Tuesday, April 30, 2013

Links Apr 30

Luxembourg agrees to full automatic information exchange – removing obstacle on the path to beating tax fraud Tax Research UK

Austria Willing To Negotiate With EU On Banking Secrecy Tax-News

Austria: Tax fraud whistleblower says Innsbruck prosecutors hid data Austrian Times

Bank Secrecy law not important for over half Austrian Times

UN High Level Panel Chairman Visits Liberia allAfrica

Billionaire Dodges Argentina Tax Sending Cash to Holland Bloomberg

Wealthy Brazilians have 4th largest fortune in the world of tax havens Brasil Fator (In Portuguese)

Revealed: 'Sweetheart' tax deals each worth over £1bn The Guardian
See also:
  How HMRC treated its Goldman Sachs tax deal whistleblower as a criminal

Russian Money Laundering in London - A Modern Morality Tale Rowan's Blog

UK companies accused of money laundering in Magnitsky probe The Telegraph

Cayman Joining G5 Multilateral Tax Information Exchange Pilot Caribbean Journal

UK's biggest taxpayer, John Caudwell, on tax avoidance BBC

Helsinki wants common EU criteria on tax fraud prevention Helsinki Times

JPMorgan Chase’s record highlights doubts about big banks’ devotion to fighting dirty money flows ICIJ

U.S.: IRS may be missing offshore tax evasion -government watchdog Reuters
To avoid steep penalties for offshore tax evasion, some taxpayers are making "quiet disclosures" to the IRS, reporting for the first time offshore accounts that could appear to the IRS as newly opened accounts.


FATCA Sets Stage for EU Clamp Down on Tax Evasion CFO Insight
Hat tip: Offshore Watch


Belgium Offers Diamond Traders Tax Amnesty Deal Rough & Polished
The most notorious scandal in Belgium involving taxes on the diamond business is dates back to 2011, when Antwerp tax authorities announced that 800 diamond traders hid incomes amounting to $ 1 billion in a Swiss branch of HSBC.


World Bank announces EUR 70 million project to overhaul Romania’s tax system Romania-Insider

Deutsche Bank's Fitschen: Zero Tolerance for Tax Evasion-Report Fox Business

Paulson Reinsurer Lags Peers in Sales in First Year Bloomberg
On avoiding taxes on hedge fund earnings by routing money through a reinsurer

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UK's NPower: pay your taxes

The UK's Sun newspaper has an article entitled Watt? No Tax? Npower avoids paying £108m to HMRC by funnelling massive sum to German owners via Malta.

As the Sun summarises:
"Energy giant npower has dodged paying up to £108 million in UK corporation tax in the past four years — by funnelling cash to Malta.
. . .
[The revelations] will infuriate the company’s near seven million customers who are receiving record bills."
TJN's Richard Murphy helped the Sun with this story, and he's followed up with a series of blogs:

NPower’s defence for tax avoidance is ridiculous: why can’t they just tell us what they’re doing?

Why Npower’s tax avoidance matters

Npower is avoiding tax despite all their claims to the contrary

And now the campaign organisation 38 Degrees have a petition entitled NPower: Pay your fair share.

Please sign it, and pass it on.

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Jeff Sachs in FT: The havens serve countless purposes; not one is for the social good

Jeffrey Sachs has an excellent article in the Financial Times this morning, entitled Austerity exposes the global threat from tax havens. A very apt title it is too.

Tax Justice issues is now being taken seriously by mainsream economists (also see this), other academics, geographers, lawyers, environmental campaigners, people interested in international development (and this latest article about Africa from Richard Dowden is a good one) - you name the field, and there are almost certainly a bunch of its brightest stars diving in. We've been told recently that in Westminster (a term taken to refer to the goldfish bowl of British national politics) a realisation has sunk in that 'tax justice is now a talking point in pubs' - which is, we think, some kind of tipping point, and it's having an effect (with this just one of many recent examples).

Anyway, back to Sachs.
"How much tax revenue is lost to the global havens? Here, too, we can only guess but the numbers are likely to be vast. Recent estimates by the Tax Justice Network suggest that deposits are in the range of $21tn."
Indeed, and those estimates, and all supporting documentation, are here. And now Sachs sticks his neck out:
"The havens serve countless purposes, yet not one is for the social good."
We can just imagine Mr. Angry in the Cayman Islands firing off furious, fiery fusillades to the FT to follow this one. He probably will, too. But Sachs is absolutely right here.

All the supposedly helpful facilities provided by tax havens could be provided in other ways, but without the collateral damage that inevitable comes as part of the package - and most of those 'benefits' turn out not to be so beneficial after all, once you unpack what is really happening. We have made versions of this point many, many times in the past; perhaps the most comprehensive collection of these points is available in a page entitled "Tax havens’ arguments in their defence – and why they are wrong."

He identifies the UK, the US and Switzerland as the top three players in the system - that's spot on, in our subjective judgement, even though our Financial Secrecy Index, which takes a more pernickety number-crunching approach, puts Luxembourg at Number 3.

And he identifies systemic risks to the global economy posed by tax havens. Quite so, indeed. And a whole lot more on that particular subject, here.

We haven't always agreed with everything Sachs has said. But on our home turf, we are in full agreement. Read the rest of the FT article here.


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Monday, April 29, 2013

Transfer pricing: vote TJN!

Elections are upon us.  TJN has been nominated as a leading force in global transfer pricing.  This is your chance to vote in support of our work to promote an alternative way of taxing multinational companies.  Vote here
With particular thanks to Prof. Sol Picciotto for spearheading our recent work on this. And here is the basis for TJN's nomination:

While we agree that some tax practitioners don't support unitary taxation (one might well note they have a vested interest in the status quo) others do, and the Financial Times editorial on 29th April comments as follows:
"Thus far, the problem (of tax avoidance) has been delegated to the OECD, which is seeking to tighten rules on transfer pricing...  But it is questionable whether a few tweaks will be enought to stop multinationals from making corporation tax liabilities evaporate, and countries from competing to offer tax loopholes to footloose multinationals....  The most ambitious solution would be to agree a common consolidated corporate tax base.  This would have states tax a mutually agreed share of a multinational's proftis, not just the share the group decides to account for in each jurisdiction."
We are not alone in arguing that this is the logical direction of travel for corporate taxation.  Rather than spend endless years of committee time trying to stitch Humpty-Dumpty (a.k.a. the arm's length method) into a half workable model, now is the time to strike out in a new direction fit for the 21st century.
Don't delay; vote now for TJN.  You know it makes sense.

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Links Apr 29

Austria Yields to EU Savings-Tax Talks as Bank Secrecy Wobbles BloombergBusinessweek
See also comment on Tax Research UK The direction of travel is clear: the fight against tax fraud is gaining momentum and that’s vital for the well-being of us all

Banking secrecy remains in Europe for now Der Standard (In German)
Commenting that after Austria ceding on bank secrecy, the way is cleared for the EU to demand transparency from Andorra, San Marino, Liechtenstein, Monaco and Switzerland.

