Tax Justice Network

Guernsey resists pressure to cooperate

2009-11-04T08:22:00.000-08:00

Today's edition of the Jersey Evening Post carries an article saying that both Guernsey and Jersey will reject Michael Foot's suggestion that the Crown Dependencies should set a firm date for applying the automatic information exchange procedures of the EU's STD (Savings Tax Directive).

The reasons given for rejecting the proposal? According to the JEP

Both Jersey and Guernsey have opposed the move, saying that to sign up to the EUSD before their competitors could damage the finance industry.

Now let's get this straight. The purpose of automatic information exchange is to deter tax evasion. Nothing else. And both islands refuse to sign up to this process on the grounds that they will lose their competitive edge. A reasonable person will assume this can only mean their competitive edge in providing secretive facilities for tax evasion by non-residents. And these places have the gall to say they're cooperative jurisdictions.

Financial Secrecy Index - questions in UK Parliament

2009-11-04T03:29:00.000-08:00

The 2009 Financial Secrecy Index results were officially launched just a few days ago. You can find them here.

We are very gratified that David Taylor, Member of Parliament for North-West Leicestershire, had this to say about the index in Parliament yesterday:

The Tax Justice Network has done the world a great service in producing its global index of secrecy, which reveals the most secretive financial centres—the City of London being the fifth worst. Why cannot we take an international lead in tackling tax avoidance by first ending the clandestine and corrupting culture that permeates the City of London?

You can find the full text of the exchange between David Taylor and Financial Secretary to the Treasury Stephen Timms here.

Interesting to note that since 2004 the advance disclosure system has reduced tax avoidance losses by an estimated £12 billion. Of course there's plenty more that can be recovered by taking further steps to tackle Britain's avoidance culture, but £12bn will have paid for more than a few new schools and hospitals. And TJN can claim at least some of the credit for building political resolve to tackle this social cancer.

A pictorial guide to the Financial Secrecy Index

2009-11-03T02:06:00.000-08:00

Click here to see CNBC's picture postcard tour of financial secrecy, taking in places ranging from Asian centres like Hong Kong and Singapore, to Luxembourg and London in Europe and finally on to the United States of America, ranked top on our league table of secretive jurisdictions.

European Parliament urges cooperation on country-by-country reporting

2009-11-03T01:16:00.000-08:00

While members of the unelected and unaccountable International Accounting Standards Board continue to prevaricate about country-by-country reporting, European Parliamentarians clearly see this as an important step forward for corporate transparency and governance. At its session on 22nd October 2009 the Parliament adopted the following resolution in an advance of the upcoming EU-USA summit and the Transatlantic Economic Council Meeting:

35. Urges the TEC to insist that the US authorities abide by their road map for requiring US domestic users to apply the International Financial Reporting Standards (IFRS); recalls its request that, until the US adopts the IFRS, the US Securities and Exchange Commission (SEC) should recognise the IFRS, as adopted by the EU and until the decision requiring US users to apply the IFRS has been made, as being equivalent to the Generally Accepted Accounting Principles in the US (US GAAP); urges the TEC to promote the development of a country-by-country breakdown of reporting for multinational groups;

Country-by-country reporting is an idea whose time has come. IASB take note.

Financial Secrecy Index - USA tops the ranking

2009-11-02T06:02:00.000-08:00

We have just launched the results of our Financial Secrecy Index. The USA tops the ranking and the state of Delaware is highlighted due to concerns about lack of corporate transparency. In the following clip, TJN senior adviser Richard Murphy from Tax Research LLP explains this in more detail:

Interestingly, we are not alone in our assessment. Earlier this year Spears Wealth Management Survey (in an article devoted to providing high net worth individuals with a "guide to the best away to minimise personal tax bills") reviewed a number of prominent financial centres. Here is what Spears had to say about the USA:

Admittedly, the Unites States isn’t the first country to spring to mind when you talk of unblemished financial reputations - Enron, WorldCom, sub-prime mortgages - but nor does it seem like an obvious place for a tax haven, even with its light regulation of business. In reality, however, it is one of the best places in the world for deep pockets to escape the long fingers of the government.

The very simplicity of the scheme makes it almost incredible. Several American states - most notably Delaware, but also Wyoming - have a zero per cent rate of tax. If you set up a limited liability company or partnership (LLP/LLC) with at least two other partners who are not American residents, you can pay no tax on any foreign income. In addition, privacy laws in Delaware are second to none.

This lack of tax is because, according to Simon Evans, managing director of Nean Wealth Advisors, ‘The LLP is a fiscally transparent entity - it pays no tax in its own right - and the non-resident partners have no US source income.’ You can move all your income from around the world into America and not have to pay a cent in tax.

Even if the business or individual is not doing anything illegal, the presumed standing of an American-incorporated company immediately increases the respectability of the enterprise. Delaware companies are cheap to set up, efficient to run and without suspicious baggage.

