Page 25 – Tax Justice Network

Fiança ou resgate? Especialistas da Tax Justice Network elaboraram teste em cinco etapas para governos aplicarem antes de resgatar empresas diante da #Covid-19

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.

O grupo corporativo possui uma ou mais subsidiárias em uma das 10 principais jurisdições do ranking no Índice de sigilo financeiro (https://fsi.taxjustice.net/en/ e detalhado no @e_dasuaconta – https://bit.ly/2VDmwmc) ou no Índice de paraíso fiscal corporativo (https://corporatetaxhavenindex.org/ e detalhado no @e_dasuaconta – https://bit.ly/2VCUHul)?

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?

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”.

Argentina finally has a beneficial ownership register. Now, it should make it public

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.

Tax Justice Network Spanish language monthly podcast: La lucha contra el Coronavirus

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 Quito, Pablo Iturralde, del CEDES, el Centro de Derechos Economicos y Sociales
Desde Santiago de Chile, el economista Ricardo Martner del ICRICT, la Comisión Independiente para la Reforma del Impuesto Corporativo Internacional
Desde Bogota Maria Fernanda Valdes de la Fundación Ebert, autora de Reducir la desigualdad “El Papel de la política tributaria”
Desde ciudad de Guatemala, Abelardo Medina, del Instituto de Estudios Fiscales de Centroamérica
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
Desde la capital Tegucigalpa, Jeremías Bustillo periodista y analista del diario “La Tribuna” en Honduras.

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My billionaire bosses funnelled money offshore for years. Now they want a bailout

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: a bill threatening to render its beneficial ownership register useless

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).

HSBC threatens UK amid Coronavirus crisis

The Financial Times reports:

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:

(Source)

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.

When the factory gates are bolted shut, women need country by country reporting

In recent days a number of sudden and dramatic changes have happened in the labour market in already fragile economies, as the Business and Human Rights Resource Centre has shown. Many workers who are poorly paid and in precarious relationships [read zero or no contracts] with ‘absent’ employers – are losing their incomes. Many of these workers are women and girls.

Even under normal circumstances women and girls don’t get a great deal. Only half of women in developing regions receive the recommended amount of health care they need, and while 17,000 fewer children die each day than in 1990, still more than 6 million children die before they are five years old for a lack of adequate health care and well-being, according to UN Women. Women and girls face many gender based inequalities, generated from exclusive policy and provisions, violence, discrimination and poverty. All of these will be exacerbated as women and girls continue to care, and experience more extreme conditions for their health, security and safety. ‘Social distance’ is a health luxury that most women and girls in developing regions will be unable to achieve.

In a COVID-19 environment public health workers and cleaners are on the COVID front line.

But it is not just the frontline health and social care workers, 70% of whom globally are women. Other professions employ a disproportionate number of women on fragile contracts. In India alone 45 million people work in the garment industry – 60% of them women . At the same time women most often are the ones who are providing care for children, the sick or at-risk family and community members.

In many of the countries where the garment industry operates, for instance, workers create economic profits for the multinationals that employ them but often create little taxable profit, so little of the value these workers create is yielded as government revenue or translates into social protections and targeted services for those on the lowest incomes.

With no or little savings, and no prospect of redeployment or re-employment, governments need urgent and reactive solutions – but they also need sustainable and progressive tax regimes to help meet adequate social care, health and well being needs.

Country by country reporting (CBCR) – the transparency mechanism where multinationals are required to produce information on economic activity in each country where they operate, offers a protective measure to help governments find the information they need to tax companies appropriately – and fulfil their human rights obligation to promote women’s health and well being.

This would be a unique moment in corporate history to record a step change in leadership for CEOs, Boards and shareholders. As UN Women’s Executive Director stated last week, this is a ‘time of reckoning for our national and personal values and a recognition of the strength of solidarity for public services and society as a whole’. Financial transparency and paying a fair share is fundamental to this notion of solidarity.

Women are at the sharp end of any health crisis, but the impact of this pandemic will have first order and secondary impacts that will devastate the lives of, and kill, many women. Country by country reporting is one significant progressive step which all multinational corporations need to establish as part of their responsibilities to their workers and the communities from which they extract wealth. It won’t help women with this health pandemic, but it could have profound implications when the next one breaks.

Feedback to EU Commission’s roadmap to tackle tax fraud and evasion

The EU Commission has called for feedback from the public on its new roadmap for tackling tax fraud evasion. Recognising that “every year in the EU, billions of euros are lost to tax evasion”, the Commission has outlined an initial action plan, presenting key initiatives to:

tackle tax fraud
make compliance easier
take advantage of the latest developments in technology and digitalisation

The Tax Justice Network submitted feedback which can be found here and which has been reproduced below.

Tax Justice Network feedback to EU Commission’s “Action Plan on fight against tax fraud ” initiative

With the Corona pandemic exacerbating inequalities and ushering in extreme stress on the budgets of EU member states, the Action Plan of the European Commission is planned during the most severe crisis of the European and global institutional architecture in 70 years, exposing hundreds of millions of citizens inside and outside the European Union to extreme economic vulnerability. In this context, the role of corporate tax havens and secrecy jurisdictions within and outside the EU in undermining solidarity cannot be tolerated any longer and calls for decisive action in order to safeguard the European Union’s cohesion and help preventing the further spread of populist and extremist movements.

The scope of the EU Action Plan should be broadened to include personal and corporate income tax matters, including tax avoidance in a legal grey zone. Options for an EU supported wealth tax and options for an excess profits tax on firms profiteering from Corona should urgently be explored and included in the Action Plan, jointly with reviving plans for a broad and comprehensive tax on financial transactions.

The EU would benefit from the European Commission hosting or acting as a European Tax Intelligence Centre (EUTIC), transmitting innovative data and policy analyses for improved tax compliance and fairer taxation. Among others by applying a novel geographic risk assessment tool, EUTIC would assess vulnerabilities to illicit financial flows in Europe including from tax evasion, tax fraud and tax avoidance. A more detailed proposal for scope and data implications of an EUTIC are enclosed in the draft summary recommendations of the Horizon 2020 research project “COFFERS” (Combating Fiscal Fraud and Empowering Regulators). This project has concluded end of January 2020 and offers a wide range of relevant research findings and innovative policy recommendations (full details accessible under http://coffers.eu).

While the European Union has taken many bold legislative steps in the past years, some policy gaps remain that need addressing. In the realm of automatic information exchange of financial account information and personal income and wealth taxation, the effectiveness of the entire system is jeopardised by recalcitrant jurisdictions that refuse to engage in fully reciprocal information exchanges. To ensure a level playing field, the EU should consider implementing a withholding tax policy against non-participating banks that fail to provide financial account data on a fully reciprocal basis, using its market access as a leverage to ensure compliance.

Furthermore, the validity of passports issued under golden passport schemes by some members states should be constrained in order to prevent tax evaders and criminals to open foreign bank accounts with purchased citizenship to circumvent reporting to tax authorities at their place of primary residence. The efforts to counter tax evasion and money laundering through beneficial ownership disclosure need to be complemented by disclosure of legal ownership in all cases, by expanding the disclosure to EU real estate and the registration to freeport users, and by abolishing bearer shares or immobilising them with a government authority.

In order to rein in corporate tax havens, various conditions for participating in the Single Market should be enacted, ensuring a level playing field and robust tax revenues: group-wide public country by country reporting, full publication of unilateral cross border tax rulings including the name of the companies and minimum corporate tax rates. Other policies to consider are discussed in the current special issue of “Intertax”: Leyla Ates, Moran Harari and Markus Meinzer, ‘Positive Spillovers in International Corporate Taxation and the European Union’, Intertax, 48/4 (2020), 389–401). Full details of reform options are detailed in the 20 indicators of the Corporate Tax Haven Index.

Recommendation 1: Establish tax intelligence centres in member states and at the EU commission

The cross border integrated tax planning departments of investment banks, accounting and legal ﬁrms require a response by the state that transcends regulatory silos. A robust response that will safeguard the interests of ordinary citizens by countering the multi-billion tax avoidance and money laundering industries must include not only operational capacity to detect the latest complex cases, but equally capacity for strategic orientation. This needs to be innovative and responsive to changing dynamics. At the moment, this capacity is fragmented at the national level and absent at the EU level. As a result, there is increased risk of disconnects and time lags between policy making and regulatory implementation, with the EU public COFFERS suﬀering from billions in lost tax revenues and uncounted costs in terms of crime and money laundering.

An EU-level Tax Intelligence Centre (EU-TIC) would meet both of these challenges, monitoring macro-economic trends for risks of illicit ﬁnancial ﬂows and the spillover eﬀects of domestic tax policies, and building advanced data mining and analytical capacity to support targeted tax audit and policy formulation. An EU-TIC would facilitate the prioritization of the negotiation of international agreements, shape policies and programmes for tax compliance, and support local tax administration in operational decision making (staﬃng, auditing). At the request of member states, the EU-TIC would provide support in policy and operational analyses, as well as tactical and strategic advice.

Dedicated tasks of the EU-TIC would include the identiﬁcation of abusive tax avoidance structures in EU ﬁnancial systems and the internal market, and the design of suitable responses. The identiﬁcation of structures would rely inter alia on the new directives on mandatory reporting of aggressive tax planning schemes (Council Directive 2018/822/EU) and on the protection of whistleblowers (Council Directive 2019/1937/EU). Furthermore, the role of the EU-TIC would encompass the identiﬁcation of tax evasion and money laundering risks across the entire EU, and individual EU member states, by providing data-driven country proﬁles of vulnerability and exposure to illicit ﬁnancial ﬂows. This would rely in part on bilateral ﬁnancial secrecy index analyses. The EU-TIC would also provide and review tax gap estimates.

The EU-TIC would set an example in transparency, by publishing periodic reviews, documenting in detail its activities and impact.

Recommendation 2: Addressing data gaps

Without reliable data, tax evasion and avoidance and money laundering cannot be countered successfully and sustainably. Public data for researchers and the wider public and the integrity of conﬁdential administrative data require improvement. This will foster trust in institutions, contribute to a level playing ﬁeld and fortify the rule of law.

