John Christensen ■ The Offshore Wrapper: a week in tax justice

The Offshore Wrapper is written by George Turner

Ireland is not a tax haven

Michael O’Leary is the opinionated, controversial chief executive of Dublin-based low cost airline, Ryanair.

In typical forthright style, O’Leary believes Ireland “has been unfairly singled out” as a tax haven for corporations.

“Most companies,” he tells CNBC, “are paying high single-digit (effective) rates of tax.”

“We’re not some tax free country,” O’Leary continued. “We’re not the Cayman Islands. We’re not some kind of off-shore, zero tax place.”

As top U.S. tax expert Marty Sullivan put it recently: if Ireland is not a tax haven, then what is it? A bagel?

Zambia to bin the Dutch sandwich?

Zambia is going to renegotiate its tax treaty with the Netherlands and Ireland it is being reported. A new treaty will include anti – abuse provisions. The current treaties were signed in the 1970s before many of the tax avoidance techniques used today were developed.

The move from the Zambian government is a huge win for the Tax Justice Network-Africa and their partners who have been campaigning for developing countries to look again at their tax treaties with developed countries.

Across the world, the Mongolian government has moved in a similar direction against the abuse of its tax treaty with the Netherlands.  Other developing countries will hopefully be wanting to join this bandwagon.

Nothing to see here

As we were sending out last week’s Wrapper, news was breaking of the settlement the US government had made with Credit Suisse.

To recap, the bank admitted:

For decades prior to and through in or about 2009, . . . Credit Suisse did unlawfully, voluntary, intentionally, and knowingly conspire, combine, confederate, and agree together with others . . . to willfully aid, assist in, procure, counsel, and advise the preparation and presentation of false income tax returns and other documents to the Internal Revenue Service.

Under US law the crime described above is a felony, punishable with a three year jail sentence and a fine of $500,000.

Given that the Credit Suisse involved up to 22,000 secret accounts we might have expected that the bank and its employees would be in for some severe treatment.

Further to this, any bank which is convicted of a criminal offence of this nature must hand back its banking licence.

However, Credit Suisse’s settlement with the US authorities has…wait for it… more holes than you would expect to find in the average lump of Swiss cheese.

No one will go to jail. The bank will not have to disclose any of the names of the people it assisted in evading taxes. Credit Suisse will keep its banking licence because the Securities and Exchange commission approved an exemption to the rules which would compel it to give it up.

The bank will have to pay a fine of $2.6bn but that fine it seems may be paid by the Swiss people. This is because the fine could be tax deductible.  Meanwhile Credit Suisse victims in other countries will  be no better off as a result of weak American action.

The CEO of the company is neither facing the sacked nor has volunteered to resign.

And what about the shareholders? After securing such a great deal with the US DoJ the share price has risen by 1.5%. So they’re happy.

Carry on then: back to work.

Mergers and Acquisitions

One of the big reasons given by corporates for holding cash offshore is the need to make foreign acquisitions with the cash earned abroad.

It’s a tad unfair, isn’t it? You make a huge pile in another country. You want to take over the world. But the task is made all the more difficult by the tax authorities in your home authority wanting to get their grubby hands on your money.

It is of course much easier to park your cash in the Caribbean until a suitable opportunity comes up abroad.

That is the rationale used by much of the corporate world to justify their large offshore cash piles. But rarely is life so simple.

First we saw Pfizer’s attempt to take over Astra Zeneca so that they could use their cash not only to buy new companies but to invert the whole corporate structure and headquarter their operations in low tax Britain.

Google are now in the spotlight again also. Bloomberg has looked into the acquisitions of the tech giant and discovered that it has bought relatively very few real foreign tech companies given the size of its offshore cash funds.

Instead the company simply buys the technology rights of US companies which are held offshore, using a technique called the Double Irish with Dutch Sandwich – a hearty breakfast indeed.

Using the Double Irish Dutch sandwich, Google can buy US companies without having to bring their cash back to the US, and avoid paying corporation tax.

The target company also avoids capital gains tax since the value of the company sits in the technology rights held offshore.

No reform needed there, then. Obviously.

Business is booming (in the Cayman islands)

Companies using these kinds of techniques to avoid taxes has led to a boom in offshore business. Cayman Islands News reports that in the first quarter of 2014 the island saw M&A transactions to the tune of $20bn. Not bad for a country with a GDP of $2.2bn.

An offshore lawyer quoted in the Cayman press said:

“The most significant conclusion to be drawn from the quarter’s figures is that we’ve turned a corner away from a difficult five years following the global financial crisis”.

If the financial crisis is over, with so many transactions happening offshore, the question remains what happens to the fiscal crisis?

Dutch Sandwich comes home filled with Swiss Cheese.

Although the Dutch have done a great job in recent years attracting corporate cash from throughout the world with their lenient tax system, they seem to have done less well in keeping privately owned wealth at home.

The Dutch government is seeing large amounts of cash being repatriated now after the government announced a voluntary disclosure programme. On average 60 people a day are reporting savings of half a million euros each.

Part of the reason given for the success of the programme is the moves to lift banking secrecy in Luxembourg and Switzerland.

Related articles

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.