In the Tax Justice Network’s monthly podcast, the Taxcast:
we cover the story the mainstream media aren’t telling you – how governments around the world are undermining our tax collection services. We look at how the South Africa Revenue Service was established in very challenging times to become a world class institution. Yet also how quickly such achievements can be set back…
Also, as all eyes turn to Central Banks during this coronavirus pandemic, we ask who are they serving? And how do people forge a new relationship and a new role for them that fits modern times? We look at the profound implications of a little-known court ruling this month in Karlsruhe by the German Constitutional Court concerning the actions of the European Central Bank – the second-most important central bank in the world
A transcript of the programme is available here (it won’t be 100% accurate)
Presented and produced by Naomi Fowler of the Tax Justice Network.
It was known as the higher purpose…it was certainly one of the reasons why I think the revenue service was able to over the years grow and develop and become this world class institution that it did ultimately become. It was not just a job. It was a heart and mind labour of love.”
This court ruling coming out of Karlsruhe might lead to a rethink about the role of central banks in the 21st century. To whom should they be accountable, whose interests are being served by the charade of political independence and how can we make central banks accountable to the public they notionally serve?”
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WATCH: Cuts to tax office workers: a global trend:
This video shows tax office workers from Ealing tax office in the UK protesting against the closure of their tax office, also featured in this month’s Taxcast. They’re supported here by PCS (Public and Commercial Services Union) and several MPs, all questioning the commitment of the government to efficient tax collection services run by people with decades of experience. Unfortunately this is a trend worldwide, just when we need tax the most.
I’m working on a project to understand women’s attitudes towards, and knowledge of tax and I’ve designed a short survey of eleven questions which takes about two or three minutes. There are no ‘right’ or ‘wrong’ answers. No one will know who you are – it’s completely anonymous. The survey focuses on what tax means to you and to those you care about and it doesn’t matter if you know a lot, a little, or nothing.
I want to get a clearer picture of women’s understanding of tax and how they see it impacting on their lives. There are lots of words and technical language used to describe what tax is, what it does, why it matters. But its’s often difficult to grasp how it affects our lives on a day by day basis.
I specifically want to survey women over the age of eighteen years old, women from different backgrounds, women on low incomes or no income and those living on their own or caring for others.
An interview
The final question in the survey asks if you’d consider talking to me in more detail about your understanding of tax. The information I collect would be recorded but no one will be able identify you. I’d conduct the interview online. I’ll provide you with instructions on how to set this up. You just need access to a computer, a lap top or a smartphone, using Skype, Zoom, or WhatsApp, whatever works best for you.
I know many people are under a lot pressure and facing multiple difficulties at the moment during the COVID pandemic. An interview is not for everyone. If you indicate you’d like to undertake the interview with me, you can change your mind at any time, it’s completely voluntary.
If you opt for an interview I’ll record it and would need your permission to do this. I’d then save the recorded interview on a password protected site.
If you would like to volunteer for an interview and English is not your first language let me know.
My survey is available here. Thanks for your help.
As the economic shock of the pandemic deepens, hunger stalks the streets of supposedly rich countries, revealing the deep inequalities that existed even before Covid-19 struck. In the second of our two part Tax Justice Focus edition on financing the climate transition, we explore the links between economic justice and climate justice, and argue that the two struggles are inseparable. In the coming weeks we will be blogging all the contributions from our guest writers. Today we start with Nicholas Shaxson’s editorial. The first part of this edition is available here.
The world is divided between those who worry about the end of the world and those who worry about the end of the month, a French “Yellow Vest” protester said in 2018. That is a starting point for trying to understand how to pay for two emergencies: the huge costs of the unfolding economic shock of the Covid-19 lockdowns, and the even bigger long term costs of re-engineering our economies and our lives needed to stop potentially catastrophic global heating.
According to the International Energy Agency, the world needs $3.5 trillion in global energy-sector investments alone every year until 2050, if we are to limit global temperature rises to 2.0 degrees centigrade.
Many people think that the fight to protect the world’s climate is separate from the struggles to tackle inequality, oligarchy, or racial or gender injustices. This is a dangerous delusion, for – as this edition of Tax Justice Focus shows – the two struggles are inseparable, and each will fail without the other. This is for several reasons.
First, we face many of the same enemies, such as Charles Koch, Rupert Murdoch and other powerful interests who have financed both climate denialism and campaigns to persuade voters to cut taxes and deregulate our economies – with the Trumpian aim to override democracy and build oligarchic power at all costs. It is hardly surprising that their campaigns go together: according to the French economist Thomas Piketty, the richest 1% of the planet emit more carbon than the poorest 50%. Meanwhile tax havens reduces states’ ability to address environmental threats, while also providing safe havens for fossil fuel wealth looted from the environment.
A second reason was articulated by the Yellow Vest protesters in France, furious that ordinary folk are asked to pay new carbon taxes while unaccountable elites engorge themselves on state largesse. If the gigantic costs of the carbon transition are shouldered by lower-income groups, their rage at being shafted – again – will create fertile ground for demagogues and conspiracy theorists to recruit them in their millions and overturn the climate movement. This is already happening extensively in the United States, Brazil, and elsewhere, and it is also a reason why the climate movement is struggling to emerge from what one of its leaders has called its “white, middle class ghetto.”
The Taiwanese academic and author CHIEN-YI LU outlines a third reason why the two struggles are inseperable, in her article for this edition of Tax Justice Focus. Neoliberalism, an organised programme to usurp democracy by replacing political decision-making with economic calculations, is the bedrock of the climate crisis, she explains. Neoliberalism was always a strategy that used deceit to undermine progressive Keynesian economic ideas, just as climate denialists have undermined climate science. The trick has been to give people the appearance of empowerment through individual choice and freedom – but in the process atomising and dividing them and thus dismantling and discrediting the idea of society, government and the common good. That common good includes the climate, of course. To tackle global heating, or economic inequality, using any approaches based on individual empowerment and freedom will fail.
So economic justice is not just a nice add-on to climate justice: we must join forces. This must not be a story of environmentalists against workers, or of poor nations against rich ones. It is a battle to organise to rebuild the common good, against the tax haven-using carbon elites and economic elitists. There is no other way to proceed.
So: how can we pay for the climate transition in a progressive way?
Part One of our edition on tax justice and the climate, published last month, provided some answers: removing $400 billion in annual fossil fuel subsidies; transparency through new climate-friendly accounting standards; activism from groups like Extinction Rebellion; and a scheme to auction carbon permits and redistribute the proceeds equally to all citizens. In this edition, JACQUELINE COTTRELL now shows that carbon taxes can be progressive – if governments step up and design the policies in the right way.
Leading this edition, PETER BOFINGER, arguably Germany’s best known economist, kicks back against a deadly German consensus known as Black Zero: the idea that governments must always match spending with tax revenues and not borrow or run budget deficits. His article Black Zero against the Climate, written for us just before the Covid-19 crisis erupted in Europe, unpacks the “corn economy” fallacies and misunderstandings that underpin Black Zero and shows why states can and must borrow (and use central bank intervention) to pay for the transition. But German thinking has infected the European Union through mechanisms such as the Stability and Growth Pact, and now risks sabotaging the possibility of climate funding.
If states cannot finance the climate transition, then the financial sector will do it.
This would pose immense dangers, not just because states can borrow to spend far more cheaply than private actors can, and because states are accountable to citizens whereas financiers are not.
Financial sector players will also use an array of tried and tested mechanisms to shift the risks of investment onto the public, and shift the rewards to themselves. They specialise in creating and occupying economic choke points through which the vast sums must pass, from which they can milk great wealth that would otherwise be spent on the climate, or on softening the economic blow of the transition (or of the Covid-19 crisis). As former Bank of England Governor Mark Carney crowed earlier this year, the immense sums required to finance the climate transition “could turn an existential risk into the greatest commercial opportunity of our time.”
This is an existential danger to us all. It is the climate version of the Finance Curse, and the subject of our next article, The Wall Street Climate Consensus by DANIELA GABOR, a world expert on finance and shadow banking. The transition can be financed in two ways, she writes. The first would follow a Green New Deal logic, with state-led green industrial policies and monetary policies, and strong penalties for polluters. The other, status quo route, sees private actors providing the financing: they will harvest the rewards while states and taxpayers take on the risks, in a dangerous game of “subsidised greenwashing.” She outlines just how to confront the Wall Street Climate Consensus.
Economic crisis is an opportunity for deep-seated change. The Covid-19 crisis seems unlikely to melt away with a V-shaped recovery, and a return to the status quo. The time to push new ideas is NOW.
The 18th Century political philosopher Edmund Burke summed up how to proceed –
When bad men combine the good must associate; else they will fall, one by one, an unpitied sacrifice in a contemptible struggle.”
If we do not unite climate justice with economic justice, tax justice, racial justice and gender justice, those worried about the end of the month will become the enemies of those worried about the end of the world. The result will be an environmental, economic and political catastrophe.
Download and read the full edition of this round of essays here.
Download and read the first part of this edition here.