‘It’s not well-known at all,’ says Simon Evans. While the American government is avoiding its own budget deficit and stamping on smaller tax havens with claims that they funnel money to terrorists, its own back yard is becoming a world centre for tax avoidance.

Read the entire article and you will see that we are not alone in thinking that the problem of financial secrecy is not restricted to small islands in the sun and a cluster of tiny prinicipalities in the European Alps.

Financial Secrecy Index - Richard Murphy explains

2009-11-02T04:03:00.000-08:00

For more information about the Financial Secrecy Index click here.

For more information about the Mapping the Faultlines research programme click here.

To access the separate reports prepared for each of the 60 jurisdictions covered by the Financial Secrecy Index click here.

And the losers are . . .

2009-10-31T07:54:00.000-07:00

The results of the 2009 Financial Secrecy Index

Finally, the time has come to reveal the names of the secrecy jurisdictions that we have ranked according to both their lack of transparency and their scale of cross-border financial activity. For the first time ever, and based on far stronger criteria than those used by the OECD, we can now announce the world’s leading secrecy jurisdictions.

Nothing like this has ever been done before.

Our new index assesses each jurisdiction on an opacity rating – how secretive the jurisdiction is – combined with a weighting according to size. We put special emphasis on the opacity score. Read more here.

And here we go . . .

Counting down from number 5, we have, at number 5, the City of London in the United Kingdom, the world's largest financial centre, and the state within a state that sits like a spider at the centre of a web that includes exactly one half of all 60 secrecy jurisdictions ranked on the Index. Its satellite jurisdictions work hard to hoover up dirty money from around the world, and channel it into London. Did the sun ever really set on the British Empire? Despite ranking as the most transparent of the secrecy jurisdictions we surveyed, London operates on such a vast scale, and is so politically unaccountable, that it has the potential to do more damage than the vast majority of its competitors.

At number 4, the Cayman Islands combine a truly appalling Opacity Score of 92 per cent - meaning they were awarded a credit on only one of the twelve indicators used for our assessment - with a massive scale of operation. Cayman authorities are also among the world’s leading ‘tax haven deniers’. On the basis of our evidence, they should now stop relying on spin and get their house in order instead.

Few will be surprised to see Switzerland coming in at third position. Swiss bankers have earned themselves a dreadful reputation for furtiveness, political manoeuvring, and the blackest secrecy. Shame on them for scoring a brutal 100 per cent on their opacity assessment, and for constantly trying to wriggle out of cleaning up their act. And shame on the Swiss government, for tolerating this. They need to understand that the global zeitgeist is firmly against them.

The Grand Duchy of Luxembourg ranks number two on the index. While not such a big player in private banking as Switzerland, Luxembourg hosts a massive hedge fund activity which attracts investors from around the world. TJN recently visited the Grand Duchy and met various bankers. Like their counterparts in other secrecy jurisdictions, they like to portray themselves as guardians of privacy. What they do not say is that it is the privacy of rich élites that they care about – that is, élites in other countries who want to evade paying their taxes.

And now for the big winner of the competition for the world’s most important secrecy jurisdiction . . . . .

Step forward Delaware and the United States of America. Ranked alongside 59 other secrecy jurisdictions, Delaware's commitment to corporate secrecy, and resolute lack of cooperation and compliance with international norms, places it at head of the new Financial Secrecy Index.

(We are measuring something slightly more complicated than the state of Delaware in isolation. As with our closely related Mapping the Faultlines project, we refer to USA (Delaware.) Click here for more on this.)

Most ordinary people would never consider this jurisdiction alongside Bermuda, Monaco and Grand Cayman as a secrecy jurisdiction. Yet its Opacity Score is as bad as the Cayman Islands’ score, and the sheer scale of operations places it well ahead of the rest. Its status reveals a brazen contradiction at the heart of the American free market. Properly functioning markets depend on transparency and symmetric access to information, but secrecy jurisdictions like Delaware, Wyoming and Nevada purposefully set out to undermine market transparency.

The also rans . . .

The top Dirty Dozen secrecy jurisdictions - in reverse order - are:

#12 Austria

#11 Jersey

#10 Hong Kong

#9 Belgium

#8 Singapore

#7 Bermuda

#6 Ireland

#5 UK - City of London

#4 Cayman Islands

#3 Switzerland

#2 Luxembourg

#1 USA - Delaware

For access to the full index, click here.

Financial Secrecy Index - coming very soon

2009-10-31T00:40:00.000-07:00

From the Financial Times:

"Leading economic centres including the US, UK and Singapore are among the countries most to blame for promoting international financial secrecy, according to a new index comparing the harm allegedly done by tax havens and rich nations.

The league table to be published on Monday by the Tax Justice Network, a respected campaign group, is led by the US state of Delaware and includes Luxembourg, Switzerland and Hong Kong in its top 10."

Watch this space.

We should stress by way of background, however, that we are measuring something slightly more complicated than the state of Delaware in isolation. As with our closely related Mapping the Faultlines project, we refer to USA (Delaware.)

