Monday, September 30, 2013

Links Sep 30

India: Controversial tax evasion targetting GAAR to come into effect from April 1, 2016 The Indian Express

Dominique Strauss-Kahn to join Luxembourg investment firm; portfolio to include Russia, South Sudan Financial Secrecy Media Monitor

Built-In Biases Put Profits In Tax Havens Forbes

Euro Crisis Nations Turn Tax Havens Bloomberg

Germany: Federal government blocks EU Money Laundering Reform TJN Germany Blog (In German)

Tax and redistribution policies on the way to a dead end TJN Germany Blog (In German)

U2 frontman chased down street by German anarchists shouting 'Make Bono history' The Independent
See tax competition myth busted here.

No Minimum Effective Corporate Tax Rate For Ireland Tax-News

Map: How the world’s countries compare on income inequality (the U.S. ranks below Nigeria) The Washington Post

The New African | Deals and Dirty Tricks Bleeding Africa Dry – Tax Me If You Can! Ugandan Diaspora News

Australia Postpones Offshore Tax Changes Tax-news

Tax evasion: how much does it cost? The Guardian
Data drawn from here.

Organized Crime and Tax Fraud: the Tip of the Iceberg Canadians for Tax Fairness

'Offshore Leaks' investigation earns ICIJ an honorary doctorate from Belgian university The Center for Public Integrity

UK: George’s dodgy dealers Private Eye
See also recent blog post Britain's Shadow Tax System revealed: savage new report

US.: Coalition of small businesses urge Microsoft to end its offshore tax dodging The Seattle Times

Nozick, Libertarianism, and the Estate Tax - new paper via TaxProf Blog

Strange bedfellows Pope Francis and Xi Jinping champion religion over the love of money Quartz

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Doreen Massey: the ills of financial dominance

The article below is the second in a series of five articles published by Open Democracy's UK-focused website, OurKingdom. The article, which OurKingdom published last Tuesday, is written by renowned geographer Doreen Massey, and follows our article published last Friday entitled The Resource Curse, or the Paradox of Poverty from Plenty.

The five articles form a series called Finance Curse, and they are drawn from our recently published edition of Tax Justice Focus - the Finance Curse edition.
The Ills of Financial Dominance
By Doreen Massey
The power of the financial sector in Britain has worked a transformation on the country’s ‘common sense’.  A successful challenge will require a radical change to the language we use to describe our shared life.

Societies take different shapes in different eras. They are framed by distinct forms of economy, specific social and political arrangements, and particular common understandings of how the world works. These are expressed too in distinct geographies, which in turn feed back into the way in which the country develops.

Since the undermining of the social-democratic settlement of the post-war years, UK economy and society has been framed by what we have come to call ‘neoliberalism’. This was not inevitable, other alternatives were available; the victory of neoliberalism was an outcome of political and social contest[1]. And central to that victory, and to neoliberalism in its widest sense, was the triumph of finance. ‘Finance’, in the current era, is not just a sector of the economy; it is at the core of a new social settlement in which the fabric of our society and economy has been reworked. There is a long history in the UK of ‘the City’ having an important and often harmful role, but this time is different. Finance and financialisation now mould our economy, geography, ideology and politics to a degree that is not only astonishing but deeply negative.

Some of the dismal results of this dominance at national level are well documented: the vicious exacerbation of economic inequality; the crowding-out of other sectors of the economy (far from being the golden goose, the dominance by finance makes life much more difficult for other sectors); the pervasiveness of individualism and competitive greed. But the way these things work out on the ground in different places highlights even more the contradictions inherent in this social settlement[2].

London itself, the pinnacle of finance’s success, is riven with contradictions. A city once known for its variety of small industries is seeing that rich ecology erased - especially in the area around the City - by the power of finance as it either buys up, or simply has the effect of raising the price of, land and property. Small companies, perfectly viable in production terms, cannot survive – a real irony given the ritual political invocation of small businesses as the hope for the future.

London is also the most unequal city in the country, and this too produces problems. It exacerbates the poverty of the poor, especially through house prices. In its most bizarre recent manifestation local councils are ‘decanting’ their benefit-claiming poor to other regions. The whole social reproduction of the city is made more difficult.

Meanwhile ‘the regions’ also suffer from the dominance of finance. It is not only that this sector itself, and its wealth, are located in London. It is that its dominance of the national economy (and polity – see later) actively undermines regional growth.

Thus the City sucks in graduate labour from other regions, depriving them of a stratum from which economic growth might spring. (Meanwhile politicians castigate them for a lack of skills!) If the golden goose argument worked there’d be a geographical ‘trickle-down’ to the rest of the country. The truth is that the opposite happens. Meanwhile the degree of national inequality is exacerbated through the regional dimension, as owner-occupiers in London and the South East ‘make’ more from increases in house-prices than they earn from their jobs.

One response from the London financial elite is that there is a fiscal transfer from London to the regions. Not only does this not address the dynamics of regional growth, it is a carefully calibrated fiction[3]. It is a political slogan based on very narrow criteria, which fails to take account of a host of ways in which London (and finance specifically) benefit from national policy. And it provokes damaging antagonisms, dividing the nation on regional lines when hostility should really be addressed to finance and the super-rich.

So we have a dysfunctional capital city, ferocious inequalities both within that city and between a vortex of growth in the South East and a land often referred to as ‘the Rest of the Country’, as well as an economic path that is detrimental to balanced growth. And all these are problems arising not from the crisis of finance and the way that has been addressed, but from its growth, its dominance. It is imperative that we construct a different settlement.

One reason this bizarre arrangement exists is that finance dominates not only the economy but also politics and ideology. Its political influence is widely documented, yet somehow unseen or simply accepted (compare with the outrage at any hint of influence by trades unions). Yet in fact it is extremely active: it funds endless research projects that confirm its status as the golden goose, it is seen as a source of unbiased expertise, there are revolving doors with government and it doesn’t even have to ‘lobby’ very explicitly, since it is cosily part and parcel of the social world of the elites. Policies across the range reflect the interests of finance, whose upper échelons are at the core of an elite whose spatial concentration in the South East consolidates their mutual support. There is a grossly unequal geography, as well as class configuration, of democracy and of voice in this country. And the City puts in a lot of work to keep it thus.

Less routinely recognised is how ‘finance thinking’ has become hegemonic ideologically. Finance may be a global industry but part of its power lies in the fact that it is intimate too – it gets inside our heads. People from finance are interviewed as ‘experts’ in the media, as though they had no interests at stake. Economics is thus removed from political contestation.  Competitive individualism is taken for granted. Distinctions are forgotten (erased) between earned and unearned, between value creation and value extraction (convenient, since finance’s growth has depended so much on the latter – hence the burgeoning inequality from which we began this thumb-nail sketch of the state of the nation). In this society that celebrates choice we are told there is no alternative. This truly is hegemonic common sense, and it is at this level that social settlements are consolidated. It is at this level, therefore, that a challenge must be launched. This means not just contesting individual policies and issues (though that must be done) but even more importantly challenging the whole framework, the very language, that has become our society’s common sense, and that both obscures the injustice that is being done and lulls us into acceptance that it is all inevitable[5].

Moreover if this challenge is necessary because of the effects ‘at home’, it is equally so because of the UK’s role in the wider world. As the Tax Justice Network has tirelessly pointed out, the existence of tax havens, and the practices of tax evasion and avoidance, are a means of redistribution from global poor to global rich and a key cause of world poverty.  London’s finance sector is a prime node in these arrangements. Could we develop what I have called ‘a politics of place beyond place’, addressing our responsibilities for the global effects of our economy?[6] Indeed the internal and external politics of place are linked – the poverty in London is an element in the same dynamics as the poverty in the global South.  To take us back to the initial argument, London’s finance sector was one of the crucial birthplaces of, and is now a key place of diffusion of, global neoliberalism, with its practices of cutting back state services, privatisation and deregulation. These are among our main exports.

