Hosted and produced by Naomi Fowler of the Tax Justice Network
You know, we can afford to do all of the things that we need to do to make the world safer, more sustainable, more equal – the money is there. And the question is who is in charge of that money, or what rules have we placed on that money? And currently the rule that we’ve placed is shareholder value and profit maximisation, and money will only ever be used in that way, unless we manage to find ways to repurpose it.”
~ Michelle Meagher, competition lawyer and author
I’ve spent my whole career looking at dirty money flows and the offshore financial world. And I’ve been hearing these pathetic excuses about yeah, that’s in the past, but everything’s changed. I’ve been hearing that for 40 years. Yes, change has happened, but they’re so superficial and compliance is so weak and the regulatory regulations have been undermined to such an extent that the whole thing is nothing more than a fig leaf, an exercise in window dressing. And as far as most banks are concerned, and I’ve heard this from compliance officers working with the biggest banks in London, they just say the whole thing is a charade.“
~ John Christensen of the Tax Justice Network on the #FinCen files
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Google, Facebook, Amazon e muitas outras empresas da economia digital são muito lucrativas e, ao mesmo tempo, pagam menos impostos que uma loja perto da sua casa, proporcionalmente. É que governos de todo o mundo têm dificuldades para tributar a propaganda nas redes sociais ou serviços de streaming de áudio ou vídeo, por exemplo. Focado na produção e comercialização de bens, mercadorias e serviços “físicos”, os sistemas tributários internacional e nacionais precisam urgentemente se modernizar e chegar a um formato mais justo e que inclua as corporações da economia digital. Esse é o tema do É da sua conta #17.
Embarque com a gente num tour pelo sul global para saber como e em quais países da África e da América Latina as empresas da economia digital já pagam impostos. Nossa última parada é o Brasil. Ouça também como está o debate sobre tributação digital em espaços de governança internacional, como a Organização para a Cooperação e Desenvolvimento Econômico (OCDE) e as Nações Unidas (ONU). Especialistas e entidades apresentam as propostas que já existem para que a economia digital seja tributada de maneira justa.
Viajam conosco neste episódio representantes da Oxfam, do Centro Africano de Tributação e Governança (ACTG), do Centro Interamericano de Administrações Tributárias (CIAT), da Escola de Direito da Fundação Getúlio Vargas (FGVLaw)), Instituto de Justiça Fiscal (IJF) e Aliança Global por Justiça Fiscal (GA4TJ). Embarque com a gente nessa viagem e ouça o podcast!
Welcome to the 33rd and 34th edition of our Arabic podcast/radio show Taxes Simply الجباية ببساطة contributing to tax justice public debate around the world. Taxes Simply الجباية ببساطة is produced and presented by Walid Ben Rhouma. The programme is available for listeners to download and it’s also available for free to any radio stations who’d like to broadcast it or websites who’d like to share it. You can also join the programme on Facebook and on Twitter.
In this 33rd episode (34th episode details below) we explore the wealth of the Governor of the Central Bank of Lebanon, Riad Salameh. We also look at the tragedy of the Beirut port explosion and the investigation by OCCRP and partners:
In the first segment we deal with the most important tax and economy news from the Arab region and the world, including:
How will Algeria compensate for falling energy revenues?
How long will the global economy continue to shrink according to World Bank projections?
How much does the International Monetary Fund estimate is the size of the cost of corruption and poor governance in terms of infrastructure expenditures?
In the second part we ask what led to the tragic Beirut port explosion in Lebanon? We speak with with Rana Al-Sabbagh, Senior Editor for the Middle East and North Africa at OCCRP, and Riad Kobeissi, an investigative journalist.
الجباية ببساطة #٣٣ – ثروة محافظ البنك المركزي اللبناني رياض سلامة
أهلا بكم في العدد الثالث والثلاثين من الجباية ببساطة. في الجزء الأول نتناول أهم أخبار الضرائب والإقتصاد من المنطقة العربية والعالم، ويتضمن الملخص :
كيف ستعوض الجزائر هبوط ايرادات الطاقة؟
كم مدة سيتواصل إنكماش الإقتصاد العالمي حسب توقعات البنك الدولي؟ وكم يقدر صندوق النقد الدولي حجم الفساد وسوء الحوكمة في نفقات البنية التحتية في العالم ؟
في الجزء الثاني نعود لنفتح الملف اللبناني من خلال حوار مع رانا الصباغ، كبير محرري الشرق الاوسط وشمال أفريقيا في منظمة OCCRP و رياض قبيسي، صحفي إستقصائي، نناقش مهعهما نتائج البحث حول ثروة محافظ البنك المركزي اللبناني ومدى ارتباطه بخروج أموال من لبنان عبر شركات لمقربين منه وهل من ترابط بين هذه الملفات وما أفضت عنه الأبحاث في تفجير مرفأ بيروت.
In the thirty-fourth issue of Taxes Simply الجباية ببساطة we highlight the flaws and suspicions around Covid-19 deals in Tunisia with investigative journalist Khawla Boukrim of e Daraj website.
In the second part of the programme, we stay in Tunisia, where the Assembly of the Representatives of the People is discussing a draft law aimed at combating tax evasion. We discuss this with the President of the Tunisian Financial Circle, Abdelkader Bouderiqa.
الجباية ببساطة #٣٤ – شبهات في صفقات كوفيد١٩ وقانون لإدماج القطاع الموازي في تونس
أهلا بكم في العدد الرابع والثلاثين من الجباية ببساطة. في هذا العدد نسلط الضوء على إخلالات وشبهات طالت صفقات كوفيد ١٩ في تونس من خلال حوار مع الصحفية الإستقصائية خولة بوكريم صاحبة التحقيق المنشور بموقع درج. في الجزء الثاني من البرنامج نبقى في تونس حيث يناقش مجلس نواب الشعب مشروع قانون يهدف لإدماج القطاع الموازي ومقاومة التهرب الضريبي. نحاور في هذا رئيس حلقة الماليين التونسيين، عبد القادر بودريقة لمزيد الوضوح حول القانون.
Some of these people in those crisp white shirts in their sharp suits are feeding off the tragedy of people dying all over the world
~ Martin Woods, a former suspicious transactions investigator for Wachovia, quoted by BuzzFeed.
Alex Cobham, chief executive at Tax Justice Network, said:
“The FinCENFiles leak exposes two major flaws in the global regime to combat illicit financial flows – the process by which financial secrecy jurisdictions are able to facilitate and promote corruption and tax abuse in other countries. We commend the ICIJ and their global media partners in bringing these critical issues to public attention.
“First, the leaks show that the biggest financial market in the world has comprehensively failed to play its role in regulating cross-border flows of suspicious money. The size of the US financial sector and the dominance of the dollar in world trade means that US regulators hear of suspicions relating to illicit financial flows all over the world – but typically lack the capacity or the motivation to explore further, or even to notify other authorities of the threats they face. The USA ranks as the second most dangerous secrecy jurisdiction on our 2020 Financial Secrecy Index, largely for this reason – while demanding with menaces that others improve their transparency and cooperation, the United States typically refuses to provideany such cooperation to others.
“This in turn points to the second major flaw exposed by the work of the ICIJ: that the global system to combat illicit financial flows operates not on the basis of effectiveness, but of power dynamics among countries that are deeply unhelpful to progress. Just as a handful of large economies have prevented the OECD from taking serious action against the tax abuses of multinational companies, which impact lower-income countries most intensely, so too the balance of power around correspondent banking has produced deeply unequal outcomes.
“This leak lays bare deep failures in the US approach to correspondent banking – failures that allow all sorts of clearly high risk financial institutions in the USA and other secrecy jurisdictions to continue providing services to anonymous legal entities, sometimes with clear evidence of criminality. But at the same time, the crackdown on correspondent banking in supposed ‘high risk’ countries (typically lower-income countries) has thrown up obstacles to all sorts of legitimate business – from small- and medium-sized businesses in a smaller country like Barbados struggling to access financial services crucial to participating in international trade, to entire countries such as Somalia facing an almost complete cutoff as banks ‘derisk’ to meet biased international standards.
“The Tax Justice Network hopes that the FinCENFiles can be the catalyst needed to address these gaping flaws in the regulation of corrupt finance and tax abuse – both the failure of US regulators to meet their international responsibilities as the world’s dominant financial market, and the failure of international institutions including the Financial Action Task Force to provide a fair and effective approach to correspondent banking standards.
“Lastly, as will be revealed over the coming days, many of the world’s major financial institutions have comprehensively failed to meet their own responsibilities, in the name of turning a profit – however dirty. Swift and robust action is needed, including potential criminal charges, or banks will simply continue to treat the prospects of being caught and fined as a simple cost of business.”
The UN75 Global Governance Forum brought together “thousands of leaders worldwide from governments, global civil society, and the technology, business, and philanthropic communities to foster new kinds of innovative partnerships with the United Nations system to better address global peace and security, sustainable development, human rights, and humanitarian action, and climate governance challenges.” I was honoured to present the first ‘partnership initiative’, led by Friedrich-Ebert-Stiftung (New York), on “Good Global Citizens: A Dialogue on Wealth and Responsible Tax Conduct for a Fair Post-Covid Global Economy”.
Our initiative aims to explore “a global campaign to tackle two critical drivers of inequality, hidden wealth and tax evasion and avoidance, as a necessary step to lay the groundwork for a more fair economic system that delivers for people at all income-levels of society.” The participating organisations reflect the broad interest of investors, businesses, the global labour movement, academia, civil society and other experts, and included: Bridging Ventures, Epworth Investment Management, Fair Tax Mark, UN DESA, Friedrich-Ebert-Stiftung, ICRICT, International Monetary Fund, Jawaharlal Nehru University – Centre for Economic Studies and Planning of Social Sciences, Oxfam, Pennon Group PLC, UN Principles for Responsible Investment, Public Services International, Tax Justice Network, Transparency and Accountability International, and UNCTAD.
Here’s the speaking note from my two and half minute slot (also available to view, with bonus virtual background – from about 32 minutes in):
The context for our partnership initiative is this: profit shifting by multinationals exceeds one trillion dollars each year, while the stock of assets held anonymously offshore is estimated at between ten and thirty trillion dollars. These are first-order problems in the global economy. Questions of the responsibilities of both businesses and the state have risen in the public consciousness in recent years, and norms regarding tax abuse and a lack of transparency are shifting, sharply so for younger generations. Advances in data technology allow transparency measures that could make a powerful difference.
In particular, our initiative explored two solutions that would boost public finances, tackle illicit financial flows, combat wealth inequality and enable a fairer playing field for business competition.
Global Corporate Standards for Responsible Tax Conduct
To tackle the corporate tax abuse that causes global revenue losses of $500bn each year, businesses should do the following:
Embrace public country by country reporting – companies should begin voluntarily to publish this data on their economic activity, profits declared and tax paid in each country, according to either the OECD standard or ideally the Global Reporting Initiative standard (both of which reflect the original proposal from the Tax Justice Network). Major multinationals including Vodafone and Shell have already committed to publish this data, and just last week the multinational Philips announced it would adopt the GRI standard also.
Publish a binding Policy undertaking not to use tax havens artificially, owned by a named board director.
Disclose their beneficial owners and persons of significant control
Pursue independent assurance from outside of the big accountancy firms.
Global Asset Registry
A global asset registry (GAR) would link the existing data provided by recent tax transparency measures, including on the beneficial ownership of companies, trusts and foundations, and provide missing wealth data, which would allow wealth inequality to be measured and understood, facilitate well-informed public and policymaker discussions and support appropriate taxation. A registry would also prove a vital tool against illicit financial flows, by ending impunity for hiding and using the proceeds of crime.
The Independent Commission for the Reform of International Corporate Taxation (ICRICT) launched a UK pilot study in 2019, and this could be replicated across different countries or at regional level based on feasibility or relevance: financial centres holding cross-border wealth, countries that are more capable of establishing some type of an asset register because they have the financial and technological capacity, or countries that are actively considering the introduction of a wealth tax, such as Argentina, Colombia, Peru or South Africa.
Next steps
The participants in our initiative, including investors, labour unions, civil society and other experts, have committed to continue meeting in exploration and pursuit of these aims, and to engage policymakers around the world on this agenda. We also look forward to the findings of the UN FACTI panel, whose interim report will be published next week, and which is likely to move forward important aspects of this agenda for global policymakers.
South African telecoms giant MTN appears to have avoided paying any capital gains tax in Uganda on the lucrative sale of its investment in mobile phone masts in the country.
MTN’s latest financial statements show a profit of 1.3 billion South African Rand – almost $80 million — from the sale of its interests in Uganda. Taxed at the standard 30 percent rate, this could have yielded $25 million for the hard-pressed country.
According to the newspaper, MTN had a 49 percent shareholding in a Dutch joint venture company which ultimately owns the towers, and it sold its stake in this Dutch company instead of selling the towers themselves.
