
"Authorities have preferred to cut deals with big companies rather than pursue costly legal action"

Call for global information system to curb tax evasion South China Morning Post

Israel's tax chief warns on unreported capital abroad Globes

Bulgarian FinMin to Discuss Offshore Bank Accounts with Cypriot Counterpart novinvite

Government opens door to Spanish tax squad Gibralter Chronicle

Mbeki says Africa loses $15b in illicit money laundering Africa Review
See also: Tax avoidance on global agenda Zambia Daily Mail

Latvia fines bank over Magnitsky money laundering EU Observer

Cobrapost money-laundering sting operation nails Stanchart, HSBC officers on camera domain-b

Ex-HSBC boss who oversaw bank as it laundered money for terrorists quits as a minister after scathing report Daily Mail

UK panel suggests jail for bungling top bankers wearing blindfolds and earning rewards for failures The Standard

Hong Kong is rolling in more millionaire money than Singapore Quartz

Hong Kong in path of U.S. tax crackdown South China Morning Post

Italian icons find no respite from tax man Bloomberg Businessweek

Secret tax-haven files lift veil on $32M Ontario fraud CBC news


Dolce, Gabbana get suspended prison for tax evasion, abetted by "we are not a tax haven" Luxembourg

Like all tax havens, Luxembourg routinely denies being one. An official communiqué from Luxembourg for Finance, to mention just one example, goes:
"Contrary to a widely held misconception, Luxembourg is not a tax haven."
They all say that. Denial of tax haven status by tax havens is so routine that we at TJN (informally) take it as a marker for tax haven status.

Now, from the Financial Times:
Italian fashion designers Domenico Dolce and Stefano Gabbana have been handed suspended prison sentences of a year and eight months and fined nearly half a billion euros by a court in Milan for evading millions in taxes.
Apparently they sold their brand to a Luxembourg-based holding company called Gado in 2004 to avoid declaring taxes on over €1 billion in royalties. NBC reports Milan prosecutor Laura Pedio:
Gado is nothing but a shell company that took no administrative or financial decisions, said Pedio. "Gado is a radio relay station," she said. "The orders originated in Milan, and bounced from Luxembourg back to the Milan offices where the decisions regarding the brands were made."
And the Italians know that Luxembourg has serious criminal form in this respect:
"The widespread use by Italian business of holding companies registered in Luxembourg has been a specific target for tax authorities (in) Rome."
Just one more reminder, in case anyone doubted that this wealthy, clean-streeted, pretty European mini-state has the facilitation of criminal activity into a business model.


Wednesday, June 19, 2013

Links - June 19

The G8 summit - Reasons to be cheerful The Economist
"After the Lough Erne summit, the NGOs have a bit more wind in their sails, and those who hold or move black money have another reason to believe that life for them will only get harder." See TJN comment here.

The beginning of the end of corporate secrecy? G8 strikes a blow against corruption – but still more to do Global Witness

Governments to share tax records ICIJ

U.S.: Senator Levin statement on G8 declaration on offshore tax abuse and corporate transparency

EU directive places Cayman funds at a competitive disadvantage CayCompass
On European demands that the funds and the fund manager have to be based in the same country. The majority of Cayman-based alternative investment funds, such as private equity or hedge funds, are managed from the US.

South Korea: Gov't to get tougher on offshore tax evasion Yonhap News Agency

Singapore to Virgin Islands: India begins global black money crackdown First Post

ICIJ probe: List of Indians in tax havens Indian Express
See also: With 184 addresses, Mumbai leads the nation in haul Business Standard and India approaches tax havens on black money expose Kashmir Times

EU tax chief urges Swiss to end bank secrecy Reuters

Swiss Parliament Pushes Back on U.S. Banks Deal The Wall Street Journal

The "African laundry" of BNP goes back to Geneva Huffington Post (In French)

Australia’s Tax Office Has ‘Declared War’ On Dodgy High-Profile Lawyers and Accountants Business Insider

Italy: Economy minister vows to continue war on tax dodgers adn kronos

Multinationals face OECD pressure over their tax evasion and avoidance Irish Examiner

U.S. Companies Lobbying Furiously To Save Corporate Tax Loopholes: Study Huffington Post

How tax havens stole your money CNN

Picardo challenges Spain on tax evasion Gibralter Chronicle
Yet more on the theme of We are not a tax haven

The Dolce And Gabbana Verdict Is Nigh Vogue


Tax avoiders as space invaders: new infographic

A fine infographic, for those of us old to have enjoyed the original video games. With a serious message attached. Courtesy of Real Business Rescue.

