Recently we published a long blog entitled “No, corporate tax avoidance is not ‘legal’” which was republished on the Financial Times’ Alphaville blog, and got a lot of attention in tax circles.
There was the usual fuming and fulminating about ‘socialists’ under the beds and the usual evidence-free ‘doesn’t know what he’s talking about’ assertions, along with some more interesting points. The best collection of responses was in an article for Tax Notes / Tax Analysts, entitled Claim That Corporate Tax Avoidance Is Illegal Sparks Debate.
There were supportive and less supportive responses in the article, but most of them rested on a simple misunderstanding – which was reflected in the article’s headline itself.
Here’s the key point. The blog carefully did not, and does not, assert, that “corporate tax avoidance is illegal.” It was a more subtle but equally powerful point, that corporate tax avoidance is not ‘legal.’ In other words, it was a pushback against those widespread assertions, in the media and elsewhere, that corporate tax avoidance is all “legal” (or, worse, that it is ‘perfectly legitimate.’)
To put it another way, stuff that is not ‘legal’ isn’t necessarily illegal: it may exist in a grey area of legal uncertainty. And we argued that you’ll never be able to draw bright lines between them.
The original blog is here – scroll down to the bottom to see the new material, and our responses to it.
Beneficial ownership transparency has been defined as a key tool to tackle tax abuse, money laundering, corruption and the financing of terrorism among other illicit financial flows. It involves identifying the individuals (“beneficial owners”) who ultimately own, control or benefit from companies, partnerships, trusts and any other type of legal vehicles.
As described in our briefing
on the state of play of beneficial ownership, more than 40 jurisdictions
have or will soon have beneficial ownership registries. Some countries already
provide public online access for free and in open data format.
However, several loopholes in beneficial ownership regulations
for companies
and trusts
prevent registries from being truly effective. For instance, most beneficial
ownership definitions apply very high thresholds (eg “more
than 25 per cent” of ownership or voting rights) for an individual to be
considered a beneficial owner. There’s also the issue
of verifying information to make sure that people don’t lie.
Beneficial ownership regulations do usually also require the
identification of the person with effective control or influence over the legal
vehicle. However, this can be more difficult to do. Those checking beneficial
ownership information will most likely find it easier to follow mechanical
rules based on thresholds for ownership or voting rights to identify the person
with effective control, regardless of whether the rules can truly suss out the
person who truly has effective control over a legal vehicle.
Two loopholes allow individuals to control legal vehicles
despite having very limited ownership interests, fooling any mechanical rule
that considers only ownership thresholds:
Circular ownership
In the example
pictured here, beneficial owner “Mary” would avoid being identified as a
beneficial owner because she only has 2 per cent of shares and voting rights in
company A, way below the 25 per cent threshold.
However, she controls company A because there is no other
owner. The rest is just a circular ownership structure (company C owns company
B. Company B owns company A, and company A owns company C).
While this simplified version makes the circular ownership
structure obvious, if the legal ownership chain involved 10 different layers of
companies (instead of only companies B and C), all incorporated in different
countries, it would be much less obvious that a circular ownership structure is
taking place.
How to solve this
loophole? Beneficial ownership registration must include the full ownership
chain and circular ownership must be explicitly prohibited.
Control with fragmented ownership
In this second case
illustrated here, it would appear again that no individual passes the 25 per
cent threshold required to be identified as a beneficial owner of company A,
especially Mary who only holds an indirect 3.4 per cent in company A through an
ownership chain starting with company E. However, Mary should be considered a
beneficial owner of company A because she is a beneficial owner of company E,
that in turn controls company D and so on up to company B which controls 51 per
cent of company A.
How to solve this
loophole? Beneficial ownership registration must include the full ownership
chain, and control at each layer should be considered when determining the
beneficial ownership of company A.
Companies as parties
to a trust
This loophole prevents a person from being identified as a
beneficial owner of a trust despite having a large interest in the trust.
In the case of
trusts, every party to the trust must be identified as a beneficial owner: the
settlor(s), trustee(s), protector(s), beneficiaries and any other person with
significant control over the trust. The problem is when a party to the trust is
in itself a company. For example, if the trustee is a company, or if
beneficiaries have interests in the trust through a company.
In the case illustrated here, while regulations don’t always
state this explicitly, a holistic interpretation of beneficial ownership laws
would require applying the corresponding definition to each type of legal
vehicle. One would start applying the beneficial ownership definitions for
trusts and try to identify every party. However, if one of the parties is a
company, one would have to apply the definitions for companies, ie the 25 per
cent ownership threshold.
