Faulkner wrote: “The past is never dead. It’s not even past.”
As we discuss, the legacy of centuries of institutionalised racism is that a wealth chasm has been created between black and white communities.
We also know that the City of London in Britain built its wealth from slavery and empire. Still today, major finance sectors have extractive business models which impoverish some of the world’s poorest nations. And, financial secrecy is another form of empire.
So how can we think about combining tax justice and reparations? Keval Bharadia‘s work on a super tax on the $8 trillion a day financial markets could help show the way. And all financial institutions must have independent slavery money audits. For those financial institutions now coming forward and offering what they’re calling reparations funds, how do we ensure that these funds are large, they’re targeted to the right places, and they’re ongoing?
A transcript of the programme is available here (not 100% accurate)
Produced and hosted by Naomi Fowler of the Tax Justice Network
We’re recovering from many things. We’re recovering from COVID-19, we’re recovering from 400 years of oppression, and we are also recovering from a looming economic downturn. And one thing we know for sure, and we continue to learn with every economic downturn is that States have choices. They have a choice point and that’s to cut services and continue to cut their budgets that harm families that are in need – or raise revenue, raise revenue on corporations, raise revenue on those that are most profitable and the wealthy. And that’s a racialised choice, given the country’s history and ongoing biases.”
There needs to be a proper negotiation on what level of reparations should be paid and to whom and who will be responsible for holding reparations in trust funds for the genuine benefit of the descendants of slaves. What must not happen is that banks and other companies use tokenistic reparation payments as an exercise in white-washing while not disclosing the full history of their involvement in slavery or in imperial plunder and pillage.”
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Existem “pílulas tributárias” para uma retomada econômica mais sustentável e redistributiva.
O episódio #14 do É da sua conta receita quatro “pílulas” que podem fortalecer o orçamento público para que governos tomem decisões justas no enfrentamento da crise, priorizando o combate à pobreza e à desigualdade, a manutenção de empregos e o resgate de pequenas e médias empresas.
Nosso colunista, jornalista da Tax Justice Network Nick Shaxson aborda a primeira “pílula tributária”, a taxação sobre lucro excedente de grandes corporações. A Comissão Independente para a Reforma do Imposto sobre Corporações Internacionais (Icrict) apresenta a “pílula” para adequar a tributação de multinacionais que operam em monopólios ou oligopólios. A terceira “pílula” é a taxação de grandes fortunas. Revisão de isenções e benefícios tributários a empresas e setores econômicos e transparência sobre esse tipo de decisão resumem os efeitos esperados pelo uso da quarta “pílula tributária”.
Our monthly podcasts are aimed at ordinary citizens, campaigners and practitioners, filling the gap in regional media coverage and analysis of tax, redistribution, financial secrecy and the global infrastructure of corruption, holding governments to account. The podcasts empower citizens to engage in and influence debates on these issues, and provide the solutions needed to support change. The podcasts are offered free to radio stations, as well as for downloading. They also reach key influencers: journalists, researchers, bloggers, tax and corruption experts, lawyers, policy makers, politicians and NGOs.
The Tax Justice Network is seeking a tax justice commentator and consultant for our Arabic podcast. Please find all details on the role and how to apply here.The deadline for applications is July 20th 2020.[Update: application deadline now extended to September 2nd 2020 with a new start date of September 7th 2020]
Our producer Walid Ben Rhouma has been producing and hosting the podcast for almost three years and, after a happy and fruitful relationship, our collaborating journalist and human rights expert Osama Diab is leaving our tax justice podcast family and handing on the microphone!
If you’re the right person to replace him, we’d love to meet you. You need to be an Arabic and English speaker who can continue Osama’s role of helping educate listeners in an accessible way on tax justice, helping source stories, great interviewees, compile headlines, always finding effective ways to explain to listeners about taxation, financial secrecy, tax havens, corporate tax cheating, and economic justice, communicating the global power aspects of who makes the rules, and how.
You will need to be very familiar with the Tax Justice Network’s solutions to all these problems and able to communicate them and ensure the programme is ‘on-message’. You will also appear each month on the podcast as a commentator discussing and analysing one or two agreed topics relevant to that month with Walid. You will be supported by me, Naomi Fowler – I produce the English language podcast, coordinate all our podcasts, and will have editorial oversight.
Please find all application details here. I look forward to hearing from you. Here’s the team you’ll be a part of, broadcasting tax justice in five languages:
Illicit financial flows are transfers of money from one country to another that are forbidden by law, rules or custom. They damage economies, societies, public finances and governance of countries around the globe. A key challenge to tackling illicit financial flows is the difficulty countries face in identifying which financial flows carry the largest risk to their economies. The Tax Justice Network is today launching the Illicit Financial Flows Vulnerability Tracker to help countries identify the trading partners and channels that pose the greatest risks to their economies.
Our previous research identified the eight main channels in which illicit financial flows take place: trade (exports and imports), banking positions (claims and liabilities), foreign direct investment (outward and inward) and portfolio investment (outward and inward).
For each of the eight different channels through which illicit financial flows operate, we calculated three measures.
Vulnerability captures how financially secretive the country’s trade, investment or banking partners are. Vulnerability reports the average financial secrecy level of all partners with which the country trades or invests for a given channel, weighted by the volume of trade or investment each partner is responsible. For example, if all the inward foreign direct investment a country receives comes from the Cayman Islands, one of the world’s greatest enablers of financial secrecy, the country would have a high vulnerability measure on foreign direct investments.
Intensity reports the share of national GDP that the channel makes up, helping capture the importance of the channel to the country. Intensity does not measure the secrecy involved in the channel nor the risks of illicit finanical flows the channel poses. For example, foreign direct investments may represent 10 per cent of a country’s GDP.
Exposure combines a channel’s vulnerability and intensity to estimate the share of a country’s GDP exposed to illicit financial flows by the channel. Comparing the exposure levels of different channels helps countries identify the channels that most expose their economies to illicit financial flows. For example, if a country’s inward foreign direct investment channel has a vulnerability of 76 and the channel accounts for 10 per cent of the country’s GDP, the country’s exposure score in inward foreign direct investment would be 7.6 per cent. This means 7.6 per cent of the country’s GDP is exposed to illegal transfers of money.
The Tax Justice Network’s new Illicit Financial Flows Vulnerability Tracker allows users to explore illicit financial flows data with interactive tools, and understand which countries are more vulnerable to illicit financial flows, and more importantly, why: which partner countries and which channels are responsible for the vulnerability in a country’s economy.
The tracker consists of three tools: map view, country profiles and country comparison.
Tool 1: Map view
The interactive map allows users to understand which countries and regions are more vulnerable to illicit financial flows. For example, we see that the vulnerability of Brazil to outward foreign direct investment in 2017 is 67 (a very high score). This implies that Brazilian residents own many companies in places with high levels of financial secrecy, indicating high risks for illicit financial flows (and offshore tax evasion) to occur via direct investment.
Tool 2: Country profile
Clicking on a country (or clicking on “country profiles” in the top menu) takes you to the country profile page of the country you selected. Each country’s profile page provides a detailed breakdown of the 10 trading partners that are most responsible for the country’s vulnerability, intensity or exposure for a given channel. Country profile pages also allow you to see year to year changes in a country’s vulnerability, intensity or exposure levels for all eight channels. In the case of Brazil’s country profile, the webpage shows that high vulnerability to outward direct investment is caused by the top three partner countries: Cayman Islands (responsible of 27 per cent of the vulnerability), British Virgin Islands (17 per cent) and Bahamas (14 per cent)). Cayman Islands—with a secrecy score of 76, British Virgin Islands—with a secrecy score of 71and Bahamas—with a secrecy score of 75— are three of the most secretive countries in the world. The left panel allows the user to easily switch between channels, variables and years.
Tool 3: Comparison tool
Finally, the comparison tool allows you to compare countries’ vulnerabilities, intensities and exposures across different channels. For example, comparing Brazil, Chile, Argentina and Peru, we can observe that Brazil is highly vulnerable to illicit financial flows. While Peru’s vulnerability has decreased over time, Brazil’s remained constant.
The rest of this blog provides three case studies we’ve compiled on Ukraine, Ghana and India by using the Illicit Financial Flows Vulnerability Tracker.
Case study 1: Ukraine
The majority of foreign direct investment entering Ukraine comes from three countries: the Netherlands, Cyprus and Russia. Other highly secretive jurisdiction, such as Switzerland and British Virgin Islands are also among the top investors in Ukraine.
Foreign direct investment (inward flow)
Foreign direct investment exiting Ukraine is primarily destined for Russia and Cyprus.
Foreign direct investment (outward flow)
Case study 2: Ghana
Ghana gained independence from the United Kingdom in 1957. However, the influence of the former empire is still highly present. Outward bank deposits are often situated in the United Kingdom and British Crown Dependencies Jersey and the Isle of Man.
Bank deposit (outward flow, claims)
A large share of inward foreign direct investment comes the United Kingdom, and, concerningly, from highly secretive British Overseas Territories: the Cayman Islands, the British Virgin Islands and Bermuda.
Foreign direct investment (inward flow)
India: The Mauritius connection
A large fraction of India’s inward foreign portfolio investment (non-controlling investment in equity and debt securities) enters the country via Mauritius, Luxembourg and Singapore, notorious corporate tax havens known for their roles as conduits. This is not so evident for outward foreign portfolio investment, dominated by flows to the United States and the United Kingdom.
Portfolio direct investment (inward flow, liabilities)
Portfolio direct investment (outward flow, assets)
“(Other nations) had all come together” via the OECD to “screw America and that’s just not something we’re ever going to be a part of”.
~ US Trade Representative Robert Lighthizer addressing Congress, 17 June 2020, per Sydney Morning Herald.
Boom. The US has blown up ‘BEPS 2.0’, the OECD’s tax reform process with the Financial Times reporting that US Treasury Secretary Steve Mnuchin has written to four European finance ministers to say that the US was “unable to agree even on an interim basis changes to global taxation law that would affect leading US digital companies.”
US Trade Representative Robert Lighthizer told the US Ways and Means Committee, in response to a question about the letter, that the intention was to block any further progress at the OECD. “We were making no headway and [Mnuchin] made the decision that rather than have them go off on their own, you would just say we’re no longer involved in the negotiations.”
The finance ministers of France, Italy, Spain and the UK responded to the letter – per Belgium’s Le Soir – to say that “the positions and proposals of the United States have always been respected and taken into account”. Although they couldn’t resist a little dig, noting that this included an important US proposal that had never been “fully explained“.
The Trump administration then added the now-traditional confusion, with Treasury spokesperson Monica Crowley tweeting a one-line statement that contradicted Lighthizer on both the nature of the US decision and the reason for it: “The United States has suggested a pause in the OECD talks on international taxation while governments around the world focus on responding to the COVID-19 pandemic and safely reopening their economies.” (Italics added.)
The OECD hit back with its own statement, not from the tax team but directly from the Secretary-General Angel Gurría. His threat was clear: “Absent a multilateral solution, more countries will take unilateral measures and those that have them already may no longer continue to hold them back. This, in turn, would trigger tax disputes and, inevitably, heightened trade tensions. A trade war, especially at this point in time, where the world economy is going through a historical downturn, would hurt the economy, jobs and confidence even further.”