US authorities keep up pressure on Swiss banks swissinfo

German tax evasion Uli, Uli, Uli The Economist
Secret Swiss bank accounts suddenly have a famous face

Billionaires Flee Havens as Trillions Pursued Offshore BloombergBusinessweek

MNCs parking profits in tax havens a challenge for I-T Dept: Pranab The Hindu Business Line

Irish Revenue focuses on 200 Irish investors in tax avoidance probe Independent
More than 200 wealthy Irish investors are being investigated by the Revenue as part of a probe into a major offshore tax avoidance scheme

Irish Revenue Officials still chasing Ansbacher account holders Independent
On the Ansbacher controversy with its offshore trusts, foreign-registered companies and secret ledgers

The FT’s finally caught on to the fact that the Netherlands is a tax haven: better late than never Tax Research UK

UK MP Margaret Hodge: 'The tax you owe is a duty. It's an obligation' The Guardian

PwC created 'extraordinary' structure 'to avoid tax on UK properties', say MPs The Guardian

Ban 'insider' tax accountants from government - MPs BBC

Tony Blair, a £400,000 payday and a luxury stay at taxpayers’ expense The Independent

Starbucks posts higher-than-expected earnings as it argues for tax breaks The Guardian
Coffee giant's revenue climbs 11% in first quarter as reports circulate it is trying to expand US tax breaks on foreign profits

Wealthiest Americans Only Winners in Recovery, Pew Says Bloomberg

Zimbabwe could tax mining sector to fund July elections Mining Weekly

Lobbyists are power and are markets Gran Canaria Actualidad (In Spanish

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Friday, April 26, 2013

Links Apr 26

Resolution on Illicit Capital Flight from Africa African Commission on Human and Peoples' Rights

Cameron, EU officials say time for curbs on tax evasion is now Reuters
Britain's Prime Minister called on the EU to use the impetus of the G8 summit in June to organise "radical" international action to crack down on tax evasion and avoidance.
See also: Cameron Sets Out Case For Global Anti-Avoidance Action Tax-News

Global Witness welcomes UK Prime Minister’s move to end anonymous shell companies

France, Germany Seek Tougher AML Regulations Tax-News
Germany and France have called for European anti-money laundering regulations to be toughened, as part of efforts to clamp down on tax evasion.


Swiss Banks 'Plundering German Treasury'
Der Spiegel

Global Witness welcomes UK's Serious Fraud Office announcement of formal investigation into Eurasian Natural Resources Corporation (ENRC)
ENRC made large payments to offshore companies to purchase prize mining assets in Congo. The structure of these deals has meant that the Congo, which has the lowest GDP per capita in the world, may have foregone hundreds of millions of dollars in revenue.


Through the G8, Canada can help Africa fight corruption The Globe and Mail
Canada isn’t only the G8’s key resource economy; it also co-chairs the G20 Anti-Corruption Working Group.

Era of Big Oil Secrecy is Over Brookings

Mexico Hikes Royalties Tax On Mining Tax-News

Nigeria: Tax Evasion: Lagos Sues 20 Companies PM News

Developing countries have been suffering the effects of aggressive tax avoidance for decades This is Money

US Lets Swiss Banks, Accused of Aiding Tax Fraud, Avoid Prosecution with Fines The Real News
Interview with James Henry, lead researcher of The Price of Offshore Revisited


Europe continues to take notice and action after ICIJ 'Secrecy for Sale' investigation The Center for Public Integrity

'Big four' accountants 'use knowledge of Treasury to help rich avoid tax' The Guardian

Govt: Bermuda to help UK target tax evaders, fraud The Royal Gazette

Tax Avoidance: The Hidden Cost BBC Radio 4

Widow Gets Less Than Minute of Probation in U.S. Tax Case BloombergBusinessweek
See also: From 2 tax-evasion sentences, a lesson comes USA Today

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Thursday, April 25, 2013

Links Apr 25

On Taxes, Trade, Transparency—and Turf Center for Global Development
On action by the G8 and the G20 on tax havens.


G20 makes progress on bank secrecy, but much remains to be done TJN Latin America and Caribbean (In Spanish)

The End of Bank Secrecy? An Evaluation of the G20 Tax Haven Crackdown
New study - the first attempt to assess how bilateral treaties affected bank deposits in tax havens - lends support to a multilateral agreement on tax havens. Rather than repatriating funds, the results suggest that tax evaders shifted deposits to havens not covered by a treaty with their home country. See also comment on Task Force blog.


EU seeks quick deal on tax transparency EU Observer
A letter from Irish finance minister Michael Noonan and EU tax commissioner Algirdas Semeta, sent to national capitals, called on governments to agree on automatic information exchange and tax savings rules.


European Commission Moves Ahead on Tax Avoidance Crackdown Compliance Week

European Commission Vows to Keep Up Pressure on Austria to End Bank Secrecy The Wall Street Journal

IMF and World Bank hold their Spring Meetings making gloomy days for development Eurodad


Pakistan: Taxation of money kept in Swiss banks proposed Business Recorder
See also further comment in Banking Secrecy


France Mulls Anti-Tax Evasion Bill Tax-News

Bankrupt Swedish Tycoon Had Fortune Stashed in South Pacific ICIJ

Philippines: Presidential Commission on Good Government keeps Imee's account report secret Manila Bulletin

Bank of Ireland loses £30m court battle with HMRC over tax avoidance 'loophole' The Independent

Why aren’t Barclays and HSBC willing to say why they’re not paying a fair share of their taxes in the UK? Tax Research

Bringing Amazon to book: 160,000 sign independent shops petition amid tax anger The Independent

Inside Story: The US Tax Trick Al Jazeera

Executive-Pay Tax Break Saved Fortune 500 Corporations $27 Billion Over the Past Three Years Citizens for Tax Justice

Caymans And BVI Sign Up For FATCA iExpats

Links from the TJN Germany Blog

A fairer society needs fairer taxation The Guardian

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Wednesday, April 24, 2013

Links Apr 24

Africa: Tax Havens and Africa - Will the G8 Deal With the Real Issue? AllAfrica

Corrupt Angola debt deal exposes EU tax havens EurActiv
Millions of dollars were transferred through banks based in Switzerland, Luxembourg, Cyprus, the Netherlands, the British Virgin Islands and the Isle of Man to the benefit of powerful Angolan and Russian figures

Is the OECD about to fail to address tax abuse, yet again? The omens are not good Tax Research UK

Bahamas' 27 Tax Deals Face New G-20 Pressures Tribune242
" ... our ultimate fate will continue to depend on how we adjust our business model to meet the needs of the international community in an environment of cross-border co-operation and automatic exchange of information".