Infographic Space Invaders G8 Summit George Osborne on UK Corporation Tax Avoiders


G8 and tax havens: a helpful beginning, but only a beginning

We haven't commented yet very much on the G8 outcomes - partly because most of us are travelling, partly because hordes of others are commenting, and partly because we wanted to sit back a bit and comment once we've had a bit of time to digest all the kerfuffle.

We think there's been some useful progress, most importantly on matters of principle and in terms of a serious shift in political will in our direction. A few years ago only a few crackpots (such as us) would have been calling for such things as:
  • G8 countries said they should make multinational corporations disclose the taxes they pay on a country-by-country basis. (FT.) Country by country reporting is now officially endorsed, at the highest level.
  • Tax authorities should automatically share information to fight evasion. This should be "the global standard." (FT.)
  • Companies should know who really owns them and tax collectors and law enforcers should be able to obtain this information easily. (statement
  • G8 countries have “a duty” to help developing countries improve their capacity to enforce tax laws.  (FTC)
These have all been core TJN campaign issues for some years now - and it's delightful to see world leaders now talking about this, and at least pushing for some action, even in such vague terms. All of this is several decades overdue, and the shift in the zeitgeist is hugely welcome. We are also pleased that the UK has exerted some leadership on this issue, as far as it goes. From The Guardian, on the corporate taxation side of it:
"The decision to try and lead the charge will provide a rare moment of unity at home – nowadays, everyone from UK Uncut to the crustiest of Tory backbenchers is keen to see companies stump up what they owe."
In an email to TJN, ActionAid said this:
"Twelve months ago, the idea of the G8 summit being dominated by tax dodging in developing countries would have been absurd. It simply wasn’t on the agenda."
And so we have seen big progress. But of course there are many big negatives out there. As the FT notes:
"The written statement is not short of what governments and companies “should” do. . . . But critics are not convinced. It lacks a clear promise on whether G8 members will follow through on these obligations and by when."
The Financial Transparency Coalition (FTC), of which TJN is a member, added:
"At this year’s summit, G8 leaders had an opportunity to pursue tax and transparency policies that would provide economic stability, root out systemic corruption and enhance the democratic process in rich and poor nations alike. Today G8 leaders largely failed to seize this opportunity."
Or, as Professor Prem Sikka put it:
"The G8 summit in Lough Erne was preceded by much hype and promises about action on tax avoidance and corporate secrecy, but it has delivered little. The leaders' communiqué commits governments to nothing more than vague promises.
. . .
the G8 has made no mention of any time scale for implementation. Neither does the communiqué say anything about how this information exchange is to be co-ordinated or enforced."
The FTC adds:
"there is no G8-wide agreement on the introduction of beneficial owner registries, let alone that they be made public."
And of course there are the pesky questions of detail. Such as:

How will places such as the Cayman Islands comply with this protocol when they do not levy income or corporate taxes, and thus do not have the infrastructure for collecting data about taxes or tax avoidance vehicles? And note that while there are indications of some willingness to "consider measures to facilitate access to company beneficial ownership information," there appears to be no intention to let the public know the details about ownership of companies, or beneficial ownership information with respect to trusts. No sign at all of any willingness to even consider the issue of secrecy-shrouded 'ownerless assets' - believed to add up to many trillions of dollars' worth, around the world.

And, from The Guardian:
"It looks very unlikely that any country will deliver on this promise – and even the UK is saying it will only be consulting on how to implement it and that's not good enough. If that's all that happens, tax evasion will continue at a cost to billions of people the world over – especially in developing countries."
So, all in all, lots and lots of hot air, very little in terms of specific progress - but some important progress on broad global targets that we should all be aiming for. That is worth a lot, despite the other disappointments. Sikka summarises well:
"The kindest thing that one could say about the G8 communiqué is that as a result of public anger, issues such as tax avoidance and corporate secrecy are on the political agenda. However, the summit has not delivered."
We could have made our blog headline far more negative - but today's blogger is in a good mood. And in any case, we're preparing ourselves for yet more disappointment from the OECD.

More commentary on all this, a bit later.