In this example, the first two individuals which only hold 1
per cent each of interests in the trust (ie a right to obtain 1 per cent of the
trust’s income or capital) are identified as beneficial owners because they are
parties to the trust and thresholds are irrelevant for trusts. In contrast,
Mary and the other person hold their interests in the trust through a company.
Consequently, only the man passes the threshold of 25 per cent. This means that
Mary, who indirectly holds an interest in the trust of 23.5 per cent (way more
than the first two individuals) is not identified as a beneficial owner. In
other words, by interposing a company as a party to the trust, it is possible
to apply very high thresholds to the beneficial owners of trusts (which are not
supposed to depend on thresholds).
How to solve this
loophole? Every party to the trust should be identified as a beneficial
owner. If companies are parties to the trust, every individual who holds at
least one share or vote in the company should also be considered a beneficial
owner of the trust (as if the company did not exist).
Our paper on beneficial
ownership verification suggests other ways to prevent similar schemes, for
example by establishing limits on the length of the ownership chain. People
should be allowed to create many layers or complex combinations of trusts and
companies only if they can prove
there is a good reason to do it – achieving secrecy or minimising taxes should
not be considered valid reasons!
We have blogged many times about the EU and the OECD’s blacklisting process. The deadline for the US to comply with the EU list transparency criteria expired on 30 June 2019. Nothing has happened so far. We’re publishing here an update guest blog written by Stefan Herweg, writing in his personal capacity (he is tax advisor to the Die Linke group in the German parliament).
The European Union launched its first tax haven blacklist with fanfare in December 2017. It featured 17 countries: mostly small economies such as Mongolia, Palau and Samoa, but also a few territories more known for offshore business such as Panama or Barbados. A further 47 countries had made commitments to addressing deficiencies with respect to the blacklisting criteria defined by EU member states (tax transparency, fair taxation and anti-BEPS measures) within one year or two (for developing countries with no major financial centre) and were thus relegated to a grey or monitoring list.
The Tax Justice Network published its own assessment at the time showing 60 countries not meeting
the EU criteria. Crucially, six EU member states (Cyprus, Ireland, Luxembourg,
Malta, Netherlands and the United Kingdom) failed to meet the blacklist
criteria but were excluded from scrutiny by design. Further criticism stressed that EU member states failed to agree
on sanctions against listed territories focusing on reputational pressure alone.
Non-OECD developing countries, meanwhile, were pressured to adopting standards
of the rich countries’ club’s BEPS project which they had no say in
negotiating. Some countries like Namibia subsequently took a significant toll from being listed while not featuring any tax
haven characteristics in reality.
The big elephant in the room however was the
United States of America which have so far refused to join the OECD’s Common
Reporting Standard (CRS) for automatically exchanging tax-related information despite
a 2014 commitment to doing so. Yet, adherence to the CRS is the
first criteria on the EU’s check list. In order to avoid diplomatic
embarrassment, member states pushed the deadline for meeting all three tax transparency criteria
(amongst which the CRS) until 30 June 2019. The US, the world’s second greatest
contributor to global financial secrecy, according to the TJN’s Financial Secrecy Index, was off the hook.
Fast forward 18 months, the EU list has somewhat
evolved. Many of the initially listed countries were removed after handing in
commitment letters and a few additional ones were listed in the first half of 2019 after the first deadline
to actually meet commitments lapsed with the end of 2018. Fundamental problems
remain with the listing criteria which differ substantially from those of the
FSI or the Corporate Tax Haven Index leaving some notorious offshore centres
unscathed. Most tellingly however, the EU led its own deadline slip without acting on tax haven USA. What is more,
three of the eleven remaining non-cooperative territories (Guam, American
Samoa, US Virgin Islands) are actually connected to the US.
In fact, the US currently violate not just one
but two out of the three tax transparency criteria. Besides the CRS they have also
refused so far to ratify the amended OECD Multilateral Convention on Mutual
Administrative Assistance in Tax Matters (MCMAA) which provides the basis for a wide range of
administrative cooperation in tax matters. Alternatively, the US could have
signed equivalent agreements with all EU member states, which equally is not
the case.
At the heart of the problem is however the
American refusal to join the CRS. The OECD’s own status report on CRS implementation makes clear that the US are non-compliant on
the standard (see also this map), merely referring to the political commitment
taken in the US FATCA agreements to “achieve equivalent levels of reciprocal
automatic information exchange with partner jurisdictions“.
In practice, pressure is low on the US to make
good on that commitment. The German government, for instance, “regrets that no progress was made so far [on moving
towards reciprocal information exchange]”, thus confirming the uneven playing
field while not taking further action. Concretely, the US does not share information
on financial account balances, only limited information on capital gains and no
information on beneficial ownership with other states while requesting all the
above themselves (under the threat of prohibitive penalties against foreign
banks in cases of non-compliance).