Interoperability of available registry data is a pressing concern that requires a response both within, and beyond the European Union. With some economic groups in the ﬁnancial sector controlling up to 25,000 separate entities, a need for the unambiguous identiﬁcation of ownership structures is evident. The potential of the Legal Entity Identiﬁer to allow interconnectivity, or even to replace EU-wide separate numbering systems of domestic legal entities, should be explored. Incentives to keep the data valid and updated have to be implemented consistently. Measures to ensure integrity and timely information include ensuring public access to ﬁnancial statements, ownership data, and statistics on regulatory and enforcement actions taken by the registries in cases of non-compliance.

The current lack of data on country by country information should be remedied to construct a level playing ﬁeld between SMEs and large multinationals. SMEs often operate in one country and are unable to shield relevant accounting data from public scrutiny. Large multinational companies do so by consolidating accounts and structuring corporate networks strategically.

To ensure the continued success of the automatic exchange of tax information on ﬁnancial accounts, commitment by participating jurisdictions and data quality should be monitored. Comprehensive statistics on the data exchanged by country of account holder, controlling person and bank location should be published. Public statistics on golden visas and similar programmes should be made mandatory to protect against the undermining of the eﬀectiveness of automatic information exchange of ﬁnancial account information.

Standard statutory tax rate datasets should be complemented with measures of the lowest available corporate income tax rates (LACIT) legally available in jurisdictions, to improve the validity of academic research and policy analyses. Such data on LACIT is provided by COFFERS’ in the Corporate Tax Haven Index.

Recommendation 3: Addressing policy gaps and loopholes

While the European Union has taken many bold legislative steps in the past years, policy gaps remain that urgently need addressing. In the realm of automatic information exchange of ﬁnancial account information, the eﬀectiveness of the entire system is jeopardised by recalcitrant jurisdictions and banks that refuse to engage in fully reciprocal information exchanges. To ensure a level playing ﬁeld, the EU should consider implementing a withholding tax policy against non-participating banks that fail to provide full ﬁnancial account data on a reciprocal basis, using market access as leverage to ensure compliance.

Furthermore, the validity of passports issued under golden passport schemes by some members states should be constrained, at a minimum by requiring this status to be declared on the passports and through information exchange protocols. Without this measure, tax evaders and criminals are able to open foreign bank accounts with purchased citizenship to circumvent reporting to tax authorities in their place of primary residence. In order to improve pan-European cooperation in prosecuting cross border tax evasion and money laundering, legislative eﬀorts should be directed towards creating harmonised and clear deﬁnitions of both crimes. A pan-European prosecutorial agency for these matters should be instituted. Eﬀorts to counter money laundering through beneﬁcial ownership disclosure need to be complemented by disclosure of legal ownership in all cases. Disclosure requirements should be expanded to incorporate EU real estate and freeport users. Bearer shares should be abolished or immobilised with government authority.

A return to a truly progressive tax system can help prevent the further spread of populist and extremist movements. Eﬀective cooperation on business taxation supports this. To date no breakthrough in the area of business taxation comparable to automatic information exchange has been achieved. A ﬁrst step t is the speedy enactment of public country by country reporting rules for large corporate groups. This is as is proposed in a directive under negotiation amending Directive 2013/34/EU in regard to the disclosure of income tax information by certain undertakings and branches. Minimum taxes should complement the adoption of the Common Consolidated Corporate Tax Base (CCCTB).

Fundamental corporate tax reforms (towards unitary taxation/CCCTB) will take some time. They should be complemented by intermediate policy steps that can be implemented unilaterally and immediately. Examples of such intermediate steps include the abolition of patent boxes and notional interest deductions, the inclusion of capital gains in the corporate income tax base, constraining loss utilization over time, and the introduction of robust deduction limitations on intra-group royalty and service payments.

These new EU policy-making eﬀorts should be implemented in a way that contributes to stronger democracy in the EU. This can be achieved by establishing channels for the greater participation of independent academics and civil society organisations in the reform process. Reform should no longer be dominated by private interests and a closed and technocratic network.

Edition 27 of the Tax Justice Network Arabic monthly podcast 27# الجباية ببساطة

Welcome to the twenty-seventh edition of our monthly Arabic podcast/radio show Taxes Simply الجباية ببساطة contributing to tax justice public debate around the world. Taxes Simply الجباية ببساطة is produced and presented by Walid Ben Rhouma and Osama Diab of the Egyptian Initiative for Personal Rights, also an investigative journalist. The programme is available for listeners to download and it’s also available for free to any radio stations who’d like to broadcast it or websites who’d like to post it. You can also join the programme on Facebook and on Twitter.

Taxes Simply #27 – The Coronavirus and tax justice

This month Walid Ben Rhouma and Osama Diab discuss the economic consequences of the coronavirus crisis that the world is currently experiencing. They also present the most important tax and economic news from the MENA region and the world, including:

the oil price war emerging between Russia and Saudi Arabia
the European Central Bank is offering 1 trillion euros this year to alleviate the impact of the coronavirus
the MENA region economy may shrink by an estimated 1.7% and the Eurozone by 12.5%
Lebanon defaults on debt repayment

الجباية ببساطة #٢٧ – فيروس الكورونا والضرائب

أهلا بكم في العدد الجديد من الجباية ببساطة، ونتمنى أن تكونوا بأفضل حال في هذه الفترة الاستثنائية. في الجزء الأول من العدد يتحاور وليد بن رحومة وأسامة دياب حول التبعات الاقتصادية لأزمة فيروس كورونا التي تعيشها العالم حاليا. أما في الجزء الثاني من العدد، نعرض أهم أخبار الضرائب والاقتصاد من المنطقة العربية في العالم في شهر مارس/آذار، وتشمل أخبارنا: ١) حرب أسعار النفط تشتعل بين روسيا والسعودية؛ ٢) البنك المركزي الأوروبي يطرح 1 تريليون يورو هذا العام للتخفيف من وطأة فيروس الكورونا؛ ٣) اقتصاد المنطقة العربية قد ينكمش بمعدل ١.٧% ومنطقة اليورو بمعدل ١٢.٥%؛ ٤) لبنان يتخلف عن سداد الديون.

تابعونا على صفحتنا على الفايسبوك وتويتر https://www.facebook.com/ TaxesSimply Tweets by taxes_simply

Edition 14 of the Tax Justice Network’s Francophone podcast: édition 14 de podcast Francophone par Tax Justice Network

Here’s the 14th 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.

Impôts et Justice Sociale, Edition 14 : Malgré ses cadeaux fiscaux, L’Afrique abandonnée face au Coronavirus

Dans cette quatorzième édition de votre podcast « Impôts et Justice Sociale » nous revenons sur le Coronavirus, et le risque qu’il représente pour les économies africaines. Nous explorons surtout le fait, que la région qui a accordé de nombreux avantages fiscaux aux multinationales qui exploitent ses ressources, et à des pays riches dans le cadre des accords fiscaux avantageux, obtenus de manière agressive, tarde à recevoir un soutien, alors que partout on annonce des milliers de milliards $ de subventions.

Pour en parler

Jean-Bertin Kemajou, il est le président de l’ONG Camerounaise Freedom Service
Eteme Eteme Simon Pierre, avocat au Barreau du Cameroun et Président de la branche camerounaise de l’ONG Avocats Sans Frontières
Blaise Ella, Délégué pour le Ministère Camerounais du Plan et de l’Aménagement du territoire
Honoré Bidiasse, Professeur d’Economie à l’Université de Douala/Cameroun

Vous pouvez suivre le Podcast sur:

Le télécharger pour l’écouter hors connexion sous le lien suivant
Notre page facebook à l’adresse: https://www.facebook.com/impôts et justice sociale/
Notre Twitter: www.twitter.com/ImpotsSociale
La publication sur Youtube et notre nouveau site web www.impotsetjusticesociale.com
Et pour ceux qui ont l’application stitcher : https://www.stitcher.com/podcast/idriss/impots-et-justice-sociale
Si vous souhaitez recevoir cette production ou être média partenaires ou simplement contribuer, vous pouvez nous écrire à l’adresse Impô[email protected]

Corporate financial resilience in times of COVID-19: a perfect storm?

Guest blog by Professor Colin Haslam, Queen Mary University of London

In our working paper Safeguarding financial resilience for sustainability’ we argue that large companies listed on the European and the US stock exchanges have become financialised, leaving many with weak, financially exposed balance sheets and higher risk of insolvency. As the Covid-19 crisis hits, we are on the verge of a perfect financial storm as the European and US financialised corporate sectors have sacrificed financial resilience for shareholder value.

In response to the COVID-19 crisis governments are stepping up to underwrite company liquidity through wage and salary subventions. France, Spain and the UK, for instance, have unveiled emergency packages including direct pay-outs to employees as well as loans and guarantees for companies to mitigate the economic blow from the coronavirus. These economic interventions are about securing the financial stability of companies.

In accounting and auditing practice, company viability is tested by looking at both liquidity and balance sheet solvency. Companies need cash for liquidity to cover everyday business expenses. But to maintain balance sheet solvency, a company also needs a surplus of assets over liabilities, in the form of shareholder equity reserves. These reserves provide a critically important loss-absorbing buffer.

For example, when a company suffers a deterioration in income because of a downturn in product markets, any negative earnings need to be absorbed by shareholder equity reserves if that company is to remain a going concern.

In a financialised company, the primary modus operandi is asset value extraction for shareholders, through paying dividends and buying back its own shares. Aggressive distributions to shareholders can reduce retained earnings accumulated in shareholder equity, undermining the loss-absorbing buffer.

During the period 2009 to 2018 we estimate that net income earned by all FTSE 100 companies was £898bn, while dividends amounted to £571bn and share buy-backs £167bn. So in total, roughly four fifths of total net income was distributed. Nearly half of FTSE 100 companies distributed more than three quarters of their net income, while 25 distributed more than 100 percent of their net income!

This high distribution of earnings is a pattern that resonates across all the major European and US large company quoted stocks. To modify this behaviour, dividends could be added back to earnings for the purposes of calculating corporation tax. Where a company increases debt to fund distributions to shareholders the interest payments on this debt would be treated as being non-tax deductible. Stricter restrictions could include: stronger criteria for what constitutes realised earnings available for distribution to shareholders and changes to the UK companies act, that is, prohibiting company repurchases of their own share capital.