A strong response, effectively arguing the US is irresponsible to undermine talks. But in truth, the process was already in disarray, with the non-OECD members of the Inclusive Framework – that is, the lower-income countries that have typically been rule-takers as far as the OECD is concerned – openly calling out the institution’s failure to take meaningful account of their views. More than that, the OECD had already abandoned – at the behest of the US – most of the original ambition. While still paying lip service to the pledge to go ‘beyond the arm’s length principle’, the secretariat had tried to impose a US-French deal that did little of this at best.
Our research with the Independent Commission for the Reform of International Corporate Taxation (ICRICT) showed that the OECD proposal would have moved few of the profits declared in tax havens back to the countries where the real economic activity takes place; and would have primarily benefited a few OECD members, including the US, over all others. (Incidentally, we published the full model and the full dataset; sadly, the OECD has still to publish their data or any replicable model, providing only top line numbers that are hard to square with any others).
Digital services taxes? No thanks
Again, what next? The obvious outcome is that a whole slew of countries will now introduce their own digital services taxes (DSTs), to claim some revenues from these major tax-avoiding multinationals. No bad thing, you might think, and perhaps a small step to reduce tax injustice…
But: Digital services taxes are bad taxes. There, I said it. They don’t deal with profit shifting. They don’t ensure a level playing field between businesses (quite the opposite). They don’t address the global inequalities in taxing rights between countries. Digital services taxes don’t address the issue of unearned rents in the pandemic. And they don’t build towards the broader reforms of corporate tax that are now urgently needed (again, quite the opposite).
What do digital services taxes do? They may raise some – typically small – amounts of additional revenue, at a time when it is much needed. They may reduce the effective policy bias to a sector that has been particularly aggressive in its tax dodging. OK. Digital services taxes allow governments to respond to public pressure to do something about tax dodging – without actually doing very much.
The threat of countries going their own way on this added pressure for some international progress at the OECD, but that’s done now. And the threat of digital services taxes certainly did nothing to prevent good proposals like that of the G24 being ditched in favour of the limited, highly complex alternative negotiated bilaterally by the US and France (until the US today threw its toys out of the pram).
Priorities for countries
The ideas that drove the original optimism around BEPS 2.0 have not gone away. And nor, despite the pandemic, has the systemic tax abuse of multinational companies or the role of their advisers at the big four accounting firms. There is an urgent need for reform – and revenue. If countries are to take unilateral action, here are three options – all ultimately consistent with the broader reforms needed:
1. Countries should introduce excess profits taxes. These will allow states to capture a share of the large unearned profits of those companies that are benefiting from the massive state intervention of lockdowns, while all others suffer. But these must be based not on the declared local profits of multinationals, but on a fair share of their global profits. Take the global profits above, say, a 5% return; then apportion to the country a share in line with their share of the multinational’s global sales and staff. The country can then tax these exceptional, unearned, locally generated profits, at a rate of say 75%-95%.
[If all countries do this, there is no double taxation and the multinationals even get to keep a bit of their unearned profits. Not bad for a pandemic when so many are losing so much, so let’s not take any complaints too seriously.]
2. Countries can introduce formulary alternative minimum taxes. Leave the OECD’s failed rules in place for now, awaiting some global negotiation, but draw a line on the extent to which profits can be shifted. If the declared profits after transfer pricing, thin capitalisation and all the other manipulations end up being less than, say, 80% of the country’s fair share of the global profits under a unitary tax approach, the tax authority should simply draw a line there and claim that as the minimum tax base.
[Again, this approach will not lead to double taxation unless other countries are taxing far more than their share – in which case multinationals should be encouraged to address any complaints there instead.]
3. Countries could move unilaterally to a full unitary and formulary approach. There’s no reason, in fact, not to just go the whole way. There’s no need for global agreement, and no reason for this to cause double taxation unless, again, other states are taxing more than their fair share.
Whichever path countries or regional blocs like the EU choose, they should ensure that multinationals are required to publish their country by country reporting. This will confirm to the world that the country is not taxing more than its fair share; and reveal if other countries are continuing to procure profit shifting. And of course, country by country reporting shows the public which multinationals – and which tax advisers – are most aggressively flaunting their social responsibilities to pay tax fairly, like the rest of us. What’s not to like?
Where now for the OECD?
At one level, the OECD faces a simple choice. While it has said that the show must go on, there is presumably a more thoughtful process happening behind closed doors. They could opt to complete the exercise, in the hope that Trump will be replaced and a new administration willing to get on board with the outcome will be along shortly. But this would be an EU deal, with few other countries able or willing to engage fully during the pandemic, and OECD members unwilling to cede real power. And in any case, how likely is it that global corporate tax reform would head the action list of an incoming Biden administration facing a twin crisis of corruption and COVID?
Would the EU want to bother, or instead push ahead itself and finally bring in the Common Consolidated Corporate Tax Base (CCCTB) – ideally on a full unitary basis? It’s hard to see how the OECD could regain any credibility with the Inclusive Framework after putting a red line through their work programme at the behest of the US, so the only argument would have to be ‘come on back, the big bully has gone’. Tricky, although it could perhaps work a bit if the EU was willing to see a more ambitious outcome internationally – something closer to the Common Consolidated Corporate Tax Base for all. But given the EU’s difficulties in dealing with its own tax havens, no one should hold their breath.
Alternatively, the OECD could do what we asked them to do a few months ago: accept that this process is toast, and unconscionably unfair to non-OECD members, and abandon it. It should be painfully clear to all that the negotiation of international tax rules is political, not technical; and the OECD’s legitimacy, such as it is, is technical and not political. This is not the right forum.
The OECD’s future role on tax could be in providing technical support to its members in a global tax negotiation. That negotiation must be at the UN – not because it is perfect, but because that is what it is for: to provide a forum for global political negotiations. The OECD has recently inveigled its way into UN processes, seeking a role to guide some kind of ‘BEPS 3’ for lower-income countries. This too is clearly illegitimate; but hints perhaps at a technical role on the fringes of a political process.
There are many good people working at the OECD to make international tax better. But the organisation has confirmed once again, for what should be the very last time, that it is a members’ club only and cannot be trusted to run a genuinely inclusive process.
Where now for the excluded of the ‘Inclusive Framework’?
It is not coincidental, of course, that OECD members are primarily countries that have had empires and/or are ‘settler nations’ – while those in the ‘Inclusive Framework’ are primarily the colonised, the ‘settled’. If ever there was a time to leave this behind, it’s now.
Three options stand out.
1. The possibility of meaningful, regionally led reforms. A combination of the technical group and the political (the African Tax Administration Forum working with the African Union, say); or a technical group working with a regional power (CIAT, the Inter-American Center of Tax Administrations, with Argentina, perhaps).
2. The UN might finally take on its role as the global forum for the global negotiations over global taxing rights that must, eventually, come to pass. A critical decision facing the high-level UN Panel on Financial Accountability, Transparency and Integrity (FACTI), when it reports in January 2021, is whether to put its full backing to the proposal for a UN tax convention. Such an instrument is intended to deliver fully multilateral commitments to tax transparency measures, and at the same time to establish the forum for such negotiations.
OECD members have already indicated their opposition, following their longstanding blocking of a meaningful role on tax for the UN. If the OECD is a busted flush, even this could perhaps shift; but for now, the third option may be the best bet:
3. This would be process-led by the G24 or G77 groups. The idea would not be to move immediately to a formal, global negotiation. Instead, the groups could convene an open discussion among states, with strong technical support, to allow exploration of the options and likely revenue and broader economic impacts. In effect, the idea would be to convene the sort of process that the Inclusive Framework had set out in its work plan, but with genuinely open participation.
This would allow the potential for consensus to emerge over time, but also provide technical support for countries taking more immediate measures – of the sort described above, for example – in the face of the pandemic and other revenue pressures. The Tax Justice Network stands ready to assist with technical support to any such process, as undoubtedly would the wider global tax justice movement.
Everyone knows the global economic system isn’t working in the interests of most of us. In our new video series the Reboot we talk about how to fix it. From lockdown because of covid19 Naomi Fowler speaks to John Christensen and Nicholas Shaxson of the Tax Justice Network.
In this second episode of the Reboot: the big question people are asking as many governments are busily ‘printing money’ to tackle the coronavirus is – how can we afford this? We talk about wealthier. economically powerful countries with strong currencies and independent central banks and why they absolutely can afford this. And then we’ll look at the situation for countries which don’t have strong currencies or powerful central banks, many of whom are already seriously indebted to the IMF, World Bank and private creditors.
Naomi Fowler is the host and producer of the Tax Justice Network’s monthly podcast The Taxcast which is available on most podcasts apps.
John Christensen is co-founder of the Tax Justice Network and is a forensic auditor and economist. His research on offshore finance has been widely published in books and academic journals, and John has taken part in many films, television documentaries and radio programmes.
Nicholas Shaxson is a journalist and writer with the Tax Justice Network. He is author of the book Poisoned Wells about the oil industry in Africa, Treasure Islands: Tax havens and the Men who Stole the World and The Finance Curse: how global finance is making us all poorer.
This statement from Tax Justice Network-Africa, reproduced below, can be accessed in pdf format here.
The COVID-19 pandemic has exposed systemic inequalities in the current social, political and economic systems. African countries are disproportionately bearing the brunt of the impacts of the pandemic as a result of decades of privatisation and austerity measures resulting in underfunding of social sectors. The crisis has also exacerbated the weak monetary and fiscal systems, with a limited fiscal capacity to respond. African countries are now also experiencing reduced tax revenues due to reduced economic activities as a result of the loss of export earnings and commodity price collapses.
The differentiated COVID-19 impacts in Africa as in many countries in the global south are as a result of neoliberal, neo-colonial and patriarchal economic systems of oppression through decades of structural adjustment programmes of the 1980/90s. The main political mantra of the Structural Adjustment Programme was to minimise the welfare state by reducing the involvement of State in socio-economic programmes. These policies focused on unviable capital-intensive industries often in commodity sectors, instead of promoting competitive labour-intensive industries. Africa’s low average annual growth of 3.3% in 2014-19 has in turn constrained public finances, leading to underfunded social sectors including health and education systems, weak governance, rapid increases in public debt, and large infrastructure deficits. This neoliberal system continues to entrench a broken international financial architecture that enables illicit financial flows, tax evasion and avoidance by the rich and MNCs. This broken tax system allows transnational corporates to minimise their taxation by shifting their profits to offshore tax havens.
Additionally, the MNCs lobby and obtain low or zero corporate income tax rates from governments growing use of generous tax giveaways aimed at attracting foreign investments. The private sector-led growth policies have resulted in severely undermining the capacity of the State to generate domestic resources required to invest in social sectors and made African countries largely reliant on extern aid to support government programmes. Trade liberalisation has also reshaped economies and relegated developing countries to mainly producing and exporting primary commodities and importing manufactured goods and now impacted by the drop in the price of commodities in the context of a global recession.
The Covid-19 pandemic has created an opportunity to address some of the underlying principles of neo-liberal economic theory and demand structural and systemic reforms for redistributive justice including progressive taxation reforms, and where the wealthy elite and multinational companies pay their fair share. It’s about creating an opportunity to re-examine the continent’s fiscal and economic-policy priorities and creating alternatives to the current structure’s economic model that is fit for purpose and reinvigorating the role of the State.