We are living a strange situation – a populace guided by a hegemonic discourse that prevents escape from neoliberalism and yet a wide range of disparate groups whose interests potentially range them against the dominance of finance. There has been an economic (financial) crisis, but the ideological carapace has not cracked. Is it possible to build alliances, perhaps as suggested in the Green New Deal, and to break out of the common sense of this finance-dominated social settlement?

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Friday, September 27, 2013

Is finance like crude oil? The resource curse, or the paradox of poverty from plenty

Source: Flickr/Attac France
This article is the first in a series of five articles published by Open Democracy's UK-focused website, OurKingdom. These five articles form a series called Finance Curse, and they are drawn from our recently published edition of Tax Justice Focus - the Finance Curse edition.

The first article in this series, which OurKingdom published on Monday, is entitled The resource curse, or the paradox of poverty from plenty. It is written by TJN blogger Nicholas Shaxson, author of a book on the Resource Curse and of another book on financial centres and tax havens, Treasure Islands.

We paste the full article below. We will publish the remaining four articles in this series next week.
The resource curse, or the paradox of poverty from plenty
By Nicholas Shaxson

Is finance like crude oil? Countries rich in minerals are often poverty-stricken, corrupt and violent. A relatively small rent-seeking elite captures vast wealth while the dominant sector crowds out the rest of the economy. The parallels with countries ‘blessed’ with powerful financial sectors are becoming too obvious to ignore.

While serving as the Reuters correspondent in oil-rich Angola in the mid 1990s, I wondered how such a ‘rich’ country could suffer such poverty. The shortest answer at the time was ‘War’. Angola’s conflict had many causes, but without the diamonds to fuel rebel leader Jonas Savimbi’s army, not to mention the government’s offshore oilfields, it would have been less bloody, and shorter.

As I arrived in Angola in 1993 a British academic, Richard Auty, was putting a name to a then poorly-understood phenomenon: what is now widely known as the ‘Resource Curse’. Countries that depend heavily on natural resources like oil or diamonds often perform worse than their resource-poor peers in terms of human development, governance and long-term economic growth. Studies by renowned economists such as Jeffrey Sachs, Paul Collier, Terry Lynn Karl, Joseph Stiglitz and many others have now established the Resource Curse in the academic literature, and in the public mind too.

A weak version of this Curse, which few would disagree with, holds that resource-dependent countries tend to be bad at harnessing those resources to benefit their populations. The windfalls are squandered. A stronger version is more surprising: natural resources tend to make matters even worse than if they had been left in the ground, leading to higher rates of conflict, more corruption, steeper inequality, deeper absolute poverty, more authoritarian government, and lower long-term economic growth. I am in no doubt that the stronger version of the curse applied to Angola on all these metrics when I lived there.

To be fair, the wider cross-country evidence here is more complicated. Some countries like Norway that already have good governance in place before resources are discovered seem to fare relatively well – but being rich first is no guarantee of success either. Michael Edwardes, the former chairman of ailing British car manufacturer British Leyland, spoke of this with some prescience in 1980, following the OPEC oil price shocks: “If the cabinet does not have the wit and imagination to reconcile our industrial needs with the fact of North Sea oil, they would do better to leave the bloody stuff in the ground.” Even if some rich countries can suffer from mineral windfalls, it is poor, badly governed countries that tend to suffer the most.  The picture also varies with the global commodity price cycles: things look particularly bad during troughs in these cycles – as in the mid 1990s – and look less bad, at least on the surface, in the boom years.

How do we explain this ‘curse?’ The explanations fall into three main categories. First is the so-called “Dutch Disease.” Large export revenues from oil, say, cause the real exchange rate to appreciate: that is, either the local currency gets stronger against other currencies, or local price levels rise, or both. Either way, this makes local manufactures or agriculture more expensive in foreign-currency terms, and so they lose competitiveness and wither. Much higher salaries in the dominant sector also suck the best skills and talent out of other sectors, out of government, and out of civil society, to the detriment of all. Overall, the booming natural resource sector ‘crowds out’ these other sectors, as happened when many oil producers saw devastating falls in agricultural output during the 1970s oil price booms.

Finance-dependent economies, it turns out, suffer a rather similar Dutch Disease-like phenomenon, as large financial services export revenues in places like the United Kingdom or the tax haven of Jersey raise the cost of housing, of hiring educated professionals, and the general cost of living. A Bank for International Settlements (BIS) study last year found that finance-dependent economies tend to grow more slowly over time than more balanced ones, and noted that, by way of partial explanation, ’finance literally bids rocket scientists away from the satellite industry’. My short Finance Curse e-book, co-authored with John Christensen, provides plenty of detail on this.

A second standard explanation for the Resource Curse is revenue volatility. Booms and busts in world commodity prices and revenues can destabilise the economies of countries that depend on them, further worsening the crowding-out of alternative sectors. Gyrations in the world oil price – from below $10/barrel in the late 1990s to well over $100 within 10 years – have played havoc with budgeting in many oil-dependent countries, often with terrible effects on economic and political stability and broad governance. Those alternative sectors that were crowded-out during the booms aren’t easily rebuilt when the bust comes: it is a ratchet effect. Again, there are close parallels with the financial sector, a source of great volatility, as the latest global financial crisis shows. Britain’s industrial base, decimated by (among many other things) over-dependence on the financial sector, is proving slow to recover, post-boom.

The third category for explaining the Resource Curse – the biggest, most problematic, and the most complex – falls under the headline ‘governance’.

Why do natural resources tend to make governments more wasteful, corrupt, and authoritarian?

A big part of the answer lies in the fact that minerals in the ground provide unproductive economic ‘rents’: easy, unearned money. As the Polish writer Ryszard Kapuscinski so brilliantly put it:

"Oil is a resource that anaesthetises thought, blurs vision, corrupts. Oil is a fairy tale and, like every fairy tale, it is a bit of a lie. It does not replace thinking or wisdom."

When easy rents are available, rulers lose interest in the difficult challenges of state-building, or the need for a skilled, educated workforce, and instead spend their energies competing with each other for access to a slice of the mineral ‘cake’. While those neglected sectors wither, this competition among ‘godfathers’ can lead to overt conflict, particularly in ethnically diverse societies, but it can also lead to great corruption as each player or faction in a government knows that if it does not act fast to snaffle a particular mineral-sourced financial flow, another faction will. This is the recipe for an unseemly, corrupting scramble.

The financial sector, likewise, contains a multitude of potential sources of easy ‘rents’. A secrecy law, for instance, has long been a source of rents for Swiss bankers, who haven’t needed to do much else apart from watch the money roll in. More grandly, the network of British-linked secrecy jurisdictions scattered around the world, serving as ‘feeders’ for all kinds of questionable and dirty money into the City of London, is another big source of rents for the financial sector. Financial players’ special access to information is another. Martin Berkeley, a former British banker, described one mechanism deployed by his bank as it sought to sell its customers dodgy derivatives:

"On their client database they had in big letters written ‘Client Has Screens’ - meaning the client actually knows what the markets are doing: these tricks couldn’t be played on them."

The Libor scandal provides another example of rent-seeking. One might reasonably also make a comparison between owning an oil well and having – as the banking system does – the ability to create money. Yet there is a difference too: rising credit creation – and the growing private debts that accompany it – generate fees for the financial sector that are extracted not from under the ground, as with oil, but from debtors, taxpayers and others: from the population itself.