Table: Net income distributed to shareholders as dividends and share buy-backs[1]

	Dividends	Share buy-backs	Total
	%	%	%
EuroStoxx 600	65	7	72
S&P 500	36	51	87
FTSE 100	64	19	83

Source: Thomson Eikon datasets

Financialised companies that have hollowed out their equity reserves are vulnerable not only to losses made in the normal course of business: they are also vulnerable to impairments of speculative asset values reported on their balance sheets.

The COVID-19 crisis will undermine company revenues and profits from selling goods and services as we now all lock down. But when company cash flows dry up there will also be a compounding negative impact on asset valuations that have been speculatively “marked to market” as part of fair value accounting (FVA) practices. The current market value of many assets recorded on a company’s balance sheet are speculative valuations. This is because these valuations are based on estimates about future cash flows that may or may not be realised by these assets.

Assets adjusted to speculative market value include not just goodwill but also property, financial instruments, hedging products, pension funds, biological assets, brands, patent and licenses. These speculative asset valuations will also become compromised. Our working paper reveals that 15-20 percent of European and US companies would not have enough equity reserves to absorb just one asset class ‘goodwill’ being impaired – let alone all the other asset classes marked up to speculative market value.

So what’s to be done? A new social settlement.

The COVID-19 crisis has resulted in unprecedented state subvention of wages and grants to sustain our corporate sectors. When this crisis is over it will be necessary to demand corporate obligations, not just entitlements, attached to the granting of the social license of limited liability. A new social settlement will be required, as it will no longer be possible for corporate governance to operate solely for shareholders.

A starting point would be to restore prudential resource management, conservative accounting practices, and the preservation of capital and solvency for a going concern.

Policy interventions should now:

● Promote a default to historic cost accounting to limit speculative asset value impairment, and in the short run put in firebreaks to prevent asset value impairment and its transmission into the company equity funds.

● Restrict distributable dividends out of shareholder equity to accumulated realised earnings rather than realised and unrealised earnings that arise when asset values are inflated.

● Modify company tax law on dividends and tax deductible interest charges attached to debt finance used to fund distributions of all kinds to shareholders: adding these expenses back to compute corporation tax.

● Restrict the capacity of a company to convert other shareholder equity reserves, such as share premiums, into bonus issues for shareholders and other manipulations.

● Reform our company’s acts to stop companies from buying back their own share capital. We need to revert to the previous common law position prohibiting companies from buying their own shares.

In this time of crisis it is essential to ensure that, in the immediate short-run, companies do not liquidate assets because this will very quickly threaten company balance sheet solvency: a systemic Carillion effect.

In return for subvention, and beyond this current crisis, we should now all demand that companies fulfil broader obligations to society (not just shareholders).

This will require companies prudently safeguarding capital for a going concern in return for the social license granted by limited liability.

Company capital management: Safeguarding financial resilience for sustainability, Colin Haslam (Queen Mary University of London, George Katechos (University of Hertfordshire) Yuri Biondi (National Centre for Scientific Research, CNRS, Paris), 2020

[1] Over period 2009 to 2018

Could the wealth in tax havens help us pay for the Coronavirus response?

As economies crumble under coronavirus pandemic, powerful interests are hoping to get rich from huge government bailouts. A well-informed Washington D.C. insider described the latest U.S. bailout package, for instance, as a “corporate coup” to reshape the U.S. economy:

“it’s really really bad, and much of the bad stuff is not being included in the sleazy marketing materials . . [it is] a Christmas wish-list of corporate lobbyists.
. .
The bill establishes a series of boring-sounding slush funds [with] alphabet-soup names . . that’s where the real money is.”

Economist Gabriel Zucman has described it as literally a $170 billion tax cut for real estate tycoons.

With President Trump declaring that “I’ll be the oversight” for the bailout, and potentially receiving a personal bonanza from it, this looks bad. And the pandemic is giving other authoritarians elsewhere opportunities to erode political freedoms further.

But on the positive side, governments are having to throw out broken old orthodoxies and bring in progressive policies — such as versions of universal basic income, or nationalisations — that would have been unthinkable just a few weeks ago. Everyone is scrambling for money.

In this context, “Michael” in Ireland raised a pertinent question:

“Do you think that it is possible (technically) for governments to tap into the trillions which are hidden offshore?”

To which the answer is: yes, plenty of it. There’s some $8-35 trillion or so sitting offshore, depending on how broadly this is measured, which can certainly be tapped with stronger political will. And we must never forget that while all countries are victims of offshore chicanery, lower-income countries are the worst hit, as dictators and oligarchs loot national treasuries and sew up their economies into private fiefdoms, then transfer their ill-gotten gains overseas and stash it offshore.

There’s lots more scope for cracking down on this now than most experts think. Until the (last) global financial crisis, when we were bleating in the wilderness about the need to tackle tax havens and other abuses through country by country reporting, automatic exchange of information, public registers of beneficial ownership information, or unitary taxation , we were scoffed at, and told by Important People that our ideas were utopian, even crazy. Now these ideas are all widely, if imperfectly, accepted, by the OECD countries, the G20, and many national governments.

Now, in the COVID-19 era, old orthodoxies are crumbling fast, and popular demands for new, radical measures will grow explosively. Already food security for millions of people is threatened, and the worst is yet to come. There will be riots, and worse. We can now, with luck, achieve a lot.

We just wrote about how national tax systems should be adjusted to cope with the Covid-19 pandemic: a large fiscal stimulus, with spending running far ahead of tax revenues — but no blank cheque. The poor and vulnerable should pay less and receive more, while rich people and strong, highly profitable corporations should pay more — a lot more.

So far, according to this OECD list of Covid-19 measures, countries have been radical on the spending side, but not on tapping the wealthy or large profitable corporations. Corporate tax rates on “excess” profits of 50-75 percent? It’s the monopolists, hedge funds and financial engineers that are making excess profits — this proposal wouldn’t hurt fragile companies or ones with low profit margins.

This proposal is nowhere now — but let’s start the ball rolling. And we need a lot more than this.

But first, we must walk through a minefield or two.

The great dilemma

Imagine a large multinational has been aggressively shoveling profits offshore for years, lobbying for and getting tax cuts and state subsidies, buying back its own stock, paying its employees peanuts while delivering its bosses exorbitant compensation. If a company has spent the better part of the past decade enriching its owners and executives, should it get a bailout?

The scale of what’s been happening is shocking. The largest 500 U.S. multinationals, for instance, spent over $1.5 trillion in 2018 and 2019 just buying back their own stock, to boost their share prices and their executive stock rewards. On top of that, they paid out nearly a trillion more in dividends. This has sucked colossal productive investment out of the real economy, and mostly into the pockets of the wealthiest 10 percent of Americans. They monopolised, extracting wealth from consumers, workers, and many others. Then, after gorging on a gigantic job-killing corporate tax cut in 2017 (“I don’t think we’re ever going to lose money again,” an airline boss gushed that year), US corporations alone continued to shift $300 billion in profits offshore each year to dodge tax (and other rules of civilised society.) Luxury cruise lines have been registering offshore to escape taxes and regulations, then sailing on amid pandemic on their own ships. They took huge risks with borrowed money, juicing profits and bosses’ bonuses, and the risks now fall on society’s shoulders. And on, and on.

Do we bail these people out? Do we “foam the runway” for crime-soaked banks if they face collapse? Justice says ‘no.’ But if the consequences of letting these firms collapse is worse still, how do we proceed?

On balance, a company whose collapse will cause social catastrophe should likely be saved. But no blank cheque. Instead, there must be powerful conditions. Here are a few: some of which must continue long after this shock has passed.

A HARD crackdown on tax havens, and more resources for tax authorities. More on this below.
Implement huge – maybe 50-75 percent annual — “excess profit taxes” as our last blog on this argued, targeting only highly profitable firms, and sparing fragile firms. The tax haven crackdown will help stem leaks.
Tax wealth. Hefty wealth taxes, land value taxes, capital gains taxes, and more, with only modest reliefs where appropriate and truly needed. This was in the air before Coronavirus: time to make good.
Don’t bail out investors or large corporations. Bail out people. (These economists explain how and why.)
Nationalise failing firms, or take large stakes in them, where necessary. Buy their stock cheaply now, take control, clean house, and when market conditions normalise, sell many (but not all) of them back, at a profit. This happened after the global financial crisis. Here’s more.
Put unemployed people back to work in a climate-friendly Green New Deal.
Ban stock buybacks. Not that long ago, they were illegal in many countries, as market manipulation. Do it NOW. Also temporarily curb or ban dividends, to preserve fragile corporations. Make them pay idled workers, pay taxes, shore up bank capital, or invest, instead.
Ban all new mergers. Creeping monopolisation, along with the rise of tax havens, have been among the major contributors to falling productivity, rising inequality and rising populism in many countries.
Many sorts of other ‘unthinkable’ actions are now rapidly becoming palatable: capital controls (especially to protect poorer countries;) selective price controls (to protect the poorest in society;) massive new transparency and public oversight and accountability of bailouts; beefed-up criminal sanctions for financial and tax haven miscreants; curbs on excess executive pay; and revisit the concept of limited liability letting bad actors take the cream and shift risks and costs onto others’ shoulders.

These opportunities, and more, must now be grasped. More on this soon. But now, about those trillions sitting offshore . . .

How to squeeze the tax havens.

After the global financial crisis, world leaders came under pressure from angry populations to finally do something about tax havens. And they did, up to a point. The OECD, the club of rich countries that appointed itself as the standard-setter for these tasks, created the most important of several initiatives. These can be divided into two (somewhat overlapping) areas: corporate tax haven activity, which is costing world governments some $5-600 billion a year, while that involving wealthy individuals, which may be costing $200 billion just in lost income taxes: there are plenty of other costs too. If you include the role that tax havens have played in driving a global race to the bottom to cut tax rates, the sums lost are far greater.

And there has been progress in both areas. Each, now, in turn.

For individual wealth, they put in place the Common Reporting Standard (CRS), a set of rules by which countries shared information about each others’ citizens financial assets, to pull back the veil of secrecy. It is leaky, of course, but widely accepted and far better than what went before: the OECD reckoned last year the moves had cut bank deposits by 25 percent or so. Our latest financial secrecy index published in February 2020 calculated that the global “pot” of financial secrecy had fallen by seven percent since the last index in 2018. That’s an improvement, but there’s far to go.