By Tommaso Faccio, co-founder of Tax Justice Italia
With the support of, and in partnership with the Tax Justice Network, Tax Justice Italia was launched today with the aim of adding a credible voice for tax justice in Italy. Tax Justice Italia will work to change the debate around taxation in Italy, counter the prevailing narrative that taxes need to be cut and dispel the misconception that it is legitimate to avoid or evade taxation. The new organisation aims to raise awareness among people across the country on the importance of tax for a strong economy and a healthy society.
More than €100 billion in tax is evaded in Italy each year and 15% of corporate tax obligations in Italy go unpaid each year through the use of tax havens. The amount of private wealth held offshore is estimated to be 8% of Italy’s GDP. These are just some of the reasons why a tax justice organisation is needed in Italy today.
Tax abuse deprives Italy of much needed revenues to boost investment in public services, such as health and education, and to finance sound anti-poverty measures. Furthermore, tax evasion severely hampers the redistributive function assigned to the progressivity of the Italian tax system, especially in personal income tax. This is a major problem for a country that displays a high level of pre-tax income inequality and one of the lowest levels of inequality reduction through taxation in the EU.
With the G20 presidency looming in the distance and the revived debate around tax havens within the EU, the time is ripe for a new organisation.
Our first work “Paradisi Fiscali: il caso Eni” analyses country-by-country data published voluntarily by the Italian major oil firm Eni, which is effectively controlled by the Italian State, analysing its presence in a number of tax havens and its approach to taxation. Given the Government’s recent strong rhetoric against EU tax havens, the report provides an opportunity to hold the Government accountable for the tax policies adopted by its state-controlled companies.
You can follow the work of Tax Justice Italia on our website or on twitter @taxjusticeIT.
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:
La pandemia y una nueva explosión de deuda mundial
¿Qué pasa con la deuda de los países pobres y en desarrollo? ¿Cancelación, suspensión o reestructuración?
Un viaje alrededor del mundo con las nuevas iniciativas para que las corporaciones y las grandes fortunas aporten al financiamiento de esta crisis.
Y cómo la falta de inversión previa en salud, está impactando a Centroamérica.
INVITADOS:
Andres Arauz, ex director del banco central de Ecuador, y economista hoy de la UNAM, la Universidad Nacional Autónoma de Mexico
Powerful shocks like pandemics, wars or financial crashes have an impact on society, but the nature of that impact depends on the theories people hold about history, society, the balance of power – in a word, ideology – which varies from place to place. It always takes major social and political mobilisation to move societies in the direction of equality.”
The Financial Transparency Coalition (FTC), a group of civil society organisations from around the world, invites you to a virtual conference on 28 May from 13:00 to 15:30 CUT. Drawing upon their deep expertise and influential network, the Coalition will consider how to prioritise reforms and policy innovations on tax and transparency that can secure greater revenue and ensure that less is lost to secrecy and abuse. This an important opportunity to understand the contributions needed for systemic change that can point us “in the direction of equality.”
Speakers including world leading economist Professor Jayati Ghosh, Jawaharlal Nehru University; Logan Wort, executive director of the African Tax Administrators Forum; Alex Cobham, chief executive of the Tax Justice Network; Professor Emmanuel Saez, director of the Center for Equitable Growth at at the University of California Berkeley (invited).
For anyone who cares about beneficial ownership transparency the spotlight should be on the EU – where public beneficial ownership registers became mandatory in 2020 – and Germany, which is struggling with the issue of anonymous real estate ownership in the face of a looming review by the Financial Action Task Force and a public alarmed by rising prices, which have exploded, in part due to an influx of anonymous international investment.
Just in time for the EU directive – but later than the UK, Denmark or Luxembourg – Germany made its beneficial ownership register public at the beginning of 2020 and has become one of the first countries worldwide to oblige foreign real estate buyers to register in the local beneficial ownership register.
A new study by the Rosa Luxemburg Foundation traces the ownership of more than 400 companies owning real estate in Berlin through public and commercial registers worldwide – including the German and other European beneficial ownership registers – concluding that nearly a third remain anonymous and transparency remains an illusion. It takes 15 examples and shows how implementation and enforcement of beneficial ownership transparency has failed in Germany (and other European registers) and why the EU definition of beneficial ownership remains fundamentally flawed.
When the German parliament debated the implementation of the EU’s 5th anti money-laundering directive most politicians, experts and the public agreed it should go ahead. The national risk analysis and the financial intelligence unit had identified real estate as a major risk area for money laundering and the Finance Ministry’s Secretary of State asked parliamentarians for additional ideas, in particular in the area of real estate. A prosecutor from Berlin pointedly reminded the parliamentarians that anyone who buys a house in Berlin using a company from any secrecy jurisdiction stays beyond the reach of law because prosecutors have no way of determining the real owners. And last but not least, due to soaring purchase prices and rents, many tenants are no longer willing to accept anonymous investors and dirty money. The press took notice. Everyone wants to know: Who owns our cities?
Besides opening the beneficial ownership register to the public (as foreseen in the EU directive), parliament passed one amendment that obliges any company from outside the EU wanting to buy real estate in Germany to register, and another allowing – or obliging – notaries and real estate agents to increase scrutiny of real estate transactions.
But despite all these efforts the study by the Rosa Luxembourg Foundation shows that answering the question of who owns Berlin remains impossible for two reasons:[1]
The German beneficial ownership register was badly designed and is not effectively enforced.
The concept and definition of beneficial ownership in the EU and FATF guidelines is seriously flawed.
Anonymous companies owning Berlin real estate
135 of 433
Missing entry in the transparency register despite compulsory registration
83 of 111
No beneficial owner according to current definition (25%)
82 of 135
Under these circumstances the new rule forcing foreign companies to register in the beneficial ownership register is purely symbolic and easily circumvented. Out of 433 companies owning real estate in Berlin that were analyzed for the study 135 remained anonymous. Of 111 relevant cases – i.e. where the beneficial owner was not already known through the German company registers – there was no entry in 83 cases and a real beneficial owner in only 7. In at least 82 out of the 135 cases the real owners remained anonymous, using joint stock companies and investment funds to ensure they didn’t surpass the 25% threshold to register as a beneficial owner.
Germany vs. EU – the state of play of beneficial ownership registers
Even though beneficial ownership registries have been obligatory in the EU since 2017 and their publication was due at the beginning of 2020, only six countries (UK, Denmark, Luxembourg, Latvia, Slovenia, Bulgaria) made their register freely accessible by then. Seventeen countries either don’t even have a beneficial ownership register (such as the Netherlands and Cyprus) or haven’t made it public (such as France and Spain).[2] Germany created the register in 2017 and made it public by 2020 but there are two big issues that hamper its usefulness:
First, Germany is one of only four countries (with Malta, Sweden, Norway) that don’t make the register mandatory. On top of that, instead of integrating the beneficial ownership register with existing ones (like Denmark, the UK or Malta) Germany (like Austria or Luxembourg) opted to create a separate register that is badly integrated. In theory, companies that already register their beneficial owners in Germany are spared additional bureaucracy. In practice this doesn’t work. As limited companies already have to publish all shareholders in the company register, typical real estate owners – Germans owning real estate through German companies – are fully transparent. But there are also many foreign companies that hold shares of German real estate companies and whose beneficial owners consequently can’t be found in the German registers. Nearly all of these German companies failed to register in the German beneficial ownership register and, because of the poor integration of the two registers, the oversight body is unable to efficiently identify companies with foreign shareholders that should register in the beneficial ownership register.
Second, a significant share of Berlin real estate is owned by joint stock companies, investment funds or companies claiming to have no beneficial owner above the 25% threshold set by the EU definition. As German joint stock companies, they have to disclose anyone owning more than 3% of their shares and record ownership in the internal, non-public shareholder register – but they often record and know only the name of the wealth manager or the bank administering their shares, rather than the beneficial owner. Many of the investment funds are structured as a combination of Cayman Island partnerships and Luxembourg SCSp – which means they don’t register their investors in any of the existing registers. Likewise the Seychelles LLC owning German real estate via Luxembourg can easily claim to have no beneficial owners under the existing criteria without much chance for verification – especially considering the absence of proper registration, the missing international cooperation and the existence of vehicles such as protected cell companies in many of these secrecy jurisdictions.
The cases analyzed in the study show the potentials and limits of beneficial ownership registers in various ways. One particularly instructive case revolves around a traditional book shop in Oranienstraße (Kreuzberg) fighting against eviction by an anonymous owner that might well turn out to be the heirs of the Tetra Pak fortune – mostly philanthropists with a reputation to lose.[3] While the owners use an SCSp to avoid registering the shareholders in the normal corporate register, the beneficial ownership register contains the names of three lawyers working for Liechtenstein’s biggest multi-family office.
But the beneficial ownership register doesn’t contain the name of the trust or vehicle they are representing nor of the final beneficiaries (which would remain unknown anyway because Liechtenstein hasn’t adopted a beneficial ownership register yet).
Extract from the Luxembourg beneficial ownership register
In contrast the Danish beneficial ownership register (concerning an unrelated company) lists the same three lawyers as representatives of the Ingleby trust connected to the Tetra Pak heirs. Because of this ambiguity the owners of the bookshop in Kreuzberg continue to wait for the confirmation of who is trying to evict them and whom to appeal to.
