The Offshore Wrapper: a week in tax justice #37

The Offshore Wrapper is written by George Turner, c/o Wrapper Towers

China hits out against tax avoidance from multinationals

The G20 Brisbane summit is just one month away. Two stories this week remind us that some of the fiercest critics of the offshore system are developing countries such as China and India.

Both have a lot to lose from offshore tax havenry. Profit shifting, tax avoidance and evasion, and corruption combine to create highly damaging distortions to economic development.

The biggest benefactors to this trade of course are the ‘pin stripe mafia of lawyers, accountants, financial advisors, bankers and others who service the trade in illicit finance. Most of these are based in developed countries, Switzerland, the US, the UK, France and so on.

This week a Chinese state–backed daily newspaper, The People’s Daily, has accused multinational firms of tax evasion in China. The newspaper quoted a senior Chinese tax official who claimed that multinationals operating in China were not contributing to local tax revenues, while at the same time were responsible for socially damaging actions that needed to be dealt with by the state. This included, poor treatment of workers and environmental damage.

Could this be start of a campaign ahead of next month’s G20, where world leaders are due to discuss how to implement measures aimed at stopping international tax avoidance?

India names suspected tax evaders

The Indian government may soon be able to publish the names of Indians with undeclared Swiss bank accounts.

The development is part of the fallout from a leaked list of HSBC account holders. The so-called Lagarde List came from a former employee of HSBC, Hervé Falciani, a whistleblower, who leaked the identity of thousands of clients of HSBC Geneva’s private bank to the French authorities.

The French authorities passed on the names of 800 people to the Indian government who launched an investigation. Until now, the government of India has been nervous about publishing the list.

But on Monday the government filed an affidavit with the Supreme Court of India which named the Indian citizens on the list. Early reports indicate that the list includes some of the captains of Indian industry, as well as former members of Congress.

The move is part of a long-running campaign by the Indian government to bring back “black money” from offshore. Estimates of the amount of money Indians have stashed offshore range from between $350 and $500bn.

The UK government also received the Lagarde list, but took a different approach. They decided not to prosecute or investigate.  We are left to speculate why not.

Ship of fools?

This week we bring you two separate stories of Italians, yachts and tax evasion.

The first concerns Italian football legend and former World Cup winning captain, Fabio Cannavarro. The 41-year-old one time World Player of the Year is being investigated for possible tax evasion over three yachts.

Prosecutors allege that three luxury yachts Canavarro and his wife owned as part of their “Yacht rental business” were actually for their exclusive use and should have been declared as a taxable asset. Canavarro has had €900,000 worth of assets seized pending investigation.

Meanwhile, Massimo Cellino, the controversial Italian owner of Leeds United has also got into stormy waters over his yacht. As reported in previous editions of the Wrapper, Massimo was originally barred from owning a club in the Football League after an Italian court found him guilty of tax evasion over the import of his yacht to Italy.

Massimo managed to successfully appeal the decision of the Football League, on the basis that the judge had still not published her full judgment, and that it had not been stated that the tax evasion was a deliberate act of dishonesty.

The judge has now published her report which states that there was “elusive intent” and “Machiavellian simulation” by Cellino. The League says it has not yet received the report. Whether Cellino will be able to keep hold of Leeds is anyone’s guess.

Time to “unfriend” Facebook?

City AM reports this week that in the UK, tech giant Facebook managed to pay less tax than an average Londoner. Facebook’s total tax bill of £3,169 was also lower than an annual travelcard.

The newspaper reports that this is due to the company’s use of the “Double Irish” tax avoidance technique, which allows it to book its sales in the UK to a company based in Ireland but tax resident somewhere else. Although recently “closed” by the Irish government, existing users of the scheme, like Facebook, will be able to continue taking advantage of it for another six years.

Facebook’s tax structure means that although the company’s London operations are estimated to have brought in £371m in revenues this year, it reported revenues of just £48.9m.  Not our idea of how friends should behave.

OECD gives green light to Ireland’s latest tax avoidance scheme

As reported in last week’s Wrapper, Ireland is now “closing” the double Irish, and intends to replace it with a Knowledge Development Box.

To be fair to Ireland, the UK, Belgium, the Netherlands, Luxembourg, Cyprus, Spain, France, Hungary, Malta, and Portugal all operate similar schemes.

Widely known as patent boxes, they allow countries to charge a lower rate of corporation tax on profits generated by intellectual property (i.e. the majority of profits from companies such as Google).

Patent boxes are currently being reviewed by the European Union and the OECD after concerns from EU Finance Ministers that they amount to the creation of tax havens within countries for high tech companies.

The head of the OECD, Pascal Saint-Amans, in Ireland last week for a conference on tax, was asked about the country’s Knowledge Development Box proposal.

He told the Irish Independent that the tax break was not a case of giving with one hand and taking with the other, and that it could be acceptable under international norms.

Mr Saint-Amans said that countries wanting to encourage innovation is something that is “accepted and promoted”.  He did not mention that most countries already encourage innovation through tax incentives provided to research and development costs.  So innovation is being subsidised twice over.

So, don’t expect earthquakes when the results of the OECD patent box review are published.