Ghana could miss out on as much as GH¢400 million in capital gains tax following the sale earlier this year of MTN’s investment in a mobile phone tower business in the country. Ghana may not be able to tax the sale because it took place offshore. MTN sold its shares in a company in the tax haven of the Netherlands, which owns the towers.
MTN’s latest financial results, published last month, say that its profit of 4.8 billion South African rand (GH¢1.6 billion) from the sale is “non-taxable”.
Here, we’re talking bigger sums: nearly $300 million in profits, which equates to over $70m in lost taxes for Ghana. But it looks like just the same trick, with the deep complicity of the Dutch government. The Netherlands is currently ranked fourth most toxic in our global ranking of corporate tax havens, the Corporate Tax Haven Index.
And this trick, known as ‘offshore indirect transfer,’ is of course a much wider problem. The World Bank and International Monetary Fund have warned that this trick is “a concern in many developing countries, magnified by the revenue challenges that governments around the world face as a consequence of the COVID-19 crisis.”
Economically, there is no real difference between a direct sale and an indirect sale like this. But in tax terms, MTN seems to believe that it has got away with making profits in Uganda and Ghana, without paying its tax there. Instead, it wants to free-ride off the tax payments made by ordinary hardworking people in both countries. And they have been working hard:
But is MTN right that it has escaped tax? It has declined to respond to requests for explanation of its tax position by the Uganda Observer and Finance Uncovered (an investigative organisation that spun out from TJN’s journalist training programme), and the Observer article adds:
a source with knowledge of the issue said MTN Uganda requested a private ruling on the tax treatment of the transaction. “They are waiting for the URA to pronounce itself on the matter. They would not have asked for the ruling if they were confident that the transaction was not taxable,” the source said.
Similarly, Ghanaian Business News reports:
a senior source at the Ghana Revenue Authority (GRA) told Ghana Business News that despite what MTN says, the profit may in fact be taxable in Ghana. “We consider every sale as taxable,” the source said, adding that the GRA would study the transaction “to ensure that revenue is not lost to the state.”
We wish Ghana and Uganda luck and support in their struggles against this predatory situation.
And for the Netherlands, time to consider whether facilitating this abuse is what they wish to be known for.
Regulating complex ownership chains – A common goal for tackling beneficial ownership transparency and tax avoidance?
The Tax Justice Network, together with City University London, the Independent Commission for the Reform of International Corporate Taxation (ICRICT), Transparency International and the Financial Transparency Coalition are co-hosting a closed brainstorming round-table on 6 October, from 2 to 4 pm London time to discuss the risks of complex ownership chains and how to address them.
Participation is by invitation only, but if you think you have good ideas to answer the questions below, please write to [email protected] and we will consider your participation based on the number of attendees, and the relevance and diversity of expertise and opinions.
This roundtable invites experts to start thinking and finding answers to questions at two different levels: the ideal long term scenario and measures that could be taken faster.
A. The ideal scenario for the long-term:
Do complex corporate structures (many layers and many different types of legal vehicles) offer any benefit to society that cannot be ensured in any other way? Do these benefits outnumber the secrecy risks?
What is the bare minimum legal structure needed to engage in a specific business or endeavor and what does it depend on? For example, to ensure limited liability an individual would need to set up at least one company. Are there similar legitimate “benefits” or “results” that can only exist when two or more legal vehicles interact with each other? For example, an entity may be required to establish a subsidiary or branch in a foreign country to sell goods or services or to acquire assets in that country, but is there a legal requirement or business purpose that can only be met by establishing more than one subsidiary/branch in that country?
Would complex groups (especially those where the complexity is the result of organic growth of acquiring other firms) choose to simplify their structure if the simplification process was free, or even then would they prefer to stay “complex”? In other words, do complex groups stay complex because it’s too costly to simplify or do they obtain a benefit from being complex?
Does the complexity depend on “legitimate” factors, eg presence in different countries, goal to sell business units, number of employees or income? Should there be different regulations for listed or unlisted companies, active or passive entities (those engaging in business vs those merely holding assets) or by economic sector; or is there a one-size-fits-all approach?
Would regulating corporate complexity (especially vertical length) address only transparency risks, or also tax abuse risks? Does tax abuse depend more on horizontal expansion (having many subsidiaries engaging in different activities, at least on paper), but not necessarily on long vertical chains?
B: Partial measures to implement in the short-term:
What limits on the ownership chain would be easier and better to implement: limits on the length (number of layers) or quality (only allow entities that had to disclose their legal and beneficial owners)?
Should regulations: (i) prohibit complex structures (eg more than 3 layers), (ii) discourage complexity by adding more requirements for complex structures (eg higher regulation, more bureaucracy, additional verification steps, etc), or (iii) should regulations simply require a commercial justification (to be challenged if not convincing), by shifting the burden of proof on the company, as a way to obtain an understanding by authorities on the complexity of the legal vehicles operating in their countries?
How could authorities identify and analyse the ownership structures of the legal vehicles operating in their territories? Should complexity and the length of the ownership chain be considered in absolute terms (eg longest number of layers within a group), or in relation to firms of the same size or sector, or in relation to the total number of subsidiaries within the group?
For regulatory purposes, what other factors would be relevant to assess (and eventually regulate or limit), in addition to the number of vertical/horizontal layers: nationality of legal vehicles integrating the ownership chain, nationality of beneficial owners, shareholding structure (eg 50-50% vs 99-1%)?
How could ownership chains be assessed or limited given that corporate groups may hold interests in other groups as portfolio investment? Should this be limited, eg by requiring that any portfolio investment be held directly by the ultimate parent or by a special subsidiary called “portfolio investments in other non-related companies”? or should the regulation on length of the ownership chain affect only shareholders that own more than 10% (or any threshold)? In other words, the limit on the vertical chain would only apply to what would be considered the core ownership of a company or group, but not to minority investors. Or would this be too difficult to implement in practice or would this create loopholes that could be exploited? If imposing such a limit involved the divestment by corporate groups from their holdings in other groups, would that be beneficial because it would de-concentrate the economy? Or it would be damaging because it would lose financing opportunities?
Background
Individuals may set up a wide variety type of legal vehicles to operate in the economy: companies, partnerships, trusts, foundations, anstalts, cooperatives, etc. They may use them to provide goods or services, concentrate wealth, hold assets, protect vulnerable people, invest money, fund charitable causes, etc. They may also abuse those legal vehicles for illicit financial flows.
A legal vehicle in itself may present both secrecy and tax abuse risks. On the one hand, a company that doesn’t have to disclose its legal and beneficial owners, that uses nominee directors and shareholders, or that has issued bearer shares would create secrecy risks. On the other hand, a “hybrid” entity that exploits different tax rules, eg being considered tax transparent in country A but not in country B, or that manages not to be tax resident in any country at all, would create tax abuse risks.
Both risks may be exacerbated by its complex ownership chain: by either (i) adding many more layers between the entity and its beneficial owners, or at least up to the ultimate parent entity; (ii) employing exotic and secretive types of legal vehicles (eg discretionary trusts, anstalts, etc), or (iii) having many entities or subsidiaries engaging in different activities, at least on paper (treasury, finance, research and development, production, etc.)
In most – if not all – countries, individuals are free to set up any type of legal vehicle using as many layers as they please. For example, even the World Bank/UNODC StAR famous 2011 paper “The Puppet Masters” described the following structure proposed by a member of the Society of Trusts and Estate Practitioners (STEP) in Barbados as “an example of a complex structure that is nonetheless perfectly legitimate”:
This structure, as any one, is likely legal. But is it legitimate? Is it really the case that “investing assets for different family members guided by specific instructions” can only be achieved by using these complex structures that create obvious secrecy risks? (Consider that this was proposed in 2010, way before any country had a beneficial ownership register for trusts).
The more layers up to a beneficial owner, the harder it will be to confirm who that beneficial owner is. Even if the beneficial owner is known at a specific time “today John is the beneficial owner of company A because he owns company D, which owns company C, which owns company B, which owns company A”, it is almost impossible to verify that the information is still updated, unless there is real time information about all changes affecting any of companies in the ownership chain (in the example, on companies B, C and D). The risk of long ownership chains is very real. One research into procurement companies in the Czech Republic found that some of the awarded contracts were given to companies with 20 layers of entities up to the beneficial owner. Likewise, the Tax Justice Network analysis of UK companies’ ownership structures revealed that one company had up to 23 layers up to a natural person. When that company’s information registered at Companies House was checked, it was revealed that they had registered contradictory as well as wrong information (eg informing a company as a beneficial owner).
Complexity doesn’t involve only transparency. The liability and asset shielding available to the different types of legal vehicles and their foreign presence may affect enforcing the law or a judgement despite knowing who the beneficial owner is. So far in the highest-stake divorce case in the UK, the former wife of Russian oligarch Farkhad Akhmedov’s (one of Putin’s allies) has unsuccessfully tried to collect her awarded £453 millions after the husband’s assets were moved into newly created trusts and anstalts.
Likewise, many (or most) multinationals are suspected of engaging in tax abuse to exploit different tax rules and other arbitration situations to minimise their tax liability against, at least, the spirit of the law. For example, one the tax schemes involved in the LuxLeaks scandal showed three different layers of companies in one jurisdiction, eg company “LuxCo 1”, owning “LuxCo 2”, owning “LuxCo 3” which in turn owned “LuxCo 4”.
It is not clear whether that structure is used to exploit some tax treaty or other tax arbitrage or if it is completely unrelated to tax but aimed at other goals. However, given that some well-known tax schemes, eg the double Irish-Dutch sandwich involved many different legal vehicles within a multinational, it can be assumed that tax abuse strategies depend on having some complex structure involving more than one legal vehicle (although it is not clear if tax abuse depends on vertical or horizontal ownership structures or both).
In other words, while a high number of (vertical) layers would make it harder to verify the beneficial owner (for transparency purposes), it is not clear whether many vertical layers or other complexity strategies (eg having a high number of entities to perform different functions) would also be needed to exploit tax arbitrage situations.
Proposals to address complexity
One proposal that the Tax Justice Network has been exploring is to establish length and quality limits on the ownership chain. For example, not more than one or two layers of entities, unless the entity provides a justification. Alternative or complementary quality limits may involve allowing foreign entities to integrate the ownership chain of a local entity, as long as these foreign entities are registered in a country with beneficial ownership transparency and that they are prohibited from issuing bearer shares or using nominee shareholders and directors.
Imposing any type of limit on the ownership chain or complexity, vertical or horizontal expansion of a corporate structure would certainly face strong opposition. As already expressed, individuals (and corporate groups) enjoy absolute freedom on how to establish their legal structures. Countries may also fear that any regulation on the ownership chain may impose barriers that would discourage investment and economic growth. In response to that one can be reminded that no right is absolute, and the private sector has been subject to many regulations that potentially affect investment, their profits and economic growth: labour laws reducing working hours, giving holidays and health care to their workers, environmental regulations, anti-corruption regulation, etc.
Banks and other financial institutions also had to engage in very expensive procedures to prevent money laundering or to collect tax information for automatic exchange purposes which meant that they had to lose money and clients. Economic and financial goals shouldn’t be the only relevant factors to consider, and are clearly not the most relevant ones.
Determining what constitutes “complexity” may be a challenge in itself. For instance, the Puppet Masters report also suggested that
a complex corporate vehicle structure “passes the smell test” only when there are (a) legitimate business reasons to justify the form of the structure and (b) significant arguments against using less complex options that might have been available. (page 55)
It also describes more concrete rules implemented by compliance officers:
One compliance officer suggested an informal “three-layer complexity test” as a quick-and-dirty rule of thumb. Whenever more than three layers of legal entities or arrangements separate the end-user natural persons (substantive beneficial owners) from the immediate ownership or control of a bank account, this test should trigger a particularly steep burden of proof on the part of the potential client to show the legitimacy and necessity of such a complex organization before the bank will consider beginning a relationship. (page 56)
Or an even more demanding and objective test:
One Indian bank refuses to do business with a Liechtenstein Anstalt, regardless of the circumstances, because they do not understand “what it is, why someone would use it, or what business it has in India.” (page 100)
Similar to the last two criteria, the goal of this roundtable is not to discuss what is currently legal (as expressed above, a 23-layered ownership chain is legal), but what should be considered legal or acceptable.
Welcome to this month’s podcast and radio programme in Spanish with Marcelo Justo and Marta Nuñez, free to download and broadcast on radio networks across Latin America and Spain. ¡Bienvenidos y bienvenidas a nuestro podcast y programa radiofónico! (Ahora también estamos en iTunesy tenemos un nuevo sitio web.)
En este programa con Marcelo Justo and Marta Nuñez:
El impacto de la renegociación de la deuda argentina en las negociaciones del mundo en desarrollo
Mientras aumenta la deuda de América Latina
Cómo cambiar las reglas fiscales para salir de la crisis
Y la Pandemia en América Latina. El caso de Paraguay: coronavirus, corrupción y desigualdad.