Another source of the trouble in resource-rich states is that when rulers have easy rents available, they don’t need their citizens so much to raise tax revenues. This top-down flow of money undermines the ‘no taxation without representation’ bargain that has underpinned the rise of modern, accountable states through the rise of a social contract based on bargaining around tax, and through the role that tax-gathering plays in stimulating the construction of effective state institutions. If the citizens complain, those resource rents pay for the armed force necessary to keep a lid on protests.

In economies dependent on finance we don’t see the same kind of crude, swaggering petro-authoritarianism of Vladimir Putin’s Russia or José Eduardo dos Santos’ Angola. But we do see some surprisingly repressive responses to criticisms of the financial sector and the finance-dominated establishment, particularly in small tax havens like Jersey, as Mike Dun’s article in this edition – along with the main Finance Curse e-book and my book Treasure Islands – repeatedly illustrate.

All these processes – the economic crowding-out of alternative economic sectors such as agriculture or tourism, plus the ‘capture’ of rulers and government by the dominant mineral sector, who become apathetic to the challenges posed by trying to stimulate other sectors – add up to a mortal threat not just to democracy, but also to the long-term prospects for a vibrant economy. Since Angola’s long civil war ended 11 years ago, politicians have routinely called for a ‘diversification’ of the economy and a ‘rebalancing’ away from dependence on oil. The fact that petroleum still makes up over 97 percent of exports and contributes to 60 percent of GDP, is testament to the difficulty even the most well-meaning reformer faces. Similarly, calls for ‘rebalancing’ away from excessive dependence on the financial sector have tumbled from the mouths of politicians in the United Kingdom and Jersey. But these calls will prove equally empty if they do not actively work to shrink and contain the financial sector.

Update: for more on the Finance Curse see here, and for all editions of Tax Justice Focus see here.


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Thursday, September 26, 2013

New York and London: two tales of two cities

From the Treasure Islands blog:
Bill de Blasio, the current frontrunner to be New York's next mayor, has been making quite a splash with his 'Tale of Two Cities' campaigning slogan.

When political slogans are just empty words, they very often fade away. But de Blasio's words, of course, are chock-full of substance: in fact, they encapsulate one of the defining stories of our age, in country after country. This is, of course, a story about the one percent (or the 0.1 percent) versus the rest. A story about inequality and, above all, the role of the financial sector.

De Blasio's slogan, of course, reminds me of the title of my last Vanity Fair article, A Tale of Two Londons.

At the end of the day, we're talking about the very same phenomenon.
That story about a super-expensive building in London was used to illustrate the great divide between an offshore-diving élite and the rest of the country.
But there are two salient differences between Britain and the U.S. in this respect.

While their two respective financial centres - known respectively as the City of London and Wall Street - are roughly of the same order of magnitude, the U.S.' financial centre is diluted in a much larger democracy, and therefore much more generically susceptible, ultimately, to democratic pressure than is the City. For those Americans whose eyes are watering from the Wall Street Stranglehold on Washington, that may be surprising to hear. But there's no getting away from it.

A second thing that makes it still harder for Britain to confront its own financial centre is that the City of London is far more outward-looking and 'foreign' than Wall Street: the legacy of empire and of the subsequent half-century under a post-imperial model that is substantially an offshore one. Reforming offshore finance is a much, much trickier proposition - not least because that old argument of 'don't tax or regulate us too much or we'll escape to Geneva or Hong Kong' is so much louder, and potentially so much scarier. (Or at least it's scary to people who don't understand this.)

It continues to amaze me that so few politicians, in Britain, the United States, or elsewhere, have stepped beyond the traditional battlegrounds of left and right into this new and exciting terrain, which involves taking the fight properly to Big Finance. This would seem like a no-brainer, amid the large and sustained post-crisis popular pressure. There are a few, of course: Bernie Sanders, Carl Levin or Elizabeth Warren, plus a few politicised civil servants such as Gary Gensler. But nothing like what there could be.

The political rewards here are potentially immense: a proper democratic response to financial over-dominance would carry the general public, including many on the right. And they could eeeeasily start to make and propagage new arguments to bolster their case - such as this, this or this.
Will de Blasio move properly into this territory, and hold his position there? We'll see, but the signs I can see so far aren't too bad.

But then again, this morning's Financial Times story about him contains some pretty scary words.
"There were very senior, elected Democrats who have been at financial institutions in the last week. . . They were saying “give him a chance, let him develop relationships, let him hire some people, help him hire people,” the person said.
That part in bold sounds very, very ominous.

And if it's so hard for politicians in the United States to step up into this political terrain, what hope for offshore-steeped, financially-captured Britain? Read Tamasin Cave's new piece today in Open Democracy, and weep.
Update: for background and information on Inequality & Democracy, see here.


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Conference in London: Money Laundering and Tax Havens in Europe - Friday 27th September 2013



VENUE :  TOYNBEE HALL - 

Public conference (18.30 to 20.30): interactive discussion with the audience
Moderated by John Christensen, Tax Justice Network

18.30 – 19.00 Tax havens and illicit finance: case studies on Portugal, Italy, the Netherlands, Council of Europe's MONEYVAL, Organisation for Economic Cooperation and Development

Mark van Dorp (Centre for Research on Multinational Corporations, the Netherlands), Giordano Ernesto Baggio, PhD (magistrate, Italy), John Baker (Moneyval Committee, Council of Europe) and Stephanie McLeod (OECD)
19.00 – 20.00 European citizens’ response to transnational organised crime. The Citizens Pact and policy proposals by the research panel
Rosen Dimov (European Alternatives), Anna Sergi (University of Еssex) and Helena Carrapico (University of Dundee)
20.00 – 20.30 Questions and answers session with the audience (tea/coffee served)

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Links Sep 26

Russia: Finance Ministry Aims to Unmask Beneficiary Shareholders With Tax Hikes The Moscow Times

61 PwC Partners Accused of Tax Crimes Over Bonuses in Spain Bloomberg

7 reasons why UK Prime Minister David Cameron needs to crack down on phantom firms now One

Friends in high places Jersey Evening Post

SEC Charges Former Qualcomm Executive and His Financial Advisor With Insider Trading Through Secret Offshore Accounts U.S. Securities and Exchange Commission
Hat tip: Offshore Watch

Barclays is quitting some tax havens – but the reasons given tell a sorry tale Tax Research UK

HSBC still laundering money for terrorist groups, says whistleblower Everett Stern Ian Fraser's Blog

Kenya: behind the terror is rampant corruption The Guardian

China’s wealthiest families score $720 billion in undeclared “gray income” Quartz

Poverty - Growth or safety net? The Economist
"Eradicating extreme poverty is no longer a pipe dream. But first governments must agree on their approach"

Clamping Down On Tax Avoidance Will Be Fundamental to Fighting World Poverty in the 21st Century, Actionaid Tells the United Nations allAfrica

S. Korea and other G20 countries target overseas tax havens The Hankyoreh
For TJN comment on the September 2013 G20 summit see here

Bono's hypocrisy on Africa, corporate tax avoidance in Ireland Finfacts Ireland
See also our recent post U2's Bono defends economic illiteracy

Irish Hospitality: Tax Haven For Apple Inc. (AAPL), Google Inc (GOOG) ValueWalk

United Arab Emirates: Banking sector assets now > GDP; new subsidiary in Hong Kong Financial Secrecy Media Monitor

Bermuda news: UK supporting Bermuda on French blacklist issue Financial Secrecy Media Monitor

