Nick Shaxson ■ The offshore wrapper: a week in tax justice


Tax warsWelcome to this week’s Offshore Wrapper, by George Turner: a look back over the last week in tax justice.

Automatic exchange won’t be automatically adopted

Big news this week was the release of a new standard for automatic information exchange by the OECD, a club of rich countries. This will allow a system to develop where tax authorities need are automatically provided with the information they need to tax their citizens properly.

This is a huge step forward from the current system of on-request information exchange. The difficulty of on-request exchange is that often tax authorities don’t know what they are looking for. It shouldn’t be a big surprise that people engaging in corruption or offshore tax evasion do not usually tell their tax authority where to look.

To illustrate just how ineffective the system of on-request information is, answers to parliamentary questions demonstrate that in Jersey only 70 information requests were received between 2007 and 2010. And once a request has been received it can be challenged and held up for years in the courts.

The Tax Justice Network has been campaigning for the introduction of automatic exchange for years. You can see our full response to this development here.

Switzerland’s reaction was to state that it will not adopt the standard until everyone else has. In other words: Get lost!

So there is a lot of work to be done.

UN Panel targets illicit financial flows from Africa

The ICIJ reports on the UN High Level Panel on Illicit Financial Flows, which held a recent discussion in New York.

Thabo Mbeki, who is on the panel, said that an estimated $50bn flows out of Africa every year: twice what the continent receives in foreign aid.

The panel will look in particular at multi-national corporations operating in Africa. Though Africa is frequently criticised as being a hotbed of corruption, money laundering and other illicit trades, Mbeki’s panel says that these activities pale in comparison with the amount of money lost to multi-national companies draining money out of the country.

Ghana and Pakistan’s poor collection rates

On the other side of the coin is the poor performance of tax authorities in collecting tax. Recently an economic advisor to the Ghanaian government stated that the government collected taxes from only 2 million people, out of an eligible 6 million, in a country of 25 million.

Dr Edward Larbi Siaw was speaking at the International Conference on Fiscal Justice, which was supported by the Tax Justice Network Africa.

Tax Analysts last week drew attention to a report by the Centre for Investigative Reporting in Pakistan showing that nearly half of all lawmakers who won in Pakistan’s May 2013 general elections paid no income taxes. Pakistan has one of the world’s worst tax-to-GDP rations – 8.5% in the most recent published figures. And yet it receives huge sums in overseas aid.

Reality bytes: the end of the tech giants’ VAT dodge?

The poster boys of international corporate tax avoidance have been the large tech firms, Amazon, Apple, Microsoft, Facebook, and others.

One of the loopholes in the international tax system they exploit so profitably is VAT on digital goods, which is charged where companies are based.

Companies selling to large markets such as the UK, France and Germany have been basing themselves in Luxembourg, where VAT is negligible.

Apple’s iTunes operation in Luxembourg reported a turnover of €1.5bn in Luxembourg in the year to September 2012. That is a lot of music downloads for a country of little more than half a million people. (Take a look at this two minute video to see what this kind of behaviour actually looks like.)

But the FT reports that the European Union wants to move taxing rights to countries where the customers are, rather than where the companies are. This could potentially lead to billions flowing back to European governments.

The end of tax wars?

The case of the Luxembourg VAT loophole illustrates how tax havens can distort competition. Online booksellers can vastly undercut the high street book seller who does not have the option of basing their shop in a tax haven.

The European Commission is taking this idea one step further, and looking into whether countries who deliberately adjust their tax rates in order to attract multi-nationals are in fact granting a form of subsidy, or state aid.

This would be illegal under European competition rules and could result in the European Commission taking action against these countries. Watch this space!

Not so fast. Japan joins the race to the bottom

Japan is the latest country to join the race to the bottom in corporate taxation. The country’s Chief Cabinet Secretary Yoshihide Suga said last week that the country’s prime minister was determined to cut the corporate tax rate.

Unnamed “experts” claim that this will make the country more “competitive”.  As we have often pointed out, though: anybody who uses the word ‘competitive’ in this context plainly doesn’t have a grasp of basic economics.

Fortunately, officials at the finance ministry say that there is a risk that this will further increase the public debt (it will).

Some might think it reckless to ignore finance ministry advice, given Japan already has one of the largest public debts in the world. But Japan’s prime minister appears to be intent on ignoring his own finance ministry.

Suga said: “Whatever the finance ministry says, the government policy will not change. We will consider what will happen to government finances if the corporate tax rate is lowered, but the prime minister has said all along that a reduction is necessary. We want to do that properly.”

However, it is not all taxes that the Japanese Prime Minister seems to be against. This year will see a rise in sales taxes. Japan, it seems, is exchanging taxes on the profits of companies, to taxes on goods bought by people, whether they are in profit or not. Subsidising the wealthy, at the expense of the poor.