On 26 August, together with the Inter-American Center of Tax Administrations (CIAT), we hosted a webinar in Spanish for Latin American authorities involved in beneficial ownership transparency. The Spanish webinar was based on the first and second set of presentations on beneficial ownership verification held in English by the multi-stakeholder group to promote beneficial ownership verification.
Participation in the webinar included the Financial Action Task Force of Latin America (GAFILAT), the Organization of American States (OAS), the Inter-American Development Bank, the Open Government Partnership (OGP) and the Extractive Industries Transparency Initiative (EITI). From civil society organisations, participation included many members of the Financial Transparency Coalition including Fundacion SES, Latindadd, Global Financial Integrity and the Pan African Lawyers Union (PALU).
The 262 officials who attended the virtual webinar joined in from Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru and Uruguay. Some officials from Spain also attended.
When looking at the type of authorities represented in the webinar, participation included 125 officials from tax administrations, 73 from financial intelligence units, 25 from bank and financial regulators, 13 from commercial registries and 26 from other authorities (eg strategic planning, secretary of the Presidency, etc).
Presentations included a summary of past events and webinars related to beneficial ownership (including the Buenos Aires event that has been promoting public beneficial ownership since 2015); loopholes in the legal framework that may prevent beneficial ownership verification; cases of verification and exchange of confidential information performed by authorities, particularly in Uruguay, Denmark and Slovakia as well as by European financial intelligence units; and verification strategies implemented by journalists, academia and private companies.
The webinar was also part of a strategic goal of bringing together authorities from tax administrations and the financial intelligence unit given how relevant beneficial ownership transparency is for both fields. Unfortunately, authorities from these two fields often work in silos and miss out on opportunities to cooperate and exchange information with each other, despite the obvious synergies between tax and anti-money laundering.
Cooperation among these authorities is also relevant for asset ownership information as addressed by the Global Asset Register and by automatic exchange of bank account information. The OECD’s automatic exchange framework (the Common Reporting Standard and the treaties and conventions that underpin it) prevent tax authorities from sharing bank account information for non-tax purposes (such as anti-money laundering and the fight against corruption). This (counter-productive) secrecy also affects the publication of statistics, as faced (and partially misunderstood) by Germany. However, there is a light at the end of the tunnel, and Latin America is leading the way with the Punta del Este Declaration which calls precisely on more cooperation between tax and anti-money laundering authorities, including in relation to exchange of information. (In relation to this, the Financial Secrecy Index “rewards” countries that signed the Punta del Este Declaration under indicator 18 on automatic exchange of information).
We hope this will be the start of more cooperation between tax and anti-money laundering authorities as well as an increase and improvement in beneficial ownership transparency in the region.
Last night, the United Nations published a document with a ground-breaking tax justice recommendation for the global meeting of ministers of finance which takes place this Tuesday 8 September. But just a few hours later, the document was replaced with another, claiming to be the ‘advance unformatted version’. This document was identical in most respects, except for a lack of formatting – and the elimination of the recommendation in question.
While the opposition remains strong – and we had been told to expect fierce pushback on this specific text – the episode confirms the direction of travel in international tax. Faith in the OECD’s ability to reflect the concerns of non-members has hit rock bottom, for sound reasons, and new UN instruments are increasingly likely to follow. This post explains the context, then details the U-turn, before drawing out some implications – for the ministers of finance meeting, for the UN FACTI panel, and for the OECD.
Tax justice gaining ground in the pandemic
The context for this U-turn is the steady advance of tax justice concerns globally, as the pandemic lays bare the critical importance of well-funded public services, and the brutal cost of unmitigated structural inequalities.
Throughout the last few months, two UN processes have been running somewhat in parallel. Predating the pandemic, the UN FACTI Panel (the High Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda, convened by Nigeria and Norway) has been running since January and is working on an assessment of the gaps in the global financial architecture. Later this month, its interim report will set out a range of proposals, to be discussed before the final report in January 2021.
As we explored earlier, the FACTI panel’s background papers identify some critical issues, and propose a number of tax justice policy responses. However, the panel is facing sustained pressure from various high-income countries not to recommend UN action, and instead to continue to rely on the OECD and related mechanisms – despite the systematic findings of more intense tax losses for lower-income countries.
The more recent, and immediate process is the Initiative on Financing for Development in the Era of COVID-19 and Beyond. The initiative, convened by Canada and Jamaica, has run over the last few months with six discussion groups (full disclosure: I’ve been honoured to be an invited expert for the process, including for the group addressing illicit financial flows).
In the FfD COVID initiative, as in the FACTI panel, the dynamic has been a clear one: non-OECD countries tending to highlight the structural flaws that result in their disproportionate losses, and being inclined towards UN solutions; while OECD countries favour retaining decision-making power at the OECD.
This is not a new division, of course. But what is new is the depth of engagement on the issues, and the commitment of non-OECD countries to insist on meaningful progress. At the same time, there may perhaps be less unity among OECD members, a number of which have been among the countries to suffer most heavily from the pandemic, and see the politics shift most strongly around funding public services and addressing inequalities.
The pivotal proposal in this context of shifting division has been that of a UN tax convention.
UN Tax Convention
The idea for a UN Tax Convention has been advanced by the tax justice movement, notably the Tax Justice Network and our sister organisation the Global Alliance for Tax Justice. Over the last few years in particular, the idea has gained ground as a mechanism to ensure progress on including all countries in the full benefits of our ‘ABC’ of tax transparency (Automatic exchange of financial account information; public registers of Beneficial ownership for companies, trusts and foundations; and public, Country-by-country reporting from multinational companies); and creating a globally inclusive and representative forum to discuss and eventually to set future international tax rules and norms.
As the Civil Society FfD Group (including Women’s Working Group on FfD) put it in their input to the process, priorities must include:
UN Tax Convention to comprehensively address tax havens, tax abuse by multinational corporations and other illicit financial flows through a truly universal, intergovernmental process at the UN. Unless the failures of the international tax system are urgently addressed, countries around the world will continue to lose billions of dollars due to illicit financial flows. This will increase the already unsustainable debt levels and undermine governments’ abilities to respond to the crisis;
…
It is time to back a truly universal, intergovernmental process at the UN to comprehensively address tax havens, tax abuse by multinational corporations and other illicit financial flows that obstruct redistribution and drain resources that are crucial to challenging inequalities, particularly gender inequality.
Taxing income, wealth and trade should be seen to support the internationally agreed human rights frameworks, as without taxation we cannot mobilise the maximum available revenues. Tax abuse and tax avoidance also needs to be considered under the extraterritorial obligations of states towards other states not to hamper the enjoyment of human rights via blocking financing through abusive tax laws, rules and allowing companies and wealthy individuals to abuse tax systems.
That U-turn in full…
Back to the issue at hand: last night, the key documents from the whole process were published. These were parts 1 and 2 of the ‘Menu of Options for the Consideration of Ministers of Finance’ – in other words, the officially approved summary of all the work from each of the six discussion groups, the country positions and expert inputs, signed off as recommendations for the world’s ministers of finance to consider when they meet in just four days’ time.
The central aim throughout the process had been to boil down the many suggestions received from countries, UN bodies and civil society – hundreds, overall – to a small enough number that ministers of finance could reasonably make an evaluation, and draw some conclusions for the national challenges each faces. In many cases, suggestions were excluded, or at best merely noted. But in some few cases, there were explicit recommendations.
And so there was much rejoicing among those of a tax justice view when last night’s report included, in the executive summary no less, the following emphatic position:
A UN tax convention is also recommended, inter alia to mobilize the maximum available revenues, address tax abuse and avoidance and ensure the necessary fiscal and policy space for an effective recovery.
UN, 2020, Financing for Development in the Era of COVID-19 and Beyond: Menu of Options for the Consideration of Ministers of Finance, Part I (p.7).
And that rejoicing was followed today by much gnashing of teeth as the document was replaced by another, apparently identical – except for bar the total removal of the quoted recommendation. Here’s the single result of a pdf comparison tool.
Thanks to Riley Zecca for running the comparison. Screenshot: DiffChecker.
Here’s the comparison of text – not often you see an organisation deliberately replace a nicely formatted version (here, on the right), with the basic unformatted one. And all to cover a U-turn…
Some implications
It’s tempting simply to be depressed by this episode, confirming as it does the view that behind closed doors, internal UN processes can be all too easily bent to the will of a few powerful OECD member states. Some would argue this is a reason not to seek a UN forum for international tax issues if the same countries will dominate as they do at the UN.
But there’s already a difference: here, we know which countries opposed this measure, because unlike most OECD negotiations, formal UN processes are public. And here, the results were published – even if only briefly. So even this bad example of UN performance confirms its relative appeal, if what we hope for is a broadly transparent process, with some degree of accountability. (The underlying problem of power imbalances between imperial, post-imperial powers and others cannot be solved by choice of forum – but the costs of those inequalities can be mitigated to a degree.)
For Tuesday’s ministers of finance meeting, this episode sends a clear signal – the opposition will not tolerate the beginning of negotiations over a UN tax convention. And yet such a blatant display of that blocking power may have the opposite result. The G77 group of countries had drafted a resolution last year to start negotiations, but ultimately withdrew it to save consensus on other points. This meeting now offers a straightforward opportunity to raise it again, in the knowledge that there has been broad backing within the process already. I’ll be sure to mention it, at least, in the unlikely event I’m called on to speak… And media interest may just have been piqued by the UN’s strange reversal.
For the UN FACTI panel, the position could not be clearer. All of the discussions and background research confirms the need for a UN tax convention, alongside other major reforms. The interim report due out later this month should identify the gap, and in doing so lay the ground for discussions with UN member states that could form the basis for a specific recommendation for the possible content of a UN tax convention, when the final report comes out early next year.
Lastly, we might ask where this leaves the OECD. On the one hand, the tide is clearly turning against having the “rich countries’ club” set the terms for international tax and transparency. The systematic exclusion of lower-income countries, and the failure to address tax havenry of OECD members and their dependent territories, have built to a significant loss of confidence. The pressure for effective action due to the pandemic merely accentuates the disappointment.
And yet the OECD is also being given a clear direction. Pressure is growing for countries to introduce wealth taxes – but too many countries have no access to the data, generated under the OECD Common Reporting Standard, on their tax residents’ financial accounts offshore. The OECD could lead a transparency initiative here, with – for once – disproportionate benefits for non-members.
Pressure is growing, too, for international corporate tax to reflect the location of companies’ real economic activity – sales and employment – rather than their contrived profit shifting. While the OECD has had to quash the G24 countries’ proposal in spite of the Inclusive Framework’s support, in order to accommodate a US-France deal, the OECD could still reclaim some face by moving quickly to set its standard for companies’ country by country reporting to be public data.
Given that the most intense losses from corporate tax abuse, like those from offshore evasion, fall on lower-income non-OECD members, this too would disproportionately benefit the latter.
The OECD could remain set on keeping its members happy, but in the longer term this can only succeed if the OECD retains the right to set rules for all – and that is now, rightly, in serious question. A failure to respond will see growing unilateral and UN action, so that even OECD members will come to focus their attention elsewhere.
On the last days before Ghana’s Parliament went on recess the government laid before it for approval some agreements . . . Parliament hastily went through those bills, ‘debated’ and approved them on Friday August 14, 2020.
The bill, which is not law yet, is a strange, murky, and exceptionally unpopular arrangement. Ghana’s Attorney-General described the deal as “unconscionable.” A group of civil society organisations has said it “lacks the basic minimum of transparency.” A think tank calls it “broad daylight robbery.”
Essentially, a mysterious company based in the UK tax haven of Jersey, Agyapa Royalties, has inserted itself into the middle of what looks like a highly unwise financing arrangement. In exchange for an up-front payment from ‘investors’, variously forecast between $500 million and $1 billion, Ghana will be signing away over three quarters of its future gold royalties to Agyapa — forever.
We have obtained a little information about Agyapa from Jersey, which, combined with some leaked documents from Ghana outlined below, paint a pretty shocking picture.
Mortgaging the future
This is far from the first time an African country has exchanged future mineral revenues for an up-front cash injection. Angola has since the 1980s set up a series of oil “prefinancing” arrangements where it has taken often large loans from consortia of western banks in exchange for future oil cargoes secured by its state oil company Sonangol. During the war, these loans were used to secure urgent weapons deliveries – with plenty of money going missing along the way. However, while those Angolan loans have for years rightly been criticised for their opacity, this Ghana deal seems to have added a further element: the insertion of this mysterious private party into the middle of the financing streams, under opaque terms. Even Angola rarely went that far (with one spectacularly murky exception involving Russian debts, for true connoisseurs of shady dealing.)