Colombia To Join OECD Tax-News

U.S.: Infrastructure Bill is Actually Giant Corporate Tax Break Huffington Post

Add It Up: The Average American Family Pays $6,000 a Year in Subsidies to Big Business Common Dream

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Wednesday, September 25, 2013

Swiss village gives extra tax from GlencoreXstrata to affected countries

Hedigen, Switzerland

We already highlighted a link to this story yesterday - but this one is noteworthy enough for a whole blog. From the Guardian:
A Swiss village has voted to donate 110,000 Swiss francs (£75,000) of taxes paid by Ivan Glasenberg, the billionaire chief executive of GlencoreXstrata, to charities in countries where the London-listed mining and commodity trading company is accused of exploiting people and resources. . . . in a "clear sign of solidarity with those suffering the consequences of the extraction of raw materials". The village will donate 10% of the "commodity million" Swiss francs it received out of taxes paid by Glasenberg in relation to Glencore's flotation in London in 2011.
They are also trying to persuade other villages that have been direct beneficiaries of Glasenberg's murky rent-seeking billions to follow suit. Even if some might think that 100% might have been a better share to donate - and that giant secrecy-fed financial centres like Zurich or the City of London perhaps might like to consider ponying up - that is a most welcome gesture by the German-speaking village. 

It quotes Samuel Schweizer, head of the citizens' community in Hedigen near Zurich that proposed the donation:
"We hope that people will open their eyes to the danger that raw material extraction will be the next reputational time bomb for Switzerland," he said. "Political leaders have not learned anything from the disaster of [Switzerland's role at the heart of the] banking industry."
Good for him. And that, as it happens, is precisely the message that has been coming from our friends at the Berne Declaration, in their excellent book about Swiss commodities, entitled Commodities: Switzerland's most dangerous business.

The widespread poverty of entire countries and the wealth of some top traders are directly linked. This book shows how this is so.
"The trading companies’ business model, which frequently ex- ploits grey areas, is also dangerous for Switzerland. Corruption, aggres- sive tax avoidance, speculation mania and human-rights violations pose enormous risks for reputations and, following the case of bank secrecy, are “our next exposed flank” (Tages-Anzeiger). Switzerland is not only a tax haven, but also lacks transparency and regulation – and it attracts commodity trading as a dunghill attracts flies. 
. . .
The world will not simply remain a spectator at this so- called “locational advantage” swindle forever."
We at TJN are dedicated to exposing this swindle.

Update: For information on corporate tax see here.


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Dar es Salaam conference on Transfer Pricing: Fairness in Taxing Multinationals, Extractives


This is a Tax Justice Network event, in association with the Finnish non-governmental organisation KEPA, and the government of Finland.
Transfer Pricing: Fairness in Taxing Multinationals and Extractive Industries
October 3rd & 4th 2013 - Dar es Salaam, Tanzania

NB This is a draft programme, which will continue to be updated as planning progresses.
Day 1 - Thursday October 3
08.00-08.30
Registration

8.30-9.00
Opening Remarks
Mr Harry Kitillya : Commissioner General of Government of Tanzania
Moses Kulaba :  Executive Secretary of Agenda Participation 2000
John Christensen : Director, Tax Justice Network

Moderator: tbc

09.00-10.30
Panel on Case Studies on Transfer Pricing

Case Study : Associated British FoodsPamela Chisanga : Action Aid Zambia, Country Director

View from Tanzanian Parliament Accounts CommitteeHon. Zitto Kabwe 

10.30 – 10.45
Coffee Break

11.00-13.00
Panel on Transfer Pricing in BRICS Countries

South African Transfer Pricing System:Gerdi Van der Westhuysen : South African Revenue Service, Transfer Pricing Unit

Practical nature of South African Transfer Pricing System:Thembinkosi Dlamani: Oxfam South Africa

Brazilian Transfer PricingMarcos Valadao: Brazilian Ministry of Finance

Practical Nature of the Brazlian Transfer Pricing SystemDao Real Pereira dos Santos :  Instituteo Justica Fiscal

Moderator - tbc

13.00-14.00 
Lunch

14.00-16.00 
Panel on Base Erosion and Profit Shifting

Base Erosion and Profit Shitfing: the OECD Approach, and other AlternativesLee Corrick : OECD

Evaluation of the OECD Action Plan on Base Erosion and Profit Shifting, and Comparison with Alternatives, especially Unitary Taxation, from the Perpective of Developing Countries.

Prof Sol Picciotto
: Professor Emeritus at Lancaster University, Senior Advisor, TJN

16.00-16.30
Coffee Break

16.30-18.00 
Panel on Corporate Transparency and Accountability

Country-by-Country Reporting with a Combined ReportKrishen Mehta : Senior Adviser Tax Justice Network

Case study of Country-by-Country Reporting in KenyaAne Foged : Tax Justice Network - Africa

Project by Project Reporting in TanzaniaSilas Olan'g : Revenue Watch Institute, Tanzania

Transparency in Extractive Industry Taxation in AfricaSpeaker (tbc)

Moderator (tbc)

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Day 2 -  Friday October 4
9.00 – 11.00 Panel on Extractive Industries

Ghana's Mineral Taxation RegimeTetteh Hormeku : TWN Africa

Dominican Republic on Extractive Industry TaxationWanda Montero: Dominican Republic Internal Revenue Authority

Tanzania's Extractive Industry TaxationHon Tindu Lissu, MP

Tanzania's Extractive Industries Tax Incentives (tbc)

Moderator - tbc

11.00-11.30
Coffee Break

11.30-13.00
Panel on Transfer Pricing in East Africa

Perspective on Transfer Pricing from Tanzanian Revenue AuthorityCharles Bajungu : Tanzania Revenue Authority

Rwandan Transfer Pricing Case StudyDr Attiya Waris : University of Nairobi

Ugandan Transfer Pricing Case StudyNalukwago Milly Isongoma : Uganda Revenue Authority

Application of Unitary Taxation in the East African CommunityErica Siu : New Rules for Global Finance

Transfer Pricing in North Africa
Slim Gargouri
: Chartered Accountant & Tax Journalist

13.00-14.00
Lunch 

14.00-15.30
Panel on Practical Options for Transfer Pricing in Developing Countries
Michael Durst : Senior Advisor to TJN, formerly US Revenue Authority official

 - opportunities presented by OECD BEPS for developing countries
 - income-shifting and risk-shifting rules
 - fixed margins
 - safe harbours
 - transparent Advance Pricing Agreements
 - sectorial/regional application of unitary taxation

Joyce Addae-Kumi :  Ghana Revenue Authority
Lincoln Marais : ATAF Secretariat

Moderator  tbc

15.30-15.45 Coffee Break

16.00-18.00
Discussion and Formation of Follow Up Process
Matti Kohenen : Tax Justice Network
Moses Kulaba : Agenda Participation 2000

- Two working groups
- Research Priorities
- Stakeholder Network

Summary of the proceedings from Rapporteur:Adrienne Margolis : Lawyers 4 Better Business

 18.00-18.30
Closing Remarks

Trine Hveem : Country Director, Norwegian Church Aid
Masud Hossain : Country Director, KEPA Tanzania
Alivin Mosioma : Director, Tax Justice Network - Africa

Update: for information on Transfer Pricing see here.