Extract from the Danish beneficial ownership register
The examples and results of the study show – creating a new and parallel register and trying to avoid double-entries by exemptions for beneficial owners already registered in traditional registers was a very bad idea. To fulfill the FATF requirement of effective beneficial ownership transparency Germany will have to ensure proper integration and consistency of the registers or learn from its neighbors and change the approach. The German case is also a perfect case example to demonstrate that without public scrutiny completely dysfunctional registers can proliferate for years – something that is hopefully going to change now that the register is public. And finally the study shows that through the EU and worldwide a lot of work remains to make existing beneficial ownership register work and to eliminate the limitation that allow the proliferation of anonymous ownership.
[1] In addition, German land registers are accessible only after proof of a legitimate interest. That’s why – instead of doing a full analysis or a random sample – the study was based on owners identified through a crowd-based collection of ownership data from tenants, journalists and local politicians.
N.B.The Tax Justice Network apologises for the use of an image of a palm tree in this article to represent tax havenry. The palm tree trope is widely used across media to associate international tax abuse largely or exclusively with small tropical islands whose populations are predominantly non-white and/or Black-majority. Evidence shows that the vast majority of international tax abuse is driven by rich OECD countries like the UK, US, Switzerland, Luxembourg and the Netherlands – yet it is small island nations that are often targeted by international policymakers while rich OECD countries are afforded exemptions. This colonial and structurally racist situation is bolstered by the use of the palm tree/island trope in media coverage of tax abuse. While the Tax Justice Network took the internal decision years ago to ban the use of the palm tree trope in our publications, we have kept our past uses of the trope up in order to be transparent about our past actions, rather than erase them, and to reaffirm our commitment to reject the trope going forward.
Acknowledgement: The Tax Justice Network is grateful for the information provided by India’s Self Employed Women’s Association (SEWA).
The COVID 19 pandemic has ‘flipped’ our understanding of many things which we took for granted pre-lockdown. One of these is the role of the state.
States have needed to act to protect our health, our incomes, our industries. This has restricted freedoms and invested powers in institutions that we might not have thought sanctionable only a few months ago. While the picture and level of intervention varies from country to country, questions about the obligations and responsibilities of the state and commitments made by the state under inter-governmental and in international law are important – including with respect to the role of tax and financial transparency in relation to human rights obligations.
The many reports of death, hardship and distress mean that governments will need to think carefully about how they can, and should, meet social and economic rights. Part of these political debates will need to include how resources are distributed and what policies are needed for their redistribution to protect the vulnerable and most marginalised from further inequalities and discrimination.
The impact of COVID-19 on informal women workers is especially hard. Many of us will remain ignorant of how women’s lives are torn apart by the COVID-19 pandemic. Knowing begs the question: what should be our response? How best to alleviate hardships born by women working in the informal economy; the most marginalised in societies? What should our governments, our intergovernmental institutions, do to mitigate the extreme impact of insecurities – food, income, housing, water, sanitation which have been triggered and exacerbated by the pandemic?
India’s Self Employed Women’s Association (SEWA) have documented, and continue to document the extreme hardships of women working in the informal economy. According to SEWA, 93 per cent of India’s workforce is in the informal economy. In the short term, the state and international financial institutions need to step in to shield informal women workers from the shocks of crisis.
Establishing progressive tax systems and developing robust global financial transparency is key to anticipating the effects of social and economic crisis, and to protecting the rights of gender and race. Doing so, for signatory states such as India, also opens both the possibility of “leaving no one behind” as Agenda 2030 (the Sustainable Development Goals) intends, and to meet obligations set out by human rights instruments including the Convention on the Elimination of all Forms of Discrimination Against Women (CEDAW) and the International Covenant on Economic, Social, and Cultural Rights (ICESCR).
The right response?
The COVID-19 crisis exposes long term political, social and economic ‘rights’ failures. The plight of many millions of informal workers is an injustice and a rights failure – and a failure to repay the social and economic value that is extracted from women’s informal labour in agriculture, food production, caring, and domestic work.
In India one response to COVID-19 has come in the form of a World Bank loan. Immediate relief is critical as the International Labour Organisation (ILO) has underlined, but this is also a time to underline the need to act for systemic and sustainable change.
21-day curfew – devastation for women
While the COVID-19 pandemic has already led to the loss of jobs and incomes for millions of workers around the world, for millions of poor women agricultural workers and small farmers in India, the 21-day curfew announced on March 22nd has been devastating. Living on the edge of poverty and hunger even before the disease, people now face a ban on movement and transport which has crippled the harvesting, distribution and sale of fresh produce and winter crops. The economic threat for many women and their families is grave.
Failing to recognise the reality – Banks’ loan
moratorium
The winter harvest includes crops such as wheat, barley, mustard, canola, sesame, peas, etc. and fresh produce. Many women small farmers had finalised the trade of their produce. They were hoping to pay off their agricultural loans using the income from the sale of their harvests. However, due to the lockdown traders could not pay the farmers. While the Reserve Bank of India announced that all lending institutions should institute a 3-month moratorium on loan repayments, it did not waive the interest on the loans; thus, poor women farmers will have to pay a higher interest. Additionally, as many small farmers borrow from local moneylenders the moratorium does not include them, leaving many women workers without the income to pay back their loans. The government’s deferral of payments on credit card dues[1] will, similarly, yield little or no benefit to poor women in the informal economy.
More than 10,000 small and marginal farmers and vegetable growers from Gujarat as well as farmers in the states of Kerala, West Bengal, Rajasthan, and Punjab could not take their fresh produce such as tomatoes and cabbage to the market. The income they generate from the sale of fresh produce has dropped to almost half. For example, tomatoes should sell for Rs.5 per kg but the women are only receiving Rs.1 to Rs.3 per kg.
Many small farmers had harvested their cotton and wheat and had stocked it in their homes waiting for traders to pick-up the harvest. But due to the COVID-19 crisis, migrant workers are moving back to their homes in villages. However, the homes are full of harvested crops and there is no room for returning family members who are migrants.
Prime Minister Modi made the drastic decision about the 21-day curfew without any considerations for the daily lives of millions of poor women and men and their families. For women and men who live on the margin of daily wages and daily purchase of food, the restrictions on movement mean they are closer to hunger and death even before getting sick with the Covid-19 virus.
Eye catching vs sustainable
In the short-term, social and economic crises require a rapid response. So far the eye-catching responses and “beacons of better” are few and far between. Viet Nam, South Korea and New Zealand appear to have minimized the impact of the COVID-19 virus, for now at least. Denmark and Poland have caught the public mood and imagination on corporate greed with plans to exclude tax haven registered companies from public bailouts (although we have argued that a somewhat broader approach will be needed to ensure benefits).
Responses to COVID-19 in many OECD countries are operating upon the foundations of “austerity” policies, a deliberate shrinking of the state through ideologically led social and economic policy. Not surprisingly, the most aggressive countries in this aspect have found themselves floundering – either reversing economic stance quickly but finding the underlying structures unprepared (by policy), as in the UK for example, or continuing to struggle with the intellectual dissonance between ideological stance and evident need, as in the USA. Most importantly, many of the most marginalised groups suffer and are left behind to fend for themselves. Short-term actions are needed, but based on a progressive systemic, long term approach.
In India, the Tax Justice Network’s Financial Secrecy Index 2020 has documented the progress made in recent years, in terms of addressing financial secrecy. This has included important revisions (2016) to the damaging double tax treaty arrangement with Mauritius. But there remain ongoing problems including “unnamed” ownership.
The transparency of India’s financial architecture is at best partial. Enactment of a Prevention of Money Laundering Act and the establishment of an Financial Intelligence Unit made for an early engagement in, and signature to, the OECD’s Multilateral Competent Authority Agreement (MCAA) for Automatic Exchange of Information (AEOI) in 2015. All this has helped to tighten up on “unnamed” money – money laundering and tax dodging. The 53 active Automatic Information Exchange Agreements India has in place will help to curb illicit finance flows and tax dodging, but more could be done.
Building
foundations
Most countries are “guilty” of systemic tax and financial transparency failures. If addressed, such failures could create opportunities to strengthen rights protection and build formidable social and economic foundations.
A progressive tax regime, as the tax justice movement has long argued, is critical to halt the tide of so called profit shifting by multinational corporations and cement the possibility of taxing rights, in particular, in developing countries. As well as being recognised by experts around the globe as an essential element for clamping down on huge tax dodging it is a critical part of a financial transparency policy platform needed to address inequalities and human rights failures.
Governments need to match their domestic actions to the strength of their voice on the international stage. While India continues to take progressive positions in international fora such as the G24 – by advocating for more taxing rights for developing countries and pushing for unitary tax approaches – the same cannot be said for its national positions and political bent which has favoured bailouts while leaving the most vulnerable to suffer.