Here are some radical ideas. We can’t accept half measures any more.

Individual wealth

First, we must curtail secrecy further. The Financial Secrecy Index identifies many glaring holes. Here are a few big ones.

Countries like Dubai run “fake residency” schemes, so that a nation hosting a person’s wealth collects the data on it, but then sends it to the fake jurisdiction instead of to where the person should pay tax or obey the law. The fake jurisdiction throws the data in the bin. Here‘s how to tackle this.
The United States. The CRS is a moderately successful global information-sharing scheme. The U.S. is happy to receive lots of data from other countries, but it shares little in return. So it is a giant tax haven. How about the European Union blacklists the United States, or imposes withholding taxes on payments to the US, until it cleans up? (Here’s more.)
We need better data, to find out what’s working and what isn’t.

Some ideas go beyond the CRS.

On some measures, the United Kingdom, along with its network of Overseas Territories (like Cayman or Bermuda) and Crown Dependencies (like Jersey or Guernsey) constitutes the biggest player in the global network of tax havens. Britain has imposed direct rule on its tax havens in recent history. Do it again, then close down their tax haven operations immediately. Compensate any losers – bearing in mind that the costs will be surprisingly small, given that most of the beneficiaries of Cayman’s offshore racket are white male expatriates, highly educated elite lawyers accountants and bankers, who mustn’t qualify.
Worldwide wealth taxes. First, most tax systems levy income taxes. But most countries don’t tax wealth – say someone with $1 billion in assets paid a 1% annual wealth tax, that would raise $10m a year. And what we mean by “worldwide” is this. Some countries require individuals to pay tax on all their income, wherever it is — a ‘worldwide’ tax — while others only require them to pay tax on locally-sourced income. For example, wealthy “non-domiciled” people in Britain enjoy this privilege. Abolish this corrupt, oligarchic rule. Land Value Taxes also penetrate offshore ownership. You impose a tax on the land, and no matter whether it is owned by an offshore trust or directly by an individual, someone must pay the tax or the land (or part of it) is forfeit. Certain reliefs would be provided, to protect the most vulnerable and the public interest.
Public registries of beneficial ownership. If someone owns a Cayman or Bermuda company which then owns bank accounts, real estate, or other assets, put that data on a searchable public record. Make sure it’s the true “beneficial” owners, not someone serving as a front for the real owner.
Tackle offshore trusts. These are tricky, slippery vehicles, by design. A wealthy grandfather theoretically give away assets into an offshore trust, while retaining some control over and benefits from that asset. The grandchildren will benefit *some day*, perhaps when they reach a certain age. But if granddad (“the settlor,” in trust legalesee) has given it away, it isn’t theirs, and the grandchildren (“the beneficiaries”) haven’t received it, whose is it? Nobody’s! How can you tax it? How can Granddad’s creditors access his wealth? There are various ways.
i) Disallow “ownerless limbo.” For tax and creditors’ purposes, trusts’ assets should be considered still to belong to the settlor (granddad), until beneficiaries become fully entitled to them.
ii) Lots of trusts are shams. They are called trusts. Often “irrevocable” trusts, for example, are still under the settlor’s control, and can be revoked to allow the settlor to get them back. Deem the assets never to have been given away, and under the settlor’s continued control.
iii) Put all true beneficial ownership details of a trust on a public registry. (That is, information about all the parties that have any rights to control or benefit from the trust.) Registration should also be required for trusts to have legal validity.
iv) For more (radical) ideas, see Andres Knobel’s paper Trusts: Weapons of Mass Injustice.

Corporate wealth

On corporate wealth, the OECD has been trying to patch up a broken, century-old system that isn’t fit for the modern age. Progress has been patchy, and glacial. But last year it finally admitted that the system cannot be patched up, and that new ideas are needed.

One approach to tackling corporate tax avoidance is Country By Country Reporting, a transparency measure we first proposed in 2003 (though it’s an older idea.) Timid, partial versions are now being rolled out, across the world. Push now for full disclosure by all companies and make sure lower-income countries get the data they need.
Unitary tax. This, if properly implemented, could decisively reach into tax havens and allow countries to tax offshore wealth. Currently, countries treat each multinational as a loose collection of separate entities. A large multinational typically has hundreds and even thousands of subsidiaries and affiliates scattered across the world. Each country then taxes the profits of each affiliate in its jurisdiction. Guess what – multinationals then shovel their profits into tax havens, where they pay no tax, and shift the costs into the high-tax countries, to cut their tax bills. Unitary tax starts from a different principle. You take the multinational’s total global profits, then allocate it to each country where it does business, using a formula based on the sales, capital and employees in each place. Each country then taxes its share at whatever rate it likes. If the multinational had a one-person booking office in zero-tax Bermuda, it wouldn’t matter: because only a miniscule portion of the global income would be allocated there to be taxed at zero percent. The system has many complexities, of course, but it’s a far better starting point than the current international system. The OECD for years ferociously resisted our (and others’) calls for unitary tax with formula allocation: last year the dam broke and it (and other world leaders) finally accepted it as a possible principle for international tax. Now the door’s open, the time has come to push hard.
Worldwide tax. Many tax systems operate on a ‘territorial’ principle, where they only tax the domestic income of the local affiliates of multinationals (they do this in the hope of tempting multinationals to set up low-tax holding companies there, doing business elsewhere without paying tax on them. This has typically brought few benefits to ‘territorial’ countries, except to accountants). The alternative is “worldwide” taxation, where countries tax the entire global income of the local affiliate. Most tax systems are a mix of both: the Trump administration in 2017 shifted the U.S. tax system from a worldwide system towards a territorial one, with harmful effects. While we are waiting for unitary tax, countries must shift decisively towards worldwide taxation.

These are all ways to protect our economies from tax havens, and to tap into offshore wealth. And if we combine these with highly progressive “excess profits” taxes on corporations and higher taxes for wealthy individuals, then hard-pressed nations can reap tens, even hundreds, of billions of dollars each year.

This blog focuses on tax havens and the Coronavirus crisis. We will follow it with others in the context of Coronavirus: one on the Climate, due on April 2, also on how the crisis intersects with the Finance Curse, with the role of women, and one highlighting the great failure of tax cuts on large corporations and individuals.

Please watch this space.

Tax Justice March 2020 Portuguese podcast #11: Luanda Leaks: a cumplicidade dos parasitas do norte global

Nós da Tax Justice Network e do É da sua conta estamos respeitando todas as medidas necessárias para ajudar na contenção do coronavírus. Mas o episódio 11 é sobre um outro tipo de vírus: a corrupção. Mas também vamos falar de um de seus poderosos antídotos: os leaks, vazamentos de informação em português. Vamos mergulhar num caso recente, o Luanda Leaks, e mostrar o papel parasitário dos países ricos nesse escândalo de corrupção em Angola, com repercussões no mundo inteiro.

Ouvimos especialistas em transparência, ativistas e cidadãos angolanos para esmiuçar esse vazamento que trata de como a filha do ex-presidente angolano, Isabel dos Santos, desviou milhões de dólares dos cofres angolanos entre 1980 e 2018, com a ajuda de bancos, empresas de consultoria e contabilidade, e paraísos fiscais do norte global. Conversamos também com o os responsáveis por divulgar os vazamentos e os advogados do denunciante. Prepare os fones de ouvidos e venha com a gente!

E uma novidade: estamos com um site novo. Em www.edasuaconta.com você tem acesso a todos os episódios do podcast. Confira!

No É da sua conta #11 você ouve:

Enquanto pessoas ricas e poderosas conseguem criar empresas e contas offshore para driblar regras bancárias e financeira para lavar dinheiro, pessoas comuns têm que seguir uma série de restrições para fazer operações financeiras simples.

Tudo sobre o Angola Leaks e os esquemas criminosos de Isabel dos Santos: entrevistas com representantes do Consórcio Internacional de Jornalistas Investigativos, da Plataforma para Proteção aos Denunciantes na África (PPLAAF) e o advogado do denunciante Rui Pinto.
A repercussão do Luanda Leaks em Angola. A reação da diáspora angolana em São Paulo e da Open Society Angola ao fato de que milhões de dólares foram desviados enquanto a população não tem acesso à saúde e saneamento básico.

Como bancos e escritórios de direito e contabilidade dos países ricos do hemisfério norte facilitaram esses esquema de corrupção revelado pelo Luanda Leaks.

O que são leaks, como surgiram e qual seu papel?

Call to action: empoderamento das pessoas, redução do sigilo fiscal, regulação dos fluxos financeiros internacionais e punição aos corruptos e quem os auxilia

Bonus: entrevista completa com Sizaltina Cutaia, diretora da Open Society Angola (Osisa)

Participantes desta edição:

Micael Pereira, Consórcio Internacional de Jornalistas Investigativos (ICIJ)
Henri Thuillez, Plataforma de Proteção aos Denunciantes na África (PPLAAF)
Francisco Teixeira da Mota, advogado de Rui Pinto
Antonio Martins, editor de Outras Palavras
Fabiano Angélico, pesquisador e consultor para temas de transparência
João Canda, escritor
Aragão Tavares, produtor cultural
Sizaltina Cutaia, diretora da Osisa, Open Society Angola
Nick Shaxson, Jornalista da Tax Justice Network

Links para assuntos citados no podcast

Reportagens sobre o Luanda Leaks – Consórcio Internacional de Jornalistas Investigativos (em inglês)

Reportagens sobre Luanda Leaks – Expresso

Angolanos pedem reforço de investigações a Isabel dos Santos

Debate: o que aconteceu com o dinheiro que sumiu de Angola? (em inglês)

Decreto brasileiro de proteção a denunciantes

Plataforma Latam Leaks

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É da sua conta é o podcast mensal em português da Tax Justice Network, com produção de Daniela Stefano, Grazielle David e Luciano Máximo e coordenação de Naomi Fowler.

O download do programa é gratuito e a reprodução é livre para rádios.

Tax justice and the coronavirus

Update: the second article in this series is entitled Could the wealth in tax havens help us pay for the Coronavirus response?

The Covid-19 Coronavirus pandemic is, at least on available evidence, striking rich western countries the hardest so far. Lower-income countries will be hit hard too, however: massive capital flight is already underway. And in all societies, as ever, the impacts fall hardest on those who are already marginalised and vulnerable.