Shadow Banking and the Wall Street Consensus
The Ghanaian financing arrangements are consistent with, and are a twisted version of, what the shadow banking expert Daniela Gabor calls the “Wall Street Development Consensus” (a close relative of the Wall Street Climate Consensus that we’ve written about recently.) Under the overarching Wall Street Consensus (which is supported by the World Bank, development banks and others,) the solution to “development” issues in Africa and elsewhere (and the solution to funding the climate transition) is to maximise the amount of finance flowing in to countries and projects by tapping into the vast pools of liquidity in the hardly-regulated shadow banking sector. Getting “investment” money into poor countries may sound like a great idea: but what matters is the terms and conditions under which money will subsequently flow out via repayments, interest and other channels.
Agyapa would seem to be an example of this: an apparently large injection of up-front money to Ghana’s budget, in exchange for likely vastly larger sums flowing out at a later date.
Unfortunately, this broad consensus has a growing chorus of allies and cheerleaders: even in supposedly pro-African bodies such as the African Union and the UN Economic Commission for Africa (UNECA.) The latter has lobbied hard for African countries to create an “enabling environment” for private equity, public-private partnerships, and other ‘innovative’ shadow-banking practices which have appallingly predatory records in countries at all income levels. This is all the more strange, given that the same document strenuously highlights the risks of illicit financial flows.
This Wall Street Consensus involves pushing domestic financial market reforms to make countries more hospitable to securitisation and other shadow-banking practices; and for states and taxpayers to underwrite risks and costs, while maximising rewards for investors. As one analysis puts it:
such reforms would involve a wholesale reorganization of the financial sectors and the creation of new financial markets in developing countries in order to accommodate the investment practices of global institutional investors.
In other words, making “development” serve the interests of financial players, rather than the other way around.
Put crudely, a large part of shadow banking essentially involves creating ever cleverer tools for providers of capital to maximise rewards for themselves, while shifting risks, costs and losses onto the shoulders of others. This kind of financial ‘inward investment’ can be likened to a crowbar: a tool for providers of capital to jimmy open the national safe and make off with the proceeds. African countries are generally recipients of capital, not providers of capital: there is no discernible net ‘development’ benefit to this formula — while there are a large number of risks.
An Agyapa-related “Indemnity Letter” that has come to our attention contains pages and pages of such risk-shifting language — and its header contains this:
What fees would such players earn? At this stage, we cannot know.
More and more questions
The Agyapa deal raises clouds of more specific questions, of which this article can only cover a few.
Question 1: Is this good value for money? An internal Ghana government document from last month outlining the details of what it calls “Project Kingdom” justifies it like this:
There is no way for us to know if it is will be good value for money, or what the future royalty payment projections are, which would be needed as an initial basis for calculating appropriate financing costs, and we don’t know what the actual financing costs will be either. We have no idea. An opposition statement describes this as an agreement in perpetuity: an unverified but credible document we have seen essentially supports this: the agreement ends when the gold runs out.
Even that crazy Angola-Russia deal never went quite that far. What is more, the document says that under the agreement,
“Royalty rates in Ghana are 5% for some mines and 3 to 5% for others depending on the gold price.”
Ghana is a stable, long-term, low-risk gold producer: why are these rates so low?
What about tax? Well, look at this astonishing set of carve-outs, as outlined in an August 2020 Finance Committee report (to aid understanding, ARG Royalties Ghana is a wholly owned local subsidiary of Agyapa):
The sheer brazenness of all this is breathtaking.
In addition, it is worth noting that
London’s courts and tribunals, in the discreet pursuit of what some call “competitiveness,” have since the age of imperialism proved highly favourable to the interests of mobile global capital, especially when it is pitted against sovereign governments like Ghana’s. And one of London’s several advantages is, as a law firm put it:
arbitration in London is chosen by many parties because of the confidentiality advantages that are provided.
What is more, Agyapa’s location in Jersey could place important parts of Ghana’s future before the courts of Jersey, which has just as much, if not more, of a pro-capital, anti-sovereign bias than London’s, and on past records may be prone to “unusual rulings” in this respect – as we have noted before (see e.g. p5 here, under “Jeffrey Verdon”).
There are many other reasons why Agyapa appears likely to be an exceptionally bad deal for Ghana.
The stunning absence of transparency, over project terms, and project ownership: the information we have is based on leaks, not on official publication. Indeed, an opposition statement said that the government’s decision to withhold documents is “in clear violation of Article 181(5) of the Constitution.”
It is election year in Ghana — so incumbents are likely keen to maximise personal rewards up front before they may perhaps lose power.
A statement by Ghanaian Civil Society Organisations estimates that these future royalties are being sold off at 30% of their true value. This is admittedly speculative, in the absence of transparency, but still.
An opposition party statement slammed “the indecent haste with which these high-stakes agreements were being rushed through the parliamentary approval process” — they had four hours to scrutinise a deal which was two years in the making.
more generally, the astonishing potential for mischief in international financial arrangements, especially those run through tax havens, with lenders typically holding large information advantages over borrowers, and the ease with which conflicts of interest can be hidden.
And all that is even before we get into the next question.
Question 2: What is Agyapa and who owns it?
Good Question. The above document calls it a “Gold Royalty Company.” The Jersey Financial Services Commission provides this data:
We note, in passing, the role of Ogier, an “offshore magic circle” law firm, in the transaction. (We sent them a detailed list of questions with follow-up: nothing has come back so far.)
The underlying Annual Return (under a previous name, Asaase Royalties Limited) registered on February 28th 2020 provides helpful information on who the directors are:
It does, however, provide details of an “authorised signatory” as company secretary:
And this, apparently, is he . . .
The annual return says, slightly more helpfully, that it is a company made up of 5,000,000 shares of which just one share has been issued, worth £0.01, under this ownership structure:
The Minerals Income Investment Fund (MIIF,) according to the Project Kingdom document, was
“established from the passing of the MIIF Act December 2018 to hold and manage the equity interests of the Government of Ghana (“GoG”) in mining companies, to receive mineral royalties due to the GoG from mining operations, provide for the management and investment of the assets of the Fund, finance further developments in the mining sector and monitor and improve flows into the mining sector.”
So that is alright then. Or is it? Well, the same document says:
“Government of Ghana through MIIF will be the majority shareholder with at least 51% of the shareholding.”
(Other documents and media reports say “49 percent” instead of “at least 49 percent.”) So somebody else will retain the remaining 49 percent. But who?
There is plenty of speculation in the Ghanaian media about who will benefit from this, which we won’t indulge. But we will note that the annual return above states that under Jersey law any members who hold one percent or more of the vehicle should be disclosed. However, the documents also state that the 49 percent of shares not held by the Ghana government will ultimately be listed on the London and Ghana Stock Exchanges.
That way, it would be easy for shareholders of Agyapa to hide their identities. For example, imagine that one powerful Ghanaian somehow obtains all that 49 percent equity. He or she sets up 50 companies, each in an opaque tax haven, all of which she owns, and each shell company then owns a slightly less than one percent share of Agyapa – and therefore squeezes under that Jersey threshhold of one percent.
There are several other features of Jersey law that enable secrecy to be assured for Agyapa. We won’t get into details here, but this document provides an overview of some loopholes that Agyapa may be taking advantage of. Jersey certainly isn’t unique in this respect: this is how offshore business so often works.
We will also note, in passing, the presence of a couple of Ghanaian names in the documents registered at the Jersey FSC. For example, in the incorporation documents, we find this:
These people are unlikely to be the real players: a source familiar with Ghanaian politics, shown these names, told TJN:
These are fairly prominent party hacks, but it’s the people behind the people that is probably more interesting.
Illicit Financial Flows: the Jersey Connection
Jersey ranks 16th out of 133 jurisdictions on the 2020 Financial Secrecy Index (for comparison, Ghana ranks 117th). Jersey also ranks 7th on the most recent Corporate Tax Haven Index (Ghana is 60th). Between them, the two indexes capture the global risk of illicit financial flows posed by each place.
Think of a list of the risks that are posed by financial secrecy, for a country with major natural resource wealth. Now imagine that the government of that country, working with a major international law firm in a leading secrecy jurisdiction, has come up with a scheme that appears to tick every item on the list.
That’s where Ghana now finds itself – facing the threat of a deal that could strip the country of revenue and, through powerful contractual terms enforceable in London and Jersey, taking away from future governments the possibility to democratically reverse the decision.
The law firm Ogier advertises itself as ‘the only firm’ to advise on the law of five particular jurisdictions: BVI, Cayman Islands, Guernsey, Jersey and Luxembourg. Aside from Jersey, the jurisdictions rank 9th, 1st, 11th and 6th respectively on the Financial Secrecy Index; and 1st, 3rd, 6th and 15th respectively on the Corporate Tax Haven Index.
A country like Ghana with natural resource wealth faces a range of risks of illicit financial flows (IFF). Together, these can result in major losses of tax revenue, and also do significant damage to the standards of governance and effective political representation. Financial secrecy is at the heart of each IFF risk.
A lack of transparency about the value of a country’s natural resources, or of the resulting profits, creates the risk that fair values are not achieved; that fair revenues are not received; and that private interests may gain unfairly.
A lack of transparency about the ownership of assets and income streams related to a country’s natural resources create the additional risks that contracts may be entered into opaquely, in which public resources are transferred to private hands without appropriate scrutiny; and that political decisions over resources may be taken with parliamentary oversight.
In Ghana’s case, the existing sovereign wealth fund provides the mechanism, and the necessary transparency and parliamentary scrutiny, to minimise all such risks. This makes it especially strange to see the government invest so much time, effort and political capital in creating a new structure that appears to raise the risks of illicit flows in each dimension.
We have seen a number of other documents surfacing, related to this deal, but this is enough to highlight the problems. Nothing about this deal makes any sense to us, except under certain logics which we shall not allude to here.
Recommendations
First, the Government of Ghana should urgently cancel and repudiate this entire deal — and investigate all the parties involved for possible corruptionand self-dealing. Given the Attorney-General’s silence on this affair, after having initially raised serious concerns, we won’t hold our breath, until at least after the election. However, there is positive news here.
We hear that this deal is politically wobbly, and vulnerable. As a sign of that, yesterday, a senior Ghanaian official announced that the deal had been suspended pending further consultation – but within hours the Finance Minister overruled him, saying it had not been suspended. It is therefore essential that maximum domestic and international pressure is now exerted, to ensure the deal is cancelled and repudiated.
Second, there is good evidence that one should treat the “transnational network of plunder” as a unit of analysis, including from a legal and criminal perspective. Is Agyapa such a unit? We don’t know, because we don’t have all the details. International legal bodies where Agyapa touches down — and this includes London and Jersey – should open investigations into Agyapa, and if wrongdoing is found, prosecute accordingly.
Third, Jersey should open up further to scrutiny. It should:
urgently publish its beneficial ownership registry, and not just in 2023;
demand beneficial ownership definitions should include any individual who directly or indirectly owns or controls at least one share, regardless if listed or unlisted;
publish all legal owners online even if they own less than 1% of shares immediately, and not only once a year;
publish annual financial statements of all companies incorporated in Jersey.
Even before the Coronavirus pandemic hit, international tax abuse was pillaging government coffers all over the world of resources desperately needed to fund essential public services like health care. Now that the world is struggling to tackle both the direct health impacts of the crisis and the economic fallout that has come with it, confronting abusive international tax practices is more urgent than ever.
Every year, out sister organisation the Global Alliance for Tax Justice coordinates a worldwide campaign demanding stringent measures to confront this injustice. This year, the Global Days of Action for Tax Justice will run from 14-17 September and focus on the particularly pressing needs stemming from the Coronavirus crisis.
For all those who would like to support this important effort, the Global Alliance has made a campaign action toolkit available here. In it, you will find some ideas on actions that you can organise, contribute to, and take part in!
The Toolkit already shows the key elements for the campaign actions and activities during the Global Days of Action, but the Global Alliance will share more visuals and social media materials in the coming days.
In the meantime, here are some easy steps that you can already take to be part of the Global Days of Action:
Start popularizing the slogans in your events or in social media: – Tax private wealth to safeguard public health! – Uphold tax justice to overcome the crisis!
Add the #TaxJustice slogan filter to your Facebook profile photo. You can get the filter here.
Submit a video for the video project – Be a voice for people’s survival. Be a voice for tax justice. You will find the guidelines for the video recording and submission in the Toolkit.
If you have other ideas for campaign actions, let the Global Alliance know and they will add them to the Toolkit. More importantly, if you have planned activities during the Global Days of Action, do share them with the Global Alliance so that they can show their solidarity!
Interested in participating? Contact the Global Alliance for Tax Justice:
Joy Hernandez ([email protected]) for Asia and other general inquiries
International tax rules and international trade rules are unfair to lower-income countries: that is not only well known, but unsurprising. Rules are generally set by the most powerful parties at the table. What is more, the tax rules and the trade rules interact, with trade rules frequently inflicting damage on the tax systems of lower-income countries.