On 24 April 2020 the US Court of Appeals for the fifth
circuit ruled
that a US law firm must disclose to the US tax authority (the Internal Revenue Service)
the names of requested clients in connection to an investigation. Specifically,
the Internal Revenue Service (IRS) had asked for documents identifying any US
clients at whose request or on whose behalf the law firm had acquired or formed
any foreign entity, opened or maintained any foreign financial account, or
assisted in the conduct of any foreign financial transaction, including records
or other data relating to setting up offshore financial accounts and the
acquisition, establishment or maintenance of offshore entities or structures of
entities.
The issue at stake was whether attorney-client privilege
would allow the law firm to reject the summon. It didn’t.
The law firm, however, wasn’t picked at random. The ruling
describes that the investigation arose because during the audit of a US
taxpayer, it was revealed that the taxpayer hired the law firm for tax
planning. This was accomplished by establishing foreign accounts and entities,
and executing subsequent transactions relating to said foreign accounts and
entities. Specifically, from 1995 to 2009, the taxpayer engaged the law firm to
form eight offshore entities in the Isle of Man and in the British Virgin
Islands and established at least five offshore accounts, so the taxpayer could
assign income to them and, thus, avoid US income tax on the earnings.
The case is interesting, but it reflects that enablers’
secrecy tools won’t be easy to dismantle. This ruling doesn’t suggest at all that the IRS can send fishing
expeditions to any law firm to find tax abusers. Instead, it appears that the
fact that there was a possibility – but not certainty – that these (unknown) US
clients had violated tax regulations is what allowed the IRS to overcome
attorney-client privilege.
Lawsuits require judges to interpret and apply the law to one
particular case. But we should take a step back and ask ourselves whether the
law itself makes sense, or if it needs to be reconsidered.
As we have recently written in an earlier
blog on this case, attorney-client privilege is just the tip of the iceberg
in facilitating illicit financial flows. Attorney-client privilege is abused not
just for tax abuse purposes, but for money laundering as well, as warned by the
Financial
Action Task Force.
Today we are delighted to support the launch of a new and critically important website: ‘a volunteer online data repository of information on feminist principles and actions, as well as policy responses to the COVID crisis.’
After the 64th UN Commission on the Status of Women in March 2020 was cancelled, feminists came together within days to share, support and to continue strategic work that couldn’t wait. They worked ‘across global movements centered on human rights, sustainable development, and economic and social justice’ to launch this vital resource. As Emilia Reyes and Bridget Burns explain in introducing it, “Working at the intersections of multiple forms of crisis is not a new task for feminist advocates”.
The new website provides a set of principles to outline a feminist response to COVID 19, which involves a ‘paradigm shift’ – a different financial model – that relies ‘on adequate and equitable financing.’
You’ll also find on the Feminist Covid Response website:
Response Tracker. This marks policies or laws, temporary measures, or observed responses by country and by theme (for example, education).
Online Dialogues. This is a repository of online dialogues and webinars that have been held to discuss the intersections of gender, feminism, care, women’s rights and COVID-19.
Resources. This section contains a collection of feminist statements and analyses, mutual aid resources and organising tools.
This is an important opportunity to map the impact of COVID 19 and to ensure feminist solutions prevent a return to ‘business as usual’ once the crisis is perceived to be ‘over’, so please contribute with your own resources on tax justice, your experiences and your responses to COVID 19. This video below from the Womens Budget Group in the UK demonstrates how different elements of gender inequality are connected, and how unpaid care lies at the centre of this spiral. The experience of the pandemic is highlighting how deeply unequal women and girls are worldwide and we must now ensure these brutal lessons result in good policy.
We congratulate and are grateful to the twenty five volunteers from across the world who have worked so hard to publish this website. Please share widely, social media hashtags are #FeministResponse #COVID19
Here’s the 15th edition of Tax Justice Network’s monthly podcast/radio show for francophone Africa 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.
IMPOTS ET JUSTICE SOCIALE #15 : L’aide hypocrite du G20 à l’Afrique face au Coronavirus
Dans cette quinzième édition de votre podcast « Impôts et Justice Sociale » nous revenons sur le Coronavirus, et les actions en faveur de la justice sociale au profit de l’Afrique et des Africains. De nombreux gouvernement ont pris des mesures pour limiter les conséquences économiques sur les personnes actives. Mais ces mesures reposent sur de faibles moyens et ne parviennent pas à toucher tout le monde.
Aussi, les pays riches du G20, dont plusieurs sont des paradis fiscaux ou des experts des stratégies agressives pour obtenir des avantages fiscaux avantageux, ont annoncé de grandes mesures d’aide à l’Afrique, mais il n’en est rien, Au contraire, le continent noir risque de payer plus cher cette suspension du service de la dette.
Pour en parler
Ali Idrissa, il est basé au Niger, où il occupe les fonctions de Coordonnateur du ROTAB (Réseau des organisations pour la transparence et l’analyse budgétaire)
Broulaye Bagayoko, qui est basé au Mali. Il est le Secrétaire Permanent du CADTM Afrique / Comité pour l’abolition des dettes illégitimes
Vous pouvez suivre le Podcast sur:
Le télécharger pour l’écouter hors connexion sous le lien suivant
Si vous souhaitez recevoir cette production ou être média partenaires ou simplement contribuer, vous pouvez nous écrire à l’adresse Impô[email protected]
Welcome to the twenty-eighth 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.
In the 28th edition of Taxes Simply: can the accumulated wealth in tax havens be taxed in order to mitigate the economic and health crisis that the world is facing?
In the second part of the programme, we present our summary of the most important tax and economic news from around the world, including:
Denmark says it won’t consider companies registered in tax havens for bailouts
The Netherlands disrupts European solidarity in facing the coronavirus – twice
The IMF urges Kuwait to increase taxes and reduce its dependence on oil
Prices for US oil contracts go negative due to lack of demand
أهلا بكم في العدد الثامن والعشرين من الجباية ببساطة. نتناول في هذا العدد مشكلة الملاذات الضريبية، وهل يمكن إخضاع الثروات المتراكمة هناك للضريبة من أجل التخفيف من حدة الأزمة الاقتصادية والصحية التي يعيشها العالم حاليا. في الجزء الثاني من البرنامج نعرض كالعادة ملخص لأهم أخبار الضرائب والاقتصاد من حول العالم، ويشمل ملخص الأخبار: ١) الدنمارك لن تدعم الشركات المسجلة في ملاذات ضريبية؛ ٢) هولندا تعطل التضامن الأوروبي في مواجهة كورونا مرتين؛ ٣) صندوق النقد الدولي يحث الكويت على زيادة الضرائب وخفض الاعتماد على النفط؛ ٤) عقود مايو/آيار للنفط الأمريكي تصل سعرها إلى سالب في ظل نقص الطلب على الوقود الأحفوري.
Quais são os rumos para a sociedade global, vencida a pandemia? Como não repetir erros de outras crises e apostar em novos paradigmas? Estas reflexões são feitas por uma diversidade de economistas: Laura Carvalho, Pedro Rossi, Áurea Mouzinho, Marco Antonio Rocha, Inocência Mapisse, Thomaz Jensen, Marilane Teixeira, Guilherme Mello e também pelo nosso colunista, o jornalista Nick Shaxson.
Nossos entrevistados contemplam que após a pandemia é possível o ressurgimento de Estados mais fortes, focados em investimentos públicos em saúde e proteção social; uma economia baseada em cuidados, no papel das mulheres e no consumo consciente; um mercado de trabalho mais inclusivo e a reinvenção de movimentos de trabalhadores; e, sobretudo, a ascendência da solidariedade e do coletivo como alicerces de uma sociedade global mais ambientalmente sustentável. E o dinheiro para financiar a nova economia pode vir com a aplicação de medidas como um maior controle dos fluxos financeiros de paraísos fiscais e um sistema tributário mais progressivo.
E uma novidade: completamos um ano de podcast e o presente para todos os ouvintes é um site novo. Em www.edasuaconta.com você tem acesso a todos os episódios do podcast e a todas as plataformas digitais de áudio. Confira!
Participantes desta edição:
Pedro Rossi, professor do Instituto de Economia da Unicamp
Nick Shaxson, colunista do É da sua conta, jornalista da Tax Justice Network
How UK civil servants tailored US anti-money laundering policies to suit Britain’s financial services industry…
Amid the global crisis emanating from the spread of Covid-19, those of us who advocate for tax justice have seen our objectives sharpened as the already huge gulf between the living standards of the “poor” and the “rich” seemingly widens every day. The fight for tax equality concomitant with the wider notion of equality in terms of access to public services (including healthcare) for everyone has never been more pressing. As already noted by the Tax Justice Network and its contributors, the coronavirus pandemic is shining a light on the wealthy fat cats who are shoring up money in secrecy jurisdictions while asking for bailouts and the devastating impact of tax avoidance on EU states, including the effects on public services spending.