More precisely, the FSI (Financial Secrecy Index) is designed to identify the key contributors to global financial secrecy on a jurisdiction-by-jurisdiction basis. However, in some important cases, different level of secrecy prevail in different sub-jurisdictional entities. Since financial flow data are only systematically and comparably available at a jurisdictional level, this creates a potential problem. To deal with this, and recognising the impact that even marginal secrecy differences can have on the volume of illicit flows, we treat the most secretive sub-jurisdictional entity as representative of the potential for opacity of the whole jurisdiction, and therefore base its Opacity Score on this. The most obvious case where we have applied this technique is with the US state of Delaware, which is taken as representative of the maximum secrecy available within the whole jurisdiction (the USA.)

How secrecy jurisdictions undermine markets - Part 2

2009-10-30T08:09:00.000-07:00

Recently we ran a blog entitled How secrecy jurisdictions undermine markets, looking at how offshore secrecy may be stifling competition in the Kenya telecoms market, raising prices for all concerned with potentially devastating long-term impacts on Kenya's economic growth prospects.

Today the UK's Independent newspaper is running an excellent piece raising a lot of questions about Lord Ashcroft, who may or may not be resident in the UK for tax purposes (watch this priceless interview to see this explored, and see the extraordinary role Ashcroft plays in British and Belize politics, here and here.) The Independent investigation asks a question about competition in Belize's telecoms market which is similar to, though separate from, one we raised a month ago with respect to Kenya.

First, having interviewed the Belize prime Minister Dean Barrow, The Independent notes:

"Mr Barrow's nationalisation of the country's major telecoms company, Telemedia, in August was portrayed as a means of crushing the peer (Ashcroft) – and it passed through parliament with barely a squeak of opposition."

(Read Barrow's introduction of the bill to take over Telemedia here.) Now Telemedia had a competitor in the Belize telecoms market, SpeedNet. And The Independent continues:

"In the teeth of repeated denials by the peer's allies, the prime minister says that Ashcroft-related trusts control SpeedNet, too. The government has been following a complex paper trail that leads to trust companies controlled by the peer's long-time lieutenant . . . a "financial consultant" in documents filed by Lord Ashcroft's companies at the London Stock Exchange, and he has sat on several of the peer's boards."

Read more about trusts here. Lord Ashcroft's spokesman, Alan Kilkenny, in the UK denies the allegations, asking: "How do you prove a negative?"

Could the peer be stifling competition in the Belize telecommunications market? We can't be sure - as we have said before, trusts potentially provide deeper and more devious forms of secrecy than what can be obtained by Swiss-style bank secrecy alone, and as The Independent notes:

"Between the byzantine network of Caribbean trusts set and the viciously polarised atmosphere of the local politics, truth is something of an elusive concept in Belize."

Whatever the truth, there can be no doubt that offshore secrecy is routinely abused, around the world, in order to stifle competition. Now read the rest of the article and the ones that accompany it: they are fascinating.

30 years: Hats off to Citizens for Tax Justice

2009-10-30T01:41:00.000-07:00

TJN is only six years old, and we think it has been a productive six years. Yet our six-year pedigree pales into comparison with our highly excellent colleagues in the United States, Citizens for Tax Justice, which has now spent an extraordinay 30 years mercilessly picking apart the spin, lobbying, hypocrisy and crackpot ideologies that are so characteristic of U.S. politics.

Senator Carl Levin put it eloquently:

"CTJ is a voice for real fairness, for justice, in our tax system, a voice for those who believe in closing special-interest loopholes and enforcing compliance with the tax code. CTJ is there every day and every week, with detailed analysis of tax proposals, alternative ideas, and good suggestions. Bob McIntyre, CTJ’s longtime and tireless leader, is one of its driving forces and a terrific public servant who has dedicated his life to tax justice. Washington would be a much poorer place and even more skewed to the powerful interests without Citizens for Tax Justice..."

We couldn't have said it better ourselves. The high-profile U.S. journalist Jonathan Chait also highlights how extraordinarily influential CTJ have been:

"The episode took place in 1999, when the presidential campaign of George W. Bush told the Washington Post it could write an exclusive story about candidate Bush's tax plan only on the condition that the paper not show the plan to any outside experts before writing and publishing their story.

Amazingly, the Post agreed to these terms, and wrote a story about the tax plan that seemed to reinforce the image of Bush as a "compassionate conservative" that the campaign was trying to hard to project. Of course, CTJ did an analysis in the days following the publication of that article and showed that the Bush tax plan was very regressive and that there was nothing compassionate about it.

Chait said the incident is remarkable because the Bush campaign 'crafted an entire media strategy around Citizens for Tax Justice. It was, 'Don't show this to Citizens for Tax Justice before we put it out or we're sunk.' And I think they were right.'"

Read more on CTJ, and such snippets as the Showdown at Gucci Gulch of 1986, here.