The impacts of the global pandemic in Africa are not limited to health; it has also affected peoples’ lives socially and economically. Firstly, the pandemic has exposed weak public health systems which are understaffed and poorly resourced due to decades of underfunding and privatisation. Africa is witnessing the vulnerability of privatised and discriminatory health systems, and COVID-19 is increasing the pressures on the already unresponsive public healthcare systems. Secondly, reduced economic activities as a result of lockdown containment measures have led to a reduction in tax revenues despite the increased spending in the health sector. Fewer exports from African countries due to reduced demand and less economic activity has the probability of leading to a substantial economic recessionrequiring governments to inject money into the economy for survival. However, Africa’s ability to use monetary and fiscal policies to mitigate the pandemic’s economic impact is limited. African countries’ governments and central banks lack the fiscal policy space and capacity to adopt robust and often unprecedented short-run stimulus measures. Governments are constrained by monetary arrangements that prevent them from implementing national strategies. Besides, many African countries have unsustainable sovereign debt levels. Currently, the continent has a total external and domestic debt stock of $500 billion, and the median debt-to-GDP ratio had risen from 38% in 2008 to 54% in 2018. By causing a collapse in exports and terms of trade, the COVID- 19 pandemic is pushing African countries into negative per capita growth.
The effects of the coronavirus are also being felt disproportionately by the poor and the working class. The ILO estimates that more than 72% of total employment in sub-SaharanAfrica is in the informal sector. Despite this sizeable informal economy of up to 90%, African countries do not have social welfare systems to cover those without jobs as a result of lockdown measures. The pandemic has led to massive layoffs and non-payment of wages, pushing many workers into unemployment, poverty and starvation. The pandemic has also revealed and deepened existing gaps in social protection systems and has also translated into an intensified care burden for women. This has resulted in increasing the underpaid and unpaid care work and reinforcing patriarchal norms because women, on average perform 76.2 per cent of total hours of unpaid care work, more than three times as much as men. Lastly, most African countries are agriculture-based, and the GDP is primarily built upon agricultural services. However, food sovereignty and security is threatened as food supply chains are disrupted.
We urge African governments to:
Repeal value-added tax and consumption taxes and provision of tax credits to SMEs, and low-income earners.
Support greater investment in publicly funded, quality, universal public services and universal social protection systems. Prioritising well-staffed and resourced public health systems, equipped to respond to public health emergencies.
Ensure food sovereignty and security during this crisis and post-crisis
Urge IFIs to cancel sovereign debt for debt-distressed African countries to give governments sufficient fiscal space to respond to the current crisis, in compliance with human rights standards.
Progressively raise and spend tax revenues to address the impacts of the crisis, including by gender-responsive budgeting (GRB).
Evaluate and assess tax incentives and exemptions being given to non-essential corporations using a cost-benefit analysis to scrap any wasteful tax breaks that are a drain on public coffers.
Raise corporate income taxes (CIT) rates. – a “race to the top” targeting profitable businesses, and incorporating progressivity in the CIT, by taxing highly profitable companies at a higher rate while promoting tax transparency and a reform of the international corporate tax rules.
Promote domestic and regional tax transparency measures to identify and curb illicit financial flows (IFFs) by promoting Public country by country reporting (CBCR) for multinational corporations. (public information); Public registers of beneficial owners of legal entities and arrangements automatic exchange of information
Scale-up multilateral cooperation in combating illicit financial flows (including tax evasion and corporate tax abuse) and ensure that multinational corporations pay their share of taxes where they do business by rethinking and reinforcing the reform of the global corporate tax system and supporting the establishment of a global tax body to establish global norms on tax rules.
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 especial sobre el coronavirus:
Los ganadores de la pandemia a nivel mundial.
¿Quiénes son los acreedores de la deuda global?
La Organización Mundial de la Salud dice que el foco mundial de la pandemia es el continente americano. Analizamos la respuesta en tres países: Bolivia, Chile y Perú.
y Costa Rica ingresa a la OCDE: ¿paso adelante o condena?
Several months into the COVID-19 pandemic people are bracing themselves. ‘Build back better’ is the mantra, but what does that mean in terms of tax justice and human rights? How should governments respond in the face of anticipated economic and social hardships?
Like many others we are concerned governments’ policies should not deepen inequalities or negate many of our fundamental rights. In the wake of the 2008 financial crisis, many governments ran roughshod over their human rights obligations, insisting that such considerations could not be priortised in the context of such a calamity. This perverse logic had devastating impacts for many millions of people. Indeed it is precisely in the face of a global emergency that human rights norms and standards should be given the highest priority.
This time we want to see a way forward which is both progressive and sustainable. The Center for Economic & Social Rights (CESR) shares this vision. Many of the public clearly share it too.
To find the right solutions we need to untangle ‘progressive’ rhetoric from ‘regressive’ policies. It’s important we establish which are the policies that will make a positive change to people’s lives. And which are the harmful ones which will fail you because, for example, of the country you live in, your race, or your gender.
CESR is publishing a series of straightforward issue briefs which aim to unpack the human rights principles that must be taken into account in policy responses to the pandemic and what social activists need to know. We are delighted to collaborate with CESR on this their latest briefing Progressive Tax Measures to Realize Rights. The full briefing is available as a pdf here in English and in Spanish here.
You can find CESR’s published and forthcoming briefings here.
The killing of George Floyd by US police in Minnesota, on 25 May 2020, has sparked a public response both more powerful and more international than almost any of the previous cases in a very long line – including Breonna Taylor in Kentucky, 13 March 2020. The demands for justice extend far beyond the specifics of the individuals involved, and instead reach deep into the structurally racist inequalities embedded in countries all around the world.
Reparations for slave… owners?
In the UK, welcome attention is being paid to the typically whitewashed history of the British Empire. As statues of (white, male) slave traders tumbled, Naomi Fowler (the Tax Justice Network’s creative strategist and presenter of the monthly Taxcast) reported on a long-running investigative project. This focuses on the financial institutions and others who benefited from the unrivalled generosity of the British government, which in 1835 recompensed the slave owners who were to be ‘dispossessed’ by the abolition of the legal right to hold title to other human beings. Such was the scale of the repayment, at around 40% of annual revenues, that UK taxpayers continued to service the resulting debt until 2015.
The UK Treasury’s bizarre, tone-deaf decision to celebrate the final payment being made prompted a wave of revulsion at the idea that taxes paid by UK tax residents in this century could have been used, in effect, to make good an imagined debt to those who profited from human misery in one of the most shameful elements of an imperial history not lacking in competition. That response included a petition, now reopened, calling for the government to return to taxpayers these illegitimately raised revenues.
The notion that we as tax payers in Britain, including those whose ancestors were subjected to the horrors of enslavement, have by your own admission, financially contributed to such payments, is totally unjust and abhorrent to us… We at no time consented to the misuse of our tax monies to reward such abominable crimes. We therefore demand refund in full so that such funds can be put to better use in repairing the harms done and paid for not in our names.“
– Cleo Lake, petition to HM Revenue and Customs.
‘You broke the social contract’
As both the petition and Naomi Fowler’s piece note, the sums extracted globally by the British empire were much bigger than the compensation paid to slavers – running easily into the trillions of dollars, rather than the few tens of billions associated with this debt. What sort of reparations could conceivably address this scale of damage?
And the human costs of the structurally embedded racism, in both former imperial powers and in settler/colonial states, run far higher. The racial wealth gap is extraordinary, is not closing and will not do so under the types of policies typically considered. White power didn’t just push Black people and others behind, as if stealing some money in a game of Monopoly – as Kimberly Latrice Jones lays out here, ‘you fixed the game… you broke the social contract.’
Two recent papers from Dr Trevon Logan, the Hazel C. Youngberg Distinguished Professor of Economics at the University of Ohio, show one role of tax in how white people broke the social contract. First, in ‘Do Black Politicians Matter? Evidence from Reconstruction’ (March 2020, Journal of Economic History), Logan shows that after the American Civil War,
“an additional black official increased per capita county tax revenue by $0.20, more than an hour’s wage at the time. The effect was not persistent, however, disappearing entirely once black politicians were removed from office at Reconstruction’s end. Consistent with the stated policy objectives of black officials, I find positive effects of black politicians on land tenancy and black literacy. These results suggest that black political leaders had large effects on public finance and individual outcomes over and above electoral preferences.”
Effective taxation supports the 4 Rs: revenue, redistribution, re-pricing (of public bads) and political representation. Attempts to include freed slaves in public services for the first time required new revenues, to complete a broader social contract, and Black politicians were more likely to pursue this aim. But resistance was often violent – aiming, almost literally, to break that social contract before it could be embedded.
Second, in ‘Whitelashing: Black Politicians, Taxes, and Violence’ (June 2019, NBER), Dr Logan finds that successful revenue-raising was also associated with a higher likelihood of (white) political violence against Black people:
A dollar increase in per capita county taxes increases the likelihood of a violent attack by more than 25%. The result is robust to numerous economic, social, historical, and political factors. I also find that counties where black officeholders were attacked had the largest negative tax revenue changes between 1870 and 1880 and that violence against black politicians is unrelated to other forms of post-Reconstruction racial violence. This provides the first quantitative evidence that political violence at Reconstruction’s end was related to black political efficacy.”
How would one go about establishing an appropriate level and means of reparation for the scale of damage done – not only the outright theft of lives, but the burning down and looting of possibilities for political, social, economic, human development? There are many great resources out there to help think about what this could mean, and this white British male blogger is in no way qualified to opine on right ways and wrong. What does seem clear, however, is that while a monetary aspect is likely necessary, it could never be sufficient. That which must be repaired is also social and political, not purely economic.
Reparations—by which I mean the full acceptance of our collective biography and its consequences—is the price we must pay to see ourselves squarely… What I’m talking about is more than recompense for past injustices—more than a handout, a payoff, hush money, or a reluctant bribe. What I’m talking about is a national reckoning that would lead to spiritual renewal.“
On the other side of one of empire’s many coins, we find the UK’s network of small islands operating as financial centres. Nick Shaxson’s book Treasure Islands and Michael Oswald’s film, The Spider’s Web, document how the UK turned away from its responsibilities to its remaining territories. Instead of making the financial commitment to support their development as the sun set on the British Empire, successive governments chose instead to encourage them down the road of tax havenry – attracting dirty money from all over the world, and channelling it into the City of London.
The intention was to engineer a ‘win-win’: providing a development path for the territories that would ‘save’ the UK from providing aid funds on an ongoing basis, while at the same time ensuring the continuing pre-eminence of the UK as a global financial centre.
The actual effect, arguably, was lose-lose. Many of the UK’s dependent territories saw a sharp and sustained rise in inequality, as foreign financial services professionals entered and captured the greater share of any subsequent benefits in economic growth. At the same time, a predictable Dutch disease played out, from Jersey to Cayman, with agriculture, tourism and other alternatives largely squeezed out by the new industry, making both the economies and the politics of these islands increasingly dependent on the whims of accounting and international law firms – rather than democratic preferences. This capture, part of what we have labelled the Finance Curse, further deepens the inequality and corruption facing islanders.
Meanwhile, at an international level, the emergence of the UK’s network of secrecy jurisdictions has been a central driver in the process of global extraction that has followed the period of formal Empire. The UK and its network, if taken as a single entity, would consistently be at the top of both the Financial Secrecy Index and the Corporate Tax Haven Index – in other words, the network is the greatest threat facing the world in all aspects of illicit financial flows, from tax abuse to grand corruption.
