George Turner ■ The Offshore Wrapper – Sunday 1 October


Welcome to the Offshore Wrapper, a weekly roundup of news from the world of tax and tax havens. If you want to receive the wrapper in your inbox every week, you can subscribe here.

Taxing times lie ahead for President Trump

For years, US politicians have debated what to do with the multi-trillion dollar cash pile stashed by US corporates in tax havens, in what collectively must qualify as the world’s largest ever tax avoidance scheme.

The problem has emerged because although in theory US corporations pay US taxes on their global operations, taxes on foreign profits are only raised when the money is ‘repatriated’. To avoid taxes being levied on foreign profits, US corporations have parked trillions of dollars in the Caribbean. Ideas for what to do to tackle this stinking cash pile have included a tax amnesty, where companies are allowed bring their profits home at a lower rate of tax for a temporary period, followed by some attempts to close this loophole.

This week, President Trump gave his answer when he published his proposals for tax reform to “make America great again”. Instead of a temporary amnesty, he wants to cancel the tax liability on foreign profits altogether. Trump wants to move the US to a territorial tax system, that would permanently exclude US offshore profits from US taxation. And what would happen to money currently stashed offshore? Any past liability would be cancelled too. There would be no penalty for years of flagrant tax abuse carried out by the likes of Google and Apple, who will be able to keep all of their money.

And that isn’t the only corporate giveaway in Trump’s tax plan. The other headline from the Trump tax reform is the proposal to slash corporation tax in the US to 20%, taking the US tax rate from one of the highest among developed countries, to one of the lowest. (Of course, the statutory rate is often far from the reality of the effective – aka real – rate big companies actually pay).

All of this represents a giant giveaway to corporations and their investors. In effect, this is the US Government giving up trillions in taxing rights at a time when the country’s infrastructure is crumbling. Where will the money come from to fill the black hole that this will inevitably blow in the US government budget? Who knows. It won’t come from increases in personal income tax, where the rates are also being cut (but by a smaller amount than taxes on corporations).

The President has now set out his stall, but that’s not the end of the story. The plan will have to be turned into legislation and pass though Congress. As Trump found with his failed healthcare reform plan, that isn’t easy. Particularly when for years your party has insisted on reducing the budget deficit, and the tax plan contains no detail on how these drastic tax cuts will be funded. The last time the US managed to enact comprehensive tax reform was in 1986…

Tax havens learn to love cryptocurrencies

Not long ago, cryptocurrencies were a curiosity, little known outside the world of computer programmers and privacy enthusiasts. That was until Bitcoin started appreciating massively in value and attracted the interest of currency speculators and investors.

Now, some companies have started to use cryptocurrencies to fund raise for their businesses, though “Initial Coin Offerings” (ICOs). ICOs, unlike IPOs, where shares are sold on the stock market, are largely unregulated and often involve highly speculative business propositions. The amount of detail that ICOs need to publish about their future plans and their current business are a fraction of that which a company engaging in an IPO is required to publish.

As a result, despite some high profile ICOs, like the new web browser Brave, there have been serious concerns about the use of ICOs by fraudsters. As a result several jurisdictions have cracked down on ICOs or banned them entirely. A perfect opportunity for tax havens to implement their free and easy, low regulation model for the block chain.

An article in Crypto Insider this week details how the Isle of Man and Gibraltar are trying to encourage the growth of cryptocurrency businesses in their jurisdictions. As the magazine puts it (without any irony) “Whether your startup is looking for a nice beach and a connection to the UN or nearly non-existent taxes, a high level of privacy, and a pint you can purchase with bitcoin, there’s a pro-crypto tax haven for you.”

Tax Haven Ireland – EU tax reform bigger than Brexit

The head of Ireland’s Fiscal Advisory Council, Seamus Coffey, has told the Irish Parliament that EU attempts to crack down on tax avoidance pose a bigger threat to the tax haven than Brexit. That’s a bold claim, given that a vast amount of Irish trade occurs with the UK, with which it shares a land border.

Ireland’s concerns come as the EU Commission President, Jean Claude Juncker has proposed that EU policies to counter tax avoidance by large corporations should not be subject to a veto – a proposal clearly aimed at countries like Ireland, and indeed Juncker’s own country Luxembourg, which have long been firmly wedded to beggar-thy-neighbour tax haven policies.

The intervention from the Commission President comes as the bloc considers reforms that will stop digital companies from shifting profits away from consumer markets and into tax havens, trade in which Ireland has played a big part over many years.

Mr Coffey told Parliament if EU rules to harmonise the collection of corporation tax were implemented, it could cost Ireland 4bn Euros in corporation tax receipts, as the formula would benefit larger markets like France and Germany. Mr Coffey’s answer should provoke some concern from tax justice campaigners as it seems to be setting up the idea of EU reforms as a fight over taxing rights between EU states, with larger countries bullying smaller ones for a larger piece of the pie.

Yet reforms are targeted at realigning profits to where real economic activity takes place. That activity is often in the larger economies, particularly so in retail businesses where larger populations mean more customers.

Mining tax dollars in Peru

An Oxfam partner organisation in Peru, Grupo Propuesta Ciudadana has released a report demonstrating how just one large mine has allegedly dodged over $500,000,000 in taxes between 2006 and 2013. The research comes as the Peruvian government is trying to recover $250m in unpaid mining taxes from the same mine. The report and the court case reveal the staggering financial incentives that have been offered to some investment projects in the past, which have allowed companies to dodge huge tax payments. That’s revenue that could have been used to pay for vital public infrastructure and economic development.

Photo credit: Mark Fischer on Flickr shared under the Creative Commons License

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