But the voices of tax advocates will not be silenced. As stated by Nick Shaxson, while some “Important People” may think that “our ideas were utopian, even crazy” the reality is that in the post Covid-19 world, the likes of the UK’s Chancellor, Rishi Sunak, and others who hold the budgetary keys in OECD countries, will need to sit up and take notice of the need to rewrite national tax laws and thereby help to undermine the financial bases of criminal organisations and also those businesses operating at the murky end of legitimacy – rather than rejecting calls to bar tax haven companies from bailouts. Bureaucratic law makers should not be able to draft legislation in a way that benefits the wealthiest (whether professional criminal entrepreneur or savvy tax avoider), while demonising those whose lives are enveloped by persistent financial hardship. Laws which undermine genuine law enforcement concerns to tackle crime, corruption and inequality. Laws which continue to support the threats posed by financial secrecy jurisdiction to the world’s poorest countries. Laws, which when all is said and done, allow criminogenic environments to flourish with the support of the British government.
Along with Dr Michael Woodiwiss (History, University of the West of England), we have this week published an article with the journal Trends in Organized Crime, on anti-money laundering law-making by some of the policy makers operating in Whitehall and Threadneedle Street in the late 1980s. Our research focused on the retrieval and analysis of a substantial, previously secret, UK Treasury file from 1987, which contains the letter writing correspondence between Thatcherites based at Whitehall and Threadneedle Street at a time when the UK felt under pressure to conform to US policies emanating from the “war on drugs”. Correspondence evidences the ways in which the UK and US were able to quietly manipulate anti-money laundering policies to suit the economic priorities of the banking and finance sectors on both sides of the Atlantic; for example flatly rejecting calls for increased vetting of bank customers, retaining secrecy jurisdictions as prominent financial centres, and shooing away the efforts of Interpol to highlight financial crime in the banking sector. Simply put, the existing international anti-money laundering framework – which, let’s not forget, generally falls under the heading of criminal law, given the crimes it covers – has been created and developed by bankers and Treasury civil servants, with minimal input from law enforcement. Some such as Rachel Lomax (who later became Deputy Governor of the Bank of England), Graham Kentfield (who later worked as the Chief Cashier at the Bank of England), and Colin Gregory (promoted to Deputy Director, Government Legal Department) progressed to work in high profile positions within the banking sector and government.
The narrative which unfolds in our article, helps us gain a new, and timely insight into the faults which run through the international anti-money laundering framework as part of the wider issue of failing organised crime control laws. A framework built on obfuscation, vested interests and personal whims, and which ultimately allows multifarious tax crimes to continue unchecked.
On 2 April 2020 the Tax Justice Network co-organised together with the Financial Transparency Coalition, Transparency International, Global Witness, Global Financial Integrity, Open Ownership, The B Team and the World Economic Forum’s Partnering Against Corruption Initiative (PACI), the first exploratory virtual call to form a multi-stakeholder advisory group to promote short term pilots on verifying beneficial ownership information.
Beneficial ownership
transparency has entered the mainstream and is rapidly spreading around the
globe. Within three months since the publication of the Financial Secrecy Index in January 2020, three more countries have
approved beneficial ownership registration laws, including Panama, taking the
number of jurisdictions with a beneficial ownership register to 79. However,
verification of beneficial ownership information held by registers (to make
sure registered data is updated and truthful) remains a challenge.
To promote beneficial ownership verification around the world, as a corollary of our paper on how countries can verify beneficial ownership information, we have co-developed a concept note to set up a multi-stakeholder group to share experiences and best practices among activists, investigative journalists, international organisations, governments and the private sector. The goal of the advisory group would be to promote short-term pilots to verify beneficial ownership information in at least two countries, a developed and a developing one. Lessons learnt would be used to either expand or replicate pilots in other countries.
The first exploratory call to receive feedback on the concept note had a great turnout despite Covid-19. More than 50 people joined the call (some in an “observer status”), including experts from the World Bank, the IMF, the EU Commission, Europol, the UNODC, the Inter-American Development Bank, the Inter-American Center of Tax Administrations (CIAT), the Latin American FATF (GAFILAT), EITI, Open-Government Partnership (OGP), international banks and online payment companies including Citi, HSBC, Bank of Montreal and Paypal, European and Latin American authorities, and technology companies such as Refinitiv. Here’s a summary of the first exploratory call.
Based on the interest
and feedback, we will now host three focused calls:
1) The needs of users: To discuss current
needs of beneficial ownership users such as banks, investors, law enforcement,
prosecutors, investigative journalists, activists, etc.
2) How to select countries for short-term pilots:
To discuss the criteria
to select countries and their pilots.
3) Mapping current verification strategies: To discuss current
strategies, technologies and best practices used to verify information that
could be used to verify beneficial ownership information.
Participation at the call (by invitation only) does not necessarily mean being an active member in the advisory group, which is still being developed. At the same time, while stakeholders may have different views, there is a commitment not to undermine the call for public beneficial ownership registries or the fight against illicit financial flows. If you have any questions or comments, please send an email to andres [@] taxjustice [.] net.
In the Tax Justice Network’s monthly podcast, the Taxcast: from the ashes of the coronavirus crisis how can we build a better economic and socially just system that works for all of us? The pandemic also exposes the pile-up of unaddressed crises which we must also fix. A transcript is available here due to popular request (not guaranteed to be 100% accurate)
We discuss:
tax justice (which was always key)
bailout conditions for companies now seeking government assistance
Universal Basic Services
Interviews:
Idriss Linge, finance journalist and producer and presenter of the French language Tax Justice Network monthly podcast Impôts et Justice Sociale
The voices of US Congress woman Alexandria Ocasio-Cortez, Chamath Palihapitiya of investment firm Social Capital speaking with presenter Scott Wapner on CNBC
I think it’s quite likely that we’ll see a much longer period of full depression, closer to what happened in the banking collapses in 1873. Far too many commentators have failed to grasp that we’re not facing one crisis in 2020 but we’re facing multiple crises, some of which have been building up for decades. If ever there was a moment to launch a truly radical departure from the neoliberal world order, this is that moment.”
~ John Christensent, Tax Justice Network
It’s about reclaiming the collective ideal and the idea that if we all get together and pool our resources and share risks, we will do a lot better. And it’s about putting people in control of how services are designed, to help each other, to look after each other.”
~ Anna Coote of the New Economics Foundation on Universal Basic Services
Further reading:
Tax Justice Network work and proposals on covid-19 are available here
“there’s an estimated $8-35 trillion sitting offshore that must now be tapped into”
Argentina refuses to bail out a company headquartered in Luxembourg, plus companies based in ‘non-cooperative’, low tax or no tax jurisdictions
Want to download and listen on the go? Download onto your phone or hand held device by clicking ‘save link’ or ‘download link’ here.
Want more Taxcasts? The full playlist is here and here. Or here.
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This is a Portuguese translation of the Tax Justice Network’s proposal of a 5-step test for coronavirus bailouts. A Spanish translation is available here (external website).
Dinamarca, Polônia, França, Argentina já anunciaram e outros países europeus estão estudando não auxiliar empresas que registradas em paraísos fiscais. Essa medida vai numa excelente direção, mas pode ser melhorada em alguns aspectos.
O teste foi desenvolvido para evitar que o dinheiro de contribuintes acabe em paraísos fiscais corporativos e para garantir a transparência tributária dos benefícios recebidos.
Se sim – e a corporação não publicar relatórios completos por país que opera até o final de 2020, de acordo com o padrão da Global Reporting Initiative para demonstrar que a presença no paraíso fiscal é para atividade comercial legítima e não com a finalidade de reduzir as obrigações fiscais em outros lugares – ela deve ser desqualificada para receber um resgate.
A Tax Justice Network convida os governos a confiar no Índice de Sigilo Financeiro e no Índice de Paraísos Fiscais Corporativos, em vez de listas de paraísos fiscais nacionais ou regionais, como a da União Europeia, já que elas provaram ser políticas e fracas demais para serem eficazes no combate ao abuso tributário. As listas da UE desde a primeira em 2017 nunca cobriram nem 10% dos serviços de sigilo financeiro do mundo.
O grupo corporativo participou de escândalos financeiros ou fiscais, como LuxLeaks, ou recebeu auxílio estatal ilegal?
Se sim, a corporação deve ser desqualificada para receber um resgate.
O grupo corporativo publicou on-line suas contas mais recentes de todas as entidades legais do grupo, incluindo relatórios completos por país, de acordo com o padrão da Global Reporting Initiative?
Se não, os governos devem estabelecer uma condição para que os beneficiários do resgate façam isso até o final de 2020. Se a condição não for atendida dentro do prazo, o dinheiro do resgate deve ser devolvido.
O grupo corporativo publicou informações sobre quem são os proprietários beneficiários e legais de todos os seus veículos legais e a estrutura corporativa completa do grupo?
Se não, os governos devem estabelecer uma condição para que os beneficiários do resgate façam isso até o final de 2020. Se a condição não for atendida dentro do prazo, o dinheiro do resgate deve ser devolvido.
O grupo corporativo comprometeu-se em proteger seus funcionários e a não distribuir dividendos para seus acionistas até que os empréstimos do resgate sejam totalmente pagos e o grupo corporativo retorne à lucratividade ou se torne insolvente?
