Nick Shaxson ■ The Offshore Wrapper: a week in tax justice

The Offshore Wrapper is written by George Turner

End of anonymous companies in the U.S.?

Tax wars

The US congress looks like it may follow the European Parliament’s lead and approve legislation limiting anonymous shell companies.

A draft law to stop anonymous shell companies has started picking up interest from Senators. The proposal would force the disclosure of beneficial ownership by companies registered anywhere in the United States. The ICIJ reports that there is now renewed optimism that the measure may start moving through the legislature after it sat on a shelf gathering dust for five years.

An excellent article from Quartz looks at the issue of secret companies in the States. It is easy to see why controls are needed. Read more about the technical issues here.

If nothing else, it was revealed that Iran, yes Iran, owned and operated a skyscraper in Manhattan until last year! This audacious trick from the Iranian government was done with the help of a shell company based in Jersey, which is – apparently – definitely NOT a tax haven.

Our friends at Global Witness have just been fired up to kick up a mighty stink on this kind of thing.

The much too special relationship

The case of the Iranian skyscraper shows why public opinion in the US is turning increasingly hostile to tax havens …sorry, well regulated financial centres based in the remnants of the former British empire.

A few weeks ago Ben Judah in the New York Times wrote a scathing article about the City of London’s love of Russian money.

This week, TJN’s very own Nick Shaxson, writing in The American Interesthighlights a range of threats to global stability and US security hidden away in the City of London’s network of tax havens and secrecy jurisdictions (surely, well regulated FCs? ed.) around the world.

Rotten to the core?

That the UK has been such an aggressive promoter of tax havens… or rather transparent international financial centres should be of no surprise when we consider just how deeply embedded in the British establishment offshore has become.

Today the Bureau of Investigative Journalism revealed that a British Lord, a former Conservative Chief Whip no less, has been on the payroll of the Cayman Islands to lobby the British government and its parliament on their behalf. According to the Premier of the Cayman Islands Lord Blencathra, “has that capacity to open doors which I haven’t seen anyone, perhaps since [former Cayman Islands] Governor [Thomas] Russell, able to open in the UK,”

This is, I suppose, what happens if a country (the UK) fills one half of its legislature with unelected and unaccountable politicians.

Cambridge University is not very clever

It is perhaps worth thinking about the benefits the offshore financial system brings to the UK. Like for example, funding the education system.

Cambridge University has for years taken millions from Dimytro Firtash, a Ukrainian Oligarch who was a strong backer of ousted president Viktor Yanukovych. He has links, according to information contained in US diplomatic cables, to well-known Russian gangsters and one person wanted for “mass murder”.

Despite these apparent associations, Mr Firtash was admitted to Cambridge University’s prestigious guild of benefactors in a ceremony presided over by Prince Philip.

Yes, he may have made billions from a company that a US official described as “a serious source of corruption”, but that money is now helping the sons and daughters of the British elite to go on study trips to the Ukraine. That can only be a good thing, right?

(UPDATE: Britain’s Daily Mail has picked up on another angle on this story.  Firtash’s wife Lada (pictured) is revealed to also have been inducted into the Cambridge Guild of Benefactors, which doesn’t reflect too well on the University when it’s own ethical guidelines advise against accepting donations when there is a significant risk of reputational damage.)

Bean counters form human tax havens

Efforts from the OECD seems to be making a serious dent in the current system of profit shifting. Even countries such as Luxembourg are signing up to the new automatic information exchange standard, paving the way for tighter controls on international tax avoidance and evasion.

But the world’s tax planners are already dreaming up new ways around the system. The front runner seems to be offshoring your residency. Countries like the Bahamas are looking at ways in which they can sell residency to individuals so that they can benefit from more lenient “business friendly” rules there.

So instead of routing your profits though a company which is resident in the Bahamas, you do so through a person who is resident in the Bahamas. Even if that person never sets foot on the island.

A really good example of how this might work is provided by the world’s youngest billionaire Perenna Kei Hoi-ting, who seems to be a human tax avoidance scheme for her dad.

Perenna is the owner of Logan Property Holdings. Her father is a citizen of China where all offshore companies must be declared. Perenna who owns the family business is a citizen of St Kitts and Nevis and resident in Hong Kong. Despite her degree from the London School of Economics, Perenna has no say in the running of the company, allowing her father to keep control of the family business while avoiding China’s capital controls.