UK Review of Money Laundering Regulations 2007

2009-10-29T10:07:00.000-07:00

The UK Treasury is reviewing its money-laundering regime. It is looking for inputs:

"HM Treasury has published this Call for Evidence to capture information and views on how the Money Laundering Regulations 2007 are working. . . . We want to capture views on how the regulations are designed as well as how they work in practice, in terms of how effective and proportionate they are and how much engagement there has been. The review will focus on the full scope of the 2007 Regulations (not simply changes made in 2007), on guidance, and on other communication and engagement with stakeholders. The review will also consider supervisory arrangements, industry practice and the customer experience under the regulations."

Friends of TJN are encouraged to submit; it is especially important that the interests of developing countries are represented and reflected.

"The Call for Evidence closes on Friday 11th December 2009."

Foot report - some positives

2009-10-29T05:07:00.001-07:00

We have already given our opinion on the general thrust of the latest Foot Report: it is a weak piece of work by someone who does not have a very good feel for how fiscal policies shape markets and society. Yet it does contain some good points.

One useful thing the report does is to recognise that the OECD's standards on information exchange are inadequate. As Foot says (point 4.30):

"In the longer term, the trend for greater transparency is likely to result in pressure to move to a system of automatic exchange of information with the aim of combating tax evasion by individuals on a cross-border basis. . . . The jurisdictions within the scope of this Review must keep pace with international developments and move towards full automatic information exchange wherever possible. . . . The Review encourages (Guernsey and the Isle of Man) to announce a firm date for a move to automatic exchange. . . The UK should call on all EU Member States and third party countries which currently apply the withholding tax option to also make a similarly firm commitment."

This is not bad, and somewhat better for recognising, albeit in a mealy-mouthed way, that the EU Savings Tax Directive (STD), which would be the foundation for automatic information exchange, could be beefed up:

"There is, however, pressure to remove the withholding tax option and a proposal to apply the EUSD to a broader range of savings income."

What is needed is a major overhaul of the EU STD to cover all sorts of other income, not just savings income - covering trusts, anonymous corporations and any number of other entities. This, if implemented, would mark a real sea change.

And in this context, one other positive thing is worth pointing out from the Foot report. Section 7.39 says:

"During the course of the consultation, a number of NGOs raised concerns about the extent to which the lack of transparency in the ownership of corporate vehicles in the jurisdictions facilitated financial crime (including tax evasion)."

(Hurrah! It is nice to be noticed.) He goes on:

"The Review shares these concerns, but such transparency issues also arise to a greater or lesser extent in most major jurisdictions. For example, within the UK, most trusts are not subject to financial regulation and therefore no agency monitors the ownership or behaviour of these trusts."

We agree - look at the statistics on trusts here, for example, which made a related point:

"None of the reviewed secrecy jurisdictions has a central register of trusts and foundations that is publicly accessible via the internet."

The Foot Review goes on to note:

"7.40 In the US, a more egregious loophole exists in the fact that a number of individual States, notably Delaware, permit the creation of international business companies without adequate monitoring of their beneficial ownership."

Yes: it is just as we have noted. And we are delighted to see Foot say something else we've been saying for a long time:

"The Review considers that the FATF should conduct tougher checks than it currently does."

No question. The FATF, like the OECD's list system, is little more than a whitewash mechanism.

And we are partially pleased to see Foot saying this, too:

The Review has, therefore, concluded that the UK should take the lead internationally in encouraging improvements to:
• ‘know your customer’ international minimum standards (particularly in respect of
the role of ‘eligible introducers’);
• the monitoring of PEPs (Politically Exposed Persons); and
• the transparency of beneficial ownership of companies and trusts."

Well and good, as far as it goes. But why should the UK lead on "encouraging" these improvements. Why can it not simply require these improvements in the array of places over which it has so much control?

The Foot Report: a setback

2009-10-29T03:45:00.000-07:00

The long-awaited Foot Report on Britain's Crown Dependencies and Overseas Territories, a crucial part of the global offshore sytem, has now been published. Click here. The preamble says:

"The final report of Michael Foot’s Review of the opportunities and challenges facing the British Crown Dependencies (Guernsey, Isle of Man, Jersey) and six Overseas Territories (Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Turks and Caicos Islands) was published on 29 October. The recommendations made to these jurisdictions cover: the quality and extent of economic planning; meeting international standards on tax transparency, financial sector regulation, and tackling financial crime; ensuring that deposit protection schemes can be understood by depositors; considering whether an Ombudsman scheme is justified; and crisis prevention and resolution measures."

Now the report notes how important these places are:

"Within the offshore market (as defined in chapter 2), the nine jurisdictions account for over 60 per cent of total financial flows through the banking system."

And it provides some more specific indications of the "hoover" effect they have, sucking up money from around the world and channeling it to the City of London. The three Crown Dependencies alone, the report notes,

"provided net financing to UK banks of $332.5 billion in the second quarter of calendar year 2009, largely accounted for by the ’up-streaming’ to the UK head office of deposits collected by UK banks in the Crown Dependencies."