Behind closed doors, EU negotiators have
repeatedly met with US representatives ahead of the June deadline to find a
face-saving way out. The US side was however in no political hurry conscious
that the EU would rather eat their own words than adding to disputes over
international accords from Iran to climate or the tug of war in trade politics.
While the US government is in negotiations with the last remaining member state
(Croatia) to seal a general tax cooperation agreement – meeting the MCMAA
equivalence criterion – it has shown no intention to give up its competitive
edge in attracting illicit funds by staying out of global automatic information
exchange. In fact, US havens like Delaware are measurably benefiting from the status quo.
The EU’s current effort had more material
impact than previous OECD attempts significantly speeding up the global
dissemination of the CRS and other standards. The treatment of the US is
however a prime example of why general tax haven blacklists are regularly taken
hostage by political considerations and therefore constitute an inadequate tool
to combat aggressive tax competition and offshore secrecy provision.
What looks more promising is the use of
national lists which can be tailored – in conditions and countermeasures – to
the specific threats posed to an economy through harmful tax structures or
financial secrecy. Recent research has examined the relatively effective tax
haven lists by some Latin American countries which could be adapted swiftly in
the case of constructive non-compliance when tax havens adhere to global standards
while opening new loopholes to continue business as usual.
Fighting tax havens remains a political power
game with strong and universal transparency measures like public country by country reporting and
comprehensive public beneficial ownership registers the best bet in town. Those
avoid diplomatic tinkering around (global) blacklists and set out clear rules
for everybody. For larger countries like Germany – or the EU as a whole – they
can even be introduced unilaterally as companies will abide by the rules rather
than lose access to lucrative markets.
At least, the IMF’s latest edition of Finance & Development is focused on the “hidden corners of the global economy” – which naturally involves tax havens. It carries a feature by TJN contributor Nicholas Shaxson (author of Treasure Islands and the more recent The Finance Curse,) entitled Tackling Tax Havens.
Here’s (maybe) the most arresting sentence, in case you didn’t know this:
We are now at the start of the most significant period of change to the international corporate tax system in a century
But the core argument of the article is in the subtitle:
The billions attracted by tax havens do harm to sending and receiving nations alike.
That is the Finance Curse analysis, co-developed over many years by your humble correspondent today, in partnership with TJN’s John Christensen. This analysis potentially changes everything in terms of the political dynamics of the debate. As the article explains:
It seems that for many economies, hosting an offshore financial center is a lose-lose proposition: it not only transmits harm outward to other countries, but inward, to the host.
Countries that recognize this danger can act unilaterally to rein in their offshore financial centers, simply stepping out of the race to the bottom and curbing tax haven activity while also improving their own citizens’ well-being.
This is a powerful, winning formula. Crack down, and there’s no loss of anything you might call “international competitiveness.” International collaboration and co-operation help, but you don’t need to wait for this before acting.
We can act against tax havens immediately. Indeed, we must.
Welcome to the twentieth edition of our monthly Arabic podcast/radio show Taxes Simply الجباية ببساطة contributing to tax justice public debate around the world. (In Arabic below) 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 would like to broadcast it. You can also join the programme on Facebook and on Twitter.
Taxes Simply #20 – When growth produces poverty in Egypt
In the 20th edition of Taxes Simply, we start as usual with a roundup of tax news from around the world. This month:
Romania fights obesity with taxes
how goats helped Trump reduce his tax bill
tax revenues slump in Jordan
digital services companies resist digital taxation.
In the second part of this edition, Walid Ben Rhouma interviews Egyptian economics journalist Beesan Kassab on the recently issued income and expenditure data that show a big increase in poverty rates in Egypt.
الجباية ببساطة #٢٠ – عندما ينتج النمو فقرًا في مصر
مرحبا بكم في العدد العشرون من الجباية ببساطة، وهو العدد الذي نستهله
كالعادة بملخص لمجموعة من أخبار الضرائب والاقتصاد من حول العالم. يشمل ملخصنا للأخبار: ١) محاربة رومانيا للسمنة بالضرائب؛ ٢) كيف ساعد الماعز ترامب على تخفيض فاتورته الضريبية ٣) تراجع الإيرادات الضريبية في الأردن؛ ٤) شركات الخدمات الرقمية لا تقبل خضوعها للضريبة.
أما في الجزء الثاني من العدد، يحاور وليد بن رحومة الصحفية الاقتصادية
المصرية بيسان كساب عن نتائج بحث الدخل والإنفاق المصري الذي يشير إلى ارتفاع حاد في معدلات الفقر في مصر.