This week’s blogs

  • Swiss tax treaty policy thwarts new era of automatic information exchange. Old habits die hard.
  • The UK Law Commission consultation on the fiduciary duties of investment intermediaries: Response from the Tax Justice Network. Noting that tax avoidance in companies is like refined sugar in the human body – empty financial calories with adverse long-term health effects.
  • Cambridge University and the scandal of Ukrainian dirty money. Did they learn nothing from the London School of Economics?
  • A small but telling victory in London’s offshore housing crisis. By our very own George Turner, author of this Offshore Wrapper.
  • One Direction get tax justice. Or do they? The boy band joins arch-hypocrite Irish rocker Bono in being confused about what it means.

This week’s links

Luxembourg Signs Up to EU Savings-Tax Agreement, Ending Deadlock Bloomberg
Bettel: “With Austria, Luxembourg can go ahead and give the green light for the EU savings directive”. See also: Austria, Luxembourg Accept EU Bank-Secrecy Law The Wall Street Journal –Bloc Promises to Push Switzerland, Four Other Countries Into Signing Similar Deal

The world’s youngest billionaire appears to be a human tax dodge Quartz

Offshore Web Nets Chinese Giant in Italian Solar Scandal ICIJ

Dominique Strauss-Kahn, former IMF head, joins board of Rosneft-owned Russian bank The Telegraph
See also: Dominique Strauss-Kahn’s hedge fund is far from the first brash comeback in finance Quartz

Kazakhstan to combat capital flight offshore Business News Europe
“… a Kazakh deputy proposed the country should create its own offshore zone, in a bid to keep capital from leaving the country … He noted that a Russian plan for an offshore zone in the far east creates additional risk of capital flight, as there will be no restriction within the Customs Union.”

Treasury Sanctions Russian Officials, Members Of The Russian Leadership’s Inner Circle, And An Entity For Involvement In The Situation In Ukraine U.S. Department of the Treasury

Kenya plans tax breaks to lure textile firms Business Report

Canada – BVI tax treaty is now in force STEP
Treaty introduces “a very favourable tax regime for income remitted from BVI-resident companies to their Canadian parent”

UK Treasury backs global overhaul of tax rules for multinationals Financial Times

Argentine Official Meets FIFA’s Blatter on Soccer Tax Avoidance Bloomberg

Zimbabwe: Public executives in tax evasion scam SW Radio Africa

Lessons of a German Tax Cheat The New York Times
Comparing tax cheating culture in Germany and Greece.

Italy: Renzi vows crackdown on tax dodgers Gazetta del Sud

Belize set to default on Aug 20 coupon Reuters
Belize is placed towards the top end of the secrecy scale on position on TJN’s Financial Secrecy IndexCaterpillar Said to Be Focus of Senate Overseas Tax Probe BloombergBermuda pro-offshore campaign continues: “International Business owes Bermudians absolutely nothing” Financial Secrecy Media MonitorHong Kong’s Captive Insurers Tax Break Approved Tax-NewsHavens set deadline for reporting investors’ tax details Financial Times (paywall)
The British Virgin Islands, Liechtenstein and Jersey are among 44 countries that have set a deadline of September 2017 for reporting investors’ tax details to their home governments, underpioneer plans aimed at leaving “no hiding place for tax evasion”Release of discussion drafts on Action 2 (Neutralise the effects of hybrid mismatch arrangements) of the BEPS Action Plan OECDUS signs FATCA intergovernmental agreements with Chile and Finland International Tax Review
Lists the total of 24 IGAs concluded so far.Stars start to align for bill to outlaw shell corporations ICIJRussia drafts its own version of FATCA FTSE Global MarketsFrom Russia, With Love For London The Wall Street Journal (paywall)
See also: How to Punish Putin The New York Times “Western nations could deliver a serious blow to the luxurious lifestyles enjoyed by the Kremlin’s cronies who shuttle between Russia and the West. This means freezing the oligarchs’ financial assets and seizing their property.”Bahamas: New Immigration Policy Can ‘Revolutionise’ Sector Tribune
A twist on the economic residency issue, and trying to maintain a foothold in the financial services industry. See also February’s Taxcast on the Bahamas and recent blog The Bahamas – Another Captured State?

Open government: Let Cayman’s sun shine in Compass Cayman
“…look no further than the ongoing legal dispute over Operation Tempura records to see what happens when government’s practical desires conflict with goals for transparency.”

Cayman Islands money men arrested in US Cayman News Service
Ill-gotten gains from a bank fraud in the US allegedly transferred to the Cayman Islands via the Turks and Caicos Islands.