As we show in a new book with Petr Janský (now free to download in open access, from Oxford University Press), these illicit flows undermine the 4 Rs of tax in countries all around the world. In simple monetary terms, corporate tax avoidance is estimated to cost some $500bn a year in lost revenues, and offshore tax evasion a further $200bn – but as with the pattern of racist political violence that Prof Logan documents in the US, the governance damage is likely to be far greater than the simple loss of immediate revenues for public services.
It is difficult to imagine the means and level of reparations by which the UK might begin to make amends for the global extraction it has driven during decades, and continues to drive today. A very first starting point would be to bring the UK and the network into line with the ABC of tax transparency – committing fully for all of the jurisdictions to participate in Automatic, multilateral exchange of financial account information; to deliver public registers of verified Beneficial ownership information for all companies, trusts and foundations; and to require public Country by country reporting from all multinationals.
In terms of the UK’s territories and the islanders themselves, the position is perhaps more straightforward. The UK has, in effect, saved money year on year by promoting their tax havenry rather than supporting broad-based, sustainable human development strategies. The City of London too has benefited, by receiving a greater stream of (partially laundered) dirty money; although of course this has also contributed to the UK’s own finance curse, driving the governance and inequality problems it now faces.
These funds, in effect taken from the territories by the UK’s failure to meet its responsibilities, should now be provided as the basis to support that permanent transition – away from tax havenry, with both the global and local costs that it imposes, and towards alternative strategies: the ‘Plan B’ that islands should have been supported to develop since the 1950s, instead of pursuing financial secrecy. This is a topic about which the Tax Justice Network has been involved in discussions with partners in many of the jurisdictions over a number of years, and we are cautiously optimistic now about policy ideas beginning to come forward. We’re always interested to hear from others on this, and to support where we can, so do get in touch if that’s you.
Update: you can hear Naomi Fowler and John Christensen discussing this research in edition 102 of the Taxcast, our monthly podcast, starting about 2 minutes in:
It’s hard to believe but it was only in 2015 that, according to the Treasury, British taxpayers finished ‘paying off’ the debt which the British government incurred in order to compensate British slave owners in 1835 because of the abolition of slavery. Abolition meant their profiteering from human misery would (gradually) come to an end. Not a penny was paid to those who were enslaved and brutalised.
The British government borrowed £20 million to compensate slave owners, which amounted to a massive 40 percent of the Treasury’s annual income or about 5 percent of British GDP. The loan was one of the largest in history.
We wanted to find out which financial institutions were involved in this loan, so I sent two Freedom of Information requests to the UK Treasury and the Bank of England about it. I received two responses, which I’ll detail later, but the names and details of those creditors and investors remain frustratingly out of sight. If you feel you have the skills and time to help us continue the search, please get in touch.
legacies of slavery continue to shape life for the descendants of the formerly enslaved, and for everyone who lives in Britain, whatever their origin. The legacies of slavery in Britain are not far off; they are in front of our eyes every single day.”
Kris Manjapra‘s article, along with the work of historian David Olusoga inspired this blog, our investigations, and our Freedom of Information requests on this subject.
We recently published a two part Tax Justice Focus special on climate crisis and tax justice. This blog reproduces the article by Richard Murphy, in which he outlines how radical changes to accounting rules would require companies to comprehensively disclose their carbon emissions. Sustainable Cost Reporting, Richard argues, would put company directors into a position where they must accept responsibility for the harm caused by ‘externalities’. Click here to download the first and second parts of our Tax Justice Focus special.
by Richard Murphy *
Accountancy was established to protect investors from fraudulent managers. As the activities of companies now exceed planetary limits accountants must think much more carefully about their public interest responsibilities. Here one of the discipline’s most original and influential thinkers sets out the role new reporting standards could play in aiding a swift and just transition away from fossil fuel dependence.
The climate crisis is real: it is settled science that we must take immediate action to address its consequences. Across the world there has been a response that few in any activist community can ignore. There have been demands for a Green New Deal. Extinction Rebellion has led protests that have revealed the power of civil disobedience. Greta Thunberg has become a global figurehead for creating school strike protests.
The demands have, however, been primarily aimed at governments, which is reasonable given their responsibility for setting environmental policy. Governments will also be responsible for delivering the new public infrastructure needed to support the different types of economic activity that we now require. But we should not ignore the fact that as few as twenty oil and coal companies may ultimately account for one third of greenhouse gas emissions,[1] and just one hundred companies may account for seventy per cent of these emissions.[2]
What does this have to do with tax justice? In practice, quite a lot, since one of the possible reactions to the climate crisis is to tax the use of carbon-based fuels and another is to provide tax incentives to business to change their behaviour. Both might have a
significant impact on corporate tax bases and we need to understand what this might mean. However, we have almost no reliable data from most businesses on their carbon emissions; nor do we know enough about the economic impacts of any major policy proposals to be in a position to take decisions on such matters . As significantly, when it comes to the corporate tax base, we have almost no idea about which businesses might survive the transition to a net-zero carbon world, and which might not.
That said, moves are underway to address this issue. Former Governor of the Bank of England, Mark Carney, is promoting voluntary accounting standards created by a Bank for International Settlements initiative called the Task Force on Climate-related Financial Disclosures (TCFD).[3] Carney is to be commended for getting this ball rolling, but what he proposes is inadequate. The TCFD standards are voluntary and current rates of compliance are lamentably low.[4] Worse, TCFD standards do not require businesses to account for the carbon emissions that the products they create or sell give rise to when used by a customer, which means that the downstream environmental externalities businesses create in pursuit of their profits will go unreported. Given that the climate crisis has arisen because of businesses failing to take responsibility for the externalities of their activities, it is unacceptable for the TCFD standards to omit these downstream externalities.
For this reason the Corporate Accountability Network is developing what it calls sustainable cost reporting (SCORE), a new, mandatory accounting standard which will require businesses to disclose their greenhouse gas emissions (GHG) under four categories:
Scope 1: The GHGs the reporting entity creates itself;
Scope 2: The GHGs produced when generating the electricity the reporting entity consumes – the upstream externalities;
Scope 3: The GHGs arising from the manufacture and use of products and services over which the reporting entity has some contractual control e.g. within outsourced manufacturing processes (incorporating both upstream and downstream externalities);
Scope 4: The GHGs arising from the manufacture and use of products and services which the reporting entity buys in for resale essentially in the state in which they acquired them (also incorporating upstream and downstream externalities).
As is apparent, remoteness from control increases as the Scope number rises, but in each case the reporting entity facilitates the emission. In Scopes 3 and 4 the disclosure has to be split between upstream supply and downstream customer chains so that these can be fully understood. All disclosure will be on a country-by-country reporting basis to both reveal the geographic spread of the impact and to curtail carbon dumping.
Once this information has been disclosed, the reporting entity has to prepare a plan to become net carbon zero, as is necessary if the impact of climate change is to be managed. Crucially, SCORE requires that this plan be published and the cost to the reporting entity of its achievement must be estimated.
The most radical requirement of SCORE is that this cost has then to be included in the accounts of the reporting entity – in full – at the time of adoption of the SCORE standard. The logic is simple: SCORE recognises that the cost to the business of tackling climate change increases if action is deferred, therefore recognition of this cost in the accounts will encourage early action to minimise the final cost to the business of eliminating carbon emissions from its production and consumption chains. That this reverses the traditional accounting approach of discounting future costs is beside the point: nothing is normal about climate change and its impact.
Some important issues should be noted. The first is that SCORE does not put a cost on carbon usage: it covers the cost of removing it, making it far more robust than any alternative approach. SCORE also enables appraisal of each reporting entity on its own terms.
Second, the cost must be based on known technology: a precautionary principle must be applied, meaning that unproven technology cannot be assumed to deliver net-zero carbon, although investment in such technology to reduce the cost provision required (and so, in effect, declare a carbon cost reduction profit) is encouraged.
Third, the provision for costs will need to be reappraised annually and reported upon as a key accounting issue, thus enabling stakeholders to appraise companies’ commitment to their plans, and whether or not those commitments are being delivered on within the cost target. This will allow investors to identify companies that are best able to eliminate GHG emissions.
Crucially, SCORE will reveal that some companies might not be able to make this transition. They are carbon insolvent because they either cannot adapt their processes or will not be able to raise sufficient capital to do so. SCORE will allow for early identification of these entities, providing more time for them to be wound up in an orderly fashion.
All of this feeds into tax justice. The wise use of subsidies, tax allowances and reliefs can be appraised. Indeed, they can be designed to encourage companies with a good SCORE. And if carbon tax is to be used, then its impact – and how to manage the risks within it – will also be capable of appraisal using better data than any we have currently available.
Accounting may have the reputation of being boring. However, counting the right thing, in the right way, at the right time is now key to social, economic, tax and environmental justice. SCORE is designed to help achieve this goal.
* Richard Murphy FCA is the Director of the Corporate Accountability Network and Professor of Practice in International Political Economy, City University, London. His books include The Joy of Tax and The Courageous State.
This guest blog written by Dr Mary Alice Young of the University of the West England proposes that in the aftermath of Covid-19, Western governments must redress antiquated and inherently racist organised crime control laws
By Dr Mary Alice Young*
Organised crime is not homogeneous, and is wrongly assumed by many policy makers to be so. This flawed perception of what constitutes organised crime is why countries struggle with ineffective, outdated, organised crime control laws; modern laws which have been constructed around the historical and prohibitionist Nixonian “drug war” template from the 1970s – including the Organized Crime Control Act, the Comprehensive Drug Abuse Control Act and the Bank Secrecy Act (the latter forming the foundation of today’s global anti-money laundering regime) – and which are therefore predicated on the notion that all types of organised crimes groups operate in a similar manner to drug trafficking organisations; that organised crime exists as an external threat linked to minority and ethnic groups; and that the activities carried out by these illicit business ventures must therefore be treated in a similar manner to drug trafficking offences.
Added in to this continuing and incorrect perception of organised crime, is the fact that the definition of the concept itself is fraught with various national, regional and international interpretations which are embedded into global legal systems. Such interpretations of organised crime into the legal systems of countries, also encompass the assumption that Western efforts to control drug trafficking are the blueprint of so called “good practice”. Yet none of us are any the wiser as to what organised crime is and how to curtail it and efforts to halt its spread remain largely ineffective.
Norm shaping, in this context relating to the creation of principles designed to regulate the activities of criminals, rests upon historical and United States (US) borne assumptions of what constitutes organised crime. The exportation of organised crime control laws from Western countries, to vulnerable countries such as those in the Global South, for example Jamaica and other small island developing states, means that such countries are forced to adopt inflexible, inappropriate and often irrelevant policies.
In Jamaica, the interviews I carried out highlight that the main concerns for law enforcement involve the illicit trafficking of firearms from the US (where they are manufactured) to Jamaica – where they are used, often ending in the tragic loss of Jamaican lives. However, the immediate concerns of Jamaican law enforcement officials and policy makers, are superceded by the priorities of the US which views the lotto scam (a type of advance fee fraud) as a paramount concern because it victimises US citizens and thus is seen as a direct threat to the US, yet conversely does not consider the need to examine the illicit traffic of firearms leaving its ports. Laws, policies, reports and agreements, are therefore tailored to suit the country wielding the greatest financial and political power at the global level, and so remains the fixed narrative left over from the Nixon era, that organised crime cannot be home-grown but is carried out by those belonging to ‘The Other’ – groups which are viewed as not belonging, being different, and existing outside of what is considered acceptable or normal.