EU tells neighbours tax "transparency" is way forward Europe Online Magazine

EC steps up its bid to halt tax evasion Irish Examiner

Finnish Finance Minister Calls State-Owned Postal Company’s Links to Tax Havens 'Repulsive' ICIJ

Dozens of Korean names in leaked data on tax havens: ICIJ Yonhap New Agency

Tax havens are key to many tax evasion schemes - Russian Audit Chamber  RAPSI - Russian Legal Information Agency

Moscow court issues arrest warrant for Magnitsky’s boss Browder RT

Spain ‘focused’ on Gibraltar tax regime Gibraltar Chronicle

Singapore the new Switzerland? Rich turn to Asian havens Crikey / SmartCompany

Swiss bank EFG International's UK arm fined for lax money-laundering checks The Guardian
EFG is the third bank to be penalised in the UK over money-laundering controls

France probes HSBC tax fraud claims Telegraph

Germany's Opposition Challenge Tax Amnesty Regulation Tax-News

Top soccer manager's secret Swiss account stuns Germany Reuters

Grammy-winning singer Lauryn Hill scolded by judge as sentencing in tax case delayed The Times-Picayune

Italy Minister Used Offshore Funds to Buy Home, Il Sole Says Bloomberg BusinessWeek
Reporting on tax dodging by Italian Finance Minister Vittorio Grilli, who has "led a crackdown on tax evasion"

Bilalov suspected of organizing large-scale tax evasion scheme with hajj tours interfax
Ex-President of the Russian Olympic Committee Akhmed Bilalov is suspected of tax evasion through a travel agency organizing Muslim pilgrimage tours.

Distressed loan investors see buried treasure in Puerto Rico’s tax haven Financial Times

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Tuesday, April 23, 2013

Links Apr 23

OECD Claims Tax Transparency Advances Tax-News

Kenya: Karuturi guilty of tax evasion
Global flower industry giant found breaking the law in Kenya

Thailand: Growing interest in transfer-pricing tax avoidance could lead to costly audits The Nation
Hat tip: Offshore Watch

BVI Refutes Tax Evasion, Data Leak Claims Tax-News
More on the theme of We Are Not a Tax Haven

Clock ticks on Swiss banking secrecy swissinfo

Austrians Disagree with Government on Banking Secrecy naharnet

Schäuble does not do what he says, Attac, TJN and Transparency Germany call for the end of anonymous shell companies TJN Germany Blog (In German)

New basis for negotiating tax treaties: Developing countries remain outside TJN Germany Blog (In German)

U.S.: Why is Treasury Protecting Tax Havens for Multinationals? Huffington Post

U.S.: Banker Groups Sue Treasury, IRS Over Account Reporting Rule Bloomberg

Tax havens unfair to small businesses The Washington Post

UK: Classic FM, Capital and Heart Radio owners pay no UK tax after sending millions offshore Corporate Watch

We pay £6m tax on £2.6bn UK profits, but that's OK because we help start-ups: Google boss Eric Schmidt under fire over comments on corporate tax The Independent

South Sudan’s oil production restarts amid concerns about transparency Global Witness

Damning video and contracts show BSGR was lying in Guinea mining scandal Global Witness

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April 2013 Taxcast



In April 2013's Taxcast: 'offshore leaks' blows the lid off secrecy for sale, the G20 endorse greater transparency (but let's not get too excited), Luxembourg agrees to lift its banking secrecy, Austria next? And the Taxcast goes to India and takes a look at fake foreign direct investment.

Download the Taxcast from Tackle Tax Havens here

Or download it on iTunes here

Update: For latest and previous Taxcasts, see here.





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Monday, April 22, 2013

Links Apr 22

The G20 gives another win to tax justice – automatic information exchange is now the required standard to beat tax evasion Tax Research UK
Richard Murphy reports on very good news from the the G20 Finance Ministers’ Communiqué

See also:

G-20 Pushes for Measures to End Tax Evasion The New York Times and G20 pushes tax data exchange, Swiss seen as laggards Reuters

And more good news:

Even the Bank for International Settlements is now calling for country-by-country reporting Tax Research UK

Ex-HSBC man says US advised him to go to Spain swissinfo
More on the story of former HSBC Geneva employee Hervé Falciani, accused of stealing banking data - says he was told by US Justice Department officials to head for Spain as his life was at risk. See also: "Swiss banks are the enemy" accordiing to Hervé Falciani RTS (In French)

Environmental tax reform in countries of the South Tax Justice Network Germany (In German, and with English version of the policy brief)

U.S.: Video Game and Tax Day Actions Target Corporate "Tax Evaders" The Real News
Interview with TJN-USA's Nicole Tichon. See also video Tax Evaders: The Invasion Begins and Tax Evaders Video Game Sheds Interactive Light On Corporate Greed Forbes

The pressure must be constant Le Courrier (In French)
Interview with TJN's John Christensen on the Cahuzac affair and its consequences

Cyprus Crisis Prompts Russia to Create its Own Tax Haven The Market Oracle

India: Information sharing with foreign countries may help tackle black money Business Standard

South Korea: Money remittance into tax havens tops $1.6 bln in 2012 Yonhap News Agency

Singapore Will Replace Switzerland as Wealth Capital CNBC

Few in Ireland benefit from tax haven status Al Jazeera
See also: Firms enjoy tax haven in bankrupt Ireland

German Regulator to Examine Banks’ Business in Tax Havens Bloomberg

Greek ex-minister's money laundering trial opens in Athens Global Post

Onshore and offshore realms equally secretive in Greece ICIJ Blog

Tax havens - infographics
ICIJ is gathering infographics from around the world to help illuminate the topic


Google boss defends UK tax record to BBC

UK: Negligence claims rise following tax avoidance crackdown The Global Legal Post

How We Do Our Corporate Tax Research Citizens for Tax Justice

Jeffrey Sachs Calls Out Wall Street Criminality and Pathological Greed naked capitalism

Hedge funds: Launch bad The Economist
Breaking into the hedge-fund world is harder than before

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Automatic Information Exchange: Will Germany follow the US in going the extra mile?

There is a very important project in the new US budget proposal for financial year 2014 supported by the Obama administration. If this proposal is carried through into law (or regulation), the odds for a truly effective global system of automatic information exchange on tax data about the wealthiest citizens would dramatically increase. Alex Cobham has identified the issue (see here) and the original text of the proposal can be found on page 202, of this pdf document.

It is worthwhile quoting at length and unpacking some of the detail:
"Provide for reciprocal reporting of information in connection with the implementation of the Foreign Account Tax Compliance Act (FATCA).—

In many cases, foreign law would prevent foreign financial institutions from complying with the FATCA provisions of the Hiring Incentives to restore Employment Act of 2010 by reporting to the IRS information about U.S. accounts. Such legal impediments can be addressed through intergovernmental agreements under which the foreign government agrees to provide the information required by FATCA to the IRS.
Requiring U.S. financial institutions to report similar information to the IRS with respect to nonresident accounts would facilitate such intergovernmental cooperation by enabling the IRS to reciprocate in appropriate circumstances by exchanging similar information with cooperative foreign governments to support their efforts to address tax evasion by their residents.