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U2's Bono defends economic illiteracy

Britain's Observer newspaper is carrying an interview with U2's frontman Bono, containing these pearls of wisdom:
"Q: The other persistent criticism is about the band's decision to offshore part of their income through the Netherlands to avoid tax. Was it not hypocrisy for you to try to hold the Irish government to account for its spending while going through fairly exhaustive efforts to avoid paying into the Irish exchequer yourself?Bono: It is not an intellectually rigorous position unless you understand that at the heart of the Irish economy has always been the philosophy of tax competitiveness. Tax competitiveness has taken our country out of poverty. People in the revenue accept that if you engage in that policy then some people are going to go out, and some people are coming in. It has been a successful policy. On the cranky left that is very annoying, I can see that. But tax competitiveness is why Ireland has stayed afloat. When the Germans tried to impose a different tax regime on the country in exchange for a bailout, the taoiseach said they would rather not have the bailout. So U2 is in total harmony with our government's philosophy."
Let's get two things straight, Paul Hewson (for that is your real name.)

First. Repeat after us. Tax 'competition' bears absolutely no relation whatsoever to competition between firms in a market. As Martin Wolf has explained: "The notion of the competitiveness of countries, on the model of the competitiveness of companies, is nonsense." The word 'competitive' is a complete misnomer.

Endless misguided government tax policies have hidden behind this weasel word - perhaps the worst of all weasel words in the entire tax lexicon. And as for the 'Celtic Tiger' - it would not have been possible without huge (tax-financed) subsidies from the European Union, and now that the Irish bubble has burst, that whole model isn't looking so clever now.

Second. Tax competition is always, irredeemably noxious and harmful.  What is there to be proud of?

If you don't believe us, read this. See if you can knock any of those arguments down. 

As the entertainer Graham Norton so memorably put it, in response to news of U2's tax dodging strategy:
"Tarmac the road outside your house, tightwad!"
Oh, and last of all, a post from TaxGirl. We certainly don't agree with everything in this post - but we do like this bit:
Bono may tout the band’s position as supporting the country’s “tax competitiveness” but it’s not. Their big tax move was primarily in response to a non-competitive cap on tax-free income, introduced in the country in 2006. Before that time, U2 had received a tremendous benefit from an exemption which was available to artists for the sale of certain works.

Years later, the criticism hasn’t diminished. Former Irish Junior Health Minister Roisin Shorthall voiced his opinion of the move this year, saying:
"I think there is that issue about loyalty to the country you are born in and I think it would show a tremendous example to everybody if they were to bring back their tax affairs to Ireland. In any modern democracy people pay their fair share of tax."
Ouch. And there’s more.

Dublin North-East TD Tommy Broughan said, about the band, that while he thought the band was amazing and admired their dedication to wiping out poverty in Africa, “their first duty is to their own people.” That duty, he indicated, was to pay taxes in Ireland.

So maybe it’s not so much that Ireland wants this as U2 wants this.
 Yes. Weasel words, indeed.

Update: for background and resources on "tax competition", or rather, "tax wars", see here. For in-depth commentary on competitiveness, see Fools' Gold - rethinking competition.



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Tuesday, September 24, 2013

Links Sep 24

Resource-rich African states lack means to hinder big tax evaders, Mbeki says BD Live

Swiss Senate approves FATCA legislation swissinfo

Credit Suisse to close clients' accounts in 50 countries France 24
And is to focus on "rich and super-rich" clients

India Finalizes Safe Harbor Rules Tax-News

Vodafone Lines Up Pre-Conciliation Tax Talks With India Tax-News

BVI news : South Korea to collect 64m USD in tax thanks to Offshore leaks; public talk on FATCA Financial Secrecy Media Monitor

Clamp down on tax avoidance to fight poverty says ActionAid The Economic Voice

And Yet it Moves: A Tax Paradigm for the 21st Century Social Science Research Network
By Reuven Avi Yonah. Hat tip TaxProf Blog

How Washington Caved to Wall Street Time
Piece by Joseph Stiglitz

U.S.: Tax Reform Goals: Raise Revenue, Enhance Fairness, End Offshore Shelters Citizens for Tax Justice

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TJN's September Taxcast - now available for download

The September 2013 Taxcast is available here for listeners.

This month's edition includes:
  • The Netherlands is getting worried about its bad reputation (and not because of its red light districts);
  • China steps aboard the G20 Automatic Information Exchange train;
  • The Taxcast breaks down some dance moves for the Swiss Shuffle;
  • And what do Tina Turner and Muammar Gadaffi have in common?
Produced by @Naomi_Fowler for the Tax Justice Network.
Taxcast Home site: www.tackletaxhavens.com/taxcast
Also available here for download on iTunes: 


Update: For latest and previous Taxcasts, see here.


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Monday, September 23, 2013

U.S. court: Barclays tax avoidance scheme a 'reprehensible . . . waste of human potential

Sept 25: updated with Sikka quotes

A commentary from the U.S. Court of Federal Claims, on a giant tax avoidance scheme peddled by Barclays and several others, called STARS (“Structured Trust Advantaged Repackaged Securities”). Various entities were involved, but this was essentially a ploy by two banks - UK's Barclays and BB+T bank in the U.S., with nearly three quarter of a billion dollars in play.
"The Court concludes that the entire arrangement must be disregarded for lack of economic substance
. . . 
The conduct of those persons from BB+T, Barclays, KPMG, and the Sidley Austin law firm who were involved in this and other transactions was nothing short of reprehensible. Perhaps the business environment at the time was “everyone else is doing it, why don’t we?” Perhaps some of those who participated simply were following direction from others. Nevertheless, the professionals involved should have known better than to follow the STARS path, rife with its conflicts of interest, questionable pro forma legal and accounting opinions, and a taxpayer with a seemingly insatiable appetite for tax avoidance. One of Defendant’s experts, Dr. Michael Cragg, aptly stated that “enormous ingenuity was focused on reducing U.S. tax revenues.” Cragg, Tr. 4687.  After wading through the intricacies of the STARS transaction, the Court shares Dr. Cragg’s view that “[t]he human effort, the amount of creativity and overall effort that was put into this transaction . . . is a waste of human potential.
We couldn't have said it better ourselves. Our emphasis added. Hat tip: TaxProf.

And these highlighted sections go for the peddlers of tax avoidance schemes more generally. As Prof. Prem Sikka notes, here:
"KPMG introduced the STARS transaction to BB&T at a January 17, 2002 meeting and used a slide show to outline the steps necessary for the scheme to work. KPMG had little prior business relationship with BB&T."
This reminds us of a paper by the Bank for International Settlements, cited in our recent Finance Curse paper, and in our latest edition of Tax Justice Focus, published today.  As the BIS paper notes:
"Finance literally bids rocket scientists away from the satellite industry. The result is that erstwhile scientists, people who in another age dreamt of curing cancer or flying to Mars, today dream of becoming hedge fund managers."
Those are some very clever people at these banks. Indeed: what a tragic waste of their lives.

To understand more about these schemes, see the TaxProf summary here, media articles here and here, or, for a more detailed look at this industry, see the book reviewed here.

Update: for further information on the Finance Sector, see here.



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Links Sep 23


Tax Evasion Isn't Just for Beanie-Baby Billionaires Anymore Nasdaq / Motley Fool

Offshore Accounts: No Place to Hide? The Wall Street Journal

Google and Facebook face tougher EU tax and privacy rules Financial Times (paywall)

Luxembourg: When secrecy backfires Financial Secrecy Media Monitor
See also our recent blog Tax haven Luxembourg sets up yet another secrecy facility for ownerless assets

Cyprus news: Finance Minister says Russian business “instrumental in the development of Cypriot economy” Financial Secrecy Media Monitor

Why a Multimillion Dollar Clock Might Mean Time is Up for Francafrique Think Africa Press

FATCA’s ruining our business, moan tax havens iExpat

World Bank's Top Economist Picks A Fight With Inequality Institutional Investor
Points out that global coordination is needed to avoid a "war of tax regimes".