Se não, a corporação deve ser desqualificada para receber um resgate. As empresas resgatadas, no mínimo, devem comprometer-se a não demitir funcionários que precisam ficar em quarentena ou hospitalizados e pagar a todos os funcionários significativa porcentagem de seus salários, até o reembolso total dos fundos de resgate ou a insolvência da empresa. As empresas resgatadas também não devem distribuir dividendos, recomprar seu próprio capital social e converter outras reservas de capital, como prêmios de ações, em bônus para os acionistas até que a empresa pague integralmente seus empréstimos de resgate e retorne à lucratividade.
A pressão sobre o governo para enfrentar os riscos que os paraísos fiscais das empresas representam para os esforços para combater a pandemia de Covid-19 vem crescendo. A França perdeu mais de U$ 2,7 bilhões em impostos corporativos para a Holanda. Itália e Alemanha perderam mais de U$ 1,5 bilhão cada e a Espanha perdeu quase U$ 1 bilhão para o paraíso fsical holandês.
Alex Cobham, diretor da Tax Justice Network: “A pandemia de coronavírus expôs os graves custos de um sistema tributário internacional programado para priorizar o interesse dos gigantes corporativos em relação às necessidades das pessoas. Elaboramos o teste de “fiança ou resgate” para ajudar os governos a garantir que os impostos sejam direcionados à proteção do emprego e do bem-estar das pessoas, em vez de recompensar os abusadores fiscais”.
The Tax Justice
Network, together with Fundación SES, the Financial
Transparency Coalition and PROCELAC (Argentina’s anti-money laundering
prosecutor) have been co-hosting an event in Buenos
Aires for the last five years to promote public beneficial ownership registries
in Latin America. It looks like our efforts have paid off. On 15 April 2020 the
Argentine tax authorities (AFIP), who have been participating at this event from
the beginning, finally approved Regulation 4697 to require beneficial ownership registration for
a wide range of legal vehicles including companies, partnerships and investment
funds. This is a great step forward in tackling financial secrecy and tax
abuse. Unfortunately, though, the register will not be public and so falls
short of its full potential as a tool for transparency and tax justice.
By approving this new
beneficial ownership regulation, Argentina will surpass Panama’s transparency
on beneficial ownership. Panama has already approved a beneficial ownership
register, but it still has problems with bearer shares because they need not be
immobilised by a government authority and thus Panama has been unable
to obtain companies’ ownership information in a few cases. Bearer shares give
ownership of a company to whoever is physically holding the bearer share in
their hand, making it impossible to guarantee that information held by the register is up to
date. Nevertheless, Argentina is still far away from the UK which makes
information held by the register available to the public online in open data.
Beneficial ownership
transparency has entered the mainstream and is rapidly spreading around the
globe. The Financial Secrecy Index published in January 2020 found that 41 countries had beneficial ownership laws that were robust enough
to meet the index’s criteria for effective transparency. This criteria included
requiring information held by the register to be regularly updated. At least three more countries have since approved
beneficial ownership registration laws, including Colombia, Panama and now
Argentina.
In the case of
Argentina, while the Financial Secrecy Index acknowledged that beneficial ownership registration was
superficially mentioned under article 26 of its Law 27444 on “simplification and de-bureaucratization of
the State”, there was no central register of beneficial owners. Beneficial
ownership information for companies was only required in two provinces and the
city of Buenos Aires.
Regulation 4697
establishes a beneficial ownership registration to be centrally managed by the
tax authorities (AFIP). Here are some preliminary observations on the new
regulation.
Positive aspects
Wide scope: unlike other countries’ beneficial ownership laws that cover only
companies, Argentina’s new regulation covers a wide range of legal vehicles:
companies, partnerships, associations, and importantly, investment funds, which
generally present high secrecy risks as described by our paper on beneficial ownership in the
investment industry.
No threshold: many countries, especially in the EU, follow the threshold of “more
than 25 per cent of ownership” to consider an individual to be a beneficial
owner. This high threshold, considered by many countries as a fixed rule, is
actually based on what we consider to be a wrong
interpretation of the
Financial Action Task Force (FATF) Recommendations. The main problem is that it
makes it very easy to avoid transparency by creating a company with at least
four individuals with equal shareholdings (because no one would pass the “more
than 25% threshold”).
Some
countries, especially in Latin America, have established much lower thresholds,
including Uruguay and Costa Rica (15 per cent), Peru (10 per cent) and Colombia
(5 per cent). Positively, Argentina has joined Ecuador is establishing what we consider to be the ideal
threshold: any person
holding at least one share (or interest in an investment fund) should be
considered a beneficial owner.
However,
Argentina’s definition is even better than Ecuador’s because it goes beyond ownership
criterion (anyone holding at least one share), to also include anyone with
voting rights or with control through other means.
Wide trigger: from the ideal transparency perspective, beneficial ownership
registration should be triggered whenever a legal vehicle (i) is incorporated
or governed under domestic laws, and for foreign legal vehicles that (ii) have
a resident party (eg shareholder, beneficial owner, director, trustee, etc) or
that (iii) have operations in the country, including owning assets, engaging in
business transactions or having income subject to tax.
As
described by this blog, most countries including the European Union,
only require beneficial ownership registration for companies based on
incorporation (condition i) and for trusts when the trustee is resident in the
country (partial condition ii). The 5th EU Anti-Money Laundering (AMLD 5)
innovated by also requiring trusts’ beneficial ownership registration whenever
the trust acquired real estate or established a relationship with an obliged
entity in the EU (partial condition iii).
Argentina’s
new beneficial ownership applies to entities incorporated in Argentina (condition
i). However, the regulation also adds
disclosure requirements in relation to foreign entities that have Argentine
shareholders, directors, or people with a power of attorney over the foreign
entity (condition ii). First, resident individuals have to disclose any foreign
entity that they own as legal owners (but not a foreign entity that they
indirectly own as beneficial owners). The same applies if a resident individual
is a director, manager or supervisor (“fiscalizador”) in a foreign entity.
Second, there is another requirement for foreign entities that are considered
“passive” because most of their income comes from dividends, interests,
royalties, etc. Argentine taxpayers (individuals or entities) who own more than
50 per cent of the capital, voting rights or rights to profits in a “passive”
foreign entity, have to disclose this “passive” foreign entity to the tax
administration. To determine if a legal owner passes the threshold of 50 per
cent, the ownership held by other related entities (for corporate shareholders),
or by the spouse or close relatives (for natural person shareholders) must also
be considered. “Passive” foreign entities will also have to be disclosed if a
local taxpayer has the right to dispose of the “passive” foreign entity’s
assets, or appoint or remove the majority of the board of directors (regardless
of passing the 50 per cent threshold).
Based
on the above explanation, there may be an overlap for individual taxpayers:
they would have to disclose a foreign entity over which they own at least one
share or vote, as well as any “passive” foreign entity over which they own more
than 50 per cent. This redundancy may be explained because for “passive”
foreign entities, disclosure requirements include also reporting the gross
income of the “passive” foreign entity.
The
following figure summarises the beneficial ownership requirements for local entities
and the legal ownership requirements for foreign entities (including “passive”
foreign entities):
The
following figure gives examples of who gets to be reported (in black) and who
avoids being reported (in red):
Comprehensive details must be registered: not only must beneficial owners be registered
(and updated) with enough identity details (eg name, tax identification number,
number of shares or ways in which control is exercised), but also directors,
and other officers, including those with a power of attorney to represent the
entity before the Argentine tax administration. It would have been better to
include those with any power of attorney, eg to manage the entity or the
entity’s bank account.
On the other hand, shareholders and beneficial owners must report the
number of shares or votes they own, and their value. As described by our paper
on “beneficial ownership verification”, by reporting the value of the acquired
shares, authorities could also check whether the person could have afforded
those shares in the first place, based on their declared income, to detect
cases of illegal nominees or money laundering.
Negative aspects
No public access: the 2019 Financial Action Task Force (FATF)
paper on “Best practices on beneficial
ownership for legal persons” recognises that “the trend of openly accessible
information on beneficial ownership is on the rise among countries”. All EU
countries now must establish public beneficial ownership registries based on
the 5th anti-money laundering directive. Even the UK has required its
dependencies to open the beneficial ownership register and Cayman has already
promised to make it public by 2023.
In Latin
America, Ecuador
is already making beneficial ownership publicly available online and Paraguay
is considering giving public access to the name of beneficial owners. Other
countries, like Uruguay at least give access to law enforcement authorities,
including the financial intelligence unit in charge of anti-money laundering.
In Argentina’s case there is no mention of access, suggesting that information
will be confidential and only accessible to tax authorities.
This is a big
problem. Many stakeholders have an interest and need for beneficial ownership
information. In the UK, the public online beneficial ownership register was
accessed 6,500
million times only in 2018. Publicly accessible registries allow
verification of the information by journalists and activists, as exemplified by
Global
Witness’ analysis of the UK beneficial ownership data. This public verification
was also recognised by the Financial
Action Task Force paper on best practices on beneficial
ownership.
By ensuring
access to obliged entities such as banks, the EU is also able to require them
to report any discrepancy to the beneficial ownership register based on the
information that they obtain from their clients, eg when opening a bank
account. Argentina will be missing out on this verification system.