It could be observed that organised crime control laws rest upon inherently dangerous perceptions of what ‘The Other’ constitutes. Especially given that from the outset, the US war on drugs was a tactical decision by the Nixon Administration to damage the Black community and conceal anti-democratic and radical tendencies within the American state. This fact was stated by Nixon’s former domestic policy adviser John Ehrlichman who stated in a 1994 interview with Dan Baum, that the Nixon White House had two enemies, these being the anti-war left and black people; by associating marijuana and heroin with those communities, the White House could criminalise them and therefore cause the disruption of those communities.
In reality, organised crime cannot be neatly shoehorned into conveniently labelled boxes depicting characteristics such as race, religion and vocation – although we have the popular media and Hollywood to thank for those demonising stereotypes. Organised crime is adaptive, flexible, exploitative and sometimes rather mundane.
Organised crime moves with us in everyday life: walking the streets with us and constructing the buildings we utilise, keeping corner shops stocked, manicuring the nails of hands up and down the country from Aberdeen to Axminster, cocooning some of us in a false sense of security by offering a chemically induced escape from the everyday, and allowing some of us to purchase rare works of art, animals and antiquities. It allows some of us to live a life of unquestionable luxury, and others just to survive on a daily basis.
Organised crime allows the purchasing of everything from breasts and Botox to trainers and takeaways. Organised crime does not limit itself to class, wealth or status, and we only need to revisit the recent Panama and Paradise Papers to know that the economically and socially elite are as important to the process of illicit money movement, as the local drug dealer is to the dispersal of synthetic drugs on a council estate in the West Midlands.
The vital role of “white collar” enablers in helping to perpetuate organised crime, was recognised forty five years ago by the United Nations at its Fifth Crime Congress on the 1 September 1975, in Geneva, Switzerland. On the table for discussion was the issue of ‘Crime as Business’ which incorporated sub-discussions on ‘Organised Crime, White Collar Crime and Corruption’. The Secretariat concluded in their final report, that in the context of organised crime as business, criminal activities were characterised by those of a high social status – often possessing considerable political power – which enabled them to use or misuse legitimate techniques in business and industry, and therefore remain undetected and invisible.
The recent financial scandals reported in the news are evidence of the fact that the movers and shakers in the world of criminal money management, largely fall outside of ‘The Other’ classification, and often represent individuals more closely associated with the American norm of “white” middle-class America and who prioritise consumption, pleasure and the accumulation of wealth – those who are best placed to circumnavigate the anti-money laundering and organised crime control laws. This is a section of society which was favoured by Nixon’s administration in 1970 and remains so by the Trump administration fifty years later.
As the Covid-19 pandemic wreaks havoc across the globe, recent events following the tragic death of George Floyd at the hands of US law enforcement officers, remind us that the devastating legacy of Nixon’s war on drugs lives on.
The racism, brutality and bigotry directed at the Black community has been normalised under the guise of so-called crime control laws and criminal justice (and has further been widened to apply to anyone who does not fit the accepted social norms so visibly promoted in the West); the dichotomy between the treatment of white collar criminals able to funnel unquantifiable amounts of filthy money through Western financial centres at great cost to the societies of developing nations, and low tier, opportunistic, survivalist criminals, has never been so stark.
While it is far too early to predict how organised crime control will be affected by the pandemic, I urge all governments in the aftermath of this crisis – including the UK government – to reconsider their fundamental misunderstandings of organised crime. Confusions and misunderstandings which are predicated on the aforementioned incorrect, historical perceptions built by US administrations in days gone by, but which continue to inform modern day crime control initiatives.
* Dr Mary Alice Young is a Researcher and Senior Lecturer in International Criminal Law, University of the West of England –[email protected]
We have recently blogged about the first call of the new Advisory Group to promote beneficial ownership verification that we are co-developing together with the Financial Transparency Coalition, Transparency International, Global Witness, Global Financial Integrity, OpenOwnership, The B Team and the World Economic Forum’s Partnering Against Corruption Initiative (PACI).
We have now held three calls with the Advisory Group, the most recent of which mapped various strategies currently being used to verify beneficial ownership information. These strategies ranged from manual approaches to more advanced and technological ones. All three calls have been very promising for a number of reasons.
First, it involves a diverse multi-stakeholder approach. The organisations participating in the calls have included global and local civil society organisations, journalists and researchers, government authorities from developed and developing countries (especially in Europe, Latin America and Africa) and international organisations (some acting in an observer status), including the World Bank, the IMF, the EU Commission, Europol, the UNODC, the Inter-American Development Bank, the Inter-American Center of Tax Administrations (CIAT), EITI, Open-Government Partnership (OGP), and the German Corporation for International Cooperation (GIZ), among others. However, even more interesting may be the wide participation from the private sector, including banks and other financial companies (Citi, HSBC, Bank of Montreal, PayPal), and compliance and data companies such as Kroll, Ofido and Refinitiv.
What’s great about this wide spectrum of participants, is not just that we all got together to discuss beneficial ownership verification, but that there is an agreement about the most common loopholes, challenges and risks in relation to beneficial ownership transparency as described by this summary of our second call. Most, if not all, participants agree on the importance of public access to beneficial ownership information and the need to verify the information.
Another remarkable aspect is the wide interest in this topic. The first exploratory call to get feedback on the concept note and the second call to discuss common loopholes and challenges, each brought together close to 50 people in a virtual call. In our third and most recent virtual group call, held on 15 May, the number of attendees jumped to more than 90 people representing organisations from 24 different countries including Argentina, Armenia, Canada, Colombia, Costa Rica, Denmark, Ecuador, Germany, Italy, Kenya, Latvia, Nigeria, Norway, Panama, Peru, Slovakia, South Africa, Spain, Switzerland, Tanzania, UK, Ukraine, Uruguay and the US.
Having started delivering virtual conferences more regularly in December 2019 before the Covdi-19 pandemic, we used our learning on how to make virtual conference interactive and engaging to encourage contributions on innovative approaches to beneficial ownership verification. The first call was an exploratory meeting and provided everyone with opportunities to give their feedback in a very horizontal way. Everybody, from department heads of policy-setting international organisations to community activists from the global south, was on an equal footing. The second call featured virtual breakout sessions where participants held discussions in small groups and then shared the outcomes and findings of their discussions with the rest of the participants once the small groups reconvened. During our third call, we heard 15 brilliant elevator-pitch presentations (4 minutes each) from participants on what is happening in their corner of the world in terms of verification.
The 15 inspirational presentations were delivered by 4 authorities from Denmark, Spain, the UK and Uruguay, 1 journalist from Argentina, 4 activists and researchers from Ecuador, Italy, Germany and the UK, 2 global banks, 3 global data IT and compliance companies and 1 practitioner from Slovakia.
Here’s a snapshot of what we learned:
Verification in some cases requires intense manual work, involving case by case checks, audits, sanctions and the intervention of notaries or lawyers to ensure someone will be held liable for the truthfulness of the registered data. Uruguay and Spain involve notaries. In the case of Spain, Mariano Garcia Fresno, Head of Analysis and Reporting Unit of the General Council of Notaries, described how notaries do thorough checks on the information before they allow a company to be registered. Ines Cobas, from Uruguay’s National Internal Audit Office (AIN), also audits companies’ beneficial ownership registered data by doing integrity and quality checks which may involve obtaining all underlying documentation from a company. Andrej Leonitev exemplified how Slovakia has a very advanced system to ensure a local Slovak intermediary, a lawyer or other professional, will check and be held liable for the beneficial ownership identification and online publication for any company involved in procurement or other receipt of public fund/assets.
Intense manual work was also required by researchers including Tax Justice Network-Germany. Christoph Trautevetter described how, by researching about beneficial owners of investment funds who own Berlin real estate, he found inconsistencies between the information provided by the beneficial ownership registries of Germany, Luxembourg and Denmark (including between Luxembourg’s commercial register and beneficial ownership register). Andres Arauz from EcuadorPapers.org also found the case of politician’s owning offshore entities in violation of their country’s laws.
What is clear though, is that digitalisation is a basic need to facilitate verification of information, especially automated cross-checks and more sophisticated mechanisms. Ricardo Brohm from La Nacion Data in Argentina described how he has been collecting (and sometimes also scrapping) data from a wide range of public sources to create ownership and network maps that enabled him to discover a full story (about the comprehensive list of people and companies related to a conflict of interest case) from a whistleblower mentioning one company obtaining illicit subsidies. Andres Arauz also scrapped Ecuador’s legal and beneficial ownership data to allow searches to be made. Transcrime and its spin-off Crime&tech are also creating their own tool to investigate illicit companies, including redflags that could indicate that a company has been infiltrated by the mafia.
Nienke Palstra from Global Witness described how digitalised and structured information available in open data format, as offered by the UK’s Companies House, is what enabled them to do the well-known analysis of the UK beneficial ownership information and identify many redflags. Global Witness’ findings have helped campaigning in the UK to improve data accuracy. In relation to this, Stephen Webster from BEIS described the current discussions in the UK to implement improvements and add verification mechanisms to Companies House’ beneficial ownership data.
Digitalised and structured data enables automated cross-checks. In addition to the manual checks described above, Uruguay runs some cross-checks between data from tax authorities and the beneficial ownership register to detect cases of non-compliance and impose sanctions. Spain’s notaries register also includes automated cross-checks to identify inconsistencies on a beneficial owner’s shareholdings. However, Jesper Bertelsen from the Danish Business Authority described that Denmark has taken automated cross-checks and verification to a whole new level, including machine-learning and verification of non-resident beneficial owners (about whom Denmark doesn’t have much data). What’s more, they have been inspired to keep working on improving their system after reading our paper on beneficial ownership verification. Interestingly, the Danish Business Authority proved us wrong. We had hoped these checks would become a reality in about five years or so, but Denmark shows that it’s possible to do these checks now. Countries have no time to lose.
As for adopting the latest technologies, Francesco Cardi from Onfido described how they use machine learning to safely confirm the online identity of individuals. Che Sidanius from Refinitiv discussed how they use data and the latest technologies to untangle the complex network of company ownership for the purposes of identifying sanctioned entities and enable organisations to meet their other global regulatory obligations. Another case of machine learning and big data, but also combining banking data on account holders to detect money laundering was illustrated by Howard Cooper from Kroll.
Finally, Juan Reyes from Citi and Ben Trim from HSBC described the procedures undertaken by their banks to perform customer due diligence to determine beneficial ownership of their clients and some of the potential benefits of registers that were verified.
To sum up, all around the world and among different stakeholders (authorities, journalists, researchers and activists, practitioners, banks and compliance/data companies), diverse but related verification strategies are taking place. There is no perfect mechanism, but a combination of various approaches is likely the best way to ensure data accuracy.
We hope that this first mapping approach has inspired participants to make use of mechanisms that have not tried before, so as to create synergies and learn from each other’s practices and lessons.
What’s next?
In principle, our goal was to have a demand-driven approach, where we would find one or two countries interested in implementing a short-term pilot to verify beneficial ownership information. For this reason, we have been carrying out bilateral calls with four countries already, and are planning to keep reaching out to more countries with the help of Open Government Partnership (OGP) and the Extractive Industry Transparency Initiative (EITI).
However, until a pilot takes place, we are looking at different ways to channel the energy, interest, knowledge and experience already present in our multi-stakeholder community on beneficial ownership verification. We are exploring different approaches to include more stakeholders and to put the collective experience to practice.