The rapid transition to a digital economy is sharpening these inequalities and problems, and throwing up some new ones. An important new report put together by the Third World Network (TWN) lays out the issues in detail.
Specifically, it says:
New rules are being developed in free trade agreements (FTAs) and proposed in the World Trade Organization (WTO) in the name of ‘electronic commerce’ or ‘digital trade’ that will constrain the governance, regulation and taxation of the digitalised economy.
For example, some parties in high-income countries are pushing in trade negotiations to ban permanently customs duties on electronic transmissions. This is, for many countries, a vital source of income, as the TWN report points out:
As the TWN report rightly points out:
Those who demand that developing countries accept a permanent ban on this tax policy option seek to lead them, handcuffed and blindfolded, into the fiscal unknown. All countries, but especially those from the Global South [lower-income countries], should refrain from participating.”
The TWN report examines the different areas of international trade and tax policies in detail. It contains a trove of examples, analysis and details, such as this:
This gives additional power to global multinationals, since trade rules may prevent governments from (for example) insisting that servers processing data about their citizens are located in their territory, so that countries could not ensure that at least one copy of the relevant information is held there. This further increases power imbalances between weak governments and powerful multinationals.
There is no space here to discuss the wide range of issues that this landmark report throws up. We will merely highlight what may be the most important point:
trade and tax officials tend to act in silos as they seek solutions to the novel challenges posed by a digitalised economy that is dominated by MNEs that have no local presence. . . . Most developing countries seem to be fighting a rear-guard action on both the tax and the trade fronts over proposals they desperately need to influence. It is time for policy-makers and regulators to leave their silos and pursue synchronous international tax and trade strategies that are both based on tax and trade justice.”
Welcome to the 32nd edition of our monthly Arabic podcast/radio show Taxes Simply الجباية ببساطة contributing to tax justice public debate around the world. Taxes Simply الجباية ببساطة is produced and presented by Walid Ben Rhouma and Osama Diab of the Egyptian Initiative for Personal Rights, also an investigative journalist. The programme is available for listeners to download and it’s also available for free to any radio stations who’d like to broadcast it or websites who’d like to share it. You can also join the programme on Facebook and on Twitter.
Taxes Simply #32 – Coronavirus and the increase in MENA billionaires’ fortunes
In the thirty-second edition of Taxes Simply Walid Ben Rhouma discusses with Osama Diab the recent data issued by Oxfam regarding the increase in billionaires’ fortunes in the Middle East and North Africa during the Corona pandemic crisis.
In the second part, we present a summary of the most important tax and economy news from the Arab region and the world including:
No tax exemption for Egyptian government institutions on profits from sovereign debt investment
The UK denies that it plans to drop taxes on digital giants
Uganda summons its ambassador to Denmark over a plot to steal coronavirus aid money.
الجباية ببساطة #٣٢ – كورونا وزيادة ثروات المليارديرات في الشرق الأوسط وشمال أفريقيا
أهلًا بكم في العدد الثاني والثلاثين من الجباية ببساطة. في هذا العدد يتحاور وليد بن رحومة مع أسامة دياب بخصوص البيانات الأخيرة الصادرة عن منظمة أوكسفام بخصوص زيادة ثروات المليارديرات في منطقة الشرق الأوسط وشمال أفريقيا خلال أزمة جائحة كورونا.
أما في الجزء الثاني، نتناول ملخص لأهم أخبار الضرائب والاقتصاد من المنطقة العربية والعالم، ويشمل ملخصنا للأخبار: ١) إلغاء إعفاء بعض المؤسسات الحكومية المصرية من ضريبة أرباح الاستثمار في الديون الحكومية؛ ٢) المملكة المتحدة تنفي أنها تخطط لإسقاط الضرائب على الشركات الرقمية العملاقة؛ ٣) أوغندا تستدعي سفيرتها في الدنمارك بسبب مؤامرة لسرقة أموال إعانات كورونا.
Pour cette 19ème édition de votre podcast « Impôts et Justice Sociale », nous revenons sur la taxation de l’économie numérique au sein de la Communauté Economique des Etats de l’Afrique de l’Ouest (CEDEAO), grâce à une thèse de doctorat rédigée par Aboubakar Nacanabo. Le document se présente comme une contribution aux projets législatifs en cours dans cette sous-région. Nous allons aussi au Cameroun, où une récente étude a démontré que le pays a un gap brut de 31,5 milliards $ en dix ans sous la forme des flux financiers illicites.
Ce programme est produit en Afrique francophone par le journaliste financier Idriss Linge basé au Cameroun.
Participent à ce podcast:
Aboubakar Nacanabo: Inspecteur des Impôts au Burkina Faso, Expert en Fiscalité Internationale
Jean Mballa : Directeur Exécutif du CRADEC, Cameroun
Vous pouvez suivre le Podcast sur:
Le télécharger pour l’écouter hors connexion sous le lien suivant
Et pour ceux qui ont l’application Stitcher et iTunes ect
Si vous souhaitez recevoir cette production ou être média partenaires ou simplement contribuer, vous pouvez nous écrire à l’adresse Impô[email protected]
Ainda que existam medidas justas para enfrentar a crise da pandemia, que intensificou as crises econômica, social e climática, alguns governos não as colocam em prática. O que está faltando? A adequada distribuição econômica e de poder, que, “traduzida” para princípios de justiça fiscal são duas palavras que começam com a letra R: redistribuição e representatividade são abordadas no É da sua conta #16.
Redistribuição e representatividade são essenciais para a democracia plena. Sizaltina Cutaia, da Open Society Angola apresenta o contexto democrático angolano e mostra como o país luso-africano tenta implementar medidas para dar mais transparência ao sistema tributário. A reportagem de Luciano Máximo mostra o momento de derrocada da democracia no Brasil e ilustra como isso prejudica a adoção de medidas progressistas tanto na área social quanto na fiscal.
Os princípios internacionais de direitos humanos devem orientar a forma como governos arrecadam tributos e alocam recursos orçamentários, explica Sergio Chaparro, do CESR, que traz o exemplo dos avanços na Argentina. E o nosso colunista, Nick Shaxson, aprofunda os conceitos de redistribuição e representatividade, dois dos 4 “Rs” da justiça fiscal (receita, redistribuição, reprecificação e representatividade).
Updated: an earlier version of this blog incorrectly referred to the legal opinion of the Advocate General as belonging to Luxembourg rather than to the European Court of Justice.
For years, we have advocated the automatic exchange of bank account information across borders. The previous “on request” system, where a country had to make specific requests about specific taxpayers already under investigation, was only slightly better than nothing, as our 2009 report explains. Sadly, even in 2020 amid a global boom in automatic exchanges of information (on all resident taxpayers,) major tax havens are still throwing up obstacles wherever they can.
Two recent cases in Luxembourg (known as C-245/19 and C-246/19) provide a recent example. Spain has asked Luxembourg to share information on contracts signed between some companies, as well as bank account records from one company. The Advocate General (AG) Kokott of the Court of Justice of the European Union (ECJ) has presented a legal opinion that third parties (the companies and the bank) should be able to seek judicial review to reject the exchange of their information. More surprisingly, perhaps, she has proposed worsening two secrecy mechanisms.
The first one is about widening the concept of “fishing expeditions”. While many tax authorities face staff and budget cuts, this extract below describes all the hoops that the requesting tax authority has to jump through before they dare to request information from Luxembourg or any other country. (Of course, the opinion is based on Swiss practices:)
Different factors should therefore be taken into account in order to distinguish the information likely to be relevant from the research which is carried out irregularly in all directions… The behavior that the taxpayer has adopted in the past also matters. To this end, the Swiss federal court rightly demands concrete evidence attesting to a breach of tax obligations. This would be the case here, for example, if the taxpayer had not previously declared accounts or relationships with third parties related to him or if he had given contradictory indications in the tax procedure. Finally, the elements which the applicant tax authorities have investigated so far are also important. For example, undeclared business networks with unclear reciprocal financial flows may create a particular need for information. The same applies when the investigations carried out so far have given contradictory results which can only be clarified with the assistance of Bank A.
In the present case, the Spanish tax authorities must therefore set out, for example, elements which lead them to believe that the taxpayer has other accounts at bank A, that there are other undeclared income and which allow it to assume transfers of assets between taxpayers and companies B, C and D.
Without these concrete elements, a request for information aiming to find in a bank all the accounts of the taxpayer and all the unspecified accounts of third parties linked in one way or another to the taxpayer, is not regular with regard to of Directive 2011/16 but is an all-out search (consisting of “going fishing”). (translated from original in French)
A prohibition on “fishing expeditions” were a staple tax haven response during the heyday of the previous (near-useless) “on request” system of information exchange, which we had hoped to see the back of.
More problematic, though, is a second secrecy argument, whose implications go far beyond exchange of information. It relates to how society treats legal persons (such as companies). Societies around the world currently give legal persons rights as if they were (natural) persons: a company, for instance, may sue or be sued, own assets in its own right, enter contracts or sell goods or services, even if many of them are permitted to hide the natural persons (called “beneficial owners”) who operate behind them.
Now, the Advocate General to the European Court of Justice based on other case law suggests that legal persons should also be entitled to the rights of privacy and family life. This conclusion with huge implications seems to have been reached, without any clear reasoning:
Article 7 of the Charter contains the fundamental right of everyone to respect for his private and family life. With regard to the processing of personal data, it extends to any information which concerns a specific or determinable natural person. The protection of privacy also encompasses professional or commercial activities, including the transactions which result therefrom. This includes information relating to bank data.
As such, legal persons can also invoke section 7 of the Charter. However, the justification for an encroachment on section 7 of the Charter may obey, for legal persons, to other criteria than those applicable to natural persons…
In the present case, information relating to bank accounts and assets has been requested, which also concerns companies B, C and D. These legal persons may therefore rely on Article 7 of the Charter. (Translated from original in French)
(Here’s an official English summary of the case suggesting the same conclusion.)
As regards concerned third parties (here, several companies), the Advocate General points out that under the case-law the fundamental right to the protection of personal data (Article 8 of the Charter) relates in principle to natural persons. Legal persons may, however, in any event rely on the fundamental right to respect for private and family life (Article 7 of the Charter) where, as here, information concerning bank accounts and assets is demanded.
The argument is of course fallacious. It is fine that natural persons are entitled to privacy in their private lives (just as your doctor shouldn’t publish details of your ailments on the internet.) But to then assert that a legal person should enjoy the same privacy protections as a natural person is just that: an assertion. It does not follow at all.
A personal bank account is covered by the protection of private and family life, but not because it’s a bank account: it is because it belongs to a natural person.
Here the Advocate General isn’t saying that a natural person taxpayer would be entitled to extend their protection of private and family life to their assets and bank accounts, but that a company is entitled to the protection of private and family life because it has assets and bank accounts (and thus is entitled to seek judicial review because the case affects the protection of private and family life).
The right is for natural persons and their belongings, not for things and then extended to whoever owns them.
Societies need to start claiming back limits to the infinite freedoms of legal vehicles that enable them to enjoy secrecy, limited liability or full immunity, private property and now also the protection of family life.
For some years now, countries have been sharing information about bank accounts held by each others’ residents, implementing “automatic exchange of bank account information” under the OECD’s Common Reporting Standard (CRS). (This is what we called for many years ago, and were scorned at the time for being naïve and utopian.)
As more countries join the system, however, lower-income developing countries are being excluded because without sophisticated information-collecting mechanisms they cannot easily reciprocate even though this is usually pointless (it’s unlikely that rich Swiss crooks will stash their loot in Nigeria, for instance). The other big problem is the United States, whose Foreign Account Tax Compliance Act (FATCA), which is similar to the CRS, is good at getting other countries to send banking information to the US, but shares very little information in return. (That is why the United States is one of the world’s biggest tax havens.)
Information is now being shared across borders, but journalists, civil society organisations and others cannot know much about automatic exchanges other than the fact that they are happening. Do we trust governments to use them wisely? No — and we especially mistrust many tax havens (in the EU, some countries didn’t even bother to open the CDs containing the information).
So we have been asking at least for statistics: we have even designed a template (see p37 of this report.) Global statistics would, among other things, show avoidance schemes and other red flags, say if rich Italians closed their accounts in Switzerland and moved them to Luxembourg, or if they are acquiring ‘golden visas’ to escape being reported altogether, or hiding behind lawyer-held accounts. This is the only way in which we can hold authorities to account for how they are using the information they are now receiving (and sending). In addition, we argue that countries should report about how they are using the received information, such as whether they were able to match it to the tax returns of local taxpayers, and whether sanctions were imposed.