Lastly,
beneficial ownership is relevant not only for tackling tax evasion and abuse,
but also money laundering and corruption. In 2018, Argentina signed the Global
Forum Punta del Este declaration committing to use information to tackle
tax and corruption. At the very least, Argentina’s tax authorities should sign
memoranda of understanding to give access to information to the financial
intelligence unit and the anti-corruption office.
Regulation text is unclear
and confusing. Beneficial ownership regulations are
supposed to be clear to be understood by everyone. AFIP’s Resolutions
(generally, not only about beneficial ownership) could do a much better job in
writing clearly and stating explicitly who will be covered (rather than
referring to article 53 of the Income Tax Law, which in turns refers to article
73, which in turns refers back to article 53). Additional guidance would be
most welcome.
Trusts aren’t covered by this regulation. Annex I of the new AFIP resolution excludes trusts from its scope. It
could be argued that, as described by the Financial Secrecy Index on Argentina,
trusts are already required to register all their parties by AFIP Resolution
3312 from 2012. However, that Resolution doesn’t require the parties to the
trust, say a settlor or trustee, that are an entity (eg a corporate trustee) to
identify their beneficial owners.
The Ownership chain must be kept but need not be registered. Whenever a beneficial owner owns or controls an entity indirectly,
information on the full ownership chain must be kept by the company but it need
not be registered with the tax administration. The ownership chain is extremely
relevant for verifying the beneficial owner because it shows all the
intermediate layers up to the beneficial owner. This information should be
filed with authorities at least as a free text or image.
Potential for improvements
While the beneficial ownership resolution
is rather brief, given that it will be managed by the tax administration, there
are several synergies that may be exploited:
Verification of beneficial ownership information. While registering information with a government authority is of
utmost importance to guarantee availability of beneficial ownership information,
verification of information is indispensable to confirm the accuracy and
veracity of registered information.
We have written a paper on
how
countries could verify beneficial ownership information. It’s not only about
establishing validation mechanisms (eg to prevent a company from registering
another entity rather than an individual as a beneficial owner), but also to
cross-check information with other databases and to do big data or data mining
analysis to detect suspicious patterns and red flags. AFIP will be a in great
position to verify the newly registered beneficial ownership information given
their sophistication in the access and use of data. They already have an intelligence
unit to detect patterns of tax abuse and other red
flags. They also obtain
wealth and income information on all taxpayers from the private sector and
other state agencies to determine their risk profile. AFIP’s data includes information
on real estate and automobile ownership, bank accounts, credit card
consumption, private school fees, private health insurance fees, insurance contracts,
etc. This data can be used to cross-check information submitted to the
beneficial ownership register and vice versa.
Cross-check data with beneficial ownership data reported by
financial institutions. Based on the OECD Common
Reporting Standard (CRS) for automatic exchange of information, the Argentine
tax administration is already receiving a trove of data from local financial
institutions, including beneficial ownership data. The Common Reporting
Standard requires banks and other financial institutions to report the account
holder and, when the account holder is an entity considered “passive” (because
most of its income is related to dividends, interest or royalties), to also
report the beneficial owner of these passive entities.
Commendably, as recognised
by the Financial Secrecy Index, Argentina
is implementing the “widest approach”. This means that Argentine tax
authorities receive information on all account holders (regardless of their
country of residence). Therefore, AFIP should be able to compare the beneficial
ownership information reported by local financial institutions (based on their
own customer due diligence) as part of automatic exchange of bank account
information, with the information reported by entities directly to AFIP, based
on the new beneficial ownership regulation. For example, if an Argentine entity
reported to AFIP that John is its beneficial owner, but the same entity – when
opening a bank account- told its Argentine bank that Mary is the beneficial
owner, then Argentina’s tax authorities will be able to detect this
discrepancy.
In addition, authorities
should be able to compare information reported by resident legal owners about
their foreign legal vehicles, with the banking ownership information
automatically received from abroad based on the Common Reporting Standard.
In other words, AFIP
should cross-check:
information on beneficial
owners of local entities, by comparing the information reported directly by
local entities with the information reported by local banks; and
information on legal owners of
foreign legal vehicles, by comparing the information reported directly by local
legal owners, with the information automatically received by AFIP from foreign
banks pursuant to automatic exchange of information
Recommendations
Based on the above analysis, we would
propose that Argentina should take the following measures:
Publish guidance and organise
trainings for the private sector (companies, lawyers, accountants, etc) to
provide clarity and explanations on the new beneficial ownership regulation.
Establish beneficial ownership
registration requirements for trusts. Add beneficial ownership definitions for complex
structures that combine legal persons and trusts (eg when a trust owns a
company, all parties to the trust should be considered the beneficial owners of
the company).
Sign memoranda of understanding
to allow at least other local authorities to access beneficial ownership
information, and to cross-check with data available in other agencies,
including the commercial register, the securities regulator, the real estate
registry, etc.
Publish at least basic
beneficial ownership information through Argentina’s “National Register of
Companies” (Registro Nacional de Sociedades) which is the recent federal online
public register that publishes
basic company information. AFIP is already providing data to the National
Register of Companies, which is also fed with data from the local (provincial) commercial
registries.
Verify beneficial ownership
information obtained pursuant to the new regulation, with information already
available to AFIP based on wealth and income information reported by the
private sector and local government agencies as well as bank account
information related to the automatic exchange of information.
Welcome to this month’s latest 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 iTunes.)
En este programa especial sobre el Coronavirus:
La crisis económica mundial y la intervención del estado. ¿Hay que rescatar a grandes compañías que usan paraísos fiscales para la evasión?
Las distintas respuestas sanitarias y económicas de los países en América Latina
En el medio de la crisis, ¿cómo financiar al estado en la lucha contra el Coronavirus? La respuesta de un panel especial de Naciones Unidas.
Y ¿qué nos dice el presupuesto económico de un país? Examinamos la inversión en justicia y fuerzas armadas en medio de la crítica situación política y económica de Honduras
Invitados:
Desde Ciudad de Mexico Oscar Ugarteche del Instituto de Investigaciones Económicas de la UNAM (Universidad Nacional Autónoma de México)
Desde Buenos Aires, Juan Valerdi, profesor de la Universid de la Plata y ex aseseor del Banco central de Argentina. Publicaciones https://unlp.academia.edu/JuanValerdi
Desde Bogota, el economista y ex ministro colombiano, José Antonio Ocampo, hoy director del ICRICT, la Comisión Independiente para la Reforma del Impuesto Corporativo Internacional
We’re sharing this personal story from an anonymous writer who has been made redundant in the past month. The consequences of a world where we tolerated the excesses of so-called ‘wealth creators’ are becoming starkly clear as their lack of responsibility or loyalty to employees and to the society that has enriched them is hitting us hard. The wealth they extracted has flowed almost entirely one way – into their pockets via tax havens and through bending and breaking rules with impunity, leaving societies thoroughly weakened and less able to cope with the pandemic than they would otherwise have been. Now read on. [Photo by Anders Nord on Unsplash]
If you’re not careful, you’ll be next: How offshore finance has managed to make the coronavirus crisis even more unpleasant
You love your job. You’re doing good work, providing a vital service that’s making the world a better place. You work in a beautiful office, with free fitness classes, healthy snacks, social events, all the resources you need to do your job. You even get monthly emails from HR telling you how much of a valued team member you are. It’s a far cry from the drab and depressing places you worked at for years, gaining valuable experience but horrifically underpaid and making do with only just enough resources. There’s just one thing not quite right. You report to a head office based in a tax haven, and the finance department have some very specific rules around contracting and invoicing, as if they really do want to keep the operations in the ‘high-tax’ location very separate from those in the ‘low-tax’ location.
Until recently, this was my life, and I’ll admit that I thought it was brilliant. I turned a blind eye to the tax avoidance and the company’s conspicuous wealth. We were being provided for, so who minds if the family that owns the business has a couple of private jets and a bunch of multi-million pound mansions? There’s enough money to go around for everyone.
Then coronavirus happened. Demand took a huge downturn and the company’s revenue dropped close to zero. Within weeks entire departments were being cut. Years of work and experience was being lost, and people were being made unemployed just in time for the biggest recession in a generation. The founder, who before the crisis had always made a point of developing a cult of personality around himself suddenly disappeared from sight. Redundancies were handled by managers, who would in many cases soon be laid-off themselves. Not a word of apology or even acknowledgement from the owners that people were being let go. We were even told to tell suppliers that we weren’t going to pay them the money they were owed for work done. A global company, owned by billionaires, deliberately pushes small business owners and their families into destitution, simply because the cost of enforcing the contract would be too high for a small trader.
But how has offshore finance made this worse? Put simply, for years I worked to help funnel money offshore, into a place that’s only accessible to a chosen few. I skirted the very edges of the law because I had no choice, but when the going suddenly got tough, we were told that there’s no money in the business and that we have to be let go. That may be true, but since the company is privately held offshore, there’s no way at all of knowing.