And that is just three of the many, many secrecy jurisdictions linked as satellites to the City of London.

We already provided some background, here. Richard Murphy has provided some preliminary analysis here, concluding that

"we have a weak apology for a report that is going to do little, but allow it to be claimed the issue has been tackled. . . .
I never had high hopes for this report. And even then I have been underwhelmed. A weak man, born to be an apologist, has delivered a weak report. It was what I expected but after a period of real progress this is, without doubt, a set back."

Overall, we should agree that this is an apology of a report. Perhaps its main message is: what are the risks to these places of their own activities, and what are the risks to the UK? It simply ignores the elephant in the room: what about the damage these places cause to the rest of the world? To get a sense of that, it is useful to look at this damning report by the Norwegian government in June.

We will analyse the full report in due course.

Update 1 - Foot Report: some positives.
Update 2: Richard Murphy on Deloitte's role.
Update 3: Would any of this have happened without the Tax Justice Network?

Netherlands seminar: Helping developing countries raise tax revenues

2009-10-29T02:35:00.000-07:00

From Tax Justice Netherlands:

"We have the pleasure to invite you to the seminar 'Supporting developing countries' ability to raise tax revenues' to be held on 2 December 2009 at Het Mozeshuis, Waterlooplein 205, Amsterdam. It will be held in English.

The seminar will be carried out within the framework of the Development Policy Review Network (DPRN) and is part of the Raising Tax Revenues process. The seminar is organised by Tax Justice NL, SOMO and CIDIN, and will take place from 1 pm till 5 pm.

The seminar serves as a forum for policy makers, academics and staff from development organisations to meet and discuss the topic from different perspectives, and to exchange information and experience. The content of the seminar is based on three discussion papers:

1. Paper 1 reviews the ability of developing countries to effectively implement tax policies and increase tax revenues is comprised by aid conditionality international opportunities for tax evasion and avoidance, trade agreements, and other international factors.

2. Paper 2 reviews how to address domestic constraints, such as limited expertise of local NGOs for advocacy on and monitoring of tax policies, capacity constraints of revenue authorities, and problems regarding tax compliance..

3. Paper 3 analyses the relationship between external aid and taxation, discusses tax structures in developing countries and reviews donor policies to support tax reform.

After a plenary session, these papers will be presented and discussed in three separate working groups. The papers and a more detailed agenda will be send to all invitees well in advance, allowing the sessions at the seminar to focus on the active discussion of concrete recommendations and tools for policy makers.

Your participation will be very valuable in order to create an active and informed policy dialogue on the subject. Please confirm your participation before the 6th of November 2009.

For further information or inquiries, please do not hesitate to contact us via telephone or e-mail: Andrina Sol, telephone: 0031 30 2361500, e-mail: a.sol (at) stichtingoikos.nl, or Maaike Kokke, telephone: 0031 20 6391291, e-mail: m.kokke (at) somo.nl."

Switzerland needs to apologise to Italy

2009-10-29T00:34:00.000-07:00

From the AP:

"Foreign Minister Micheline Calmy-Rey summoned Italy's ambassador in Bern to explain why financial police's largely targeted Italian branches of Swiss banks Tuesday as part of their crackdown on cross-border tax evasion. . . Italian authorities had acted in a "discriminatory" fashion."

We've got a suggestion for Calmy-Rey. It would be more appropriate to summon Italy's ambassador, then prostrate yourself and beg forgiveness for the abusive behaviour of Swiss banks on Italian territory, for Swiss banks' roles in assisting rich Italians to get poor Italians to pay their taxes for them, for Swiss banks' handling of the proceds of crime, and for their general contempt for Italy. Then, perhaps, summon the German ambassador and do the same. Then the French ambassador.

Better still, a world tour.

Taxes to rise in secrecy jurisdictions?

2009-10-28T23:44:00.000-07:00

The Guardian expects a Treasury Commission tomorrow to bring out a new report on tax havens (or secrecy jurisdictions, as we prefer to call them):

"Having spent the last 20 years luring the world's super-rich and top companies to their shores, Britain's offshore centres will be told they have no excuse not to diversify their tax bases to ward off financial crisis."

Many of these jurisdictions are in trouble. This letter we dug up from the Cayman Islands Financial Services Association in May shows the sheer financial panic that has been underway there; we have remarked on several occasions since -- try this for example, or this -- how the islands have headed for bankruptcy. As the Guardian now notes:

"Similarly, the Caymans have also faced a financial crisis after a public spending programme and reduced fees from banks meant it was forced to beg the Foreign Office for permission to raise a £280m bank loan."