However, these statistics, such as the ones recently published by Germany, don’t help developing countries that are excluded from the automatic system. That should change. But even if these countries are excluded from the direct exchanges of information, there is still plenty that can be done for developing countries. We argue that countries using the CRS must adopt the “wider-wider” or “widest” approach when collecting information from their local financial institutions (following the examples or Argentina, Australia, Estonia, and Ireland). Countries implementing the “widest” approach require local banks to collect and report to authorities information on all account holders, not only on those residents from countries participating in the automatic exchange scheme. This would cover residents from excluded lower-income countries.
Countries should then also publish statistics on what they have found. This would help lower-income developing countries, which would at least be able to know how much money in total their residents hold in each financial centre (but they still unfortunately wouldn’t be able to know who those accounts belong to because they are excluded from automatic exchanges).
In fact, Australia has already (thanks in no small measure to pressure from TJN-Australia) started publishing such statistics: they describe the accounts held at Australian financial institutions by residents from 248 jurisdictions (of which only 100 participate in automatic exchange of information.)
Now, back to Germany.
Based on our research and proposals, Fabio de Masi (Die Linke) with support from Tax Justice Network-Germany made a parliamentary enquiry to obtain statistical information on automatic exchanges relating to Germany. They have received a reply which they shared with us, which raise a number of questions to be investigated further and addressed.
Germany’s statistics on automatic exchange of bank account information
FATCA information exchanges with the US:
Accounts held by Germans (separating between individuals and entities) in US banks: number of account + income (but no information on account balances)
Accounts held by Americans (separating between individuals and entities) in German banks: number of accounts + income + account balance
CRS information exchanges with other countries:
Accounts held by Germans (no distinction between individuals and entities) in banks from 88 countries: number of accounts + income + account balance
Accounts held by residents from 66 jurisdictions (no distinction between individuals and entities) in German banks: number of accounts + income + account balance
The statistics are not as comprehensive as we would like. For instance, while the CRS covers financial account information that may be held in depository banks, custodial banks, some investment entities and some insurance companies, the statistics refer to all accounts and income together, without making any distinction. Annoyingly, statistics were produced as a pdf rather than as machine-readable data, but after spending some time converting the data into an Excel document, here’s what we have found.
Preliminary observations on Germany’s exchanges under the OECD’s Common Reporting Standard (CRS)
Secrecy jurisdictions opposing statistics
The UK, a self-proclaimed transparency champion, has refused to let Germany publish even statistical information on the information sent by the UK relating to accounts held by German taxpayers in UK financial institutions. (The same happened with Canada, Cayman Islands, Isle of Man and South Korea.) These refusals are strange since there cannot be a privacy problem. No personal information is published: only collective statistics.
Although it is nonsense that a country may prevent another from publishing statistics that involve no personal information, in any case this refusal could only refer to information sent by those opposing countries: for instance, if the UK told Germany that there are X Germans with bank accounts in UK banks. However, the UK should have no say at all on the information reported by German banks to German authorities about British account holders in Germany. That is pure German data.
Unfortunately, Germany got it wrong and failed to publish statistics on the accounts held in German banks by residents from these opposing countries (for example, how much money Brits have in Germany). In contrast, Australia did publish statistical information on accounts held by residents of the UK, the Isle of Man, Cayman and more than 200 other jurisdictions. Germany can easily do it.
In any case, we have taken the UK’s refusal as an encouragement to submit a Parliamentary Enquiry in the UK for them to publish the data. Let’s see what comes back.
Voluntary secrecy affecting statistics
Another factor limiting German statistics even further is the “voluntary secrecy” chosen by some countries under the CRS. This is where a secrecy jurisdiction chooses not to receive any bank account information from foreign countries. According to the OECD’s Global Forum which assesses countries compliance with exchange of information, this option was chosen at least by Anguilla, The Bahamas, Bahrain, Bermuda, British Virgin Islands, Cayman Islands, Kuwait, Marshall Islands, Nauru, Qatar, Turks and Caicos Islands and United Arab Emirates.
As we had warned, this voluntary secrecy by those countries means that German statistics report less data regarding non-residents holding German bank accounts. Germany published information about Germans’ accounts in 88 countries, but when it comes to accounts held by foreigners (non-residents) in German financial institutions, Germany published information for only 66 countries. So 22 jurisdictions are missing: all the voluntary-secrecy jurisdictions (plus Aruba, Belize, British Virgin Islands, Costa Rica, Curacao, Grenada, Ghana, Macao, Montserrat, Lebanon, Samoa, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines and Vanuatu. (For aficionados of our Financial Secrecy Index, this list correlates to Indicator 18.)[1]
The data
The data produces a number of anomalies and questions.
a) Germans’ foreign accounts in 2018 (info that Germany received from other countries)
As already reported by Business Insider and der Spiegel, in 2018 Germans held most of their overseas bank account money in tax havens: Jersey (180 billion Euro), followed by Switzerland and Luxembourg. Other than EU countries and India, two other secrecy jurisdictions stand out: in 9th place is Guernsey (10 billion Euro) and 11th Singapore (3 billion Euro).
If we mine the same data to calculate average account balances, another strange picture emerges.
The top 15 countries by average account balance are all typical tax havens and secrecy jurisdictions: Jersey is top, with 15 million Euro per account. But it is odd that the average account balance of German account holders is 100 times larger in Jersey than in Switzerland. Does this relate to the fact that German individuals have more personal money in Switzerland, while German entities or investment funds have more in Jersey?. We don’t know, because German statistics fail to disaggregate this, but it should prompt further investigation.
The strangest thing, however, is the average income per account. In this case, Germans reported an average of 2 million Euros of income per account in Colombia, followed by Argentina and Curacao (ca. 150,000 Euro of income per account). In Switzerland, the average was merely 50,000 Euro of income per account. Was this a mistake, or are Germans making vastly more money in Colombia from financial assets? Again, further investigation is needed. Similar outliers are found when comparing income and account balance (how much income was reported for every Euro of account balance). For Colombia, the relationship is 19,000 per cent – 190 times more income than account balance – which is ridiculous. In contrast, in Switzerland or Luxembourg the relationship was closer to 30 per cent. This, too, merits further investigation.
More questions arise when we consider the accounts in Germany held by non-residents.
b) Accounts held by non-residents in Germany in 2018 (info sent by Germany to other countries)
These show that:
Residents of Switzerland, France and Austria, and mostly of EU countries, have the highest number of accounts and account balances in German financial institutions.
However, when looking at the income from financial assets held in German financial institutions, Dutch account holders are spectacularly successful compared to the rest. 210 billion Euro, compared to incomes between 4.3 and 2.4 billion Euro for account holders from Switzerland, Austria and Luxembourg. Again, this merits further explanation.
When comparing the relationship between income and account balance, the Netherlands also stands out, with a value of 2,524 per cent (25 times more income than account balance, on average), which again makes no sense. Next are Saudi Arabia and Russia with 50 per cent each. Another thing to look at. Is it a mistake in the numbers, are Dutch account holders removing their money from the banks right before 31 December when the account balance is calculated, or is there some other explanation?
Again, when looking at the highest average account balances in German banks the list is a gallery of tax havens and secrecy jurisdictions. The only jurisdictions whose residents have more than 100,000 Euros on average are Jersey (726,000 Euro), Monaco (500,000 Euro), then Guernsey, Liechtenstein, Cook Islands, Panama, Luxembourg, San Marino, Cyprus and Malta.
Other anomalies and questions emerge from odd changes in account balances and income. For account holders from Gibraltar, the number of accounts in German financial institutions remained stable at around 800 accounts between 2017 and 2018, but the reported account balance totals went from 1 billion to 73 million Euros, and the income from 730 million to 8 million Euros! Meanwhile, accounts from Jersey residents also stayed at 400 between 2017 and 2018, while their income went from 87 million to 13 million Euro on average. Something similar happened with the Seychelles, where there were also ca. 400 accounts in 2017 and 2018, while the reported income went from 20 million to 4.7 million Euro. Were these account holders terribly unlucky between 2017 and 2018? Did they change investments while keeping their accounts open? Did they keep part of their income unreported? Again, we need to know more.
Preliminary observations on exchanges with the US under FATCA agreements
Once again, the statistics show that the USA is a gigantic tax haven. No information on German beneficial owners of US accounts is provided, because the US does not exchange information at the beneficial ownership level. (Put simply, if a German individual holds an account in a US bank using a non-German company or trust, Germany won’t get any information about it.)
In principle, however, if the US bank account is held by a foreign company, the US may at least provide some information to the country where that company is resident. The figure below illustrates what can and can’t happen.
The first case in the diagram, “Anna” and Company A, involves countries that signed a “Model 2” agreement with the US where they send information to the US but receive nothing back from the US. These countries include Austria, Bermuda, Chile, Hong Kong, Japan, Macao and Switzerland, among others. Here, if a German individual holds an account in a US bank through an Austrian company (Company A in the figure below), no country will receive information about that because Austria decided not to receive information from the US.
Panama is different: with a German (“Paul”) owning a Panamanian company, Panama will receive information because the account holder is a Panamanian company. Germany will receive no information, however. Germany will receive information from the US if a German entity (Company C) or a German individual (Markus) directly hold an account in a US bank: Germany signed a Model 1A agreement so it will receive some basic information from the US.
In contrast, Germany exchanges information with all participating countries, including the US, both at the level of the account holder (entity or individual) or the beneficial owner. Here it is, in another diagram, showing the scandalous imbalance between how much, and what type of information Germany provides the US, including at the beneficial ownership level, compared to what it gets in return.
The US sends Germany information on the income received by German accounts holders but not on their account balances. In contrast, Germany shares information with the US both on the income and the account balance of US account holders (and also for US beneficial owners). This imbalance becomes abundantly clear by comparing the following two tables.
Account balance reported by Germany
(“Konten naürlicher Personen” means “accounts of natural persons”, the next column is “accounts of non-natural persons,” and the third column is “all accounts.”)
Account balance reported by the US:
As regards the publication of statistics, given that Germany collects and exchanges information at the beneficial ownership level (eg the cases of Mary and John), it could easily publish statistics disaggregating what information refers to beneficial owners (who aren’t the direct account holders). However, German statistics fail to disaggregate information at the beneficial owner both for American accounts held in Germany, as well as for bank account information sent and received within automatic exchanges with other countries under the OECD’s CRS.
Conclusion
Statistics on banking data can be very useful to get indications of illicit financial flows, and to look for avoidance schemes or potential mistakes. Statistics may not determine wrongdoing by themselves but signal many outliers that should prompt an investigation, and allow journalists and civil society groups to ask difficult and challenging questions to prevent cover-ups. If we can find all these anomalies based on totals for only three years, provided by one country, imagine all the checks and investigations that would be possible with more details.
It would be still more useful to have disaggregated information based on:
Account holders who are natural persons or entities,
The country of residence of the beneficial owners of the account holders which are entities.
Disaggregated information above based on the type of financial institution that holds the account (eg depository bank or investment entity). For example, Germans had $X million in US depository institutions and $Y million in US investment entities and $Z million in US insurance companies.
Germany should follow Australia’s example and publish information not only on those account holders who are resident in a jurisdiction participating in automatic exchange of information but also on residents of lower-income countries which are still excluded from the automatic exchange system. In other words, Germany published information on the accounts held in German financial institutions for 66 jurisdictions. Australia did the same for 248 jurisdictions, including all African, Latin American and Asian countries.
All the points above refer to statistical information on the information exchanged. However, authorities have access to the actual identity of account holders. We would thus need statistics on what authorities have done with the information, including on:
sanctions and investigations undertaken by authorities based on taxpayers who failed to properly report their foreign accounts
[1] These countries may include also those that failed to meet confidentiality requirements and are thus unable to receive information (EU countries are still mentioned by Germany because they do have to report information under the EU Directive of Administrative Cooperation (DAC 2)). It’s not clear why Dominica isn’t mentioned in Germany’s statistics, though.
Welcome to this month’s podcast and radio programme in Spanish with Marcelo Justo and Marta Nuñez, free to download and broadcast on radio networks across Latin America and Spain. ¡Bienvenidos y bienvenidas a nuestro podcast y programa radiofónico! (Ahora también estamos en iTunesy tenemos un nuevo sitio web.)
En este programa con Marcelo Justo and Marta Nuñez:
Los millonarios del mundo que exigen pagar más impuestos.
El papel de las cortes internacionales corporativas en medio del coronavirus.
América Latina y la Pandemia. Los casos de Chile y Venezuela.
y el acuerdo de la Unión Europea frente al coronavirus. ¿Por qué Holanda, paraíso fiscal europeo, se opuso hasta último momento?
Invitados:
Morris Pearl inversor Patriotic Millonaires and Millonaires for Humanity Twitter: @PatrioticMills Instagram: @PatrioticMillionaires Juan Pablo Bohoslavsky, ex relator de deuda de Naciones Unidas.