Welcome to this first episode of The Reboot from the Tax Justice Network. Everyone knows the global economic system isn’t working in the interests of most of us. In our new video series we’re going to talk about how to fix it. From Covid-19 lockdown, Naomi Fowler speaks to John Christensen and Nicholas Shaxson of the Tax Justice Network about the other emergency we need to deal with – the climate crisis and how we finance the transformation we urgently need.
You can read more on financing climate justice here and here in our special Tax Justice Focus featuring the writing and research of leading thinkers and researchers.
Naomi Fowler is the host and producer of the Tax Justice Network’s monthly podcast The Taxcast which is available on most podcasts apps.
John Christensen is co-founder of the Tax Justice Network and is a forensic auditor and economist. His research on offshore finance has been widely published in books and academic journals, and John has taken part in many films, television documentaries and radio programmes.
Nicholas Shaxson is a journalist and writer with the Tax Justice Network. He is author of the book Poisoned Wells about the oil industry in Africa, Treasure Islands: Tax havens and the Men who Stole the World and The Finance Curse: how global finance is making us all poorer.
We recently published a twopart Tax Justice Focus special on climate crisis and tax justice. This blog reproduces the article by Laura Merrill, in which she outlines how massive direct and indirect state subsidies have overwhelmingly distorted energy markets to favour fossil-fuel consumption, skewing investment decisions and slowing uptake of renewable technologies. Despite vague commitments from G20 countries to phase out subsidies, national governments continue to subsidise their fossil fuel giants, even while mouthing the rhetoric of free-market economics. Click here to download the first and second parts of our Tax Justice Focus special.
Laura Merrill *
Generous government subsidies around the world are, even now, enabling the extraction and burning of fossil fuels that would otherwise remain in the ground. A global technocratic elite that claims to value market forces is blithely ignoring them in a way that could hardly be more ruinous. As renewables continue to fall in price Laura Merrill calls on us to pay attention to this grotesque farce, and to stop using taxpayers’ money to destroy the conditions of life.
Governments spent around US$400 billion in 2018 subsidising the price of petrol, diesel, gas, electricity and coal in order to keep consumer prices below international levels.[1] Governments spend another $100 billion annually on subsidies upstream to producers of oil, gas and coal. These subsidies include tax breaks, infrastructure investment (ports, pipelines and railtracks in particular), write offs and the like.[2] For the G20 alone such exploration and producer subsidies are estimated to be around US$70 billion[3], yet upstream producer subsidy figures are far more opaque and difficult to quantify at the national level (sometimes for good reason). These are the producer subsidies. In the EU consumption and production subsidies combined totalled around US$125 billion between 2014 and 2016, or US$61 billion per year.[4] This development approach, in which energy systems are built around the use of fossil fuels, has led to prosperity for some. But we are all paying a high price in terms of climate change and human health.
Fossil fuel subsidies in an age of climate change drive us in the wrong direction. With lower prices to consumers and lower costs to producers, consumers consume more, producers produce more. This increases the use of fossil fuels and the levels of pollution in our cities and of carbon in the atmosphere. One piece of research suggests that these subsidies drove 36 per cent of global carbon emissions between 1980 and 2010.[5] An IMF working paper includes the broader costs to society of fossil fuels (such as traffic accidents and pollution, as well as the social costs of climate change) and finds the true cost of fossil fuels amounted to an eye-popping US£5.2 trillion in 2017[6], or USD 10 million a minute.[7]
Global studies suggest that such is the scale of these subsidies that their removal could lead to a decrease in global green house gas (GHG) emissions of between 6 and 8 per cent by 2050, compared to business as usual. Country research that modelled the removal of fossil fuel subsidies from across 26 countries, coupled with a modest investment into renewables and energy efficiency using savings from reforms and followed by 10 per cent tax on fossil fuels, found simple average national GHG emission reductions of 13 per cent, and 30 per cent in some country cases[8]. There is no doubting that such subsidies (even using more restrictive definitions such as those of the WTO) are significant, more than double government support to renewables[9], and private investment in energy efficiency[10] (IEA, 2019). In some Southeast Asian countries they have accounted for between 5 and 30 per cent of government expenditure[11], sometimes far more than levels spent on health or education. In general most subsidies are found in the Middle East and North Africa region (around 50% by total value) followed by Emerging and Developing Asia, and Central and Eastern Europe.[12]
Because of the scale of the subsidies, opportunities for rent-seeking and corruption abound. Unsurprisingly, fossil fuel subsidies (particularly for oil) and countries with weak institutions tend to go hand in hand. Indeed, research finds that there is a link between the ratio of subsidies to GDP and measures of ‘government effectiveness, rule of law, regulatory quality and freedom from corruption.’[13] There are also strong links between countries that have energy resources and the presence of subsidies, and the view (sometimes enshrined within constitutions) that national fossil fuel resources should be available cheaply to the population. Such subsidies were set up for development and support to the poor but it is now argued that they are maintained in part because some governments lack the capacity to pursue policy goals by other means.[14] Industrial interests also play a big part in retaining fossil fuel subsidies. Fuel smuggling between countries, theft and the adulteration of fuels to exploit subsidies are huge problems in countries such as Iran, Mexico, Nigeria, Philippines and Venezuela.; they cause lost revenues to governments and further entrench vested interests.[15] Such subsidies also no longer achieve their policy objectives and are an extremely inefficient way of targeting the poor – GDP is lower and the benefits of the subsidies are captured mostly by the wealthiest sections of society with the richest fifth capturing six times more in fuel subsidies than the poorest.[16]
Many countries have taken advantage of lower oil prices to attempt to remove consumer subsidies without high pass-through costs to consumers. Around 50 countries underwent some form of reform between 2015 and 2018.[17] Notable efforts have included the liberalisation of transport fuels in India, Mexico, Thailand and Tunisia; introduction of automatic pricing mechanisms in China, Indonesia, Malaysia, Jordan, Cote d’Ivoire and Oman; and reforms linked to regulated prices in the Middle East and North Africa.[18] At the same time the governments Mexico, France and Equador ran into serious difficulties between 2017 and 2019.[19].
Still, many countries have successfully implemented fossil fuel reforms successfully by employing effective compensation packages. The Philippines managed to smooth the transition away from fossil fuel subsidies by using targeted cash transfers to help build a national safety net alongside lifeline tariffs to protect the poor in the process of reforms.[20] Indonesia’s first large-scale unconditional cash transfer system was created in only six months in order to compensate for subsidy reforms.[21] The country used a basket of social protection policies covering education, health insurance, food subsidies, cash transfers and infrastructure programs.[22] Ghana’s reform of subsidies to gas and diesel was accompanied by a livelihoods program to support families.[23] Morocco expanded a national conditional cash transfer as well as education and health insurance schemes at the same time as reforming.[24] International Organisations and Initiatives such as the World Bank and Global Subsidies Initiative consistently recommend an orderly approach to governments for quitting subsidies: get the prices right, build support for reform and mitigate negative impacts, crucially ensuring improvements in social protection systems for successful reform.[25][26] The bigger ask is for countries to then reinvest and redirect savings from subsidy reform into changing the energy mix towards more sustainable energy, such as renewables, energy efficiency and transport for all i.e. a fossil fuel subsidy ‘swap’[27]. With the removal of fossil fuel subsidies countries like Morocco have turned towards the sun with ambitious renewables investment and targets. Others like Ghana and the Philippines have dismantled subsidies but are now attracted by the current low market price of coal to drive development. The world coal price is far below the true cost of power, and G20 governments alone continue to support the production and consumption of coal to the tune of almost US$64 billion annually.[28]
On the other hand, the recent lower oil price also leads producers and state-owned companies – often within more developed countries – to seek further public subsidies to support operations. Hidden tax breaks and other benefits from wealthy states are more alarming. Research finds that ‘globally, a third of oil reserves, half of gas reserves and over 80 per cent of current coal reserves should remain unused from 2010 to 2050 in order to meet the target of 2oC.[29]
Fossil fuel subsidies to production and exploration play a role in ensuring continued access to, and exploration of such resources. Production subsidies from the US government, push almost half of new oil investments into profitability[30]; In Canada more than US$700 million of federal subsidies were directed mostly at the production of oil and gas between 2016-18.[31] In Arctic Russia, projects depend on tax breaks to generate profits.[32]. Indeed, on average in 2013-14, G20 governments sloshed out a heady annual cocktail of subsidies and support measures to ensure the continued addiction to fossil fuel production through US$70 billion of direct spending and tax breaks, US$286 billion in investments in state-owned enterprises, and US$88 billion in public backed finance.[33].
However, the good news is that once governments remove fossil fuel consumption subsidies the potential for revenue collection via the imposition of VAT or GST (Goods and Service Tax) on transport fuels greatly increases. Global revenue gains from the removal of subsidies and the efficient taxation of fossil fuels could be around US$2.8 trillion to governments or equivalent to 3.8 percent of GDP.[34] There is considerable scope to increase the tax take from fossil fuels in Emerging and Developing Asia, the Commonwealth of Independent States, the Middle East, North Africa, Afghanistan and Pakistan. For example, the Philippines removed subsidies and now taxes fuel at 12% VAT to pay for the national social safety net and provide incentives to renewables. Taxation and higher prices that reflect the true cost of fossil fuels can encourage greater energy efficiency and the more careful use of fossil fuels. They can also be used to fund safety nets and accelerate anchoring renewable and sustainable sources of power at the centre of the energy sector.
* Laura Merrill works on the social and environmental impacts of fossil-fuel subsidies, pricing and their reform. She is an economist with expertise in energy policy.
[2] Laan, L. (2010) ‘Gaining Traction: The importance of transparency in accelerating the reform of fossil-fuel subsidies’ Global Subsidies Initaitive (GSI), International Institute for Sutainable Development (IISD). Retrieved from https://www.iisd.org/gsi/sites/default/files/transparency_ffs.pdf
[5] Stefanski, R., (2017). “Dirty Little Secrets: Inferring Fossil-Fuel Subsidies from Patterns in Emission Intensities,” Discussion Paper Series, School of Economics and Finance 2017, School of Economics and Finance, University of St Andrews. Retrieved from https://research-repository.st-andrews.ac.uk/handle/10023/10412
[12] Clements, B., Coady, D., Fabrizio, S., Gupta, S., Alleyne, T., and Sdralevich, C., (2013), ‘Energy Subsidy Reform: Lessons and Implications’, IMF. Retrieved from https://www.elibrary.imf.org/page/120?language=en
[13] Commander, S. (2012). A guide to the political economy of reforming energy subsidies. IZA Policy Paper No. 52) Retrieved from http://ftp.iza.org/pp52.pdf
[24] Merrill, L., Toft Christensen, L., and Lourdes Sanchez, L., Tommila, P., and Klimscheffskij, M. (2016). Learning from Leaders: Nordic and International Best Practice with Fossil Fuel Subsidy Reform Norden Retrieved from http://norden.diva-portal.org/smash/get/diva2:1044432/FULLTEXT02.pdf
[27] Merrill, L., Toft Christensen, L., and Lourdes Sanchez, L., Tommila, P., and Klimscheffskij, M. (2017). Learning from Leaders: Nordic and International Best Practice with Fossil Fuel Subsidy Reform Norden Retrived from http://norden.diva-portal.org/smash/get/diva2:1044432/FULLTEXT02.pdf
[28] Gençsü, I., Whitley, S., Roberts, L., Beaton, C., Chen, H., Doukas, D., Geddes, A., Gerasimchuk, I., Sanchez, L., and Suharsono, A. (2019) G20 coal subsidies, Tracking government support to a fading industry. ODI, NRDC, IISD and OCI. Retrieved from https://www.odi.org/sites/odi.org.uk/files/resource-documents/12745.pdf
[29] McGlade, C.& Ekins, P. (2015, January 8). The geographical distribution of fossil fuels unused when limiting global warming to 2oC. Nature. 517, 187-190.