We’re pleased to share the seventh edition of the Tax Justice Network’s monthly podcast/radio show for francophone Africa by finance journalist Idriss Linge in Cameroon. The podcast is called Impôts et Justice Sociale, ‘tax and social justice.’ It’s available for anyone who wants to listen to it, and, as is the case with all our monthly podcasts, (Spanish, Arabic, English and Portuguese), it’s free to broadcast for any radio station that wishes to. Our French language podcast aims to contribute to ideas and debates on tax justice and social justice in the region. Details of this month’s episode are below.
Nous sommes heureux de partager avec vous cette 7ème émission radio/podcast du Réseau Tax Justice, Tax Justice Network produite en Afrique francophone par le journaliste financier Idriss Linge basé au Cameroun. Le podcast s’appelle Impôts et Justice Sociale. Il est disponible pour tous ceux qui veulent l’écouter et, comme tous nos podcasts mensuels (espagnol, arabe, portugais et anglais), il est gratuit à diffuser pour toute station de radio qui souhaite le diffuser. Ce podcast en langue française vise à susciter des idées et des débats sur la justice fiscale et la justice sociale à de nouveaux publics.
Pour ce septièmement podcast
du mois d’août 2019, nous revenons sur le Mauritius Leaks, la récente publication de ICIJ,
le consortium international des journalistes qui révélé comment ce pays
africain aura été complice des abus fiscaux en Afrique. Nous parlerons aussi de
l’engagement de la société civile africaine pour une gouvernance budgétaire qui
permet d’atteindre un développement durable.
Eva Joly en interview sur des médias africains La video d’Eva Joly, une pionnière de la lutte contre la corruption et de la promotion de la justice fiscale en Afrique et la lauréate du prix Anderson-Lucas-Norman a été largement consulté sur la page multimédia de l’Agence Ecofin. La publication a généré près de 25 000 vues et 588 partages. Pour voir la video, aller sur ce lien Pour lire l’interview dans son intégralité, Cliquer ici
Welcome to our fourth monthly tax justice podcast/radio show in Portuguese.
Bem vindas e bem vindos ao É da sua conta, nosso novo podcast em português, o podcast mensal da Tax Justice Network, Rede de Justiça Fiscal. Veja abaixo os detalhes do programa em português.
● Um delicioso almoço no restaurante vegano Congolinária e conversas com pessoas nas ruas de São Paulo para fazer um breve reflexão sobre como cada pessoa pode contribuir para preservação ambiental.
● O cientista do clima Alexandre Araújo Costa informa que a temperatura do planeta está aumentando rapidamente e que as grandes empresas poluidoras precisam fazer a sua parte para mudar essa realidade.
● A relação das queimadas e desmatamentos na Amazônia com a crise climática.
● Tatiana Falcão, gerente da Rede Fiscal Verde da ONU Meio Ambiente, traz iniciativas econômicas para questões ambientais, como a capitalização da preservação ambiental e a tributação sobre carbono.
● Dennis Howlett da Global Alliance for Tax Justice explica como funciona a tributação sobre carbono em British Columbia, no Canadá
● A posição da Tax Justice Network sobre o tema, com nosso colunista Nick Shaxson.
● O ativista ambiental austríaco radicado no Acre Michael Franz Schmidelehner critica o mercado de carbono.
● Reportagem sobre os dilemas de mecanismos como REDD e crédito de carbono, com a visão de lideranças comunitárias e indígenas, ativistas e especialistas.
Participantes:
● Alexandre Araújo Costa, cientista climático, professor da Universidade Federal do Ceará
● Michael Franz Schmidelehner, filósofo e ativista ambiental
In this month’s August 2019 Taxcast, ethics and accountancy – yes they can go together!
Plus: as Britain sinks into full crisis-mode over Brexit, we bring you unique analysis on some of the far-reaching consequences for the world, including threats to public health service models. And, why does the new British government love Freeports so much when they’ve been condemned as centres for money laundering and tax evasion?
Produced and presented by the Tax Justice Network’s Naomi Fowler.
Accounting was taught in a sort of a technical way, almost in an a-cultural way. Relationships, culture, and even ethics and values do not really matter. It’s all about being technically competent and being very good at tax avoidance and profit maximisation… However…we should not close our eyes to the huge transformation that is going on in society. There is a new dawn which is happening, you know, like the 13 year old marching against climate change…resistance is coming from the old guard, from the traditionals. And business schools, if they don’t change, if they don’t innovate, they will find their market drops like anything and then where will they go searching for students and professors? So there is a tremendous change going on and we need to tune in to that change and to the demands from young people for an ethical financing.”