The week’s TJN blogs

The UK Gold: a landmark film about the City of London, now available online.

Swiss reject new OECD transparency project. By insisting they’ll only move once everyone else does.

Tax Justice Focus – past editions of our flagship newsletter, now fully available. We’ve finished uploading the last editions, and the site is now pretty much complete.

New TJN briefing: OECD’s BEPS project for developing countries. Our analysis of the OECD’s widely referenced corporate tax project, and its implications for developing countries.

Should donors boost aid to Pakistan if it won’t tax its élites? A very good question, as George already mentioned.

France’s CAC 40: over 1500 tax haven affiliates – a new report, widely referenced in French media.

BVI tax haven floats 20 years in prison for whistleblowers. Enough said.

TJN responds to new OECD report on automatic information exchange. Quoted in the Financial Times, The Economist, and many others.

Your tax cuts at work. A short, light-hearted look at the politics of recent floods in the UK

Number Renouncing US Citizenship rose 221% in 2013, in tax panic. On closer examination, matters aren’t quite so dire.

The Week’s Links

Tackling tax evasion: First Standard Automatic The Economist
See also: Global tax standard attracts 42 countries Financial Times (paywall) – reports cite TJN’s response to the new OECD report on automatic information exchange

Looted in Plain Sight: Kenya and its Multi-Billion Dollar Invoicing Problem Think Africa Press

Tax evasion: Nigeria’s Finance Minister wants Global Partnership to help cut Africa’s lossesPremium Times

Nigeria: FIRS rolls out new tax regime for multinational firms Premium Times

British Virgin Islands’ new law threatens press freedom in Hong Kong, analysts warn South China Morning Post

Peru: BVI registered company investigated for illegal gold mining and money laundering Financial Secrecy Media Monitor

Argentina Files Final Supreme Court Appeal in Global Hedge Fund Debt Case Jubilee USA
“Religious Community Joins IMF, Legitimate Investors and Governments in Opposing Exploitative Hedge Fund Behavior”

The 750 Million Dollar Man Foreign Policy
How a Swiss commodities giant used shell companies to make an Angolan general three-quarters of a billion dollars richer.

Bangladesh: National Board of Revenue forms cell to stop capital flight by MNCs New Age

European Investment Bank commits to review its tax haven policy as CSOs call for greater transparency and accountability Eurodad

Italy Takes San Marino Off Blacklist Tax-News

Portugal’s Bid to Fight Tax Evasion With Free Cars The Atlantic Cities

Corporate Tax 2014: IBM in aggressive avoidance with Dutch help but India pushes back Finfacts Ireland

Ireland chases €135m in tax avoidance Irish Examiner

UK: Lloyds in £1bn tax dispute with HMRC over Irish losses The Telegraph

OECD’s Gurria Says Companies Must End ‘Duty’ to Avoid Paying Tax Bloomberg Businessweek

VAT reform to boost UK Treasury and hit offshore e-commerce Financial Times (paywall)
“Hundreds of extra millions of value added tax from e-commerce are to flow into the UK exchequer as one of the advantages of operating in Luxembourg is swept away.”

Cayman Premier Interviewed on BBC’s HARDtalk (News clip here)
Premier Alden McLaughlin asserts Cayman is well regulated. Interviewer Stephen Sackur observes that part of being confident of regulation is a commitment to transparency, and points out position of Cayman in TJN’s Financial Secrecy Index

Another day, another billion-dollar legal charge for one of the world’s largest banks Quartz
Should banks now publish ‘scandal-adjusted earnings?’

Feds Appeal Ty Warner Sentence Seeking Jail Time For Billionaire Beanie Babies CreatorHuffington Post

Football: Maradona Appeals to EU Over Italian 39 Million Euro Tax Bill NTDTV

F1?s Flavio Briatore to face trial over super-yacht tax evasion The Telegraph

OECD takes aim at tax anomalies across borders Irish Examiner
OECD head Ángel Gurría said: “… the options are simple: If you cannot tax the big guys you are left with the little guys and middle class to tax, and even if you tax them up to their noses, it won’t be enough. And then politics becomes impossible.”

CEOs understand need to be seen to play fair on tax The Irish Times
See also, on a story linked earlier, New research makes it plain that Ireland is a tax haven Quartz

Are European Corporate Tax Havens Benefiting From State Aid?
See also: EU antitrust chief says looking into corporate tax loopholes Reuters

City fund managers waking up to the risks of tax opacity International Tax Review
ActionAid’s Mike Lewis discusses why bondholders, and not just activists, now care about aggressive tax practices.