But for now, rich countries have an abundance of resources to feed, house and care for all their citizens adequately. The question of how those resources are shared out is a political choice. Tax plays an important role.

Western nations are now in conditions like wartime. (The world is in a kind of war, against an unseen enemy.) Today’s blogger, based in Berlin, isn’t allowed in the streets with more than one companion, without documents to show they’re a family member. In Britain, a standard-bearer for “free” [in reality, rigged] markets, the first nationalisations have begun, and a national lockdown has (belatedly) been ordered. Italian mayors are threatening “to send the police over, with flamethrowers” to people breaking curfew. As workers stay at home to avoid contagion, a shutdown threatens massive job losses: perhaps a fifth of all U.S. workers, on one estimate. A huge global economic crisis looms. And this won’t go away soon.

Governments and societies face colossal economic costs now, as they are confronted by millions of workers losing their jobs and millions of businesses going broke. Old economic orthodoxies are toppling, one by one.

Business as usual is over.

How will societies and economies deal with these costs? First, by accepting that when millions of people stop work, overall economic output must fall. The next question is, who in society will bear the burden, where will they be, and how and when will they bear it? Again, these will be political choices. We can, we must, influence those choices.

Second, governments will massively, suddenly, have to boost public spending: if they don’t, there will be riots. Denmark, for instance, has said it will pay 75 percent of the salaries of employees who would otherwise be fired. Others are following suit with a raft of measures including cash transfers for individuals and support for businesses.

How will states “pay for” this? There are two main ways.

The first, most important, will be through borrowing. There is no inflation on the horizon, interest rates are low and in some cases negative, and financial markets have been eating up government debt without so much as a burp. If there’s a time to borrow, it’s now. And it is already happening. In a move that would have been astonishing just a few weeks ago, Germany has suddenly punched through its long-held (and idiotic) “Black Zero” policies to balance its budgets and not take on new debt. As the Financial Times reports:

The time has come for governments to spend. To protect vulnerable people, broad populations, essential workers, institutions, and the economy. Even the financial sector, where its collapse could pose a threat.

But we are generally a revenue-side organisation, not a spending-side organisation, so we’ll focus on the second way governments can “pay for” the massively expensive new measures coming in, which is tax. Although tax receipts don’t need to match spending, they do still need to be collected, where possible.

Tax systems play another crucial role in that economic question at the heart of this crisis: they help governments choose how the pain of lost output is shared out.

And with all the old ideological orthodoxies are suddenly up in the air, and despite the special interests clamouring for yet more tax breaks, NOW is the time to push hard for tax justice.

In short, tax justice campaigners should be calling for a strong fiscal stimulus which will lead to poor and vulnerable people paying less and rich people and strong, profitable corporations paying more.

Lessons from history

History provides some grounds for optimism as to what comes next. In times of war, governments have tended to make wealthier sections of the population and large businesses carry a larger share of the burden than before. In the First World War, for instance, both Britain and the United States imposed an 80 percent tax rate on excess corporate profits (above an 8% annual return,) and the top income tax rate on the highest earners rose from 15 percent to 77 percent. Something similar happened in the Second War, when top income tax rates rose to 94 percent. In the United Kindgom, the top income tax rate rose to an even more eye-watering 99.25%. Similar tax measures were adopted by other countries at war.

Over time, from one war to the next, taxes have assumed a growing share of the revenue mix, as this graph shows.

*Source: Goldin, C. (1980). War. In G. Porter (Ed.),Encyclopedia of American economic history: Studies of the principal move-ments and ideas(pp. 935–957). New York: Charles Scribner’s Sons. Via FT.*

Taxes were preferred above borrowing or other measures at times when support for wars was high. Famed economist John Maynard Keynes produced a radical plan for funding the UK’s involvement in WW2 which involved a sharply progressive surtax on high incomes and personal wealth, and he was keen to shift as much of the cost of financing the war effort onto richer people.

It is worth adding that very high rates persisted for at least a couple of decades after the Second World War’s end, accompanied by a raft of other progressive policies and the highest and most broad-based economic growth in world history, before or since. People who have been until recently gloomy about the prospects of an increasingly entrenched, lawless, powerful and tax-free global oligarchy may have grounds for optimism.

Is this time different?

There is a big difference between now and the time of World Wars, however. Back then, employment was running at full tilt, with men heading off to fight and women flooding into the factories. Right now, the opposite is happening: workers are heading home, and millions of businesses face bankruptcy.

So is this the time to be raising taxes? Should we not be cutting taxes instead?

The simple answer is: it is time to be smart about this. Taxes should be cut to help those worst affected — but for those companies that are still making profits, and the wealthiest sections of society, they should now be increased significantly – even massively. Public appetite for this was already in place before the crisis.

But let’s start with all-important measures to support collapsing businesses and workers’ incomes. Women will pay a heavy price, since they will disproportionately be working on the health frontlines, and in the social care sectors, while also caring for children ejected from schools, and the elderly.

The most important measures to help are on the spending side and on other policy measures, such as enforced rent or mortgage delays or freezes or forgiveness. These are beyond the scope of this blog.

On the tax side, there are many ways to support people and struggling businesses. For instance, targeted reductions to value added taxes, focused on basic necessities, would help ordinary people, as would property taxes. Taxes on payrolls, business rates (on real estate) and other taxes which add to the costs of doing business, should be judiciously cut, at least for those businesses facing hardship due to Covid-19. Measures such as “accelerated depreciation” (to allow affected businesses to offset investment costs against tax more quickly) will help shore up investment, though great care is required so they don’t become expensive and pointless loopholes.

But in other areas, taxes should be raised – and raised A LOT.

Tax profitable corporations more

Take corporate income taxes, for instance. These are levied on profits. If companies are struggling, they won’t be making profits, so they won’t pay this tax. So corporate income tax rates can be increased right now, because they will only strike profitable businesses. (There are timing issues: a teetering company could be bankrupted by a crippling tax bill from a previous quarter, but these are details to be managed skilfully.)

Some businesses will do very well out of this catastrophe. Lots of people locked down at home are now turning to Zoom, for instance, to communicate with loved ones. Its share price is now several times what it was in early January.

***Source: screenshot (24 March 2020, 13h24)***

Likewise, many bricks-and-mortar shops (the ones that hadn’t already been slaughtered by the Amazon steamroller) are now facing temporary or permanent closure – and the American behemoth is ready to hoover up the pieces. Antitrust authorities are nowhere (as we recently remarked.) Let corporate tax pick up some of the slack.

And from a justice perspective, we have to agree with Pope Francis.

Those who do not pay taxes do not only commit a felony but also a crime: if there are not enough hospital beds and artificial respirators, it is also their fault.”

It is not only just and right that the wealthiest people and profitable corporations pay, but if they are still wealthy or still profitable, they also have a greater ability to pay.

So let’s not mess around here. In recent years mainstream governments have been bickering over whether corporate taxes should be at 25 percent, or 20 percent, or 18 percent. All that needs to go out of the window now.

Let’s now start to talk about levying excess corporate income tax rates dramatically high. Let’s start with a 50 percent rate, and start thinking about 75 percent on excess profits, above, say, a five percent hurdle rate. This is way out there on past consensus, but who knows where we’ll be in five years’ time – or in a few months?. (Update, March 27. Top US tax expert Reuven Avi-Yonah and economist Gabriel Zucman echo our call for an excess profits tax.)

This protects the weak, and gets the strong to support the weak.

Barely profitable firms that aren’t making excess profits would pay nothing: it’s those hedge funds profiting from currency collapses, tech firms eating distressed companies’ lunches, or private equity firms buying distressed assets cheaply and financially engineering them for profit – which can and must now pay their share.

Obviously, different countries, and different sectors, face different conditions. But what’s most important now is to start to shift the “Overton Window” – the realm of what is politically possible and what the public is willingly to accept – firmly in the direction of tax justice. Make no mistake: there are powerful forces that want to use the opportunity of this crisis to push exactly in the other direction.

Tax rich people more

Income tax is another flexible mechanism to tax different segments of society at different rates. Under a healthy progressive tax system, the first portion of an individual’s income (say, from 0 to $10,000 per year) isn’t taxed at all; the next portion (say, $10-20,000) is taxed at a low rate; the next portion, let’s say $20-50,000, is taxed at a higher rate, and then above a certain income level, the top rate is applied. In rich countries, that top rate is often of the order of 40-50 percent.

Remember, though, that the top rate has historically been as high as 99.25 percent. Now is a time to raise this rate a long way. It won’t hurt people in the lower tax brackets – if it means more public spending on hospitals, say, it will help them.

How high should they go? Well, there’s research suggesting that the revenue-maximising rate in the United States is somewhere like 75 percent. So let’s start shifting the Overton Window, and push our governments to aim in this direction. And let’s beef this up with wealth taxes, land value taxes, and other progressive taxes. If you’re wealthy, you can afford these.

Tighten up

People will of course shriek at these proposals. High tax rates will discourage investment, they will cry. Clever rich folks will run away with their money to Geneva or Hong Kong or Dubai, where they can get ‘friendlier’ tax rates. Or corporations and rich folk will get busy with their tax advisers, to use offshore trusts and many other subterfuges to escape paying their fair share. It’s like a balloon, they cry: if you squeeze in one place, it will just displace somewhere else, but the volume will remain the same.

Despair! The poor must pay!

Not so. As we and many others have shown many times, high corporate tax rates may affect corporate profit-shuffling, but they do not generally discourage the kinds of investment that healthy economies need. (They do, however, tend to discourage more predatory forms of investment, which is another benefit.)

Corporations say they need corporate tax cuts to invest, in the same way that my children say they need ice cream. And do not buy the old argument that corporations and rich people will stop avoiding tax or invest more if only you cut their effective tax rates. As a recent book explains:

Climate crisis, transition and tax justice: the Tax Justice Network podcast, March 2020

In our monthly podcast, the Taxcast: How many more signs do we need to tell us we must urgently reform our economies, keep essential services out of private hands and transition away from fossil fuels? As the world buckles up for a different kind of crisis tackling the Coronavirus, we look at how tax justice is key to all economic reform in the public interest. Solving the climate crisis – any crisis – is impossible without it. Never miss an epsiode! You can subscribe to the Taxcast via email by contacting the Taxcast producer on naomi [at] taxjustice.net

We speak to Dr Gail Bradbrook, co-founder of Extinction Rebellion on a vision of hope, John Christensen of the Tax Justice Network. We also bring you the voices of tax office workers from their protest outside the British Parliament against the government’s closing of tax offices, shedding up to 50,000 jobs (video below). Unfortunately this is a worldwide trend. Produced and presented by Naomi Fowler.