The proposal would provide the Secretary of the treasury with authority to prescribe regulations that would require reporting of information with respect to nonresident alien individuals, entities that are not U.S. persons, and certain U.S. entities held in substantial part by non-U.S. owners, including information regarding account balances and payments made with respect to accounts held by such persons and entities."
This legislative proposal is crucial for the effectiveness of any future multilateral system for automatic tax information  exchange for a number of reasons. First, the current regulations for reciprocating data exchange by the US under FATCA are a welcome first step away from the role of the US itself as a major tax haven (see background here), but are very narrow in scope (we have shown this in our analysis of bank account registries, on pages 41-42, in the chapter on the US, here). Most importantly, interest on government and corporate bonds as well as account balances and other crucial tax data is not currently available for reciprocating FATCA. This is the reason why FATCA model 1 agreements which the US has signed with many countries, among them key European allies, contain quite explicit langauge about the need for the US to improve its capacity to reciprocate under FATCA by additional legislation. For instance, article 6.1 of the German draft model 1 agreement states (full pdf here):
"Reciprocity. The [Government of the] United States acknowledges the need to achieve equivalent levels of reciprocal automatic information exchange with [FATCA Partner]. The [Government of the] United States is committed to further improve transparency and enhance the exchange relationship with [FATCA Partner] by pursuing the adoption of regulations and advocating and supporting relevant legislation to achieve such equivalent levels of reciprocal automatic exchange."

It is encouraging to see that the US administration appears to be willing to walk the talk. While it will be challenging to force this proposal through against a Republican dominated House, and it is doubtful if a modification of the US' QI program will be in the package of reform, the intention of engaging in this battle are a sign of decreasing hypocrisy currently embedded in many Western's fiscal policies (see background here).

This leads us the the second major reason why this initiative in the US may be decisive for a functioning global system. The long term effects of this political signal to earnestly fight for domestic reforms to reduce damages done in the rest of the world by the superpower may help restore and enhance its moral integrity and legitimacy to demand reform in other places. Recently, we heard Swiss, Austrian and also German politicians to (rightly) point out deficiencies in US and UK fiscal, anti-money laundering and transparency policies. The capacity to use those arguments as an excuse for defending the indefensible, the criminal and the opaque financial and tax arrangements in these German speaking nations would decrease dramatically if the US were to offer true domestic reform.

And here is where Germany still has some homework to do. German authorities at the moment do not collect from German banks, or German foundations or German Treuhand and trustees the information required for effective automatic information exchange (see page 29 here, and here, and here). There is a cloak of secrecy shed over any non-resident investor in interest bearing financial accounts and bonds, sweetened by tax exemption. Germany would need to modify, or better still, abolish its domestic "Abgeltungssteuer" and replace it by broad reporting obligations to the tax administration about financial account balances and payments. Now, they will need to do this for US accounts under FATCA. In the past, Germany's centre-right government has tried to do the opposite by fighting for the anonymous withholding deal with Switzerland (see here). And they may try to wriggle out of broad reform under the recently announced G5-initiative for AIE, e.g. by limiting exchange on interest on the narrow categories covered by the current EUSTD.

The question is: will Germany continue to do the minimum necessary not to be seen as a tax haven, and only require reporting about accounts of a few selected country's residents? Developing countries would be left out, and Germany would continue to finance its economy partly at the cost of the most vulnerable people on this planet. Or will Germany go the extra mile, as the US now appears willing to do, in order to collect the information of all non-resident accounts, so that Germany can support developing countries with collecting their fair share of tax from investments in the German financial market? Will it yield to supreme power, or will it use its power for the benefit of the "least among us"?

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Friday, April 19, 2013

Links Apr 19

Following the Money Trail to Fight Terrorism, Crime and Corruption International Network for Economics and Conflict

Tax reform as a prerequisite for development assistance The Guardian
Head of Burundi's new revenue authority, applauds the UK government's decision to make further aid flows to Pakistan conditional on the basis tax reform, but says more needs to be done

Charities say graft, tax evasion hold back poor countries' development Reuters

African countries urged to rethink use of mineral revenues for poverty reduction Mining Weekly

Watchdog says $88 million missing in Congolese mining taxes Reuters

Ghana - South Africa: Gold shines on The Africa Report
Despite attempts by the government to get more revenue from the sector, multinational mining companies are still keen on Ghana's prospects.

Special Report - The battle for the Swiss soul Reuters

French tax probe eyes 353 prospective UBS clients Reuters

Disgraced French tax tsar offers mea culpa on TV The Guardian
Jérôme Cahuzac explains 'mad mistake' over hidden Swiss account in surprise interview and resigns as an MP

Credit Suisse targeted in German tax evasion raids The Local
See also: Germans use Swiss bank data for new tax raids

Deal on the table in U.S.-Swiss tax dodger dispute Reuters

Fresh US tax cheat charges hit banking sector swissinfo

"What Keeps You Awake At Night?” - Security Issues Underscored By BVI Data Leak WealthBriefing

Campaigners seek to reopen Angola inquiry swissinfo
Angolan anti-corruption campaigners have filed a criminal complaint to the Swiss Federal Prosecutor’s Office, asking for an earlier investigation to be reopened into a deal which allegedly robbed Angola of more than $700 million

Truth and lies in the Cayman Islands: Tax haven’s former police chief calls for corruption inquiry documents to be released The Independent

The flying taxman: Bank secrecy is dying in Europe—thanks mainly to America The Economist
Richard Murphy comments: The world’s opinion on tax havens has changed, and the Economist has been the barometer of that change

The 'who's who' of European tax havens Deutsche Welle

Curacao Overhauls Its Land Tax Regime Tax-News
See recent Tax Justice Focus on land value taxation

Dunne Welcomes New Zealand Evasion Crackdown Revenue Take Tax-News

Number of Czech firms with owners in tax havens drops after years Prague Daily Monitor

Europe's fight against tax havens still has far to go Expatica

FATCA – Countries In And Out Of The Tax Network iExpats

Big Banks Worth More to Investors Broken Up  The Big Picture / Washington's Blog

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Her Majesty's Loyal Tax Avoiders

We thought we would share with you a collage put together by TJN director John Christensen: an alternative visual presentation of Britain's role in the world of global offshore tax havens.

With overviews of the issues available here and here. (And a very brief commentary on the picture here.)

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Thursday, April 18, 2013

Heard that countries should "compete" on tax? Wrong

Updated: the longer article is now available, here.

An article on tax competition in The Guardian, co-authored by Ellie Mae O'Hagan and Nicholas Shaxson.

It's subtitled "Tax 'competition' – in which countries fight to lower taxes – not only hits the poor, it doesn't even help the economy grow." Which is exactly right.

It starts like this:
"A myth we're repeatedly told is that a country must be "tax competitive" in order to support a successful economy. It sounds so reasonable. We're taught that competition between companies keeps them on their toes and pressures them to produce better products and services, at better prices.

But here's the problem: competition between companies in a market bears no economic resemblance whatsoever to "competition" between countries on tax. They are utterly different economic beasts."
Now read on. This is one of the most important myths out there on international tax.