Africa Progress Panel seeks fair business practices from extractive industries

Zimbabwe: State CEOs in Tax Evasion Scam allAfrica / Financial Gazette

Pakistan: Creating interface between Inland Revenue Laws & AML Act: necessary provisions to be introduced in Finance Bill Business Recorder

Kleptocrats hiding funds in US warned ‘we will find you’ ICIJ

Jersey: New promotional brochure reveals what financial sector is really built on Financial Secrecy Media Monitor
See also: UK minister: Crown Dependencies and Overseas Territories “at the forefront” of global tax transparency

Tax-haven fines’ worst toll? Swiss banks’ reputations The Globe and Mail

Frontal 21: Tax fraud made easy – Investigators at a loss TJN Germany Blog
An Austrian tax law professor, who is wanted by the German judicial authorities for aiding and abetting tax evasion, still holds lectures on tax law in Austria.

Kenny Highlights Opportunities In Ireland For US Firms Tax-News

China’s efforts to curb tax evasion net extra HK$59b South China Morning Post

Offshore taxes may slow audits for some US multinationals: IRS Reuters

U.S.: 90 Reasons We Need State Corporate Tax Reform Citizens for Tax Justice

Guyana’s failure to obey FATF alarms Caribbean financial centres STEP

US Virgin Islands Lures Businesses With Tax Breaks International Business Times
“These generous tax breaks don’t render the Virgin Islands a corporate or offshore tax haven, like such well-known rivals as Bermuda or the Cayman Islands … That’s because the Virgin Islands’ tax benefits are legally sanctioned by the U.S. government, unlike regimes at overseas havens under pressure from a global regulatory crackdown.”

86 multinationals on ATO ‘high risk’ tax hitlist The Sydney Morning Herald

Mining tax: it’s time for all Australians to realise they are being ripped off The Guardian

Africa urged to build fair taxation systems to curb wealth inequality Coastweek / Xinhua

Insight: Swedes tire of tax cuts as welfare state shows strains Reuters

India: Supreme Court dismisses Nokia’s appeal in asset transfer case The Economic Times

Tech firms would pay $89B in taxes if offshore gov’t debt came home ars technica

Hollande ex-minister ‘hid £2 million in Isle of Man’ The Telegraph
“New reports alleging Jerome Cahuzac held another foreign account further embarrasses the French premier and prompt investigation in Britain”

German Minister Seeks Tougher Rules for Tax Cheats abc news

Hoeness case part of ‘painful’ change for bankers swissinfo

Switzerland Passes Anti-Tax Evasion Bill Tax-News

Big banks need point person for money-laundering lapses: regulator Reuters

Greece sends tax inspectors to anger management seminars The Guardian

New York’s Unique Approach To Tax Enforcement Working Tax-News

More evil than genius? How iPad and Google Glass makers are secretly scamming America Salon
“We already knew Google and Facebook were resourceful. But their new scheme to rip off the U.S. Treasury is chilling”

Multinationals Pay Higher Tax Rates Abroad than in U.S. Accounting Today

The winners and losers of Portugal’s golden visa scheme BBC
Another tale of the race-to-the-bottom trend of residency shopping

‘Yanukovych Leaks’ documents abuse of office DeutscheWelle
Presidential residence owned by an Austrian company, which in turn was owned by a British firm, that was controlled by a trust in Liechtenstein. ‘ “If Yanukovych had run his country’s affairs like he did his private life in Mezhyhirya, we would be a rich country.” Ukrainian journalist Anna Babinez said jokingly.’ See also:

Would the US even know if Vladimir Putin was keeping cash in the country? Quartz

Euro Parliament pressuring illicit money flows; ball in US’s court The Voice of Russia

BEPS Work Beneficial For Business, Says NZ Minister Tax-News

Berkshire May Avoid $400 Million Tax Bill In Graham Holdings Swap The Street

Why corporate America has never had it this good in the modern era of taxes Quartz

Britain’s five richest families worth more than poorest 20% The Guardian
Oxfam report reveals scale of inequality in UK as charity appeals to chancellor over tax

UK: HMRC crackdown on big business wins £2bn Financial Times (paywall)
“The sharp decline is also a sign of increasing pressure on companies to relinquish aggressive tax planning.”

Launch an inquiry into the relationship between parliament and City of London

Automatic information exchange with the Crown Dependencies is all very good but what if HMRC is too short staffed to use the data? Tax Research UK

Ghana’s weak tax system breaking economy – Report GhanaWeb
See also: Ghana Integrity Initiative demands review of Ghana’s tax regime GhanaWeb

Zimbabwe: Govt Fumes Over Diamond Revenue allAfrica / The Herald

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