The majority of the public now understand that there is an emergency. But the other bit of it we haven’t done strongly enough yet is to hold out the vision that change is possible. We know that tax is a really key issue.”
~ Dr Gail Bradbrook, co-founder of Extinction Rebellion

We’re really needed more than ever now especially in the light of the coronavirus, we’ll need all the taxes we can get for all the extra care that people will need.”
“500 offices being closed, 50,000 staff being lost and yet you want the biggest budget to spend the most money, nobody’s going to be around to collect it.”
“We’re the best bargain that you’ll ever get, the money that we cost compared to the money that we raise for hospitals, for schools, for infrastructure, for the roads, we’re a great bargain.”
~ Tax office workers, UK Parliament protest

If you include all the health impacts of fossil fuel production and the damage caused by extreme climate events linked to global warming, the floods and the forest fires and the increased incidence of drought and so on, and if you bring all of those costs into the equation, the true cost of subsidies to the fossil fuel sector runs to an astonishing 5.2 trillion US dollars every year. Or get this, that’s 10 million US dollars every minute of every day of the year.”
~ John Christensen, Tax Justice Network

Further reading:

Part 1 of our special series on financing the transition away from fossil fuels is available here. Part 2 will be out soon.
Spain nationalises all of its private hospitals as the country goes into coronavirus lockdown, details here.
The Corporate Accountability Network
Map showing the names and global locations of the Top 100 People Killing the Planet
By popular request, a transcript of the programme is available here (not 100% accurate)

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.

Want to subscribe? Subscribe via email by contacting the Taxcast producer on naomi [at] taxjustice.net OR subscribe to the Taxcast RSS feed here OR subscribe to our youtube channel, Tax Justice TV OR find us on Acast, Spotify, iTunes or Stitcher.

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Investors demand OECD tax transparency

Investors responsible for trillions of dollars of assets have called on the OECD to ensure that the country by country reporting of multinational companies is made public. With leading experts, standard setters and civil society groups fully in agreement, the only remaining opposition to this most basic transparency measure comes from multinationals and industry groups that benefit from opacity that allows them to hide the extent of profit shifting, and the professional services firms that advise them.

In 2013, the G20 group of countries mandated the OECD to produce a country by country reporting standard. This marked a crucial turning point in the work of tax justice campaigners, some ten years after the Tax Justice Network published the first model accounting standard. The standard came out in 2015, with a commitment to review it in 2020. A call for submissions closed on 6 March, and in a world not facing a global health crisis, this week would have seen the OECD host a public meeting to discuss the different views. While that meeting has been cancelled due to coronavirus concerns, the submissions have been published and we can now present a summary of the findings.

As context, it’s worth noting that there was criticism from all sides of the consultation itself – and in particular, of the very short window for submissions. And while some objected to the length and detail of the consultation document because it identifies too many possibilities for the standard to change, others highlighted the complete absence of provisions to address many of the larger questions. Despite this, the results are clear – as are the divisions.

Key findings

There were 80 submissions to the OECD review. Of those, half came from multinationals such as Astra Zeneca and InterContinental Hotels, and industry groups including the French Banking Federation and US Chamber of Commerce. A further 16 came from professional services firms including the big four accounting firms and various law firms and others. The remaining submissions came from investors, academics, individuals, labour organisations and other civil society groups – oh, and 33 US Senators and members of Congress*, including erstwhile Democratic presidential candidates Elizabeth Warren, Bernie Sanders and Cory Booker.

In addition to the submission from UN PRI (Principles of Responsible Investment) group, whose members have some $90 trillion under management, other investor submissions included Norges Bank, with $1 trillion, Australia’s HESTA (US$37 billion), and a joint submission from US groups with assets conservatively stated at $847 billion.

As the figure below shows, there was a decisive split in the responses to the consultation. On three key points, there was near perfect alignment between investors, experts and civil society – a result that is all the more striking in light of the fact that the OECD’s weighty consultation document did not even mention the first two.

1. Make the data public

[W]e believe it is time that members of the OECD Inclusive Framework move at all deliberate speed towards full publication of large companies’ CbC reporting to provide us and other investors the information we need to make sound decisions when evaluating a corporation’s ongoing profitability and financial risk on a country by country basis. This is an important strategic and policy matter for investors interested in long-term value creation.
– Submission to OECD: Group of investors representing investments totaling $847 billion.

Multinationals and their professional services firms used to argue that compliance costs made country by country reporting unthinkable. When the International Accounting Standards Board convened a meeting on the issue a little before the global financial crisis, a representative from one of the big four accounting firms claimed that it could double the cost of auditing. But since the G20 directed the OECD to create a standard, and the world failed to stop, that argument has been largely replaced by another.

Today, we see entirely voluntary reporting of country by country data, typically to the OECD standard or better, from major multinationals in a variety of sectors – from Vodafone to Shell, for example, and from Anglo American to NN Group.

Some multinationals, however, have simply switched out the compliance cost argument for others. Some have told civil society activists that while they are not necessarily opposed to publication of their country by country reporting in principle, there are still costs to doing so and these would not be justified if the data is not going to be well used. There are so many calls for sustainability reporting, they have said, among which they have to prioritise, that if investors are not asking for the data to be available then it won’t happen.

With the comprehensive response of investors to this consultation , that argument too has been eliminated. Investor submissions show they are increasingly aware of the evidence that shows they bear the risks of companies engineering lower effective tax rates, but receive no compensating return. At the same time, submissions from the labour movement reflect their clarity that the processes that hide profits from tax authorities are also used, all too often, to skew the starting point for wage bargaining. Broader civil society concerns are fully aligned with both, on the basis that public country by country reporting is crucial for the accountability of both tax authorities and major corporate taxpayers. Evidence that tax payments have increased by around ten per cent where the measure is already in place for EU banks and financial institutions confirms the potential scale of effects.

It should be clear to policymakers worldwide that the tipping point for public country by country reporting has been passed: the alignment in favour of this basic transparency measure is broad indeed.

2. Use the Global Reporting Initiative standard

Reporting standards should be aligned with the Global Reporting Initiative (GRI) model
GRI sets reporting standards used by 78 percent of companies in the Dow Jones Industrial Average and 75 percent of NASDAQ 250 companies […]. GRI developed this standard in consultation with multinational corporations, accounting firms, academics, and other stakeholders in addition to investors. Broadly speaking, aligning the various country by country standards would ease record-keeping burdens for businesses and present a clearer picture to users of these reports.
– Submission to OECD: 13 US Senators including Elizabeth Warren and Bernie Sanders, and 20 members of Congress.*

If support for public country by country reporting – despite its absence from the consultation document – is striking, it also follows many years of campaigning and awareness-raising. But the degree of support for the GRI standard, which was only launched at the London Stock Exchange (video available here) in January this year, reflects the remarkable level of backing that is already in place from the various stakeholder groups including investors.

Fiona Reynolds, CEO of PRI (Principles for Responsible Investment), the global investor network with over 2,600 signatories who collectively manage in excess of U$89 trillion, said: “Tax avoidance is a leading driver of inequality and as such a responsible approach to tax by business is essential. The PRI has been leading efforts to drive more meaningful corporate disclosure. GRI’s new Tax Standard marks an evolution in tax transparency and provides a much-needed and ambitious framework for corporate tax reporting.”

The GRI standard is the product of wide consultation over two years, and many, in-depth and occasionally heated but always respectful discussions in a technical committee comprising individual experts from reporting companies, investors, accountants, labour organisations, academia and civil society. That process has led to a standard which addresses, flaw by flaw, all of the technical shortcomings of the OECD standard – including but not limited to three key points raised by multiple submissions:

Failure to ensure reconciliation with global, consolidated group accounts
Failure to deal with intra-group transactions on a consistent basis
Lack of a requirement for entity-level reporting for ‘stateless’ entities

Convergence to the GRI standard in this review period would allow the OECD to piggyback on that work, and at the same time to eliminate for participating companies the costs of complying with multiple standards.

An interesting pointer on business expectations was provided by the World Economic Forum in January. Just weeks after the GRI standard launched, the World Economic Forum International Business Council (IBC) launched a report at Davos which “proposes a common, core set of metrics and recommended disclosures that IBC members could use to align their mainstream reporting and, in so doing, reduce fragmentation and encourage faster progress towards a systemic solution, perhaps to include a generally accepted international accounting standard. To the maximum extent practicable, the report incorporates well‑established metrics and disclosures for the express purpose of building upon the extensive and rigorous work that has already been done by those who have developed the existing standards. The objective is to amplify those standards and more fully harness their synergies rather than create a new standard altogether.”

The IBC report states, exceptionally, that it was “Prepared in collaboration with Deloitte, EY, KPMG and PwC”. While the big four’s (separate) submissions to the OECD review largely duck the issue, the IBC identifies GRI country by country reporting as a ‘core metric’.

The OECD should acknowledge the breadth of support for the GRI standard, and the fact it addresses in detail the technical flaws in the OECD standard, and make the decision now to converge.

3. Extend the coverage

The current threshold of having country by country reports applying to MNEs with a turnover minimum of EUR 750 million should be revised… While the objective of this is to include the majority of tax revenue whilst keeping burden on companies limited, what is ignored is that this high threshold is inappropriate for many smaller economies. In smaller economies, multinational companies with a much lower turnover are responsible for larger shares of economic activity and large
shares of tax liabilities. The OECD itself suggests that 85-90% of the world’s multinational corporations do not meet the threshold… there is a need to consider a threshold which would allow coverage of the highest percentage of MNEs.
– Submission to OECD: ActionAid International.

The remaining area of common ground among investors and civil society groups is on the need to extend the coverage of the OECD standard – specifically, to abolish or greatly reduce the revenue threshold, so that many more multinationals are required to provide this basic transparency.