The published article is somewhat shorter than the original. Here's one bit that was cut out, but that we'd like to highlight:
"Let’s tackle the economic illiteracy behind those calls for a ‘competitive’ tax system. If you write about it, always put ‘competitive’ in quote marks, to signal that you understand. And when a politician wheels out the ‘C’ word - get them to explain exactly what they mean. Or run for the hills."
And there's plenty more about this in Treasure Islands, of course. A longer paper soon to come.


The longer article supporting these conclusions is here or here. Another article by Martin Wolf, who's cited in the piece, is worth reading, here.

We have another graph for you, for which there wasn't space in the main article, and it doesn't say much. First some context, from the longer article, which notes that:
"There are meaningful ways to talk about ‘competitiveness’ among countries.

The World Economic Forum produces an annual “Competitiveness Index” for 144 countries built on 12 “pillars” of competitiveness: insitutions, infrastructure, the macroeconomic environment, health and primary education; higher education and training; labour market efficiency; financial market development; technological readiness; market size; business sophistication; and innovation.

We think some of their choices are bad ones, but its goal to measure “the set of institutions, policies, and factors that determine the level of productivity of a country” seems reasonable.

Most of the 12 ‘pillars’ depend heavily on public investment – which means tax.  So it’s not obvious, even in theory, that tax cuts will make countries more competitive, as many people believe. After all, taxes raised don’t go up in smoke: they are not a ‘cost’ in any meaningful sense of the word, but a transfer, from one (private) sector to another (public) sector: shingles taken from one side of the roof to put on the other.

In the WEF’s “competitiveness index” for 2012-13, two of the top four most ‘competitive’ countries in the world are Finland and Sweden, two of the world’s highest-taxed countries. Although some lower-tax countries such as Singapore also rank highly, there is no evidence that lower taxes make countries more competitive."
So what does the graph of WEF competitiveness against tax revenues as a share of GDP look like? For what it's worth, it looks like this:


(That's got tax revenues as a share of GDP on the x axis, and the WEF competitiveness scale -- higher is better -- on the y axis.) 

We are not going to draw any particular conclusions from that: that's a very shaky, shallow trendline.

One could think of all sorts of graphs here, most of them problematic. For example, a worldwide graph showing GDP per capita growth versus tax revenues as a share of GDP would quite possibly show higher growth in the low-tax countries. But this wouldn't tell us anything about causation: what it would most likely show is that if you are a low-tax country, you're more likely to be a poor country. And if you're a poor country, you're more likely to be enjoying catch-up growth with the mature, rich economies.

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Irish tax haven creator rings LSE bell

A quick blog pointing to a couple of things, and putting them together.

First, a story about Irish billionaire Dermot Desmond ringing the bell at the London Stock exchange (hat tip to @GustavusA on Twitter).

Why do we mention this?

Well, because Desmond was one of the creators of the Irish tax haven: a mucky, lax combination of corporate tax avoidance (see the "Double Irish Sandwich, for instance) and financial regulatory avoidance that has been quite heavily implicated in the global financial crisis that erupted in around 2008 (also see Jim Stewart's paper here, if the first link doesn't work.)

Our history of the IFSC is quite a tale, worth reading for those who want to understand what tax havens really are and how they really work. As a taster:
"The biggest early driver of the project was the (now billionaire) financier Dermot Desmond, who put an initial proposal for a financial services centre to the government in 1985, and whose stockbroking firm part-financed the full-scale feasibility study by PWC. Desmond (who also owned some of the original buildings that would become designated to the IFSC project) put this proposal to his friend, the politician Charles Haughey, which led to a policy document launched by Haughey’s party, Fianna Fáil, during the 1987 election campaign, with a promise of 7,500 full-time jobs within five years. Desmond and a business partner were the anonymous authors of the document. Although the document asserted (p318) that it was “not oriented in any way towards the creation of a tax haven,” reality would demonstrate the exact opposite."
The “voraciously corrupt” Haughey was returned as Taoiseach in March 1987, and by May of that year the government had already chosen the Custom House Dock site in Dublin to host the IFSC. The project was bulldozered forwards by a fixer named Padraic O’hUiginn, Haughey’s right hand man who, according to one official, had Haughey’s authority to “persuade, bully...whatever needed to be done to get the other government departments on board.”
To cut a long story short here (but do read the original), a very short summary of what happened:
". . . the laws were fully in place within three months of the new government being formed.

This pattern, an important component of a bigger tale that O’Toole calls “a lethal cocktail of global ideology and Irish habits,” fits closely our experience with tax havens or secrecy jurisdictions as places where laws are formed by small groups of insiders, collaborating closely with financial sector interests, with little or no democratic consultation or accountability."
The smoke-filled room. Tax havens are often best described as private law-making machines, where laws are cooked up by rich gentlemen in luxurious leather armchairs, protected, fortress-like, from scrutiny.
This willingness to brush dirt under the carpet to support the financial sector, sometimes called the Green Jersey agenda, contributed to remarkable regulatory laxity with massive impacts in other nations (as well as in Ireland itself) as global financial firms sought an escape from financial regulation in Dublin. The New York Review of Books describes the issues succinctly, and accurately:
The new government believed it had discovered a quicker-acting formula for wealth creation: tax cuts to stimulate consumption, property to replace manufacturing as the source of wealth, Dublin to become a tax haven for businesses seeking to avoid the more rigorous regimes of London and New York.
(London, rigorous?)

It is essential to understand that this is how laws are made in tax havens, the quintessential 'captured states' - captured by the global financial services industry, and carefully insulated from pesky questions that emerge from local democracy.

To understand this properly, read first the "ratchet" chapter in Nicholas Shaxson's Treasure Islands, looking at how the UK Channel Island of Jersey and the U.S. State of Delaware turned themselves into tax havens. Then read this shorter recent blog, about the tax haven of Cyprus (with follow-up here).

Among other things, it notes commentary from David Officer at the University of Nicosia:
"Cyprus is a remarkably un-reflexive society so this issue appeared to have been ignored by every single journalist, academic and political actor on the island. A consensus emerged here that if the goods were being delivered there was nothing to be gained by reflecting on how those resources were secured.

Why we can talk about 'state capture' by the financial services industry is how a nominally left-wing party such as AKEL has never once raised any substantive issues about how the economy had become absolutely dependent upon the tax haven model and Cyprus a conduit for the flow of foreign finance capital between jurisdictions."
Then, once you've digested that (or re-digested it,) read the story about the IFSC.  Once you understand this, you will understand a profound truth about the global financial services industry, whether located in tax havens or not. This is what the world needs to wake up to. More on this big subject in the coming weeks.

No particular further comment about Dermot Desmond, except to say that he's got plenty of, shall we say, question marks over his head. And to ask that the London Stock Exchange might spend more effort honouring genuine wealth creators.

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Wednesday, April 17, 2013

Automatic Information Exchange: is Austria conceding on bank secrecy?

It does look that way. Yesterday we took a look at Austria's hardline position on banking secrecy which had seen Finance Minister Maria Fekter fighting furiously with her counterparts at an Ecofin (European Finance Ministers') meeting on April 12-14. The Europeans wanted transparency, and she didn't.