Or take Jersey, another major satellite of Britain and the City of London. It has recently become apparent that Jersey's so-called zero-ten tax regime for businesses -- a central plank of its fiscal regime -- will not be compliant with the EU Code of Conduct. John Christensen, TJN's director, and Richard Murphy, a Senior Adviser to TJN, warned Jersey in a letter to the Jersey Evening Post in 2006 that exactly this would happen - and they were mocked and ridiculed in Jersey. The Jersey authorities will now be wishing they had listened. Read Murphy's analysis of this here and here.

There is the Isle of Man, another Crown Dependency, like Jersey. Murphy has long pointed out that the Isle of Man receives a large subsidy from Britain's taxpayers, via a secret pooling arrangement on Value Added Taxes, supporting the secrecy jurisdiction as it drains money out of countries around the world and channels them into the City of London. Then we had Isle of Man Today this week saying:

"It is perhaps the secret nature of the deal that has fuelled claims by the Island’s most ardent critics, most notably Richard Murphy of the Tax Justice Network, that it effectively provides us with a £230 million subsidy from the UK."

And now the Guardian notes that:

"Earlier this month the Treasury slashed the Isle of Man's budget by £140m after it discovered a 400-year revenue sharing agreement was weighted sharply in the tax haven's favour. The cut was equivalent to a 24% budget reduction. The 80,000-strong island faces steep spending cuts and possible higher taxes."

The secrecy jurisdictions have brought this upon themselves, and a time of reckoning for their decades of abusive selfishness seems to be here.

Alas, this time may be all too short-lived: the Guardian's assessment that "Britain's tax havens will be read the last rites tomorrow" is way off the mark. For one thing, it will be as easy to wean these jurisdictions off abusive financial activity as it is to wean a decades-long heroin addict off the junk. In fact it will probably be much harder, given that tax havenry is embedded in the these places' very psyche, with their political systems, economies and media outlets almost entirely captured by the offshore sector.

And that is by no means all. Unless there is a marked sea-change in the fortunes of Britain's Labour Party soon, it will be out of power by the middle of next year, and Britain will be run instead by the Conservative Party - the party of offshore. Unless we see a Damascene conversion by the Conservatives - and we see absolutely no sign of that whatsoever - Britain's government will be working hard towards getting these places back to business as usual, as fast as they can.

More broadly, a recent OECD push for more countries to sign its information exchange protocols has led to a widespread perception that the tax haven problem is on the way to being solved. This is an extremely dangerous perception, for if it persists it will pave the way for business as usual.
Mike McIntyre, a former chair of the UN Subcommittee on Information Exchange, calls the OECD list system a "sad joke" and adds (sorry, no link available):

"The OECD efforts at getting countries to sign information exchange agreements based on its model TIEA is a sideshow, even a charade. With all these illusory TIEAs being signed with great fanfare, some may fear that we are seeing the end of the reform movement rather than the beginning."

He may well be right.

Multinationals shift losses, as well as profits

2009-10-28T10:13:00.000-07:00

From the Guardian:

"At present, UK tax law allows a company to carry legacy losses forward indefinitely until it has made the same amount in profits, avoiding tax on any earnings in the interim. The rule has raised fears Britain's banks could avoid paying tax for decades. Merrill Lynch, for example, booked £13bn of credit crunch losses through its London offices last year."

Let's hope that the UK pre-budget report, due out shortly, will take steps to address this.

Letter to G20 Finance Ministers

2009-10-28T05:37:00.000-07:00

This letter went out today to the Finance Ministers of G20 countries, signed by nine organisations including TJN. For the pdf version, with logos and signatures, click here.

Wednesday, October 28th 2009

Dear Finance Minister,

In the run-up to the G20 Finance Ministers’ meeting in St Andrews, civil society organisations from around the world are writing with regard to the G20 Heads of States’ commitment at the London Summit in April to 'develop proposals by end 2009 to make it easier for developing countries to secure the benefits of a new cooperative tax environment.'

In November 2008 at the United Nations’ Financing for Development review conference, the world’s governments agreed that “capital flight, where it occurs, is a major hindrance to the mobilization of domestic resources for development.” A commitment was made to “strengthen national and multilateral efforts to address the various factors that contribute to it.”

We civil society organisations believe that tax is the most sustainable and key source of development finance. Yet developing countries lose an estimated US$160bn each year in tax revenue as a result of tax evasion by multinational companies . This money, if invested according to current spending patterns, could save the lives of 350,000 children under the age of 5 each year.

While the G20 has made significant progress in breaking tax haven secrecy, the proposed reforms in their current form are unlikely to meet that commitment to truly benefit developing countries. Criteria used by the Organization for Economic Co-operation and Development in order to build its black, grey and white lists are based on bilateral agreements and on by request information exchange models. These remain largely inadequate for developing countries, which will hardly benefit from bilateral agreements and will face huge obstacles to effective use of the by request model of information exchange. If we are to put an end to the era of banking secrecy, as claimed by G20 leaders in London in April, bolder and more comprehensive measures need to be taken urgently.