~ Professor Atul Shah
Britain’s National Health Service is…one of the largest purchasers of pharmaceutical products in the world. And that makes it a very powerful economic actor on the global stage…many of the most predatory, private health sector companies are US insurance businesses or health service providers, and of course pharmaceutical companies, they are pushing very, very hard to have access to the UK market and to break up the National Health Service and this is almost certainly going to be one of the key issues around which trade negotiations between Johnson’s government in Britain and Trump’s government in the United States are going to be focusing attention
~ John Christensen, Tax Justice Network
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Tackling corporate tax dodging in a digital age is high on the political agenda as governments seek to protect the public purse. Launched this year, the Tax Justice Network’s Corporate Tax Haven Index outlines a comprehensive set of benchmarks that are relevant for countering illicit financial flows and multinational corporate tax avoidance in a digital economy.
The Corporate Tax Haven Index reveals that so far Africa is less engaged in a ruinous race to the bottom in corporate taxation than higher income regions. In comparison to countries in the Organisation for Economic Co-operation and Development (OECD) and the European Union, African nations have less aggressive treaty networks, have protected higher corporate income tax rates and have fewer loopholes and gaps in their taxation systems that can be exploited by companies for profit-shifting activity. Yet the research shows that African transparency and anti-avoidance measures are lagging behind.
The digital transformation of the global economy has shaken the foundations of the century-old international taxation system. Digital business models often rely on investment in intangible assets, especially intellectual property assets, such as algorithms and software that supports website and online platforms, which may be owned by a subsidiary of a multinational company or a third-party. Countries are exposed to base erosion and profit-shifting risks through the tax arrangements in different jurisdictions. Countries are also put at risk by preferential regimes for the tax treatment of intellectual property and the absence of rules limiting the deduction of royalty payments for intellectual property or intangibles between intra-group companies from the corporate income tax base.
Anti-avoidance measures can be improved to reduce the risk of base erosion and profit shifting in a digital economy. Robust controlled foreign company rules and withholding taxes on outbound dividends can act as a backstop for shifting untaxed profits to secrecy jurisdictions and zero tax havens. Deduction limitation rules could be introduced or strengthened to prevent multinationals from deducting interest, royalties and certain service payments from their tax base if paid to other members of the same multinational in other countries. The Rwandan example of limiting the deduction of outbound royalties is a case that warrants close examination by African peers. At the same time, African nations should withstand the false lure of introducing patent box regimes themselves, and consider appropriate reactions to countries that do, including Botswana, the Seychelles and Mauritius.
Beyond the domestic reform efforts, the Corporate Tax Haven Index underlines the important differences between members of the OECD and the European Union, and the African countries included in the sample. African nations are on average more exposed to tax avoidance risks than responsible for creating these risks compared to higher income regions. Therefore, African nations along with other developing regions need to remain alert and resolute in current negotiations under the Inclusive Framework of the OECD in determining the best approach to taxing the digital economy.
In these negotiations, unitary taxation with formulary apportionment has become the leading alternative to the arm’s length approach to taxing the digital, if not the entire economy. Indeed, the unitary approach is arguably the most promising alternative to replace the current global tax rules which have not kept up with the globalised or digitised economy and have resulted in vast profit-shifting and base erosion. Due to the arm’s length approach, there is massive misalignment between the location of multinational companies’ genuine economic activity and where their profits are declared for tax purposes. The unitary approach has the potential to vastly improve the taxing rights of African nations if the factors for apportioning profits of a multinational take into account not only sales and consumption, but also production and employment.
Earlier attempts to introduce unitary taxation, first at the League of Nations almost 100 years ago were thwarted. In the OECD Base Erosion and Profit Shifting project that commenced in 2013, this alternative was kept off the table by major actors insisting on applying and retaining the arm’s length principle. There is a risk that the interests of developing nations and the African continent might be undermined once again, especially since there are no African nation members in the OECD. If conflicts over the distribution of taxing rights should arise between OECD members and non-members, more inclusive fora, such as the Inclusive Framework on Base Erosion and Profit Shifting that involves 80 developing countries, may be relegated to footnotes or ignored. Therefore, African countries may consider if a convention to counter illicit financial flows at the globally representative United Nations could better serve their interests.
We’re hiring again! Details of the new Financial Secrecy Index 2020 Intern role below, and job information pack to download here.
Key facts
Application closing date: Monday 30 September 2019 Start date: Monday, 11 November 2019 End date: Wednesday, 29 January 2020 Reports to: Financial Secrecy Index coordinators Contract: Fixed-term Hours: Full-time (37.5 hours per week) Compensation: £22,000 gross annual salary Location: Flexible, home-based Other requirements: Ability to work from home
Background to role
The Tax Justice Network publishes the Financial Secrecy Index every two years. The Financial Secrecy Index ranks jurisdictions according to their secrecy and the scale of their offshore financial activities. A politically neutral ranking, it is a tool for understanding global financial secrecy, tax havens or secrecy jurisdictions, and illicit financial flows or capital flight. The most recent version of the Financial Secrecy Index was published in early 2018; the next one will be published in early 2020.