Britain and France to square up over Google data tax The Telegraph

Why Bitcoin Regulation Isn’t a Crackdown Pacific Standard

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Tax Justice Focus: The Finance Curse




The latest edition of Tax Justice Focus, edited by Daniel Hind, Nicholas Shaxson and John Christensen, explores the Finance Curse, a phenomenon rather similar to the Resource Curse afflicting resource-rich economies. Evidence continues to mount suggesting that, far from being an asset, a large and globally 'competitive' financial sector, above a certain size, becomes a drain on the rest of the economy.

We are publishing this edition of Tax Justice Focus in partnership with the UK site Open Democracy, which is carrying one of this edition's articles today. Open Democracy will publish the remaining three of our feature articles during the rest of this week, on its UK-focused site OurKingdom.

In our lead article, renowned geographer Doreen Massey explores the long history of ‘the City’ having a major (and often harmful) role in the UK, but says this time is different.  Finance and financialisation is at the core of a new social settlement in which the fabric of its society and economy has been thoroughly reworked. OurKingdom will be publishing this stand-alone later this week.

Next, Adam Leaver of the Centre for Research on Socio-Cultural Change (CRESC) then offers a corrective to the idea, commonly heard in UK policy-making and opinion-forming circles, that London is the engine of Britain’s prosperity. Finance, he explains, enables London and its hinterland to enjoys the “metropolitanisation of gains” from economic activity in the whole country - while the rest of Britain suffers “the nationalisation of losses” emanating from London’s financial centre. OurKingdom will be publishing this stand-alone later this week.

Tamasin Cave of Spinwatch then introduces us to the ways in which the financial and political elite in Britain merge and overlap, to the point where it no longer makes sense to talk about finance lobbying the government. The government is now a lobbyist for finance. OurKingdom will be publishing this stand-alone later this week.

In the final feature, Nicholas Shaxson looks at the Resource Curse and traces the similarities between mineral wealth and finance in greater detail. In one sector, people appropriate economic rents from valuable and potentially explosive substances that can leak out and pollute the surrounding environment. In the other, they dig mines and drill oil wells. OurKingdom is carrying a stand-alone version of this here; or you can read a stand-alone pdf here.

These features are followed by an interview with Mike Dun from the British tax haven of Jersey, describing the large economic crowding-out that has occurred on his home island and explains how nationalist undercurrents in a small community can close down debate, entrenching political ‘capture’ by the financial sector.

Our book review in this edition looks at Richard Eccleston's 'The Dynamics of Global Economic Governance: The Financial Crisis, the OECD and the Politics of International Tax Cooperation' (Edward Elgar, 2012), which considers the key issue: "Does the international system have the capacity to devise and implement an effective governance response to the grave challenges facing the global economy?"

With a Letter from Cyprus contributed by David Officer in Nicosia, and a commentary from Markus Meinzer on the latest developments on automatic information exchange and FATCA, this is a bumper edition of Tax Justice Focus.


Update: See here to keep current with issues of Tax Justice Focus.



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Protinvest scandal exposes state capture and finance curse in tax haven Luxembourg

We've just written a fair-sized blog identifying Luxembourg's latest secrecy facility, and we have long noted the rash of ongoing scandals that continue to expose the rottenness and conflicts of interest at the heart of the Eurozone's biggest and most aggressive secrecy jurisdiction.

Now, from the Financial Times:
The head of ProtInvest, an investor-protection group, has sent a letter to Michel Barnier, an EU commissioner, in which he criticised Mr Frieden’s move to appoint his senior adviser Sarah Khabirpour to the board of the CSSF, the country’s financial regulator. The letter pointed out Ms Khabirpour also sits on the board of Banque International a Luxembourg, one of the country’s biggest banks, and is a director of the Luxembourg Stock Exchange – both institutions the CSSF regulates.
If you were looking for a case of the fox guarding the henhouse, you would be hard pressed to find a clearer case. This is a very clear case of state 'capture' - one of the central elements of offshore tax havens that we have identified in a range of publications, most recently in our short Finance Curse e-book. Today's FT spells out state capture in Luxembourg:
"Ms Khabirpour’s multiple jobs showcase the cosy relationships that tie Luxembourg’s business community, which centres largely on fund management, to its regulators and political leaders, suggests Fred Reinertz, ProtInvest’s president."
Our narrative report for Luxembourg published for the 2011 Financial Secrecy Index, which will be updated in a few weeks with plenty of new and juicy details, cites this email to TJN from a former Luxembourg businessman:
“One very important aspect of the Luxembourg financial centre is the absolutely scandalous discrepancy between the texts of the law, and their application in everyday judicial life. . . . while international pressure managed to force Luxembourg to adapt stricter legal constraints to the financial activities under its jurisdiction, looking into the lack of judicial application of said constraints becomes even more important.
. . .
Unlike in larger countries, there is no such thing as an independent representation of any civil interests in a tiny country like Luxembourg. You just don’t make it in this country unless you’ve proven your absolute loyalty to the system in place, including being ok (if not more) with all of its malpractices.”
This is just the latest in a long line of Luxembourg offshore scandals, which date back to the days of the fraudster Bernie Cornfeld, the tale of BCCI, arguably the most corrupt bank in world history, and running through to more recent episodes such as the Bernie Madoff scandal (originals here, here and here, and the European bond scandal last year, which was summarised:
"Both the investors in the Petercam bond fund and the Madoff fund investors are scathing in their criticism of the CSSF. They argue that the regulator rubber-stamped the funds and turned a blind eye to subsequent problems.
And that's just a taster of the rottenness. There is plenty more, such as this long series of complaints, containing the following:
"To all of you out there who consider depositing money in a Luxembourg based bank, who consider working in Luxembourg, who consider establishing a company in Luxembourg or who consider dealing with Luxembourg in any way, and to all of you who feel its in violation with your inner compass entering into anything that involves deception, cheating or stealing from other human beings; STAY AWAY from this country."  
We don't know the facts of this case, nor do we have a good grasp of the case outlined by our email correspondent outlined above. But it does seem that wherever you turn in Luxembourg, scandal is not far away.

Update: for more on the Finance Curse, see here.




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Friday, September 20, 2013

Links Sep 20

Special Report: How a German tech giant trims its U.S. tax bill Reuters

UK government should stand up to companies that underpay tax – report
The Guardian

Bringing International Tax Rules Into the 21st Century Huffington Post
Pascal Saint-Amans, Director of the OECD's Center for Tax Policy and Administration comments on BEPS and on automatic information exchange; see recent TJN comment with links to briefing papers here and here. And we note this odd report today: Ireland Not A Tax Haven, Says OECD Head Tax-News. The Ministry of Truth couldn't make it up.

UK: NHS PFI firms avoid millions in tax The Bureau of Investigative Journalism

Hong Kong and South Korea sign tentative deal to fight tax cheats South China Morning Post

U.S.: IRS Gets Big Win In Corporate Tax Holiday Case, Readies For Next Fight Forbes
Founder of Beanie Babies to Plead Guilty to Tax Evasion TaxProf
$53.6 million in penalties to be paid in one of the largest offshore tax evasion cases in history.

Corporate-Backed Tax Lobby Groups Proliferating CTJ

Is It All About the Tails? The Palma Measure of Income Inequality Center for Global Development

5 Years After Financial Crisis, Big Banks Are Still Committing Crimes The Big Picture

A Night for Swiss Pride, Minus Tax Talk Dealb%k

Reyl gets hearing request from French judges Swissinfo

The VAT Gap – 18% of EU GDP. Europa.eu via Tax Research

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Nigerian oil theft: the international dimension

The theft of oil from Nigeria's Niger Delta has had destabilising effects on Africa's most populous country, causing episodes of low-level conflict, widespread despoliation, human rights abuses, and feeding corruption at many levels of the political system. A new report from think tank Chatham House in London - the second Chatham House report we've highlighted today, as it happens - looks at the issue.