Ricardo Martner de la Comisión Independiente para la Reforma del Impuesto Corporativo Internacional, el ICRICT Twitter: @icrict Facebook: @icrict
Giordana García Sojo del Centro Estratégico Latinoamericano de Geeopolítica (CELAG) Twitter: @giordanags Instagram: @giordanags
Javier García-Bernardo, Tax Justice Network Twitter: @javiergb_com javiergb.com
Indian court case sees through the sham of discretionary trusts
In a recent ruling from India, a court found that taxpayer Renu Thikamdas Tharani had to pay taxes on several million dollars’ worth held in a bank account in Switzerland. Tharani claimed not to own the account, but to merely be a beneficiary of the discretionary trust (see box) that held the Swiss account through a Cayman company. The bank account was disclosed in the Swissleaks affair (a list of HSBC secret bank accounts leaked by Hervé Falciani). In a judgement worth reading, the bold judges not only quote Shakespeare but give a very blunt description of the reasons why someone would use a tax haven or a bank with a track record of money laundering.
Interestingly, the judges ascertain something we have claimed for a long time: secrecy caused or created by an individual shouldn’t benefit them but count against them. Also, common sense and the principle of reality has to be applied, rather than relying on whatever a taxpayer, an enabler or a tax haven have to say. For instance, when comparing the declared income of the taxpayer to the (undisclosed) amount held in the Swiss bank account, the court in this case concluded it would have taken the taxpayer 11,500 years to earn that much money.
“Discretion” and discretionary trust
A basic trust is a three-way arrangement. A settlor (for example, a rich grandfather) puts assets into a trust which is managed by a trustee (typically a lawyer) on behalf of beneficiaries (for example, the grandchildren.) A discretionary trust is where the trustee has discretion to decide who gets what, when. The beneficiaries can argue that, until they receive a distribution, they aren’t entitled to any of the trust assets, because it’s all up to the trustee. The assets have been given away by the settlor, but nobody is entitled to them yet, so they are in an “ownerless” limbo, ring-fenced from tax, from creditors, or from the rule of law.
“Discretion” is not itself bad: after all, a CEO uses his or her best judgement to manage a company, while a regular trustee manages trust assets on behalf of vulnerable people. The useful function of discretion can be achieved by other means: but no society should tolerate assets being put into this ownerless limbo, above the rule of law.
This Indian ruling deals with many issues we hold dear. First the issue of trusts and especially discretionary trusts, where a settlor puts money into a trust, and the trustee has (on paper) discretion to decide who gets a distribution from the trust money, when, and how much. (We have described the abuses of trusts here and here.) In essence, discretionary trusts should be abolished because they are as abusive as it gets (and there are other, less harmful ways of achieving the discretion function).
They allow individuals to isolate assets from their creditors and from third parties with legitimate claims (such as tax authorities, or the forces of law and order). If abolishment sounds too radical, our proposal is at least to disregard discretionary trusts and the “ownerless limbo” (see box) that they create: if the settlor put assets into a discretionary trust and so far no (discretionary) beneficiary is entitled to them, the assets should be regarded as still being the property of the settlor, for tax and other purposes (eg income, wealth, inheritance) or for any debt owed to creditors. If the law isn’t amended to address this excess, we have to depend on courts, often tax haven courts, to fix the abuses — which may rarely happen.
Before we go into the Tharani case, it is worth mentioning two previous Indian court cases dealing with discretionary trusts and tax abuses. In the first one relating to a Maharaja (ruler), the Supreme Court allowed a discretionary trust to get away with it and not pay taxes. In the next one, involving a Liechtenstein trust, the Indian court put a stop to discretionary trusts’ abuses in the way that we have proposed.
The Maharaja of Gonda
The Supreme Court case, Estate of HMM Vikramsinhji of Gondal, refers to a Maharaja who was the former ruler of the Gondal who created two UK discretionary trusts for the benefit of himself, his children, and (c) their wives or widows. The settlor, who was entitled to the trust income (that is, income coming into the trust) during his life, included this trust income in his income and wealth tax returns. Upon his death, his son also included the trust income in his tax return. However, he then claimed that it was a mistake, both of him and of his dead father, to have included the income to the trust in their tax returns, because the trust was discretionary.
However, even though the trust was labelled discretionary, it’s not that any Indian could have got a distribution. The only potential beneficiaries were family members, including the son. In addition, no one had received income from the trust because in more than five years since the creation of the trust no trustee had been appointed to “exercise discretion” (so even though they may have called it a discretionary trust, it wasn’t a properly functioning one). It appears that had there been no trust, the son would have inherited the assets and would have had to pay taxes on them. So this trust, controlled by people who will benefit from its assets and income, allows those same people to escape taxes on the assets and income merely because they are held in the trust. This makes no sense to us, morally, economically or democratically.
However, the Supreme Court ended up ruling in favour of the taxpayer (the son), despite all these facts showing that this was not a properly functioning trust. The Supreme Court held that the trust was discretionary so the income belonged to the trust, so therefore neither potential beneficiary had to pay any tax:
A discretionary trust is one which gives a beneficiary no right to any part of the income of the trust property, but vests in the trustees a discretionary power to pay him, or apply for his benefit, such part of the income as they think fit. The trustees must exercise their discretion as and when the income becomes available, but if they fail to distribute in due time, the power is not extinguished so that they can distribute later. They have no power to bind themselves for the future. The beneficiary thus has no more than a hope that the discretion will be exercised in his favour.”
Courts do often make nonsensical decisions. But not always. The next example shows a far more sensible approach.
The Ambrunova Trust from Liechtenstein
This case relates to the Liechtenstein based trust, the Ambrunova Trust and Merlyn Management SA, which had USD 24 million in a bank account. The Indian taxpayer claimed not to be a beneficiary of the trust and thus refused to pay taxes on the income to the trust. However, information obtained based on an exchange of information request revealed that the taxpayer was indeed a beneficiary. This case reveals another reality we have mentioned many times: it’s quite irrelevant whatever the trust document says, whether the trust is revocable or irrevocable, discretionary, or whether someone is mentioned as a beneficiary or not. What matters is how it operates in practice.
The revenue submitted factual proof that the Taxpayers were beneficiaries of the Trust, based on trustee records and other records, which were obtained through a Tax Evasion Petition (TEP) filed with Lichtenstein. While the Taxpayers do not appear to have been specifically named in the trust deed itself, the revenue authorities relied upon the beneficiary allocation contained in trustee filings, to add the corpus amounts as the “undisclosed income” of the Taxpayers… Strangely enough, the Tribunal’s ruling has turned on the fact of non-disclosure, rather than the substantive question of whether the income of an offshore discretionary trust should be taxable in the hands of Indian resident beneficiaries.
Interestingly, the Indian court gave a much better decision than what the Supreme Court decided on the Maharaja case. Instead of saying that discretionary beneficiaries are isolated from the assets and income in the trust until a distribution taken place, the court in this case ruled that if a person is the only discretionary beneficiary of a trust, the assets and income held in the trust should be considered to belong to them:
It is a common knowledge that discretionary trusts are created for the benefit of particular persons and those persons need not necessarily control the affairs of the trust. Still the fact remains that they are the sole beneficiaries of the trust. Thus totality of facts clearly indicate that the deposit made in the bank account of the trust represents unaccounted income of the assessee [the taxpayer], as the same was not disclosed by the these assessees in their respective returns in India.
The Tharani case (again)
The two previous cases were followed by the brave ruling regarding taxpayer Renu Thikamdas Tharani (the “assessee,” again). As a reminder, Tharani was the beneficiary of a discretionary trust that held a Swiss bank account through a Cayman company, and the account was disclosed in Swissleaks. The descriptions and arguments are so interesting that we limit ourselves to quoting some extracts.
It must be seen that underlying company of the Tharani family trust, i.e. GWU Investments Ltd is a company having address in the Cayman islands which is a tax haven and the account is maintained in HSBC, Geneva which is known for its banking secrecy laws and in recent times has faced investigation from various authorities in its role in facilitating tax evasion of its clients… We have also seen as to how the HSBC Private Bank (Suisse) SA has been indicted by several Governments worldwide and how it has even confessed to be being involved in money laundering.
One trick used by tax havens is to notify miscreants when they are being investigated, so they can quickly erase evidence. (The Financial Secrecy Index assesses this under Indicator 1).
It is an interesting coincidence, coincidence if it is, that within a short time of the information about the above account coming to the possession of the Government of India, this account was closed. Whatever assets were being held in this bank account were thus transferred back to GWU Investments Limited, a company based in Cayman Islands- a tax haven where it is almost impossible to find out about beneficial owners of a corporate entity…
It must also be a coincidence, coincidence if it could be, that the process of covering the tracks did not stop with closure of the HSBC account. It is a further coincidence that even the GWU Investments Limited, after the disclosure in respect of account, was closed as its name is struck off from the records of Registrar of Companies, Cayman Islands.
This next extract is long but fabulous, and shows that judges sometimes do use common sense. First, it describes why someone would use a secrecy jurisdiction like Cayman.
GWU Investments Ltd is a Cayman Islands entity, and it needs no special knowledge to know that, more as a rule rather than as an exception, the Cayman Island entities are owned by nominees of the beneficial owners. The operations carried out by these entities, are mainly to facilitate financial manoeuvring for the benefit of its clients, or, with that predominant underlying objective, to give the colour of genuineness to these entities. These offshore entities, which are routinely used to launder unaccounted monies, are a fact of life, and as much a part of the underbelly of the financial world, as many other evils. Even a layman, much less a Member of this specialized Tribunal, cannot be oblivious of these ground realities.
Indeed! Second, the ruling proposes not to believe everything a taxpayer claims, and that deploying secrecy should count against the taxpayer.
It is also inconceivable that a Rs 200 crore [around $27m at current rates] beneficiary in a trust will not know about who has settled that trust….The claim of the assessee…is to be examined in the light of real life probabilities and the very act of the assessee, in stalling the further probe, works against the assessee. … No reasonable person can accept the explanation of the assessee. The assessee is not a public personality like Mother Terresa that some unknown person, with complete anonymity, will settle a trust to give her US $ 4 million, and in any case, Cayman Islands is not known for philanthropists operating from there; if Cayman Islands is known for anything relevant, it is known for an atmosphere conducive to hiding unaccounted wealth and money laundering, and that does not advance the case of the assessee.
Good sense, again. As we have argued, especially in relation to complex ownership chains: secrecy should act against its creator, not in their favour. A person using complex secretive legal vehicles, bearer shares or failing to cooperate, shouldn’t get the benefit of the doubt:
This inference is all the more justified when we take into account the fact that the assessee has been non-cooperative and has declined to sign the consent waiver. One of the arguments raised by the assessee…that the assessee could not have performed the impossible act of signing consent waiver because she was not owner of the account is too naïve and frivolous to be even taken seriously.
The assessee has not submitted the trust deed or any related papers but merely referred to a somewhat tentative claim made in a letter between one Mahesh Tharani, apparently a relative of the assessee and the HSBC Private Bank (Suisse) SA- an organization with a globally established track record of hoodwinking tax authorities worldwide…Nothing is clear, nor does the assessee throw any light on the same . . .
Something is rotten in the State of Denmark. There is a series of coincidences, right from the HSBC account being closed after the information contained in the base note coming out and to the underlying company being removed from the name of Register of Companies in Cayman Island, right from assessee living in complete denial about any knowledge about a HSBC Private Bank (Suisse) SA account in her name to her lack of information about the company which is holding US $ 4 million for her, and, despite assessee being purportedly so clean in her affairs, her thwarting any efforts of the income tax department to get at the truth by declining to sign the consent waiver form.
That’s robust, clear, and entirely sensible. One could argue that this judge has, in a few days’ work rejecting offshore trust skulduggery, built several Indian schools, or bought enough Coronavirus masks for a big chunk of India’s population.
Conclusion
Several lessons emerge.
On the one hand, the Supreme Court’s ruling shows that discretionary trusts are powerful ways for the wealthy to escape income, tax and inheritance tax.
On the other hand, bold judges may apply common sense and restore justice by considering that:
Tax havens are used for secrecy and thus enable financial crimes and other abuses,
Trusts’ descriptions (“irrevocable”, or “discretionary”) aren’t to be taken seriously, and courts should look at reality. For example, if a person is the sole beneficiary, or they have control, or they secretly receive a distribution, or are mentioned somewhere, they should be regarded as the owners of the trust money and income and thus pay applicable taxes.
If a person refuses to cooperate, sign a waiver for a bank to submit information, or claim not to know why an unknown person would give them millions of dollars, that should be used against the taxpayer, instead of them getting the benefit of the doubt.
But the big point here is that societies shouldn’t depend on bold and alert judges. Laws should change so that these abusive legal vehicles such as discretionary trusts, aren’t permitted to begin with.
Australia has become the first country to publish statistics on automatic exchange of information for all jurisdictions, especially those that cannot join the automatic exchange system. Here’s what they reveal and why it has more potential than statistics published by the Bank for International Settlements (BIS).