We did, however, ask whether the outlines of a compromise were already apparent: Austria could keep banking secrecy with its own residents, while allowing cross-border transparency.

It now seems that this is already the official Austrian position. From Tax News:
"Austrian Chancellor Werner Faymann has recently confirmed the Government's "clear position" on banking secrecy, insisting that Austria is willing to enter into negotiations with the European Union (EU) on the automatic exchange of bank deposit information. Chancellor Faymann made clear however that banking secrecy is to remain firmly in place and "untouched" for Austrians."
That seems pretty clear. The compromise we pointed to seems to have been accepted. We believe - though we haven't seen any official confirmation of this - that this would work for the EU, and would unblock the gigantic political logjam that for months and years has prevented progress on plugging the loopholes in the European Savings Tax Directive, via powerful Amendments to the Directive that are waiting in the wings.

There are a couple of provisos in the story, however.
"The Austrian Chancellor conceded that the details of such plans have yet to be negotiated with the EU, alluding to the fact that there are various models that could be applied. These include information exchange on a case-by-case basis and an automatic exchange of bank information, Faymann noted, underscoring that Austria favors "the most sensible solution."
That weakens the commitment somewhat - but we know that the EU will no longer stand for the almost-useless case-by-case approach to exchanging information, where you have to know the information you are looking for before you ask a tax haven about it.

The Tax News story appears to be clearer than an earlier Bloomberg story, which said Faymann and Vice Chancellor Michael Spindelegger
"said they want to retain the system of a withholding tax on interest and protect confidentiality rules for residents, while working with other nations against tax cheats."
This would be compatible with a settlement whereby Austrians pay a withholding tax on their bank deposits, while exchanging information automatically.

The slightly confusing thing about all this is that Faymann's position has been clear on this for quite some time - before the Ecofin meeting - so, given that this position should be acceptable to the EU Finance Ministers, one might ask why there was such a big fight there.

The answer to this question lies in the internal divisions inside Austria's coalition government, with Faymann on one side and Fekter on the other. And this is confirmed by an interview given by Fekter to Austrian TV yesterday where she said:
"There's no gap between me an chancellor Faymann...  Withholding tax is a more efficient system; we want to keep it. It delivers money - as the agreements with Switzerland and Liechtenstein do (!) - whereas Automatic Information Exchange (AIE) delivers only information (!) ...  Luxemburg is only shifting to AIE because of the power of the USA. We will make a diffierent (FATCA) agreement with the US and therefore won't have to concede AIE to the EU."
Fighting words - and nonsense, of course, that transparency won't deliver tax revenues, and that the Swiss and Liechtenstein deals Austria as signed are worth much more than the paper they're printed on.

So the Tax-News story isn't yet the definitive position. David Walch of Attac-Austria puts an interesting interpretation on all this, in an email to TJN:
"In my opinion all this has much to do with the upcoming elections in Autumn. For me it looks as if this is a trap for Chancellor Faymann from the Social Democrats. HE hast to attend the next EU-Council in May. So HE and not Fekter will come back and have to declare why Austria gave up banking secrecy."
Which seems like a shrewd way of looking at this: it makes complete sense.

Most importantly, though what this analysis tells us (if accurate) is that Austria's going to give in on its B.S. (Bank Secrecy) before too long. And the pressure continues to mount:
"Austria doesn't want us to touch its banking secrecy [rules]," [Prime Minister Jean-Marc] Ayrault said in an interview with French radio station France Inter. "Austria won't be able to hold this position, it is a friendly country, I know its chancellor and I have told him."
Still, to coin a mangled avian metaphor: until the Austrian Ostritch sings (or goes quiet) we won't be counting our . . . chickens.

Endnote: The FT has a story about Austria signing hopelessly loophole-riddled deals with Switzerland and Liechtenstein, whose praises Fekter has been loudly singing (not so long after she was bizarrely insisting on inserting more loopholes into.) We're glad to see the FT noting:
"Critics question the deals’ effectiveness, arguing that they contain serious loopholes, such as the Swiss agreement’s failure to deal with discretionary trusts and the lack of adequate oversight."
We sure do. The FT also, however, quoted someone who clearly didn't know what he was talking about:
"Defenders of the treaties say levels of evasion will be small. “I don’t think people are very likely to use the time to try and get around the deals,” says Bernhard Gröhs, partner at Deloitte Austria’s tax litigation practice.

“To do so, Austrians would have to move their money somewhere very far away, which is less convenient than having it in a neighbouring country. And banks in Switzerland have become wary about simply transferring money to Austria, with no questions asked, before the deadline.”
We wonder if Mr. Gröhs has studied the arrangments in any detail at all. Is he not aware of the many opportunities to escape it, not by moving your money anywhere, but by using entities and arrangements (such as, er, Liechtenstein foundations) to hold those assets, which fall outside the scope of the agreement?

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The ‘End of Tax Havens’ – But Will Developing Countries Benefit?

A blog from Alex Cobham at the U.S. Center for Global Development, asking a question that we've raised before and which everyone must bear in mind in all the current noise about cracking down on tax havens. First, a bit of background.
"News broke on April 9th of agreement between the UK, France, Germany, Italy and Spain to pilot “multilateral automatic tax information exchange.” In France, President Hollande went further – announcing a draft law aimed at ‘moralising’ French public life, as former budget minister Jerome Cahuzac was expelled from the governing party for repeatedly denying the existence of his Swiss bank account. Hollande was explicit about his intentions at a press conference: “tax havens must be eradicated in Europe and worldwide.”
Good summary, though perhaps we'd mention the ICIJ "Offshore Leaks" story too, as part of the general political mix.

Cobham then outlines several reasons for wariness, none of which should be forgotten.

First, all we've really seen so far is rhetoric, really - and on tax havens, rhetoric is not new. Previous promises have all but fallen into the dust - and let's not forget that the defenders of tax havens and offshore activity include a number of powerful G20 countries. 

A second reason for wariness is the relative absence of appropriate practical steps to follow. However, current developments are certainly promising in this respect, for they include calls for implementing a multilateral tool for automatic information exchange. This is important.

He also notes a concern we've raised: that the sudden new focus on what some have inappropriately called the "Euro-Fatcas" could take the wind out of the sails of the all-important process to push forwards loophole-plugging on the European Union Savings Tax Directive (EUSTD) and associated processes. We are still getting our heads around this and currently think these concerns may turn out to be small ones - but we need to keep a close eye on developments here.

But here is a big one concerning the multilateral information exchange pilots. He notes 1) the 'glass half empty' idea that these agreements may not amount to so very much, and 2) the 'glass half full' perspective, where the FATCA model that is supposedly the basis for the information exchange pilots might be swiftly and easily pushed out to a number of jurisdictions, and quickly multilateralised, delivering a lot of quick wins in a short time. He then goes on:
"Here’s my worry. In neither case (1) or (2) is there any reflection of the importance of including developing countries in automatic information exchange. Case (2) looks better, again, for this, but in fact there are currently no developing countries among those listed by Treasury as having negotiated bilateral treaties to make FATCA work. (As an aside, it’s also worrying that the FATCA treaty options include a non-reciprocal one: so that countries would not necessarily get any benefit in terms of US transparency from signing up.)
So it’s not clear how quickly developing countries could join. And that is the question that the G8, and perhaps the UK chair in particular, should be asked. And then the ball passes to the G20… "
 Good questions.