Role description
The Financial Secrecy Index 2020 will enter its final stages of production in November 2019, after ‘hard data’ collection and analysis for the Key Financial Secrecy Indicators is finalised by 30 October. This is the time when the production of the various materials for website and journalists needs to begin, while the analysts keep working on other database information until completion.
We are looking for a diligent and collaborative intern to support the Financial Secrecy Index team by producing various kinds of reports related to the Financial Secrecy Index, with a great commitment to accuracy in small details and the larger picture. This support entails the production of graphs from data, compiling from various sources the required graphs and tables and data and text for creation of reports, layout of reports, copy editing the reports, signing off on reports, and plausibility checking of various graphs and data and text along the way.
The final outputs will be agreed in cooperation with Markus Meinzer, Andres Knobel and Moran Harari. The main deliverables will be 133 country reports, 20 Key Financial Secrecy Indicator documents and possibly (parts of) the Financial Secrecy Index methodology paper, including most of the tables and graphs included therein.
The work can be done from anywhere in the world,
subject to reliable high-speed internet access.
We
especially welcome applications from members of minority groups.
Key responsibilities
Working with
Adobe InDesign to produce and compile graphs, text and tables
Laying out
reports, copy editing the reports, signing off on reports, and checking graphs,
data and text
Working with the team to finalise layout of the
required reports and apply any changes as needed
Person specification
Skills and
experience
Experience of working with Adobe InDesign software is an advantage
Strong IT skills, including Microsoft Office, cloud-based software
Excellent numeracy
Strong writing skills
Attributes
Diligence in working with numbers, charts and text
Strong sense of teamwork and collaboration, with a positive and proactive approach to tasks
Ability to apply good judgment consistently and make responsible decisions
Excellent time management, forward planning and prioritisation
Ability to deliver work of the highest standards under pressure and to ensure that deadlines are met
Passion for tax justice and international development issues
Please upload a CV (resume) and answer a series of questions (addressing the skills listed in the person specification as well as your motivation) at https://airtable.com/shrUmDMhhcY5jdcBo by 23.59 GMT on Monday 30 September 2019.
France and the United States have been at loggerheads over French plans to impose a 3% digital tax on revenues earned on digital services in France, which would hit US multinationals like Google or Facebook. The US had threatened retaliation.
Now, it seems US president Donald Trump and French President Macron have reached a deal:
“Macron told reporters that companies that pay the tax would be able to deduct the amount once a new international deal on how to tax internet companies is found next year.”
The US economist Gabriel Zucman has some apt comment:
This is… incomprehensible.
If we start talking reimbursement, it would make much more sense to ask multinationals to reimburse France (and the US, etc) for all the taxes dodged over time.
And here’s a picture, suggesting the potential scale of the problem here:
Michael Pettis, a well known China-watcher and expert on global finance and macroeconomics (who has also apparently been a leading light in Beijing’s punk rock scene), has published a new article on Bloomberg entitled 5 Smart Reasons to Tax Foreign Capital.
It’s a welcome antidote to all those who feel that the route to national prosperity is through desperately throwing subsidies and tax reliefs at the world’s flighty capital. As Pettis shows, once again, this ‘competitive’ approach to global capital is a fools’ errand. Much better, he says, to tax the foreign inflows.
The article is US-focused, at a time when there’s a lot of attention on trade tariffs, but it has wider general ramifications. He notes a newly introduced US bill to “apply a variable tax on foreign purchases of U.S. dollar assets whenever foreigners direct substantially more capital into the U.S. than Americans direct abroad.”
The idea is to reduce capital inflows into the United States – which is the macroeconomic equivalent of taking loans from foreigners. As he explains:
“a country’s capital account must always and exactly match its current account, if the American capital account is balanced, then its current account must also balance, and the U.S. trade deficit would effectively disappear.”
There’s nothing wrong with trade deficits per se, but US trade deficits have been rather persistent, and potentially troublesome. The benefits of using this tool, rather than trade tariffs, are many-fold:
The United States, like many countries, is awash in destabilising capital. Curbing this would be a benefit.
If such a plan were flexibly designed, it could balance the current and capital accounts over the medium to long term.
It would also contribute to financial stability, by “penali(sing) short-term and speculative inflows more than longer-term inflows into productive investment.”
While tariffs benefit some producers at the expense of others, a tax on capital inflows benefits nearly all domestic producers, mainly at the expense of the banks. (What’s not to like?)