The OECD Forum on Tax Administration in September considered a number of proposals specifically aimed at developing countries, but none were comprehensive enough to address this problem fully. We are therefore calling on you to:

1. Support a truly multilateral agreement for automatic exchange of information between jurisdictions, including the disclosure of beneficial ownership of assets and trusts. At the very least, a robust review mechanism must be put in place to evaluate the extent to which developing countries have been able to benefit from progress on information exchange.

2. Support an international accounting standard requiring multinational companies to report profits on a country-by-country basis. The OECD is currently investigating this proposal. We urge all G20 members to take an interest in this investigation and to use the St Andrews’ summit to request a formal report from the OECD to the G20.

Both measures aim effectively to combat tax evasion and, therefore, should be incorporated in regional and bilateral investment agreements with developing countries.

It is our belief that these measures would provide developing countries with the information they need to pursue those who evade and avoid tax and would ensure that the G20's commitment to developing countries is honoured. We urge you to advocate this position both in the G20 negotiations and in public.

Yours sincerely,

Directors of Organisations

Nuria Molina, Eurodad director

Rómulo Torres, Latindadd director

Bernd Nilles, Cidse secretary general

John Christensen, TJN director

Raymond Baker, GFI director

Daleep Mukarji, Christian Aid director

Jeremy Hobbs, Oxfam International director

Ramesh Singh, ActionAid International Chief Executive

Jean Merckaert, PPFJ coordinator

African Tax Administrators newsletter

2009-10-28T02:57:00.000-07:00

The African Tax Administration Forum (ATAF) has started a newsletter, the first of which is available here. It has a number of links to communiqués and initiatives.

Tax leverage: debt and equity

2009-10-28T01:26:00.000-07:00

In July we ran some blogs about the tax treatment of debt, which has played a major role in the latest financial and economic crisis. We quoted Prem Sikka as saying:

"Let us cut the welfare programme enjoyed by corporations – for example, the tax relief on borrowings. This would also help to address excessive leverage, one of the causes of the banking crisis as well."

Now John Plender is on the case, in the Financial Times.

"Policymakers should, in turn, think about the tax treatment of debt. It beggars belief, after such a monumental debt binge, that this fundamental spur to leverage scarcely features on the policy agenda. . . . Eliminating the tax relief on corporate debt is the obvious solution to reducing the corporate addiction to debt, but no one advocates it."

This is a colossal issue, and it is well worth reading Sikka's article again, alongside Richard Murphy's article published around the same time, which noted that:

"Private equity exploits this (tax deductibility of debt interest) to the full. They load their UK companies with debt and pay the interest offshore where it is not taxed on receipt. In effect for every £1 of interest paid a 28p tax subsidy is given by the UK taxpayer – an extraordinary mechanism for shifting wealth from the poorest to best off in our society."

And the results? Back to John Plender in the FT:

"Remember balance sheet efficiency? This was one of the countless virtues, much trumpeted in business schools, that private equity was supposed to bring to the quoted corporate sector. It turned out to be largely claptrap, as the debris from numerous leveraged buy-outs bears witness. The academics were doing a splendid job in softening up business on private equity’s behalf, but performing a singular disservice to the wider community in peddling their intellectually toxic wares."

This is all part of the necessary sea change in mainstream ideologies that are, thankfully, at least starting to shift back towards more balanced perspectives. But we still have a very, very long way to go.

Update: this new academic paper from the Max Planck Institute - which this blogger can't access - looks interesting.

Doggett: FATCA stops short of targeting all fat cats

2009-10-27T12:16:00.000-07:00

Last March, Democratic Representative Lloyd Doggett introduced a bill in the U.S. House of Representatives as a companion to the (identical) Stop Tax Haven Abuse Act whose press released noted that

"We cannot tolerate $100 billion in offshore tax abuses burning a hole through our budget each year. We can fight back against secrecy jurisdictions and shut down offshore tax abuses if we have the political will."

Doggett's office has contacted us today and noted that new legislation has been introduced:
the Foreign Account Tax Compliance Act of 2009 (FATCA.) Doggett said (no link available yet):

“It is very good to finally see some action on tax abuse. Treasury Secretary Geithner testified in March that he ‘fully support[s]’ the ‘Stop Tax Haven Abuse’ Act that Senator Carl Levin and I previously introduced. While pleased that this proposal incorporates a number of elements from our bill and adds other desirable provisions, FATCA omits action on multinational corporate tax evasion. Like its name, FATCA stops short of targeting all FAT CATS. U.S. corporations should not be able to dodge U.S. taxes simply by filing a piece of paper and renting a foreign mailbox.”

“I look forward to working with my colleagues to seek a meaningful response to international tax abuse by corporate persons. Visiting a sandy foreign beach is fine for time off, but not for a tax break. Hopefully, today's proposal can be strengthened to belatedly end the Bush Administration’s coddling of multinationals that refuse to pay their fair share while our nation is engaged in two wars.”