Here, many submissions cited existing US, EU or Australian thresholds for ‘large’ enterprises – typically in the range of around $20 million – $100 million for turnover. But other submissions noted that this would still exclude many businesses with important operations in lower-income countries, and that a threshold of just a few million would be much more appropriate.

An approach consistent with the GRI standard would be to require such reporting where the underlying substance (i.e. corporate income tax in this case) is material to the business. Given existing tax rates and an accounting materiality threshold set at 5%, this brings all businesses with any significant second (or further) country operations into scope. The effect is to shift the ‘threshold’ from one of scale, to one of substance – so the question is whether a business operates multinationally, rather than with what revenue it does so.

‘Too soon’…

[We] believe it is too soon after the introduction of CbC reporting (“CbCR”) to implement major changes…
– Submission to the OECD: Business at the OECD (BIAC).

It is too soon to be able to evaluate how useful the information is and how effective it is as a risk assessment tool.
– Submission to the OECD: EY.

Lastly, we can consider the positions of those who, broadly, have opposed improvements to the OECD standard (some of whom were also involved in lobbying to introduce, from the outset, some of the weaknesses now widely recognised). There are many businesses and industry groups, to say nothing of staff at the big four accounting firms, that are supportive of tax transparency in broad terms (for example, the B Team), and of public country by country reporting in particular (not least, the multinationals named above; and the big four contributors to the World Economic Forum report).

As none of these groups made submissions to the OECD review, however, the overall position of submitting multinationals, professional services firms and industry groups, was largely negative. In addition to outright opposition to transparency, those represented largely focused on the detailed, technical questions posed by the OECD. There is a more detailed analysis to be done of these responses, which show considerable variation. But for the present purposes of assessing the main thrust, it is notable how often a particular response appears across the groups.

The single counter-argument around which oppositional submissions have coalesced is the idea that 2020 is too soon to make changes to a standard mandated in 2013 and finalised in 2015, for use thereafter. Indeed, the argument in practice relates to 2021 which is the earliest that any changes could come into force. It is tempting to conclude that this is the final evolution of the counter-arguments – and a pretty thin one at that.

Tipping point

The OECD review of its standard may well turn out to be the tipping point towards public, country by country reporting of high quality and broad coverage. While the institution itself faces heavy lobbying against taking these steps, the sheer weight of investor and other support seen in the public submissions to the review may turn out to be enough to move policymakers at the EU and elsewhere, to leapfrog the OECD and mandate public reporting.

It would be in the interests of both reporters and users of the data if there was clear convergence to the GRI standard, not only of the OECD standard but also the other existing standards such as the CRD IV requirement that applies to banks and other financial institutions in the EU already. The extractive sector would need to retain their own standards in a number of areas specific to their activities, including for project-level reporting, resource values and for other payments to governments; but would also benefit from converging to the GRI standard in the relevant areas.

The year 2023 will mark two decades since both the formal establishment of Tax Justice Network, and the publication of the first draft accounting standard for country by country reporting. Will we have full, public data by then? Watch this space.

* This article was updated on 20 March 2020 to reflect that the submission published as ’33 US Senators.pdf’ is signed by 13 US Senators and 20 members of Congress. Thanks @danielbunn!

Guest Blog: How to Tackle Audit Failures

Auditors have been described as gatekeepers of capitalism, yet there is widespread concern that the current Coronavirus pandemic, and the global recession that will inevitably accompany it, reveals a pattern of audit failures similar to recent high-profile corporate failures which surfaced in the past two years. In this guest blog, researchers Adam Leaver, Leonard Seabrooke, Saila Stausholm, and Duncan Wigan discuss the findings of their new research paper, published today.

Moments of financial stress have historically revealed weaknesses in our systems of accumulation built up over time. Whilst it is well-recognised that central banks played a defining role in steadying markets after the 2008 crisis, the growing significance of the Big Four accounting firms, and the fair value accounting system they work within, is perhaps less well understood as a feature that has shaped our economy since the crash. A string of recent high-profile corporate failures in the UK – including Carillion, Thomas Cook and Patisserie Valerie – have already revealed the parlous state of auditing at many large corporations. Now, as we enter this new period of financial uncertainty amid the rapidly spreading Coronavirus pandemic, we may soon get a better idea of just how weak our systems of financial reporting have been. As U.S. billionaire investor Warren Buffet noted, “you only find out who is swimming naked when the tide goes out”.

Our new report ‘Auditing with Accountability: Shrinking the Opportunity Spaces for Audit Failure,’ released today, explores the causes of the recent high-profile audit failures and makes recommendations for reforming the sector.

It argues, if accounting creates, rather than merely reflects, financial realities, the job of auditing is to verify that financial statements produced by a company’s management present a “true and fair view” of a company or group’s assets, liabilities, financial position and profit or loss (UK Companies Act 2006, section 393). Ensuring that mission is adhered to, is not just a concern for company shareholders. Auditing performs a social function: we are all affected when that mission fails. Confidence in companies disappears, banks will not lend, shareholders will not invest, workers will not commit their labour, suppliers will not transact and consumers will not buy. If audit failures lead to corporate failure, the state may step in to provide support for the company, or the Pension Protection Fund may pick up the tab for a collapsing company’s pension fund. So audit failures are always also failures of public accountability.

The British government commissioned two independent reviews on this: the Kingman Review, to look at regulation and the Brydon Review to examine the effectiveness of audit. At the same time, the Competition and Markets Authority (CMA) has examined competition and resilience in the audit sector; and the Business, Energy and Industrial Strategy Committee’s analysis, ‘The Future of Audit’ fed into these reports.

These reports raise serious questions about audit culture, the problems of market concentration in auditing services and conflicts of interest inside the Big Four accounting firms (BEIS 2018, 2019; Competition & Markets Authority 2019 (CMA); Kingman Review (2019). But our report begins from a different vantage point: that these failures indicate a public ‘accountability gap’: a shortfall between what the wider public might legitimately expect auditors to do, and what the audit process currently delivers.

We argue that this accountability gap is the product of economic, cultural, and regulatory arrangements which create ‘opportunity spaces’ inside which audit failures take place[i]. Specifically, for the UK we argue that the large opportunity spaces for audit failure emerge from the interaction of:

shareholder value linked remuneration structures for senior managers,
fair value accounting standards where valuations require some subjective judgement by those managers and
International Financial Reporting Standards (IFRS) which encourage proceduralism over judgement

These spaces provide senior managers with the incentive and the room for manoeuvre to produce optimistic valuations, while the proceduralism of IFRS rules creates ambiguity for auditors as to where the rules end and where judgement begins, and this reduces their incentives to challenge.

In short, we see the post-crisis period in terms of a withering of the countervailing regulatory, legal and social forces that should act as a check on bad accounting practice. Many companies do act in good faith and will strive to post ‘true and fair’ accounts. But audit failures mean we cannot be sure which do, and which don’t.

Our report asks whether the problems are caused by the Big Four and whether they have shaped the culture of auditing through their dominance, or whether the Big Four has emerged from, and merely institutionalised, a longer-standing culture that preceded them.

We argue that the cultures and practices long predate the current environment where the Big Four dominate. So a focus just on competition, while ignoring other reform options, would ignore the documented experiences when there were five or even eight large audit firms. For us, the original problems are cultural and institutional.

It is quite possible for different cultures to co-exist within the same organisation without one necessarily overcoming the other. But consulting is often the driver of profit within the Big Four, and we argue that the institutional logic of consulting is incompatible with those of auditing. This tension leaves auditors compromised, when they should instead feel free to exercise scepticism fearlessly. This may be made worse by the Big Four partnership system, which can promote non-audit services in ways that diminish the status and role of audit.

Historical efforts to reform the audit industry have, however, disappointed because the very process of audit reform has been captured by the industry – they possess exclusive, technical knowledge to assert ‘what works’ in a context where audit is of low political interest amongst the general public.

So our report recommends:

To reassert the proper role of audit practice, the accounting framework should be amended to reinforce the 2006 UK Companies Act. It should also be stated in that framework that accounting rules are subordinate to law, and that the role of auditing is to exercise prudential judgement to prioritise capital maintenance.
To reinvigorate a culture of scepticism and prudence, we recommend that audit and non-audit activities are legally separated
To reduce moral hazard, limited liability privileges should be withdrawn from both audit and non-audit services
The Financial Reporting Council (FRC) should be replaced with an Audit, Reporting and Governance Authority (ARGA,) as the Kingman Review recommended. 0
To shrink the harmful “opportunity spaces”, we recommend a government review into the role of fair value accounting rules in audit failure. Specifically, whether IFRS rules – with their combination of subjectivity and proceduralism – create an ambiguity as to where rules end and judgement begins for auditors.
Finally, to address the relative lack of countervailing forces, we recommend the inclusion of civil society representatives in key regulatory bodies and bodies involved in the audit reform process. We also see a role for civil society bodies in creating new networked alliances between academics, public intellectuals and seasoned campaigners to build an effective civil society check on audit failure.

Read the full report here

[i] We define an opportunity space as: ‘the room for manoeuvre within a valuation process, where opportunities to overstate accounting items are taken because auditor judgement is compromised or constrained, leading to information asymmetries between the acting party or parties and those seeking accounting accuracy and accountability.’

Financing Climate Justice

As the climate crisis comes into ever sharper focus the question of how we pay for a just transition takes on ever greater urgency. In this, the first of a two-part special edition of Tax Justice Focus, guest edited by TJN Senior Adviser James Henry, we have brought together key policy proposals to make what is now urgently necessary possible.

This two-part collection of essays is the first in a series of TJN initiatives to bring the global struggles for tax justice, financial transparency, and climate justice closer together, explore common problems and solutions, and help each other to succeed.

Many people think that economic justice is a nice add-on to the climate fight. It isn’t. Without economic justice the fight to tackle the climate crisis will fail. That is because if the great burden of this transition is placed on the shoulders of middle-income and lower-income groups (and especially if the risks of an economically unjust transition materialise, as our second edition will show,) then majorities will not only start to oppose the changes — as the Gilets Jaunes protests in France have shown us — but they will also become prey to fake news and demagogues who seek to overturn the climate justice movement. Tax justice, economic justice, and climate justice must be joined at the hip.

This edition contains five essays, to be followed by four in the next edition.