Reduces distortions. “taxing capital inflows doesn’t distort the relative prices of goods and services and disrupt value chains, as tariffs do.”
It would promote efficient capital allocation since most capital inflows are driven by fads, craziness and froth.
We could add a couple of other benefits.
7. Raising revenue. This could be transformed into productive public investment, debt reduction, or tax cuts on poorer people.
8. And finally, by reducing the relative weight in the economy, it would rein in the Finance Curse. As the Finance Curse book notes:
It is well established that illicit financial flows affect the economies, societies, public finances and governance of African countries – as they do all other countries. A key challenge to addressing illicit financial flows has been the difficulty of identifying the relative importance, in a given country context, of the many channels within which illicit financial flows may occur, and the multiple economic partner jurisdictions in each channel.
We present risk profiles for individual African countries, based on a range of relative and absolute proxy measures of illicit financial flow vulnerability. This allows granular comparison of illicit financial flow risks across countries and by channel, in turn highlighting the most dangerous partner jurisdictions. The risk profiles and our analysis of patterns across the profiles provide policymakers with guidance for their next steps in countering illicit financial flows: where and how to start tackling the issues.
An important finding is that Africa is importing the overwhelming majority of its risks in illicit financial flows from outside the continent. This is hardly surprising given the relative importance of economic relationships African countries have with countries outside the African continent compared to intra-African intensity of economic relationships. Yet there are some noticeable differences in each of the economic channels. For example, the risks in trade appear to be concentrated with Europe and Asia, whereas the risks in direct investment are more concentrated in Asia. Portfolio investments stem largely from the Americas, while banking risks emanate mostly from the European Union. Across all the channels, the disproportionate role of the European Union dependent jurisdictions, and especially those of the United Kingdom, is striking.
The report makes three key recommendations:
Enhance data availability on economic relationships between countries, which is necessary for both in depth and comprehensive analyses and meaningful regulation of economic actors engaged in cross-border transactions.
Consider pan-African coordination on countering illicit financial flows risks, such as developing joint negotiation positions at the level of the African Union Commission and the African Tax Administration Forum when engaging in multilateral negotiations around trade, investment or tax matters.
Embed illicit financial flows risk analyses across administrative departments and arms of government to support the targeting of audits and investigations at an operational level as well as the negotiation of bilateral and multilateral treaties on information exchange at a policy-making level.
The report and country risk profiles are available to download below. You can also download the presentation slides that were used to present early findings from the research in 2018 at the African Tax Research Network Congress in Morocco and the 7th International Workshop on Domestic Revenue Mobilization at the German Development Institute.
The programme runs from 11-13 September 2019. It features many of the leading international tax researchers who participate in COFFERS, and is designed to provide a practical overview of a wide range of international tax questions. Two of our colleagues, Lucas Millán and Leyla Ateş, will be delivering sessions on our Bilateral Financial Secrecy Index and Corporate Tax Haven Index as part of the course.
The course will be of interest to post-graduate students, private sector professionals, policymakers, regulators and activists. It is offered for free, thanks to European Commission funding, except for a charge for meals and refreshments. Participants are expected to cover any travel and accommodation costs.
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 radiofónica!
En este programa:
Mexico, petróleo y desarrollo: ¿es Pemex la clave del gobierno de Andrés Manuel López Obrador?
Las crisis de Centroamérica. Nicaragua y Honduras, las naciones más golpeadas.
Mientras El Salvador y Guatemala no le encuentran salida a la pobreza. Y los más afluentes de la zona, Costa Rica y Panama, enfrentan sus propias crisis políticas.
En Londres una exposición fotográfica revela caras y nombres de los verdaderos titiriteros de la evasión y la fuga de capitales a paraísos fiscales.
Invitados
Daniel Solis-Inclan del Observatorio de Geopolítica de la Universidad Nacional Autónoma de Mexico.
Abelardo Medina, director del Instituto Centroamericano de Estudios fiscales.
Julio Francisco Báez presidente ejecutivo del Instituto Nicaraguense de Investigaciones y Estudios Tributarios (INIET)
Jeremías Bustillo del diario La TRIBUNA de Honduras
Recently the UK Treasury launched an inquiry into regional imbalances in the UK economy. In short, it was asking about the nature of the economic imbalances in the UK, the problems these imbalances may pose, and what remedies might be available.
The Tax Justice Network sent the Treasury a submission, which you can download here.
The main purpose of the submission is:
to challenge a widespread view that London is necessarily the ‘engine’ of the British economy, creating jobs and wealth and showering taxes and subsidies on other parts of the country, in a grand one-way flow.