[30] Erickson, P., Down, A., Lazarus, M. et al. Effect of subsidies to fossil fuel companies on United States crude oil production. Nat Energy 2, 891–898 (2017). https://doi.org/10.1038/s41560-017-0009-8
A new report on the state of play of ownership registration of companies, partnerships, trusts and private foundations was published today by the Tax Justice Network. Based predominantly on the results of the latest edition of the Financial Secrecy Index published in February 2020, the report updates the “State of play of beneficial ownership registration” report published in 2018. The new report covers more jurisdictions, reaching a total of 133, including all OECD and EU member states. Although the Financial Secrecy Index was published in February 2020, this report includes a preliminary assessment of the new beneficial ownership registration laws approved by six jurisdictions between December 2019 and April 2020: Argentina, Colombia, Egypt, Malaysia, Panama and Seychelles.
Beneficial ownership transparency is widely considered to be a key policy for tackling illicit financial flows that encompass cross-border financial transactions for money laundering, tax evasion, corruption and the financing of terrorism. By identifying, registering and disclosing the identities of natural persons who ultimately own or control legal vehicles, the abuse of corporate secrecy can be prevented. Yet, for the verification of beneficial ownership data in cross-border settings, and for successfully tackling investment and hedge fund opacity, it is increasingly acknowledged that beneficial ownership information alone (the last layer of ownership) is not enough. Rather, registration of all legal owners (first layer, and ideally all intermediary entities in the ownership chain) is a prerequisite for the integrity of ownership data.
The analysis of ownership registration as presented in this report and the importance of improving transparency and harmonising ownership registers was recently upheld by the European Union in a new study “Improving Anti-Money Laundering Policy”, which proposed beneficial ownership registries as a way to reduce the number of letter box or shell companies across countries.
On the bright side, the new report on the state of play of beneficial ownership as of 2020, found that 81 jurisdictions already have laws requiring beneficial ownership to be registered with a government authority, up from 34 jurisdictions mentioned in the 2018 report. This two fold increase proves that the “registry approach” (the mechanism of ensuring beneficial ownership transparency by having a centralised beneficial ownership register) is becoming mainstream around the world.
Countries with beneficial ownership registration laws
Public access to beneficial ownership information has also increased (especially if looking at countries’ legal obligations under Directives and other commitments), as acknowledged by the Financial Action Task Force (FATF) paper on “Best practices on beneficial ownership for legal persons.”
Comparing companies’ effective beneficial ownership (Y axis) and legal ownership (X axis) registration between 2018 and 2020
However, no jurisdiction has effective legal and beneficial ownership registration for all available types of legal vehicles, let alone with information available online.
Out of all 133 jurisdictions assessed in this report, Ecuador is the best available case. Although its online register is not in open data format (and navigating it is rather complex), it does offer a trove of valuable information, including the ownership chain, the history of share transfers and sufficient identification details (eg passport number and address). Other relevant cases, such as Denmark, Bulgaria, the UK and New Zealand, are examples of very user-friendly online portals offering information, although only for some legal vehicles and for some level of ownership, either legal or beneficial.
Another important improvement is that more countries are establishing lower thresholds in their beneficial ownership definitions (instead of the “more than 25 per cent of ownership” threshold), meaning that more individuals will be identified as beneficial owners. Positively, four jurisdictions are already requiring anyone with just one share to be identified as a beneficial owner: Argentina, Botswana, Ecuador and Saudi Arabia.
However, progress hasn’t reached acceptable levels yet. Even though many more beneficial ownership registration laws have been approved, this doesn’t mean that even more basic issues, such as legal ownership registration has been solved. On the one hand, there are many countries where bearer shares may pose risks (at least 46, as shown in the figure below on companies’ legal ownership registration). Second, having legal ownership registration requirements doesn’t mean that information will be updated, let alone published in an online registry:
Lastly, the report draws attention to the risks in practice, by combining countries’ transparency levels with the number of registered entities in each country. This suggests how many entities may be subject to abuse by exploiting the country’s secretive ownership framework. The following chart depicts this risk for companies based on their legal ownership transparency:
References: -1 = Not registered or registered but not updated; 1 = Registered and updated (but not online); 2 = Online (Cost); 3 = Online (Free); 4 = Online (Open data).
If you’ve enjoyed these charts, you should read the whole report. It offers detailed visualisations (and identification of each country’s status) not only on ownership registration for companies, but also for partnerships, private foundations, domestic law trusts and foreign law trusts that have a local trustee.
It also provides a summary of the latest policy recommendations (including all of our blogs since the last state of play report about beneficial ownership transparency), and an Annex written by Andres Arauz from EcuadorPapers.org describing Ecuador’s online beneficial ownership register.
We hope this report will prove to policymakers around the world that there is an unstoppable trend toward beneficial ownership transparency (so they shouldn’t lag behind), while also warning them that a new beneficial ownership law will not in itself solve all issues, especially if legal ownership continues to suffer from loopholes or if the new law applies only to companies but not to other legal vehicles, especially to trusts.
Welcome to the twenty-ninth 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 post it. You can also join the programme on Facebook and on Twitter.
Taxes Simply #29 – Tax response to coronavirus and the pandemic’s impact on women
We begin with an interview with Nabil Abdel Raouf, tax and accounting professor at Shorouk Academy, on the tax measures taken by Arab governments to address the economic distress caused by the pandemic.
In the second part, we discuss with Lobna Darwish, the gender and human rights officer at the Egyptian Initiative for Personal Rights, the impact of the coronavirus pandemic on women and the best ways to address this impact.
In the third and last section we present some of the most important tax and economic news from around the world. Our summary of news includes: 1) Scotland prohibits companies with ties to tax havens from benefiting from bail-out packages; 2) Universal Basic Income improves mental well-being; 3) The wealth of American billionaires increases by $434 billion despite the crisis; 4) German tax revenue is down 25.3% due to the coronavirus pandemic.
الجباية ببساطة #٢٩ – الاستجابة الضريبية لكورونا وأشكال تأثير الجائحة على النساء
أهلا بكم في العدد الجديد من الجباية ببساطة. نستهل هذا العدد بحوار مع نبيل عبد الرؤوف، أستاذ المحاسبة والضرائب في أكاديمية الشروق، عن الإجراءات الضريبية التى اتخذتها حكومات الدول العربية للتعامل مع الآثار الاقتصادية لجائحة كورونا. أما عن تأثير جائحة فيروس كورونا على النساء كونهم أكثر عرضة للفقر، نتحدث في القسم الثاني من العدد مع لبنى درويش مسئولة برنامج النوع الاجتماعي وحقوق الإنسان في المبادرة المصرية للحقوق الشخصية.
في القسم الثالث والأخير، نعرض مجموعة من أهم أخبار الضرائب والاقتصاد في المنطقة والعالم، ويشمل ملخصنا للأخبار: ١) سكوتلندا تحظر الشركات التي لديها روابط في ملاذات ضريبية من الاستفادة من حزم الإنقاذ؛ ٢) الدخل المعمم يحسن الحالة النفسية؛ ٣) ثروة المليارديرات الأمريكيين تزيد بقيمة ٤٣٤ مليار دولار بسبب وبالرغم من الأزمة؛ ٤) عائدات الضرائب الألمانية تنخفض بنسبة 25.3٪ بسبب جائحة فيروس كورونا.
Here’s the 16th edition of Tax Justice Network’s monthly podcast/radio show for francophone Africa produced and presented by finance journalist Idriss Linge in Cameroon. Nous sommes fiers de partager avec vous cette nouvelle émission de radio/podcast du Réseau pour la Justice Fiscale, Tax Justice Network produite en Afrique francophone par le journaliste financier Idriss Linge au Cameroun.
Impôts et Justice Sociale, édition 16:Des chefs d’Etats Africains en appellent à une solidarité plus juste dans le monde
Dans cette seizième édition de votre podcast dédié à la justice fiscale en Afrique et dans le Monde, nous avons capturé la voix de trois président africains, qui lors de leurs interventions respectives à l’occasion d’un débat organisé par le New York Forum Institute, ont souhaité voir se manifester une solidarité plus juste dans le monde, face à la pandémie de Coronavirus qui fait son chemin dans différents pays.
Alassane Ouattara de Côte d’Ivoire a indiqué que l’après Codid-19 sera marqué par un nouveau paradigme
Macky Sall du Sénégal, lui, a trouvé injuste le peu de considération fait à l’endroit des efforts de l’Afrique et plaidé pour un effort de solidarité plus grand
A la suite de ces Chefs d’Etats africain, Adama Coulibaly est l’invité du podcast. Cet économiste responsable pour l’Afrique de l’ouest et Centrale de l’ONG OXFAM, revient sur la décision du G20, de suspendre le service de la dette des pays pauvres de la planète, dont 40 sont en Afrique
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the sector depends heavily on public support — from tax exemptions from VAT and kerosene tax, to state aid for airports, low-cost airlines and infrastructure linking airports with nearby cities. Airlines also get 85% of their allocated pollution permits for free under the EU’s carbon market. The kerosene tax exemption in Europe alone is valued at €27 billion a year. Other more sustainable transportation methods — such as rail — have not benefited from such generous tax treatment.”
The idea of “no state aid to tax havens” has received public support around the world and some parliaments – eg Denmark, Austria and Scotland – have excluded companies based in tax havens from receiving Covid-19 state aid. The German finance minister Olaf Scholz seems to take a similar view:
anyone (…) who has placed his company headquarters in a tax haven cannot expect that this is now the right corporate structure to be able to claim state and taxpayer money in a crisis. We are quite clear on that.”
The idea also received support from more than 280,000 Germans, who signed a corresponding call for action by the NGOs Finanzwende and Campact.
Because Covid-19 has brought air traffic to a worldwide standstill, the German airline Lufthansa is one of the first companies to need massive state aid or else it faces insolvency. In response to German press raising issues with Lufthansa’s subsidiaries in the Cayman Islands and Panama – two countries from the EU’s tax haven list – Lufthansa voluntarily published selected information on its six subsidiaries in those countries, but that failed to create real transparency because important information (turnover, profits, taxes) and activities in other tax havens (Ireland, Malta, Switzerland, etc.) was missing from the disclosure.
The German government has now approved €9 billion worth of state aid with few conditions regarding tax transparency, mainly requiring Lufthansa to provide its country by country reporting to the fund administering the state aid (Lufthansa still seems reluctant to accept). Meanwhile, an analysis of Lufthansa’s financial reporting reveals big risks for state aid ending up in tax havens:
In total, the airline has 92 subsidiaries in corporate tax havens (using the Tax Justice Network’s Corporate Tax Haven Index as benchmark). In Malta, a subsidiary with only two employees made a profit of almost €200 million. Nine other Maltese companies are run by six employees and manage assets worth more than €8 billion.