In the first essay in this edition Laura Merrill, a renowned expert on fossil fuel subsidies lays out the sheer scale of ongoing public sector support for fossil fuels, but also sets out how governments are successfully moving away from this and freeing up some funds to combat climate change — while also improving people’s lives in other ways.

The next article, by Rod Campbell of the Australia Institute, unpicks the bankruptcy of the fossil fuel lobby’s rhetoric in a country that has only recently experienced terrible bushfires.

Next, U.S. economist Professor James K. Boyce, argues in the following article that governments must urgently deploy a powerful and ingenious mechanism to restrict carbon use drastically — and in a politically popular, and just way. The answer is to auction a restricted set of carbon permits – more restricted each year – and redistribute the proceeds equally to all citizens as a universal dividend. Those who use less carbon — which means, predominantly, those in lower-income groups — will receive a net income from the scheme. Eventually the scheme will wither away, as the economy converts rapidly to green energy production, storage, transmission and use.

Then Gail Bradbrook, a founder of the Extinction Rebellion, reflects on the movement’s (enormous) successes and (lesser) failures, and points to how activism will proceed. (Naomi Fowler’s longer version of the Bradbrook interview will be aired in our March 2020 Taxcast.)

Finally, Richard Murphy sets out new accounting proposals to shift the risks being created by large corporations to where they belong – onto balance sheets, so that investors can take a clear and reasoned view of the long-term profitability of companies whose activities harm the climate, and whose business models will now happily come under extreme pressure.

Getting these solutions adopted in a timeframe equal to the urgency of the climate crisis will require us to figure out how to tackle and defeat the shared enemies of both the environmental and tax justice movements: the world’s largest, most influential public and private fossil fuels producers, public utilities, oil and LNG shipping companies, pipeline companies, and agri-businesses — as well as, as the next edition will show the myriad of giant banks, pension funds, hedge funds, other corporate investors, law firms, and accounting firms that stand behind them: tackling the climate emergency will require tackling what academics call financialisation, and what we at TJN call the Finance Curse.

Download and read the full edition of this round of essays here.

The next edition, due on March 26th, will feature articles by

Peter Bofinger, until recently a member of Germany’s official Council of Economic Advisers, opens that edition with a powerful piece laying out clearly why it has to be the state, especially through judicious borrowing, that leads the climate fight. Unfortunately, old ideologies and Germany’s “Black Zero” obsession with austerity and with curbing borrowing puts the entire climate agenda at risk.
Daniela Gabor will complement Bofinger’s article, pointing to the exceptional dangers posed by a Wall Street Climate Consensus, now embraced by the World Bank, various central banks, and many others. The alluring argument is that the financial sector can provide the funds to finance the enormous transition: the reality is that while finance can play a role, a finance-led model will eventually create enormous losses to broad populations and to the climate fight – while delivering vast wealth to the financial sector. (As Bank of England Governor Mark Carney said, “This could turn an existential risk into the greatest commercial opportunity of all time.”)
Jacqueline Cottrell, a member of the Global Conference on Environmental Taxation, writes about the importance of embedding carbon taxes in a broader justice agenda.
Andres Carvallo, the CEO of a global energy consulting firm, explains how smart grids can break the power of large monopolising utilities and create more just and green forms of energy distribution.

And finally, to coincide with the launch of this new TJN series, John Christensen gave a public talk to a Global Justice Now meeting in Reading on 11th March. A copy of the powerpoint presentation John used for this talk is available here.

Tax Justice Network Spanish language monthly podcast: ¿Quienes son los más responsables del secreto financiero mundial?

En este programa hablamos de los resultados del Índice de Secreto Financiero 2020:

El secreto financiero a nivel mundial: las islas Caiman y Estados Unidos encabezan el ranking de la Tax Justice Network, la Red de Justicia Fiscal.
En este mapa de la evasión fiscal planetaria, revelamos los flujos financieros ilícitos, sus protagonistas y su formula para que el dinero parezca invisible.
¿Qué nos revela el índice de la Red de Justicia Fiscal sobre América Latina una de las regiones que más golpeadas por la canaleta de los paraísos fiscales?
¿Y cómo sigue la lucha contra los Paraísos fiscales, la evasión y por una inversión social que cubra las necesidades de nuestros pueblos?

INVITADOS:

John Christensen, co-fundador de Tax Justice Network
Alex Cobham, director de Tax Justice Network
Andrés Knobel, investigador de Tax Justice Network y el índice de Secreto Financiero.

MÁS INFORMACIÓN:

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Make Taxes Work For Women

Great that you remembered 8 March is International Women’s Day!

The Global Alliance for Tax Justice (GATJ) has too! The Global Alliance and its members around the world have been organising and today begin the Global Days of Action on #TaxJustice for #WomensRights, 8-20 March 2020!

Here’s what’s happening in 2020 and how you can join the campaign to make tax justice work for women’s rights: https://www.globaltaxjustice.org/en/action/make-taxes-work-for-women

Lessons learned from organising our first virtual conference

In December 2019, the Tax Justice Network held its first virtual conference, bringing together over 150 people from around the world from Portland to Sydney. Offices, living rooms and libraries on different continents were connected into one virtual space where speakers from the OECD, G24, IMF, World Bank and ICRICT discussed leading proposals to reform the international tax system.

Following the conference, we have seen increased recognition of the necessity for such a platform, particularly as governments warn against holding large meetings amidst the Coronavirus outbreak, and organisations begin to take seriously their responsibility to reduce their carbon footprint in order to help tackle the climate crisis.

Our feedback paper and this blog detail some of the findings from our conference, including how to approach planning, the technology used and lessons learned. We hope that this will help other organisations to get to grips with the tools and knowledge needed to move virtual conferences into the mainstream.

Why host a virtual conference?

At the Tax Justice Network, we host a large-scale in-person conference once a year, bringing together hundreds of people to debate key issues on the tax justice agenda. While we recognise that this type of organising is necessary, in-person conferences are hugely time-intensive for our small team and have high overhead costs, leaving us with limited capacity to host essential debates and discussions.

On top of this, we are increasingly concerned about the climate crisis. While it ultimately falls to governments to respond in line with the scale of the calamity that we face, we are committed to making urgent efforts to reduce our carbon footprint. Following the conference, we published a blog estimating the carbon emissions averted by moving our conference online.

Another huge benefit of going virtual is the ability to increase the participation of both delegates and speakers. Removing expensive flights and hotels costs, as well the large time commitment needed to travel, meant that speakers could allocate just a couple of hours in their diary as opposed to an entire week. The demographics of delegates can also change dramatically when a conference is more accessible, and as virtual platforms are scalable, capacity limitations are removed, thereby opening the conference to a much wider global audience.

Below we provide some lessons learned for successful virtual conference planning.

Logistics and planning

Deciding on the date and timing of our conference was a challenge as we needed to be inclusive and give our audience the opportunity to connect from across the world. We settled on the time frame of 13:00 – 17:30 GMT, which meant an early start of 5.30am for participants on the US West coast, while some participants from Australia stayed up until 2.30am to join the conference.

Our session structure was driven by the content, which we split into two halves – the technical aspects of international tax reforms, followed by a wider debate on the political landscape. We opened both halves with keynotes and presentations to set the context of the discussion, followed by panel debates on each topic.

We had around seven weeks to plan our conference, as we wanted to fit in around international events and timelines for tax reforms. This was tight, especially given that it was our first time organising a virtual event, but it proved to be achievable for organising a one-day conference. We used Airtable, Zoom meetings and Slack for the bulk of our virtual planning.

Technology

After trialling many different platforms, we opted for a low-cost combination of Zoom conference call software to host the panel discussions, which were then streamed through OBS: Open Broadcaster Software to the Crowdcast platform.

This setup combined reliability and high-quality calls for the presentations and discussions with the user-friendly interface of the Crowdcast platform, which gives audience members the ability to setup a profile, chat, ask and upvote questions and navigate easily between conference sessions. Feedback on the technology was excellent, and almost all audience members were able to connect and view the conference without any issues – some even noted that they were able to see and hear the content more clearly than if they were at an in-person conference.

Whichever platform you choose, we found that testing the platform with each speaker in advance was essential for a smooth operation on the day, particularly as we had quite large panels and sessions that ran back-to-back, with just 5 or 10 minutes to gather everyone together in the ‘virtual green room’ beforehand. We had all speakers test microphones, webcams, internet connections and presentation sharing in advance of the conference, which was invaluable and meant that all of the speakers were prepared and on time for their sessions.

Session formats and hosting

Working within our limited time window of five hours, which allowed most parts of the globe to connect for at least some of the live conference (sorry Australia!), we broke our content down into three sessions – the opening keynote, a technical panel discussion, and a broader political keynote and discussion.

The host, our CEO Alex Cobham, opened the conference and advised participants in each session on the format and discussions ahead. The feedback on the sessions structure was generally positive, though the first session ran over slightly. To tackle this in future we will opt for briefer presentation sessions where possible so as to allow adequate time for Q&A, separate to panel discussions. The Crowdcast platform can be used to invite audience members on screen to pose questions to the presenter.

Improving networking channels

One commonly stated downside to virtual conferences is the lack of networking opportunities that come from hallway conversations at in-person conferences. To go some way towards addressing this challenge we used Slack channels to share materials with delegates in advance of the conference, with the intention of fostering discussions between staff and recipients and increasing the representation of ideas.

The channels were not used as fully as we had hoped, which we put down to our not dedicating enough resources to this in advance, and not promoting this as often as we should have to foster discussion. This is one area we will be investing further resources in next time around, with more engaging content such as Q&A sessions with speakers to enable debate beforehand.

Other feedback and considerations

There was a consensus that we need to work harder to be more inclusive and represent all parties in the debate, and that we should partner with organisations that are often under-represented in international discussions, particularly those in the global south. In future conferences, we will secure key speakers for the debate earlier in the process, while also looking for ways to support audience members to access stable internet connections to participate in the debates.

What we would do differently next time

Finally, a few things we would do differently next time:

Get more team members to moderate and engage on the Slack channels, host discussions and promote more widely
Consider other networking tools on the market
Look at alternative session formats – keeping them smaller where possible
Partner with other organisations or ask others to lead panels – particular those in the global south – and secure a wider range of speakers

Read the full paper here, view the conference material here, or get in touch if you would like to share feedback or ideas at: [email protected].