Entitled Nigeria’s Criminal Crude: International Options to Combat the Export of Stolen Oil, it has many interesting things to say on subjects close to our hearts. It notes, by way of introduction:
"At present oil theft is a species of organized crime that is almost totally off the international community’s radar. Officials outside Nigeria are aware that the problem exists, and occasionally show some interest at high policy levels. But Nigeria’s trade and diplomatic partners have taken no real action, and no stakeholder group inside the country has a record of sustained and serious engagement with the issue.
. . .
Outside governments probably would have to join forces to curb the export of stolen Nigerian oil significantly. Nigeria could not stop the trade single-handed, and there is limited value in other countries going it alone. However, an intelligent multi-state campaign could, in theory, close off markets and financial centres, and raise the costs of stealing."
And four recommendations emerge:
  • Nigeria and its prospective partners should prioritize the gathering, analysis and sharing of intelligence.
  • Nigeria should consider taking other steps to build the confidence of partners.
     
  • Other states should begin cleaning up parts of the trade they know are being conducted within their borders.
     
  • Nigeria should articulate its own multi-point, multi-partner strategy for addressing oil theft.
And of course it notes the role of international money centres:
"The big Nigerian oil theft networks use foreign banks and other channels to store and launder their earnings. Thieves have many ways to disguise the funds they move around the world. These include bulk cash smuggling, delayed deposits, heavy use of middlemen, shell companies and tax havens, bribery of bank officials, cycling cash through legitimate businesses and cash purchases of luxury goods. Interviewees named various East, West, and Southern African countries, Dubai, Indonesia, India, Singapore, the United States, the United Kingdom and Switzerland as possible money-laundering hotspots."
The report then asks what can be done. It examines options for controlling and monitoring physical movement of oil, such as genetic 'fingerprinting,' or sanctions, but finds these of fairly limited use. It seems a little more optimistic about the possible use of supply-chain measures such as litigating against buyers and sellers of stolen oil and supply-chain due diligence activities - but then again, it finds big limitations to these approaches too. Finally, it considers the option that it closest to our own hearts: "Follow the money." This, it says, is more pregnant with possibilities, and "a key step towards controlling oil theft."
"Convicting oil thieves of laundering money and seizing their assets should be a part of almost any cross-border strategy. Building strong cases would not be easy, and ideally Nigerian anti- corruption police would help other governments trace the money. But Nigerian paralysis should not excuse other jurisdictions from acting in cases where they have good financial intelligence."
Quite so. It is not so optimistic about Nigeria's involvement in the Extractive Industries Transparency Initiative (NEITI, a subject on which today's TJN blogger wrote an earlier Chatham House report) but then it adds:
"New financial-sector regulations – for example, to force disclosure of beneficial ownership, or place limits on use of shell companies – could have more value."
Again, nobody says these 'follow the money' approaches would be easy, but the broad global movement, in which TJN has participated, to start attempting to rein in financial secrecy will, we hope, reap dividends in places around the world such as the Niger Delta.

Update: for more on The Mechanics of Secrecy, see here.



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Stop Tax Haven Abuse Act: new US legislation introduced

From U.S. Senator Carl Levin, a veteran fighter for tax justice:
Sen. Carl Levin, D-Mich., chairman of the Senate Armed Services Committee and the Senate Permanent Subcommittee on Investigations, and three cosponsors today will introduce legislation to close a host of offshore corporate tax loopholes, make the tax code fairer for small businesses and families and provide part of the foundation for a balanced deficit-reduction package to end sequestration.

The Stop Tax Haven Abuse Act [PDF], cosponsored by Sheldon Whitehouse, D-R.I.; Mark Begich, D-Alaska; and Jeanne Shaheen, D-N.H.; would provide in the neighborhood of $220 billion in additional revenue over 10 years, according to estimates from the Joint Committee on Taxation, by ending a series of tax gimmicks uncovered in a decade of work by the Permanent Subcommittee on Investigations.

The bill would stop tax-avoidance schemes such as transferring valuable intellectual property and the income they generate to offshore subsidiaries and the practice of setting up offshore shell corporations – often nothing more than a post office box – to claim foreign status for tax purposes.

“These corporate tax loopholes are unfair to domestic companies, small business and the families who must carry the extra burden that results when large multinational corporations use complex gimmicks to avoid taxes,” Levin said. “We should end these loopholes regardless of our budget situation, because they are blatantly unfair. But surely now, with sequestration continuing to damage military readiness, education, life-saving medical research and more, we should end these offshore tax avoidance schemes and use the revenue as part of a balanced plan to replace sequestration.”

“Big corporations shouldn’t be allowed to play games with the tax code and benefit from shipping jobs overseas,” Whitehouse said. “This bill would force corporations that are dodging their responsibilities to pay their fair share of taxes, and create an even playing field for American companies that already play by the rules.”

“Small businesses are the backbone of our economy, but without a level playing field, large multinational corporations are allowed a leg up by circumventing the system and avoiding taxes,” said Begich. “This common sense bill will go a long way to closing these unfair loopholes and restoring fairness, transparency and essential revenue to our economy.”

“We need to make the tax code fairer by eliminating offshore tax loopholes for big corporations,” Shaheen said. “Middle class families and small business shouldn’t carry the burden of these loopholes that only benefit large corporations and the wealthiest Americans.”

The bill would:
  • Crack down on the use of intellectual property transfers as tax-avoidance tools by taxing excess income earned from transferring intellectual property to offshore subsidiaries;
  • Give the Treasury Department important new weapons to fight against foreign governments and financial institutions that aid tax avoidance, including the ability to prohibit U.S. banks from doing business with foreign banks in jurisdictions that impede U.S. tax enforcement;
  • Require SEC-registered corporations to disclose employment, revenues and tax payments on a country-by-country basis;
  • Eliminate the tax incentive for companies to move jobs and operations offshore by limiting their ability to claim immediate tax deductions for expenses related to those offshore operations while deferring the U.S. tax on the income those operations generate;
  • Repeal what are known as the “check-the-box” and “CFC look-through” rules, which allow multinationals to avoid U.S. taxes they would otherwise owe by making offshore subsidiaries disappear for tax purposes, turning taxable passive income into tax-deferred active income;
  • Prevent multinationals from using short-term loans from their offshore subsidiaries to essentially repatriate income while avoiding taxes that should apply to repatriated money.
 We would support all of those. The full legislation is here, with a summary here. Earlier versions of the Act have been killed by vested interests.

Via Nicole Tichon of the FACT coalition and Tax Justice Network USA:Read


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Yemen: Corruption, Capital Flight and Global Drivers of Conflict

Chatham House, the respected London-based think tank, has published an important new report on Yemen, which illustrates the close linkages between the issues we care about - capital flight, tax havens, illicit looting and corruption and so on - and issues of conflict and global security.


There's a lot in here worth looking at; this blog is really just a pointer to a fascinating case study. As it notes:
"By the time of the 2011 uprising, ownership of the ‘commanding heights’ of Yemen’s economy were concentrated in the hands of a tiny elite. In early 2011, an estimated 10 families controlled more than 80 per cent of imports, manufacturing, processing, banking, the telecommunications and transport sectors (a situation that remained unchanged at the time of writing)."
And the broader global geo-political context for these country-level issues are, of course, crucial:
"All too often the focus on poor and conflict-affected states revolves around domestic dynamics that drive corruption and weaken institutions, ignoring the international factors that incentivize personal enrichment at the cost of good governance.
While Yemen’s dependence on external assistance should provide at least some prospect that external donors can act as a lever for change, overall levels of foreign aid have been overshadowed by high volumes of capital flight. The problems of corruption, cronyism and chronic capital flight are by no means unique to Yemen; and they are exacerbated by the global phenomenon of secrecy jurisdictions or tax havens.