Well said. The legislative text is here, and the FATCA measure, which is expected to raise a modest $300 million each year on average, was described by one U.S. lawyer as "basically a fee for maintaining bank secrecy." Which isn't good enough.

Does the EU want a president who opposes co-operation?

2009-10-27T06:15:00.000-07:00

The FT has reported:

"Tony Blair, the former UK prime minister, on Tuesday faced his first unofficial challenger for the European Union’s presidency after Jean-Claude Juncker, Luxembourg’s prime minister, indicated he was willing to take the job."

So we have Blair, an arch-supporter of the City of London - Offshore Central -- now being challenged by this kind of man, a staunch defender of bank secrecy and an opponent of co-operation on tax, whose cynicism in the face of efforts to co-operate in the area of information exchange, and whose relish for delay in moving forwards with this, is summed up in his memorable phrase:

"I’m looking forward to many years of fascinating and fundamental discussions."

Don't forget the accountants

2009-10-27T02:59:00.000-07:00

From Nick Mathiason in The Observer:

"As bankers take a kicking from an increasingly irate public, auditors have avoided the anger, even though they signed off trillion-dollar balance sheets, sanctioned increased dividends in bank shares that collapsed months later, blithely assumed markets would function seamlessly and established controversial rules that inflated bubbles and amplified losses.

It is why one fund manager dubbed the profession an army of Morlocks – the fictional troglodyte characters from HG Wells's Time Machine who spend their lives underground, away from the light."

We ignore this profession at our peril. Apart from a few like Prem Sikka and Richard Murphy, few public commentators have taken the time to look deeply into this business, which is one of the most important on our planet. Protest against the likes of ExxonMobil, Wal-Mart and Trafigura by all means - but the time has come to start looking at the ones that unite all these disparate corporations: KPMG, PricewaterhouseCoopers, Deloitte & Touche and Ernst & Young.

Now this is interesting:

"the Observer understands one European government has launched a scoping exercise to establish whether it is possible to sue the profession in one hit. Any such action, it is believed, would be on the basis that accountants took the lead in regulating themselves, setting international standards while also advising audit clients, and so are partly responsible for the financial mess."

Well, well, that would be a step forward.

The incredible shrinking estate tax

2009-10-27T01:03:00.000-07:00

"Of all forms of taxes this seems the wisest," said Andrew Carnegie in 1889, talking about taxes on people's wealth after they have died. He also said that the wealthy should give away the vast bulk of their wealth to provide “ladders upon which the aspiring can rise.”

So this remarkable statistic, from the Tax Policy Center at the Urban Institute and Brookings Institution in Washington D.C., is depressing:

"The estate tax is only a faint shadow of its former self. In 2009, less than one-quarter of one percent of deaths—just 5,500 decedents—will leave taxable estates, the smallest percentage since at least the Great Depression."

The rest of this short post explains what's behind this. And it's a measure of the distortions in the political debates in the United States that things have fallen so far:

"Opinion polls show significant numbers of voters saying they would more likely vote for a candidate who favors repeal. Maybe they all think they’ll win the lottery or their next great idea will become another Google. In the real world, we’re spending a lot of time worrying about a tax that fewer than three in a thousand of us will pay. And, when we do, we’ll be dead."

Huge lobbying interests are at play, of course: watch Citizens for Tax Justice demolish some of the lobbyists' arguments here, and read more on U.S. estate taxes here.

Not all wealthy people are against estate taxes: Warren Buffett is one of them, saying this in 2007:

“Tax law changes have benefited this group, including me, in a huge way. During that time the average American went exactly nowhere on the economic scale: he’s been on a treadmill while the superrich have been on a spaceship.”

Not all wealthy people are against high taxes, for that matter: this BBC story about wealthy Germans is interesting:

"A group of rich Germans has launched a petition calling for the government to make wealthy people pay higher taxes. The group say they have more money than they need, and the extra revenue could fund economic and social programmes to aid Germany's economic recovery. Germany could raise 100bn euros (£91bn) if the richest people paid a 5% wealth tax for two years, they say."

There is only one Global Financial Integrity

2009-10-26T04:39:00.001-07:00

. . . and it is run by Raymond Baker and is based in Washington, D.C. It is curious that since GFIP started measuring the scale of illicit financial flows, another well-financed institution has popped up, sporting almost exactly the same name, and claiming to share the same sorts of ends as GFIP does: "governance," anti-corruption, "ethics and integrity" - and so on. This new body is called the Luxembourg Institute for Global Financial Integrity, and it promises to be churning out reports.

Do not be deceived - for this is a very different organisation, with very different aims, from GFIP. Look at its Board of Regents: three of four of them are top politicians from Luxembourg - one of the world's top tax havens -- and one of them is Jean-Claude Juncker, the Luxembourg Prime Minister, who not so long ago forced a television journalist to issue a craven public apology for having the temerity to question Luxembourg's penchant for bank secrecy.

Hat tip: Jérôme Turquey - who provides more analysis here. And if you want to see how secretive Luxembourg is, look here.