Swiss banks welcome global tax standard swissinfo
Note however Swiss demands for reciprocity, explained in our blog earlier today TJN responds to new OECD report on automatic information exchange

A unique opportunity for UK citizens with undeclared offshore accounts: act now! Financial Secrecy Media Monitor
A very good satirical take on the Liechtenstein Disclosure Facility

British Virgin Islands news: UK court rules against “serial avoidance promoter” Financial Secrecy Media Monitor

Jersey’s First Challenge Against Disclosure Under A Tax Information Exchange Agreementmondaq

Uruguayan banks to stop accepting cash deposits and close suspicious accounts STEP
“Uruguayan banks have long been used by Argentine taxpayers to deposit savings.” See the story reported in Spanish here.

StanChart to Offload Swiss Private Bank The Wall Street Journal
But, “still aims to grow its private banking in other financial hubs” including SingaporeHong Kongand London. See also: Barclays says its Swiss private bank is part of U.S. tax deal Reuters

A commonsense solution for money laundering euractiv
Op-ed on beneficial ownership transparency by former chairman of Anglo-American and Shell

IBM’s Nonsensical Response to CTJ’s Finding that It Paid a 5.8 Percent Effective Federal Tax Rate Citizens for Tax Justice

Google overseas tax bill rises as UK sales hit $5.6 billion Reuters

Global Financial Governance & Impact Report 2013 New Rules for Global Finance

Economist calls for just tax system GhanaWeb
More reporting on a story linked yesterday.

Governments and Activists are Fighting the Corporate “Right” to Sue Governments naked capitalism
“Over the past several decades, multinational corporate Goliaths have helped to write and rewrite hundreds of rules skewing tax, trade, investment and other policies in their favor.”

BVI Considers Tough Prison Sentences For DataLeaks ICIJ

Google Take Down Stuart Syvret Blogspot Rico Sorda
“The Jersey oligarchs and their protectors in London think that they can do what no corrupt regime around the world had been able to do – and keep embarrassing exposures about them off the world wide web.” See also our recent blog Big Newsweek exposé on human rights abuses in tax haven Jersey

UN Panel: Corporate Tax Avoidance Is Africa’s Biggest Financial Drain ICIJ

Put a stop to money launderering – The European Parliament must put an end to anonymous shell companies TJN Germany Blog

Cayman: ‘PPM too quick on FATCA’ Cayman News Service

Sounding the Tax Alarm, to Little Applause The New York Times
“… one banker warned of possible retaliation by powerful people in Switzerland if he declared his holdings to American tax officials.”

South Korea a veritable tax break paradise for chaebol The Hankyoreh

Only 2million pay tax Modern Ghana
“Ghana government collects taxes from only two out of the six million eligible taxpayers”, and has a population of 25 million.

The Surge In Chinese Exports Has Some Worried That Over-Invoicing Has Made A ComebackBusiness Insider

India seeks to cancel $2 billion Vodafone tax dispute resolution talks: memo Reuters

US firms ‘paid effective tax rate of 2.2% in 2011’ The Irish Times
Research paper by Prof James Stewart, associate professor in finance at Trinity College Dublin challenges government claims that effective corporation tax rates in Ireland are just below the headline rate of 12.5 per cent. The effective tax rate in the PwC report frequently cited by Irish government “is based on a hypothetical Irish company that sells ceramic flower pots and has no imports or exports”.

Even Among the Richest of the Rich, Fortunes Diverge The New York Times
“… the richer you are, the more you have pulled away”.

Fragile States 2014: Domestic Revenue Mobilisation OECD

A Solution for the Inequality Politics of Post-2015? Center for Global Development

Democratic Republic of the Congo: The offshore secret of Moïse Katumbi, governor of Katanga  Marianne (In French)The Crooks Return to Cairo Foreign Policy
“Egypt’s government is happily letting exiled billionaires and convicted Mubarak cronies buy their way back home.”Beijing loses billions as rich skip taxes CNNGoogle’s inverted world needs to be challenged – and India might be the place to start Tax Research UKIndian Tax Tribunal To Hear Vodafone Case Tax-NewsIBM Challenges Indian Tax Demand Tax-NewsU.S.: IBM Paid 5.8 Percent Federal Income Tax Rate Over 5 Years Citizens for Tax Justice
See also: U.S.: States Crack Down On Corporate Tax Loophole While Congress Does NothingHuffington Post, and U.S.: Tax Breaks 2014: A $63 Billion Boon to Business The Fiscal Times

Does Microsoft pay most of its income tax in just 4 countries? Financial Secrecy Media Monitor

U.S. charges Swiss asset manager in offshore tax fraud case Reuters

Florida tax evasion trial of ex-UBS banker delayed eight months Reuters

Switzerland – a dubious specialist in corporate tax issues TJN Germany Blog / Swiss Radio SRF

Canada: Let’s hope there is more on tax fairness in the federal budget Canadians for Tax Fairness

US and UK in a fiddle over tax havens The Commentator

“The U.S. and Britain have got themselves in another fine mess over populist measures against tax havens that don’t work and smack of hypocrisy”


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