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Cayman’s Travers confirms island is a branch office of the City of London

We were about to blog this, but Richard Murphy at Tax Research has already done the legwork:
I was amused to read a report of a rant from Anthony Travers, the Chairman of the Cayman Islands’ Stock Exchange, reported in tax-news.com. They say:
"Anthony Travers has condemned allegations made by Austria’s Finance Minister Maria Fekter that the British Virgin Islands and the Cayman Islands have received illegitimate money flows, disinformation which is going unchallenged by the G20.

Under pressure from European heads of state to adopt the automatic exchange of banking information with the rest of Europe, Austrian Finance Minister Fekter sought to deflect scrutiny of the nation’s banking secrecy laws by pointing out that, in her opinion, the group of twenty nations had failed to challenge the British Virgin Islands and the Cayman Islands, which she claimed in the past had facilitated money laundering activity."
Anthony can’t even get his facts right. I think she started with an attack on the Channel Islands before getting anywhere near Cayman, but let’s move on:
"Denouncing the comments, Travers stated: “I am deeply troubled that the meritless attacks on the Overseas Territories by Austria’s Finance Minister Maria Fekter appear to be gaining traction. Furthermore there seems to be no contrary assertion from the UK Government and the British Chancellor George Osborne as to the true position… this is an attack based on mischaracterization.”

“A cursory review of the publicly available statistics under the European Saving Directive which established fully transparent proactive tax reporting shows bank deposits in Cayman of EU residents of a statistically irrelevant US$25m.”
Oh come on Anthony. I know you once called me the head of the international tax Taliban, but your ability to coin a phrase does not excuse gross misinformation. As is well known, the European Union Savings Tax Directive does not reflect most money in Cayman because it only covers cash held in personal names, and not through companies and trusts. But all serious money laundering uses companies and trusts. So this claim is just wrong.
"Travers argued that: “The correct answer to Fekter should have been that the Overseas Territories already demonstrate full tax transparency. Given that the UK tax authority HM Revenue and Customs has full treaty access to Cayman accounts for UK tax purposes, the provisions of FATCA are simply duplicative, wholly unnecessary and will raise no additional revenue.”
Absolute nonsense Tony. You have banking secrecy laws in Cayman. You do not have a public register of companies that shows beneficial ownership, or accounts. And there is no register of trusts. You have a tax treaty with the UK and wholly inadequate tax information exchange agreements with some other countries [TJN adds: although Cayman does have the automatic information exchange option under the currently loophole-riddled EUSTD, and this is presumably the narrow prism through which Travers is choosing to make all its claims. And of course even then there is no such facility available to, say, developing countries.] In all cases the obstacles to securing data from you are considerable; so considerable in fact that very few requests can ever be made. So stop the nonsensical claims about transparency. You are deeply opaque, as the Tax Justice Network proves, time and again.
. . .
Now let's see. TJN ranks Austria with a secrecy score of 66. Cayman ranks at a score of 77, somewhat higher. Your claim is just wrong.

But it’s amusing to find Osborne becomes the butt of Travers' wrath (of which he has a plentiful supply). Travers continued:
“I can speak with authority on the Cayman situation but it has not escaped my notice that Chancellor Osborne has also attacked our friends in BVI which has similar tax transparency with the UK and the USA.”

“Cayman (and BVI and Bermuda) regard tax evasion as firmly off the table and yet we are continually labeled tax havens, a term that has become synonymous with illegality and wrongdoing,” he continued.

One can only gaze in awe at the misinformation being promoted by a UK chancellor and wonder why he appears willing to assist the French and Germans in their avowed quest to irretrievably damage The City of London’s global dominance.”
[TJN's emphasis added: for this is the key point that we want to highlight in this blog.]
Now that tells it all doesn’t it? Travers sees the attack on Cayman and friends as an attack on the City of London, confirming something that the Tax Justice Network has long said, which is that these places are mere branch offices for London.

I have some advice for Tony Travers, and that is that he might be best advised to think a little harder before he speaks next time. Because he’s a gift to those of us pointing out just what the problems in tax havens really are.

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Tuesday, April 16, 2013

Links Apr 16

The ‘End of Tax Havens’ – But Will Developing Countries Benefit? Center for Global Development

Falciani stole the Swiss banking data on seeing their "outrageous" actions El Pais (In Spanish)
HSBC Swiss whistleblower Falciani "took no money," yet HE is in the dock.

Germans buy another tax CD swissinfo
See also New CD of data on Swiss accounts held by tax evaders triggers nationwide raids Der Spiegel (In German)

Swedes named in ICIJ offshore banking report IceNews

Release of secret lists naming Canadian tax evaders brings the wealthy out of hiding The Province

The Top 10 Private Equity Loopholes Dealb%k

U.S.: Corporate Tax Breaks Equal to Revenue in 2011, GAO says Bloomberg

Levin: Corporations should pay fair share USA Today

Nevada ups the ante on Delaware's tax status Deutsche Welle

Bahamas Adapting To New Tax Transparency Landscape Tax-News
Bahamas' Minister for Financial Services has said that the local financial services industry must be prepared to accept and adapt to automatic information exchange under FATCA, and similar regimes, as it becomes the "new normal."

Cayman's Travers Rebukes International Misrepresentation Tax-News
Chairman of the Cayman Islands' Stock Exchange Anthony Travers has condemned allegations made by Austria's Finance Minister Maria Fekter that the British Virgin Islands and the Cayman Islands have received illegitimate money flows

UK Chancellor George Osborne targets Cayman evaders The Week

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European Commission - Improving the Fight Against Tax Havens

This is an important event: European finance ministers discussing and pushing for action on tax havens, secrecy, aggressive tax avoidance, automatic information exchange - and includes the UK's George Osborne pushing for actions on the British tax havens. And important event, so we're going to give you the full video.

Informal meeting of ECOFIN Ministers in Dublin
Press conference by on Friday 12th April 2013 involving:
- Pierre MOSCOVICI, French Minister for Economic Affairs and Finance
- Wolfgang SCHAÜBLE, German Minister for Finance
- Luis DE GUINDOS, Spanish Minister for Economic Affairs and Competitiveness
- Vittorio GRILLI,  Italian Minister for Finance
- Jan Vincent-ROSTOWSKI, Polish Minister for Finance
- George OSBORNE, British Chancellor of the Exchequer



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Maria Fekter, the Austrian Ostritch, must be ostracised

Austria's Finance Minister Maria Fekter has been patting herself on the back and comparing herself to a lion - promising on the occasion of an Ecofin meeting on April 12-13 that she had had to 'fight like a lion' to protect Austria's status as a tax haven, by insisting on making no concessions on banking secrecy. She is certainly combative, as showed by her fights with fellow European leaders, all of whom want to push forwards with financial transparency to help cash-pressed governments start to collect some proper tax revenues from their wealthiest citisens.