In the United Kingdom in particular, there is growing tension between the financial sector’s support for secretive tax havens, and a desire to see aid spending utilized for the national interest of recipient countries, rather than being siphoned off abroad by elites."
It also notes that Yemen, according to 2011 UNDP data, had the fifth largest volume of illicit capital outflows ($12 billion) of all the Least Developed Countries between 1990 and 2008, easily outstripping aid inflows.

It covers many of the important angles, including this all-important one:
"Capital flight undermines domestic tax revenues that are needed to fund infrastructure development, deliver public services and ‘establish bargaining relationships between governments and their citizens and build long-term institutional capacity’. Tax collection agencies in countries that suffer high levels of capital flight are generally weak and fail to enforce collection, especially from elite actors with powerful domestic and international connections, limiting growth in government revenues.

Governments in such scenarios tend to depend on taxes paid by smaller- scale players in the private sector who ‘lack the political clout to get tax exemptions’.147 Although they are not the sole contributing factor to weak tax collection, investment or growth, illicit flows have been found to ‘[discourage] domestic investment in poor countries, and therefore [reduce] rates of economic growth’."
And, again quite rightly, it highlights Britain's role in the global system of offshore tax havens.

Now read on.

Update: for background and resources on Inequality & Democracy, see here.




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Tax haven Luxembourg sets up yet another secrecy facility for ownerless assets

We have described Luxembourg, a nasty little tax haven at the heart of Europe, as the European "Death Star" of financial secrecy. It's not for nothing that it ranked #3 on our last Financial Secrecy Index (note: our next Index is coming out in a few weeks.)

Look at this latest offering, via KPMG, dripping with tax evasion and criminal possibilities: the Luxembourg Private Foundation. As KPMG approvingly states:
"The private foundation has its own legal personality. However, since it has no shareholders nor members it is said to be an “orphan entity”.

A high level of confidentiality is guaranteed since the founder, beneficiaries and amounts contributed to the private foundation do not have to be disclosed to the public (even if the creation of a private foundation must be published in the Official Gazette and registererd with the Trade Register). In the same direction, although the private foundation has to prepare annual accounts, it is not required that those are filed with the Luxembourg Trade Register.

More generally, the number of requirements to be met to set up a private foundation has been opportunely reduced to a minimum."
Our emphasis added. If that isn't a potential vehicle for financial crime being peddled by one of the Big Four accounting firms, well, we don't know what is.

We have spoken with increasing concern in recent years about so-called 'ownerless assets' where wealthy people's assets (which might be a bank account, a stock portfolio, a yacht, a painting, or whatever) are legally separated from their original owners, so they can't be taxed on them - or, in most cases, even identified with them in any ascertainable way.

Crucially, even though the assets have been given away, legally speaking, nobody has received them yet, so they sit in an 'ownerless' limbo. Literally nobody owns them, legally speaking: so nobody can be taxed on their income (or capital), and nobody can find the link to the real, warm-blooded true economic owners of the assets. (These wealthy warm-bloods, of course, typically have devious side-arrangements with the managers of these structures that allow them to retain a healthy measure of control over - and even power to enjoy - the assets and income, even while they are, at least legally speaking, separated from them.)  The assets would eventually, perhaps decades in the future, leave these particular legal limbos and end up in the hands of others - the beneficiaries, perhaps: but quite often these payouts are timed just right, or paid out in just the right way, so that the (usually also wealthy) beneficiaries also avoid tax altogether: for example, the assets may well be injected into another 'ownerless' legal limbo somewhere else. Very often, however, the assets and accrued income or a portion of them end up back in the hands of the original owner. Which, of course, raises the question of whether the legal owner really was separated from them, and whether the whole structure is a sham. 

While sitting in these 'ownerless' limbos, of course, the assets and income generally grow, free of tax. In this Luxembourg case, while there is in fact a normal corporate tax rate charged on the foundation itself, but there are exemptions for such trivial details as wealth taxes, investment income, capital gains, capital transfers to beneficiaries, and more. As KPMG gushes:
"As far as Luxembourg residents are concerned, the private foundation still constitutes an attractive inheritance vehicle."
'Attractive' for some. Not for the citizens of those wealthy owners' countries being stiffed by their élites' tax evasion and other crimes, via Luxembourg private foundations. 

KPMG also bills this as a vehicle for attracting rich people to come flocking to Luxembourg: playing London's non-dom game, but in a different way.

With respect to 'ownerless' or 'orphan' assets we have been most exercised on the subject of discretionary trusts: the bread and butter of abusive tax and secrecy arrangements, particularly in British tax havens. We have seen reports of Jersey trust company officials saying that 90 percent of their business involves discretionary trusts; privately, we've heard figures that range between 80 percent and 95 percent for offshore structuring.

With a discretionary trust, assets are put into the trust, then the trustee who manages those assets is given 'discretion' to pay out to some or all of a range of potential beneficiaries, at some point in the future. But because the trustee supposedly has 'discretion' as to which beneficiaries will receive what, and when - then none of those potential beneficiaries (until they are actually earmarked to receive something) can claim that they are a beneficiary. So they are, legally speaking, not beneficiaries: they are invisible and untaxed too. Assets held in private foundations are the other classic example - though not the only example - of 'ownerless assets' (or 'orphan assets' as KPMG so innocently puts it.) As KPMG helpfully explains that this private foundation structure "has no shareholders nor members." The amendments to the EU Savings Tax Directive, (currently blocked by the transparency-spoilers Luxembourg, Switzerland (on the outside) and - yes - Luxembourg,) would tackle this problem by rejecting the idea of 'ownerless' assets and, in effect, saying that until a distribution to a beneficiary has been made, the original owner hasn't given away the asset (s). End of story, it should be - but Europe seemingly can't find it in itself to steamroller these abusive nations.

KPMG is peddling all sorts of other weaselly facilities offered by these structures, such as this one:
"It may also create other public or private foundations or trusts or be the beneficiary of such vehicles."
What purpose would such a possibility serve, other than opacity and subterfuge?

Finally, KPMG note that
"An initial capital contribution of EUR 50,000 paid in cash or in kind is required."
In other words: no small fry, please.

We have written a lot about race-to-the-bottom problems of tax competition, and financial regulatory competition. This Luxembourg private foundation, which KPMG describes as "a new wealth management vehicle inspired by comparable vehicles existing in other countries", is an example of 'secrecy competition' or 'secrecy wars' - quite as pernicious as the other two. While G20 leaders make a lot of noise about cracking down on financial secrecy, 'secrecy wars,' egged on by Big Four accountants and other assorted vested interests, are pushing the world in exactly the opposite direction.
This new Luxembourg law, if and when it comes into force, will add about three points to Luxembourg's secrecy score, a component in our Financial Secrecy Index.

Final note:: KPMG describes the Luxembourg Private Foundation as "the bill of law 6595 submitted to the Parliament on 22 July 2013." So as far as we can tell, it hasn't gone through yet and solidified into law. But bear in mind that Luxembourg is a strongly 'captured' state, so the chance of this not getting nodded through is, we feel, rather remote.

Update: For the current version of the Financial Secrecy Index, see here.




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