We’ve been advocating for automatic exchange of bank account information for years, in the hope that all countries, especially lower-income ones, would reap the benefits. Unfortunately, when the OECD published its Common Reporting Standard (CRS) for automatic exchange of bank account information, they added a very problematic feature. They require reciprocity from countries willing to receive information. This automatically excludes most lower-income developing countries as most of them are unable to collect and share information held in their financial institutions because of a lack of resources or infrastructure.
Of course, in the long run all countries should be able to collect and share information with others. Otherwise they risk becoming a tax haven or secrecy jurisdiction. However, in the short term, all countries should be able to receive information about their elite’s holdings in financial centres.
Thanks to the great work of Mark Zirnsak from Tax Justice Network-Australia, Australia passed a legal amendment back in 2016 requiring it to publish basic statistics (we’ve been asking for comprehensive statistics and have even designed a template, see page 37), but hey, this is a good start.
Unfortunately, Australia only started exchanges in 2018 and the law there requires statistics to begin from that year only. The Financial Secrecy Index assesses, under indicator 16, whether countries are publishing statistics on automatic exchange and it acknowledges Australia’s law. However, Australia didn’t get any transparency credit in the latest edition of the Index because no statistics had yet been published by the cut-off date.
First, let’s look at the shortcomings/things for improvement (so as to end on a positive note):
Information was published as an image, so we had to use an OCR software (Optical Character Recognition) plus manual checks to extract the numbers from the image and convert it into an Excel document to do our analysis.
There isn’t much analysis to do because Australia has only published the total number of accounts and the total balance account as of 31 December 2018. We have no idea whether these are accounts held by entities (eg companies, trusts) or by individuals. We also don’t know how accounts evolved since people became generally aware of automatic exchange of information. For that we would need to see the values for accounts since 2013, before the Common Reporting Standard had been published, ie before anyone had any reason to rearrange their affairs in order to avoid scrutiny.
There is no information on income or on the type of financial institutions that hold these accounts (is this money held in depository banks, or is it held in custodial banks or in investment entities?).
We don’t know anything about the beneficial owners of the Australian accounts, for cases where account holders are entities such as companies or trusts.
Now, the positives:
Australia has published information on absolutely all countries. In total, there’s data on the accounts held in Australian financial institutions by residents from 248 different jurisdictions, while only 100 of them participate in the Common Reporting Standard.
On the one hand, Australia will be recognised in the next edition of the Financial Secrecy Index not only under indicator 16 for their publishing statistics, but also under indicator 18 because these statistics reveal that Australia is applying the so-called ‘wider-wider approach’: information on all account holders (not only those who are resident in a participating country) was not only collected by Australian financial institutions but also reported to Australian authorities (We were only previously aware of Argentina, Estonia and Ireland applying this approach).
These statistics, covering all jurisdictions, is exactly what we were asking for. Thanks to Australia’s statistics, the 148 jurisdictions unable to join the automatic exchange system will at least find out how much reportable money their taxpayers hold in Australian financial institutions. Of these 148, those lucky enough to have an exchange of information agreement with Australia can make a request for information, or even better, Australia could share it with them spontaneously (or at least share more details than what they have published, if not the full details on each account holder). Local civil society organisations or journalists could also start investigations and push their countries to obtain information from Australia.
There are many countries that haven’t been able to join the automatic exchange system yet, according to the OECD:
Australia published information on all of them and beyond:
Findings
In 2018, residents from 248 jurisdictions held 6.1 million accounts in Australian financial institutions with a total account balance of AUD 208 billion.
Looking at the countries with the highest number of accounts, results look as expected, given the size and geographical closeness of countries to Australia:
When looking at the jurisdictions with the highest account balance, some tax havens or secrecy jurisdictions start to appear:
When looking at the highest average account balance, tax havens and secrecy jurisdictions take over:
Unfortunately, as we’ve said, we don’t know which of these accounts correspond to individuals and which to entities such as companies or trusts. It would be unlikely for so many individuals from the Cayman Islands to have that many accounts in Australia, unless these refer to individuals who acquired golden visas. If these refer to entities, Australia could publish information about the residence of the beneficial owners of those entities so that countries could become aware of their individual taxpayers’ holdings in Australia, but also the preferred jurisdiction by those beneficial owners to incorporate shell companies (to hold bank accounts). Speaking of beneficial ownership, while Australia is a great leader in publishing statistics on automatic exchange of information, it’s lagging behind on legal and beneficial ownership transparency. While more than 80 jurisdictions already have laws requiring beneficial owners of companies and other legal vehicles to register with government authorities, Australia doesn’t even ensure updated legal ownership information is registered.
What next?
Consistency with the Bank for International Settlements (BIS) and other macro data
While the Bank for International Settlements (BIS) has been publishing data on deposits by country of origin, this data has shortcomings for determining the possible revenue loss for a country. It includes mostly loans and deposits in depository institutions. Some Central Banks, eg in the US or Switzerland, publish similar data, with similar constraints. Meanwhile, the automatic exchange system already covers information based on the tax residence of account holders both at the legal owner and beneficial owner level. It also covers financial assets held by custodial institutions, investment entities and insurance companies. More importantly, other than information on account balance (deposits as for 31 December), the automatic exchange system also covers income related to each account. This makes it more directly relevant for taxation.
However, the Bank for International Settlements data may be relevant for cross-checks and to detect loopholes. If Australia, and other countries publishing statistics on automatic exchange, disaggregated information for the type of reporting financial institution (eg depository institutions) and the Bank for International Settlements described in its statistics what information refers exclusively to deposits (not loans) in depository institutions, we could then cross-check both reports for consistency. These statistics could reveal loopholes affecting the automatic exchange system, given that some types of accounts and some types of account holders are considered non-reportable. Even without further disaggregation of the Bank for International Settlements data, consistency analyses could be carried out once multi-year (panel) data or data for multiple countries (cross-sectional) was available both for the Common Reporting Standard and the Bank for International Settlements statistics.
Lower-income countries joining the multilateral tax convention and the automatic exchange system
While ideally all countries should be able to join the automatic exchange system, the first step is to have an international agreement to allow exchanges. Having an applicable exchange agreement with the relevant financial centre, eg Australia, allows a country to make a request for information and to receive a spontaneous exchange, until the time in which they may join the automatic exchange system.
For example, one of the non-participating countries with the highest value held in Australian financial institutions is the Philippines, with a total of AUD 527 million in 2018. The Philippines hasn’t committed to joining the automatic exchange system yet, and while they have signed the Convention on Mutual Administrative Assistance in Tax Matters (the multilateral tax convention), they haven’t ratified it yet, so it’s not in force. Nevertheless, there is a double tax agreement between Australia and the Philippines in place, so Australia should be able to share information spontaneously, or the Philippines should be able to make a “group request”.
The “group request” does not need to identify any specific taxpayer, but it needs more details than a mere suspicion to be considered foreseeably relevant and not a fishing expedition. The OECD gives an example of what an acceptable group request would look like:
8. h) Financial service provider B is established in State B. The tax authorities of State A have discovered that B is marketing a financial product to State A residents using misleading information suggesting that the product eliminates the State A income tax liability on the income accumulated within the product. The product requires that an account be opened with B through which the investment is made. State A’s tax authorities have issued a taxpayer alert, warning all taxpayers about the product and clarifying that it does not achieve the suggested tax effect and that income generated by the product must be reported. Nevertheless, B continues to market the product on its website, and State A has evidence that it also markets the product through a network of advisors. State A has already discovered several resident taxpayers that have invested in the product, all of whom had failed to report the income generated by their investments. State A has exhausted its domestic means of obtaining information on the identity of its residents that have invested in the product. State A requests information from the competent authority of State B on all State A residents that (i) have an account with B and (ii) have invested in the financial product. In the request, State A provides the above information, including details of the financial product and the status of its investigation.
While a group request would have to be tested, it’s unlikely that the double tax agreement between Australia and the Philippines, signed in 1980, would allow group requests given that it is not explicitly allowed. If group requests were allowed, based on the OECD example, Australia might respond to the request if the Philippines could prove that investments in Australia are popular/advertised among its residents and that none (or very little) of the AUD 527 million held by residents in Australian banks has been reported to the Philippines’ tax authorities. In the absence of routine reporting, the omission of income is likely the norm. Assuming that only 10 per cent of the AUD 527 million are declared by Philippines taxpayers, and assuming a 5 per cent return on investment, it would result in an additional taxable revenue in the Philippines of AUD 23.7 million (= 5% x 90% of 527 million) per annum for Australian income alone. With the Philippines personal income tax rate of 20 per cent for passive income, that would amount to about AUD 5 million of additional revenue.
Ideally, these statistics should prompt lower income countries to sign the multilateral tax convention, make requests for information and join the automatic exchange system. In terms of priority countries, this will for now depend on the countries actually publishing statistics, but once more options are available countries could use the Tax Justice Network’s Illicit Financial Flows Vulnerability Tracker. In the case of the Philippines, Australia is ranked 8th:
Other countries are in worse conditions than the Philippines because they are neither participants in the automatic exchanges nor do they have any relevant agreement to obtain information from Australia. One such example is Bangladesh, for which Australia represents the 5th riskiest country in terms of vulnerability of bank deposits (based on the data from the Bank for International Settlements). Based on Australia’s statistics on automatic exchange of information, residents from Bangladesh have AUD 113 million in Australian financial institutions. Based on the same assumptions as above on return on investment and undeclared assets abroad, Bangladesh could raise an additional AUD 1.5 million of tax revenue per annum from Australia (based on a highest statutory personal income tax rate on financial investment of 30 per cent), through joining the Common Reporting Standard or otherwise obtaining the relevant tax data from Australia.
As for other regions such as Latin America and Africa, other countries that are unable to automatically obtain information from Australia, but that could still make a request for information, include the Dominican Republic, whose residents have AUD 412 million in Australian banks, and Kenya, whose residents have AUD 106 million.
Conclusion
In conclusion, this a great first step, and hopefully many lower-income countries will now start asking Australia for more details on their residents’ holdings in Australian financial institutions (or first signing relevant conventions). We need more countries to publish these statistics and with a higher level of detail so we and others can start measuring and understanding offshore holdings, and different avoidance or secrecy schemes.
Co-organised with Gurminder K Bhambra, University of Sussex and Julia McClure, University of Glasgow
An analysis of inequality stemming from Imperialism and an exploration of reparation pathways
Colonial histories remind us, time and again, that the poverty of what comes to be understood as the global south and the wealth of the global north are intrinsically connected. That is, the very same historical processes that generated the wealth of European countries are the ones that made other places poor. During the phases of imperialism from the sixteenth century onwards, European countries extracted revenues and resources through formal and informal channels and spent this money often on domestic welfare and infrastructure. The precise value of the ‘colonial subsidy’ to European states and their citizens is incalculable or, at least, no attempt has been made at the global level to attempt to calculate it.
During the age of European global empires, European countries imposed tax regimes both nationally and across their imperial hinterlands that have also contributed to the establishment of trends of inequality that continue through till today. This conference will bring together leading academics to present new research highlighting the linkages between empires, nation states, taxation and resource extraction, and the resulting inequalities in polities and welfare systems experienced as a consequence of this mass extraction.
The conference will also explore where society and institutions can go from here to begin to address the centuries of damage and to investigate how reparations could begin to address some of this damage. This event will explore the following themes:
To what extent has the European project of public expenditure on welfare been made possible by imperial extraction?
What role has been played by promoting dependent territories as ‘tax havens’, in the more recent period of extraction, and how has this damaged those territories as well as others?
How do tax laws, which can themselves be understood as having imperial legacies, continue to shape inequality trends?
What sort of reparations could conceivably address the scale of damage created from imperial extraction, and how can taxes be collected and redistributed to begin to mitigate the economic damage created?
Call for papers:
This conference will focus on qualitative and quantitative research that explores the themes of empire, taxation, inequality and reparations. In addition to the range of papers already in preparation for a forthcoming volume, the organisers wish to invite original, high-quality papers for presentation in the following areas:
Reparations through taxation: the potential role of different types of taxation, for example on wealth or on financial transactions, to contribute to reparations
‘Plan B’: alternative development paths for UK territories and others where a ‘tax haven’ business model was effectively imposed by the imperial power, and potential reparations for the damage done
Tax, race and gender: to what extent are tax systems, now and historically, designed around a largely white, male landowning class, and what are the past and present implications? Are tax systems largely ‘colourblind’ and ‘genderblind’, or is disaggregated data used to inform policies and tax administration – and how does this affect inequalities?
Please submit abstracts of up to 500 words, along with the required supporting information, using our online application form. The deadline for submissions of abstracts is 11 September. The review panel will communicate decisions by 25 September. Full papers will be due by 30 October.
Registration will open when the preliminary programme is published in October 2020. More information will be published in due course on our website. For any queries, please email [email protected].
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