We were offered the bare minimum in terms of redundancy, but as far as I know, the owner still has his private jets. The company even offered to furlough staff on the understanding that they’ll be laid off once the furlough period ends. We’ll make a few hundred pounds more but the company is going to save hundreds of thousands by reducing redundancy payouts, letting the state make up the difference through furlough payments. This company, which spent years (legally?) cheating the taxpayer out of the funds it needs, now dips into the public pocket when things turn bad, just so it can protect the offshore wealth of a family of billionaires. They’re ripping off the state, which is currently engaged in its biggest and most deadly battle since the Second World War to keep the rich in the lifestyle that they’re accustomed to. All while National Health Service workers struggle to get the equipment they need.
The coronavirus doesn’t discriminate based on how rich you are, and I hope this realisation sinks in with the people remaining at the company, especially those protecting the offshore assets. When your grandchildren ask you what you did during this crisis, do you really want to tell them that you helped swindle the same public sector that kept you and your family alive? If now isn’t the time to finally recognise that for a healthy world, we need properly funded government, then that time will never come. To all those who are working for companies that abuse the tax system, I say this: The offshore world has no loyalty to anyone. Blow the whistle, expose the fraud, let’s build a better system. Do it now, before it’s too late. Last month, I lost everything after years of defending this system. It could be you next.
Costa Rica has been at the vanguard of
beneficial ownership registration in Latin America and the world. The country approved
its beneficial
ownership registration law 9416 in December 2016 and continued to
strengthen the robustness of its beneficial ownership registration requirements
since then, as recognised by the 2018
and 2020
editions of the Financial Secrecy Index. A new bill making its way now through
Costa Rica’s legislative assembly threatens to render the country’s beneficial
ownership register useless by delaying the requirement to update information
held by the register from once a year to once every five years on shareholders
below a certain threshold.
While Costa Rica still has room to improve
its beneficial ownership transparency even further by making its register
publicly accessible, following the example of Ecuador and most countries in
Europe, Costa Rica has been a leader in beneficial ownership registration for
trusts since 2018. The country has also set a leading example on the
implementation of automated verification of beneficial ownership information,
as described in our report
here (see pages 42-43).
However, a new bill is threatening to throw
away Costa Rica’s progress on transparency by rendering the country’s beneficial
ownership register obsolete and of little use. The new bill delays the
requirement to update information held by the register from yearly to once
every five years. While the bill still requires information to be updated
whenever someone acquires more than 15 per cent of ownership, it no longer
requires updating information on lower shareholdings on a yearly basis, which may still be relevant
if an individual controls the entity through other means. For example, if the
beneficial owner controls the entity not by holding many shares, but by having
voting rights or significant influence over the entity’s decisions. No matter
how comprehensively a beneficial ownership register is staffed, resourced and verified,
it will be of little use if it’s not updated on all beneficial owners.
For the Financial Secrecy Index to consider
a country’s beneficial ownership register to be effective, based on global norms
set by the Financial Action Task Force and the OECD’s Global Forum, it requires
countries to update legal and beneficial ownership information at least
annually or whenever a change occurs (whatever happens first). Costa Rica’s
current law requires this as well. However, this will no longer be the case if
the new bill proposing to postpone the update of legal and beneficial ownership
information from each year to every five years passes. To put this into
perspective, imagine using a five year old used car listing to contact the
owner of the car about buying it!
The most puzzling part of the bill however
is the argument underlying the proposal. It doesn’t question the importance of safeguarding
against money laundering and tax evasion, but it considers the process of updating
information every year to be too costly for companies. This is a false economy.
If there has been no change in ownership or control, then updating the
information should cost little to nothing. A company is able to get the last
filed data from the register (in case they forgot to keep a copy), so they
could simply copy-paste the information when it’s time to file beneficial
ownership information again. On the other hand, if there has been a change, say
there is a new shareholder, the company should already have the information on
record, not for the sake of reporting it to authorities but for the company’s
own operations. Otherwise, how would the company know who is allowed to vote or
to receive dividends?
We all know that there is a big stretch
between approving a law and properly implementing its enforcement. However, if
the beneficial ownership law of 2016 is weakened by making the information it
gathers obsolete, there won’t be enough improvements to enforcement that could
make up for its weakness.
We hope that Costa Rica will keep up its
transparency leadership and take it forwards (towards publicity) instead of
backwards (towards outdated data).
The Bank of England’s pressure on HSBC to cancel its dividend for the first time in 74 years has reignited a debate at the top of the bank over whether it should redomicile to Hong Kong.
This is shocking, on several levels.
First, that’s a direct threat by HSBC against UK policymakers – in the middle of a pandemic and a global economic shock. Classy timing.
Next, the Bank of England’s gentlemanly discouragement of dividend payments to help tackle the Coronavirus crisis is far too timid: we (and many others) have recently encouraged permanent bans on share buybacks (which used to be illegal) and temporary bans on dividends – especially banks which should now be ploughing money into shoring up their capital safety cushions in the current environment.
Furthermore, we have seen exactly this intimidation before, from exactly the same global bank, deploying the very same kinds of anonymous whispers, to favoured journalists who the bankers judge will put the “right” spin on the story.
This is, once again, the Competitiveness Agenda. Threaten to relocate elsewhere if you don’t get what you want — knowing all along that you’re not going to carry through on this threat. Talk, after all, is cheap. (HSBC is going to throw itself decisively into the arms of the Chinese Communist Party? Really?)
The same FT story cites an anonymous HSBC director accusing the Bank of England of “put[ting] a gun to the head of the board of directors . . . the calls for redomiciling will increase”.
No, it’s the other way around: HSBC is trying to put a gun to Britain’s head. Here’s how this game tends to pan out: Large multinational threatens to relocate, knowing secretly it has no plans do so. Yet an obsequious British state gratefully hands over goodies, extracted from current and future taxpayers and other sections of society. The bank then piously decides, after “careful consideration”, not to relocate. We described it thus, after the last big round of empty threats in 2016:
The bank’s been conducting a ‘review’ of its operations, and constantly drip-leaking panic-inducing details about these supposed internal deliberations, as a way of maximising pressure on British politicians to relax regulations and minimise pesky things like criminal probes, capital requirements, bank levies, and plenty more. And boy, have some concessions been made . . .
Those concessions alone have since cost the UK an estimated billion pounds a year, equivalent to the cost of educating 200,000 schoolchildren. HSBC didn’t, of course, relocate. (This kind of game happens all the time: it’s the same basic ploy as Amazon’s widely-reported efforts to engineer a “Hunger Games environment” to create ‘competition’ between US states to host its second headquarters, in which it sought to squeeze maximum subsidies and tax breaks out of the states. As one analyst put it, “Amazon already knows where it wants to be” – and in the end, his prediction proved exactly right.
To be fair, this time the FT journalists didn’t let the bank have it all its own way, pointing out that HSBC originally relocated from Hong Kong to London after Britain handed its colony Hong Kong to China in 1997: as an investor put it:
“it’s the price to pay if you’re going to domicile in the UK with all the protection that gives you.”
But here’s an even more important thing. The British financial sector is too big – much too big. There’s an ocean of research out there now, showing that countries with oversized financial sectors tend to become less prosperous as a result. Shrink the financial sector, for prosperity. Two images, the first from the IMF, and the second from us, show the basic issue, which is the Finance Curse.
The right hand graph is pretty much unarguable. Shrink the red, and keep the blue, seems to be a sensible approach. The left hand graph – an upturned banana shape (repeated in study after study) shows that we all need a functioning financial sector, and countries with underdeveloped financial sectors need to expand them to support prosperity. But there is an optimal point — the UK and the UK probably passed it some time in the 1980s – when the sector is providing the services an economy needs. Further growth of a financial sector beyond that optimal point starts to damage economic growth.
Why? For a number of reasons, most important of which is that once a financial sector has (to put it crudely) set up the useful services an economy needs, it finds that there are further profits to be mined by penetrating into other parts of the real economy – from agriculture to healthcare to the film industry to tourism – and finding ways to extract wealth from those parts. Frequently, it’s done by financial sector players buying up perfectly good companies then financially engineering them – running their financial affairs through tax havens, say, or by increasing their debt, or sitting astride and milking some sort of monopolistic choke point — to extract more wealth from them, and in aggregate this leaves behind a more fragile corporate landscape. This is in essence what private equity and a lot of merger and acquisitions do – or it could happen in a related guise, public-private partnerships (see the Private Equity and the March of the Takers chapters here).
These pigeons will soon come home to roost: after which we might get a better idea of the costs. It’s impossible to estimate the scale of the damage from oversized finance with any degree of accuracy, but the best estimates suggest it is very large indeed. Much is not measurable: such as the fact that in 2013 and 2015 when Britain signed a series of deals with the Chinese Communist Party to give the City of London financial sector access to lucrative financing, the quid pro quo was that Britain would have to allow the China General Nuclear Power Corporation (CGN) to take a large stake in Britain’s mega-nuclear power station, Hinkley C. Here is one reaction to that:
What the UK should be doing is taxing and regulating this rather lawless global bank, and taking a very hard line — so that it either shrinks its operations to the useful core of services it provides, or the bank relocates to Hong Kong, taking its political, economic and democratic damage with it.
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