In the last ten years, the airline paid only €3 billion in taxes on a profit of €15.6 billion. This corresponds to a rate of only 19.4 per cent compared to 32.45 per cent due at the company’s headquarters. Lufthansa’s tax practices have repeatedly led to high back payments and legal disputes in the past.
The individual ownership structure suggests that they too are moving their profits to tax havens. German billionaire Heinz Hermann Thiele, who bought 10 per cent of shares in March 2020, is particularly noteworthy. He has, on several occasions spoken out against state influence and is himself engaged in aggressive tax “optimisation” using a family holding in an inner-German tax haven. In addition, many of the institutional investors are structured via the Cayman Islands or Delaware.
In order for the public to be assured that state aid does not end up in tax havens, Netzwerk Steuergerechtigkeit recently called on the German government to finally abandon its years of resistance to public country by country reporting in the EU. Tax Watch (UK) makes further good suggestions on how the idea can become more than symbolic politics – besides a repayment obligation if tax authorities find tax avoidance in the future, they demand more capacity for tax authorities, a black list to exclude tax avoiders from state contracts, as well as detailed public data on state aid.
Em meio à crise econômica e sanitária, o governo brasileiro anunciou uma injeção de mais de US$ 185 bilhões para ajudar o setor financeiro — cerca de dez vezes o orçamento do Ministério da Saúde. Enquanto isso, 87% das micro e pequenas indústrias do Estado de São Paulo, por exemplo, não conseguem acessar a linha de crédito pública de US$ 7 bilhões, segundo o sindicato do setor.
Esse é apenas um exemplo dos desequilíbrios que o Estado pode gerar em sua atuação vacilante na atual conjuntura. Mas pode ser bem simples para um governo fazer escolhas técnicas e apartidárias, que beneficiem a população como um todo. O episódio #13 do É da sua conta detalha uma ferramenta da Tax Justice Network que ajuda governos a fazer escolhas justas na hora de socorrer empresas. É uma espécie de vacina contra abusos tributários para um país se certificar que o dinheiro público que pode ser usado para salvar vidas e promover a retomada econômica não vá parar num paraíso fiscal.
E na reportagem você ouve que enquanto algumas organizações sociais e indivíduos se solidarizam com populações pobres afetadas pela pandemia, algumas empresas que doam para a luta contra o coronavírus fazem lobby para descontar o valor que estão gastando com doações do imposto que deveriam pagar.
Em www.edasuaconta.com, você tem acesso a todos os episódios e links para todas as plataformas de áudio digital onde você pode ouvir o É da Sua Conta. Confira!
Last week we published the second part of our Tax Justice Focus special on climate crisis and tax justice. This blog reproduces the article contributed by economist Daniela Gabor*, in which she pinpoints the dangers of allowing private actors to take the lead in financing the transition away from fossil fuels to renewables, arguing that private financiers will reap the rewards while passing the risks to states and the general public, and hiding behind ‘subsidised greenwashing’.
Please note that this article was written before the Covid-19 pandemic took off in Europe and North America, precipitating the deepest economic depression in over a century.
Click here to download the first and second parts of our Tax Justice Focus special.
By Daniela Gabor*
The transition to a low carbon economy can be organised in two distinctive ways.
The first way, widely known as the Green New Deal, outlines a radical program of ecological and economic transformation led by the state. This involves massive investments in low-carbon activities – green industrial policies backed by green fiscal and monetary policies – while ensuring that decarbonisation happens in a just manner.
Critically, this calls for demolishing the political order of financial capitalism: undoing its ideological aversion to fiscal activism and state intervention, its commitment to the ‘independence’ of central banks, and to the political power of carbon financiers.
In response, a second, status-quo option is rapidly emerging from the financial sector. Let’s call it the Wall Street Climate Consensus. It promises that, with the right nudging, financial capitalism can deliver a low-carbon transition without radical political or institutional changes.
The WSCC grows out of recent changes in international development discourse, as for instance promoted by the World Bank in its ‘Maximising Finance for Development’ agenda, whose mantra is ‘leveraging private capital for development’. It promises institutional investors $12 trillion in “market opportunities” in transport, infrastructure, health, welfare, and education, to create new investable assets via public-private partnerships in these sectors and deeper local capital markets (or, as the World Bank puts it in a slick video, “to help private finance tap into developing markets.”) They are pushing risky and expensive ‘shadow banking’ practices onto poorer countries, likely to encourage privatisation and usher in long-term austerity, ultimately threatening progress on the SDGs. Under this consensus, nation states are supposed to protect the financial sector from the risks of investing in developing markets. This would privatise gains for finance and push losses onto low-income governments and the poor.
Now, along similar lines, carbon financiers are increasingly seeing the climate crisis not as a threat, but as an opportunity to make high profits, via “subsidised greenwashing.” The idea is that states will subsidise and protect finance from climate risks. This is a great opportunity for finance – and poses great dangers to the wider public and to the climate.
The Wall Street Climate Consensus involves a two-step strategy to promote the creation of apparently ‘green’ asset classes, while also preventing the state from getting too heavily involved in reducing carbon-intensive activities.
Step 1: promote metrics and “taxonomies” to enable greenwashing
The Wall Street Climate Consensus sees it as essential to define metrics and standards that assess the environmental performance of economic activities and companies – and thus of the “green-ness” of loans and securities that finance them. Strategically, they are pushing for public and private taxonomies (classification systems) to allow a broad interpretations of what ‘green’ means.
The most popular approach, pioneered by the private sector, relies on private Environment, Social and Governance (ESG) ratings, to evaluate companies and governments. Private ESG ratings are expanding fast, and are expected to apply to half of some $69 trillion assets managed in the US by 2025[1].
Private ESG frameworks are fertile terrain for greenwashing. For one thing, the various different frameworks offer confusing[2] and conflicting assessments of environmental performance, making it easier for borrowers to mislead investors about the greenness of the assets they purchase. For example, in February 2019 the ESG index run by MSCI, a big ratings agency, contained JP Morgan Chase in its top 10 constituents – in the same year that the bank was ranked (by the Rainforest Action Network) as the biggest financier of fossil fuels.
The multiplicity of private ESG frameworks also allows investors to shop around for the ESG ratings most favourable to themselves – and there is a wide divergence, allowing plenty of choice. (At one point, for instance, the FTSE’s ESG scored the car company Tesla at the bottom of its global auto ESG ratings, while MSCI ranked it as the best.)[3] Making matters worse, ESG rating companies face perverse incentives to award high ratings to firms.
For these reasons public ratings, by contrast, are potentially more effective than private ratings. However, carbon financiers have been successfully lobbying to water down one of the main public classification systems, the European Commission’s Sustainable Finance taxonomy. Originally, it identified “sustainable” economic activities as those that make a substantial contribution to at least one of six environmental objectives, and which cause no significant harm to the others[4], using quantitative thresholds[5]. But after heavy lobbying, the EU taxonomy has now expanded this to three separate categories: sustainable, “enabling”[6] and “transition”[7] activities. The two extra categories are supposed to encourage high-emitting companies to shift from ‘brown’ (polluting) activities to ‘green’ ones, by ensuring that enough financing is available. But in reality they open the door to greenwashing by introducing new complexities in setting and monitoring the quantitative thresholds, and also by restricting the scope for identifying “brown” (or polluting) activities.
Step 2: subsidies for ‘green’ products without penalties for brown
The financiers’ push to shape public and private classifications systems is not only about greenwashing. It is also about boosting profits, by channelling the growing political will to address the climate crisis into subsidies for green assets. For example, the European Commission is considering relaxing capital requirements for financial institutions holding green assets. Central banks, which are pioneers in the policy world in the climate change fight because of the financial-stability implications of extreme climate events, are also considering preferential treatment of green securities in their monetary policy operations (in their so-called ‘collateral frameworks.’). These may turn out to be very expensive for states and the wider public.
This nudging for green finance also seems to be accompanied by a low appetite for targeting ‘brown’ finance, even though penalties (via tougher regulatory requirements or via certain central bank operations) could rapidly accelerate the decarbonisation of the financial system, and shift capital flows away from polluting activities towards greener ones.
The success of carbon financiers in opposing “brown penalties” is partly a result of a long-running de-facto alliance between private financial sector players and central banks. The latter invoke ‘transitions risks’ to justify an incremental, green-subsidising approach, in line with what the Wall Street Climate Consensus wants. When they say ‘transition risks’, what they mean is that strictly regulating and curbing brown finance might result in stranded carbon assets which pose risks to financial stability.
Although central banks do not have the conceptual tools to adequately capture the mechanisms through which transitions risks may morph into financial stability risks, their emphasis on transition risks renders them critical allies for carbon financiers in the construction of the Wall Street Climate Consensus. For instance, Mark Carney’s speech for the COP26 hosted by the UK, and the COP26 private finance strategy, framed in the key of the Wall Street Climate Consensus, envisages a ‘3 R’ approach to leverage private finance for the climate fight: mandatory Reporting of climate risks, nudge private finance to improve climate Risk management via stress tests, and provide a better picture of Return opportunities from the transition to net zero, by moving from problematic ESG approaches to encourage investments in 50 shades of green[8].
While the nods to mandatory reporting and ESG weaknesses are commendable steps forward, the COP26 private finance strategy falls short on the truly transformative measures such as brown penalties or greening the operations of central banks.
Make no mistake: the Wall Street Climate Consensus will not turbocharge the climate agenda. It is designed to protect the status quo of financial globalisation.
Rapid decarbonisation can only happen if central banks and regulators convert to penalising brown rather than subsidising green, and use a credible definition of brown that minimises greenwashing. And states everywhere must take seriously the transformative power of green macroeconomic policies. This involves massive public investments in green sectors financed via ‘green’ coordination between fiscal and monetary policies. It should also include green safety nets to ensure a just transition, one that does not put the burden of decarbonization on the poor.
Furthermore, should governments fail to secure the cooperation of central banks for green macroeconomic policies, they could introduce a Green FTT on brown assets. This would be calibrated to (a) target brown assets and (b) remain in place until an adequately brown-penalising framework is wired into the operations of central banks and broader regulatory frameworks. Together with a carbon tax, this would ensure adequate financing for green public investments while simultaneously re-orient private capital towards private green investments.
[4] These are: Climate Change Mitigation; Climate Change Adaptation; Sustainable Use and Protection of Water and Marine Resources; Transition to a Circular Economy; Pollution Prevention and Control; Protection and Restoration of Biodiversity and Ecosystems. See more https://ec.europa.eu/commission/presscorner/detail/en/ip_19_6793
[5] The Technical Expert Group is in the process of identifying the list of activities and the attending quantitative standards across the six objectives.
[6] Enabling activities are defined as those activities that enable other activities to make a substantial contribution to one or more of the objectives, and where that activity: i) does not lead to a lock-in of assets that undermine long-term environmental goals, considering the economic lifetime of those assets; and ii) has a substantial positive environmental impact based on life-cycle considerations.
[7] Transition activities are defined as those ‘activities for which there are no technologically and economically feasible low-carbon alternatives, but that support the transition to a climate-neutral economy in a manner that is consistent with a pathway to limit the temperature increase to 1.5 degrees Celsius above pre-industrial levels, for example by phasing out greenhouse gas emissions.’ See https://ec.europa.eu/commission/presscorner/detail/en/QANDA_19_6804
* Daniela Gabor is Professor of Economics and Macro-Finance, Department of Law University of the West of England
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