We at TJN are not comfortable with her self-bestowed title 'lion' We don't believe that that noble animal would want to be chosen as an emblem as the protector of the global criminal underworld. For - and make no mistake - that is what Fekter is fighting for.

We considered a few animals as alternatives to 'lion.' We discarded 'snake,' even though her words (see below) are filled with devious misrepresentations of reality and her core message is poisonous. ( 'Snake' is not a particularly worthy or clever insult to use in such a case - nor are 'vampire' or 'weasel' or a few of the others that we considered.)

But we know that Fekter is pushing against a powerful tide of history-in-the-making here. She is refusing to see the obvious. Luxembourg and Switzerland have for years insisted that their banking secrecy is not up for discussion - but have eventually understood that providing a hothouse for the tax evaders and other criminals of other nations is not a particularly wise course of action. We don't think that vowing to persist in engaging in economic warfare against other nations - which is exactly what Austria is doing by clinging so violently to its banking secrecy model - is defensible in the modern world.

So we've settled on 'ostritch.' (Thanks Markus!) And she certainly does have her head in the sand.

Essentially, what's at stake here is a massive EU-wide transparency initiative, the EU Savings Tax Directive, which came into effect in 2005 and under which 43 territories in the EU and elsewhere automatically share relevant information with each other about the cross-border incomes earned by each others' citizens. The current EUSTD is full of holes but powerful amendments are waiting in the wings, ready for approval, which will plug the main loopholes. Further broadening of the scope of the directive is in the offing too, as EU Tax Commissioner Semeta notes (in an interview that's worth reading in its entirety):
SPIEGEL: The European Savings Tax Directive, which is meant to regulate the taxation of savings across the EU, leaves many loopholes for tax evaders.

Semeta: The savings directive has many merits, but it is true that we identified important loopholes which were being exploited by tax evaders. Already in 2008, the Commission set about trying to close these loopholes and strengthen the EU rules. But, up until now, member states have not managed to agree on a revised directive, because Austria and Luxembourg have blocked efforts. Now that Luxembourg has changed its stance on bank secrecy, and with Austria hopefully soon to follow suit, I hope we will see the fast adoption of a stronger savings directive.

SPIEGEL: But dividends and other investment income are excluded from the exchange of information?

Semeta: The new rules that entered into force this year foresee a gradual but significant expansion of the automatic exchange of information. Starting in 2014, it will apply to labor income, pensions, director's fees, life insurance and revenue from property. The next step is to extend the information exchange to dividends, royalties and capital gains. But maybe now with the current appetite to move quicker and harder against tax evasion, the member states will seek to speed up the wider application of automatic exchange foreseen in our legislation.
Those words of Semeta's are tremendously important, and we'll return to them.

For some time a complex political chess game has been playing out where Switzerland, outside the EU, in partnership with Austria and Luxembourg inside the union (with various other secrecy jurisdictions riding on their coat-tails), have been blocking the progress of the all-important Amendments. Whereas most of the 43 jurisdictions transmit information, these recalcitrants have clung to a model where they merely levy withholding taxes on cross-border income and remit it to the account holder's home jurisdiction. They are blocking the Amendments, which would require them to switch to automatic information exchange.

Now, though, the political winds have changed decisively, and Luxembourg has thrown in the towel, saying it will accept automatic information exchange. Switzerland can't directly block what the EU does - so that leaves Austria, the last blockage to be removed.  And in truth, despite the Ostritch's bombast, her country is divided on the issue. As Reuters reports:
"Austria has sent mixed messages on this ahead of a EU summit in May supposed to address the matter.
. . .
Conservative Finance Minister Maria Fekter has defied pressure on Austria to automatically exchange data on foreigners, while Chancellor Werner Faymann, a Social Democrat, has said Austria may do so as long as its citizens' details stay confidential.
. . . "We want to preserve banking secrecy for Austrians. That is the big difference we have to other countries," he said."
This Reuters exploration of Austria's long and unhappy history of a love for financial secrecy is worth reading, even if it doesn't put in much effort to skewer the arguments of those who are saying it's a good idea.

There is the clear makings of a compromise here: Austria can keep its secrecy for its own citizens (if it's happy to tolerate criminality in its own country) while ending it for foreigners. That should satisfy the EU and unblock the blockage. Why doesn't Fekter just throw in the towel now, rather than backing herself into a corner and bringing down opprobrium on Austria's head?

The Austrian Ostritch is clearly deeply confused, and doesn't really understand her brief very well.

First, she says clearly that "Austria is not a tax haven" and then fights furiously for banking secrecy. Yes, well, she might like to reflect briefly on the teensy-weensy contradiction there. And of course when it comes to the term 'we are not a tax haven': they all say that.

Next, she says that "all this data exchange will not put one red cent in my tax coffers." She is quite free to say that - just as she is quite free to say that she is a lion, or the Queen of Sheba - but that doesn't change the fact that she is talking complete nonsense. (She might try reading this paper on automatic information exchange, for instance, or looking at pp12-14 of this one.) Which clearly demonstrates, among other things, the clear deterrent effect brought about by automatic information exchange.)

And if you think that's confused - then try this, from Austria's Finance Secretary Andreas Schieder, last year, concerning blockages in efforts to push the EU transparency project forwards:
"We can not wait until all tax matters with Switzerland are negotiated by the European Union. This has taken 20 years and we think this is certainly far too long."
Yes, Mr. Schieder: that's because your country has been helping Switzerland block progress.

We can also point to the unedifying spectacle of what happened when Austria was signing a useless bilateral deals with Liechtenstein (as one element of the chess game aiming to kill progress on transparency). Fekter insisted that loopholes be carved out for trusts administered in Liechtenstein, helping Austrian tax evaders. (Rough web translation of that here.) Astonishingly, she insisted on a move that would damage Austria's tax revenues, not those of other countries'. A rather odd move for a finance minister, one might think.

Austria is a relatively small tax haven in global terms, but because of its ability to block transparency in Europe it is currently a very dangerous player, and the friend of the world's criminals.

It is now essential that Austria - and its resident Ostritch - be ostracised from polite society in Europe.

Endnote: a number of countries in Europe have promised to push forwards an alternative  U.S.-designed transparency model that has been mis-named as "Fatca" bilateral agreements, supposedly similar to the Fatca model designed by the U.S. but in practice much narrower. However at this point we believe these will not conflict with the EUSTD, but could serve as useful if limited addtional tools. 

That is an important topic in its own right but not in the scope of this blog. Read more on that here.

The key point is that these bilateral deals should not distract from progress on the Savings Tax Directive, and from the need for a truly multilateral, increasingly global system of automatic information exchange that includes the most important ingredient: deep, comprehensive and detailed customer due diligence procedures and protocols for identifying the beneficial owners of accounts, entities and arrangements. 

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