The submission then goes on to make the analytical contrast between productive wealth creating activities (such as making useful widgets or services) and wealth extracting ones (such as using tax havens to escape tax, or using monopoly powers to gouge others). It then shows that while the “losers” of the wealth extraction are a wide range of players who are relatively evenly spread across the country, the “winners” are generally focused in a relatively small, highly affluent section of London and the southeast, and the ‘offshore nexus’.
It does this primarily by looking at a single firm, with an underlying activity producing a real benefit, but an immensely complex corporate tower perched atop it, nearly all of whose beneficiaries are in the London/offshore nexus, extracting wealth away from other players elsewhere.
So while London/offshore nexus” certainly does generate jobs and profits in gross terms, in net terms the picture is completely different, with a large part of London’s success coming at the expense of other parts of the economy.
This article is inspired by our long-standing work on the Finance Curse, which has powerful regional implications in other countries too.
The Tax
Justice Network has been cooperating for years with the Inter-American
Center of Tax Administrations (CIAT) to train, learn from and share knowledge with
tax administrations on tax abuse mechanisms and what can be done to curtail
them.
There was
so much interest that we offered a free, online in-depth webinar the following
month to train tax authorities to use and obtain information from the Financial Secrecy Index to help evaluate and address their exposure to and complicity in
financial secrecy.
After the Corporate Tax Haven Index was launched in May 2019, we offered two similar free, online webinars
in English and Spanish in July to train tax authorities to use the Corporate Tax Haven Index to evaluate and address their exposure to and
complicity in multinational corporate tax abuse.
Over 100
officials from the tax administrations of 16 CIAT member countries from the
Americas and Africa participated in the webinars, namely: Angola, Argentina,
Barbados, Belize, Bolivia, Brazil, Chile, Costa Rica, Dominican Republic,
Guatemala, Guyana, Honduras, Mexico, Paraguay, Suriname and the United States.
Our indexes
are mostly known for their ranking of the top worst offenders in terms of financial secrecy and corporate tax havenry. While these ranking systems have
proven to be very effective at raising awareness and support for tackling financial
secrecy and corporate tax havenry, they only scratch the surface of what the
indexes have to offer. For example, the Financial Secrecy Index provides
in-depth narrative reports that describe the history and
origin of many secrecy jurisdictions. The indexes also provide interactive maps, videos, infographics and podcasts.
The most
relevant tools for tax administrations and researchers offered by our indexes
are the detailed technical reports available for each country, both on financial secrecy (eg banking secrecy, beneficial ownership
transparency) and on corporate tax havenry (lowest available corporate income
tax rate, gaps and loopholes, double tax treaty aggressiveness). These detailed
technical reports provide a source, date and explanation for each factor each
index assesses. They provide objective and verifiable evidence that ultimately
results in the indexes’ rankings.
How you can use the indexes
Based on the
information available in the Financial Secrecy Index and the Corporate Tax
Haven Index, tax authorities, researchers and policy makers can:
Identify the biggest risks their
country faces based on the secrecy and tax avoidance provisions available in their
major economic partners (in terms of trade, foreign direct investment, bank
deposits, etc).
Tax authorities and researches can
create their own indexes that prioritise the policies and issues they care the
most about by filtering for the indicators they are interested in, helping them
better target their priority areas. Both the Financial Secrecy Index and the Corporate Tax Haven Index offer scorings for free, online and
in open data. This means that scores may be downloaded as Excel documents for
each country (all scores for one country) or for each indicator (all countries’
scores for one indicator, eg banking secrecy).
Take action against corporate tax
havens and secrecy jurisdictions (based on Africa’s examples), even if those jurisdictions don’t
appear on typical tax haven lists.
Renegotiate, terminate or decide
with which countries to establish double tax agreements to prevent lower
withholding taxes that have an impact on a country’s tax revenues. For example,
Senegal recently moved to cancel its
tax treaty with Mauritius, which our Corporate Tax Haven Index revealed to be among the most
aggressive tax treaty partner towards Africa countries. Many countries often sign
double tax agreements in the hope of receiving tax and banking information from
other countries on their resident’s foreign financial affairs. Our indexes reveal
which countries do and do not collect the relevant information in the first
place, so no matter what the signed treaty says, a country may not be able to
receive any information at all. Our indexes can help countries avoid waiving
their taxing rights for nothing in return.
Obtain information for
investigations. For example, the Financial Secrecy Index describes what type of
legal and beneficial ownership information is available about companies,
partnerships, trusts and foundations at each of the 112 jurisdictions’
commercial registries and how to obtain that information. Both indexes also
reveal what accounting information is available online and how to obtain a
company’s financial statements.
Follow the methodology and the
indicators of both the Financial Secrecy Index and the Corporate Tax Haven Index to understand the criteria used by
the Tax Justice Network to assess countries. These indicators also serve as
guidance for countries. They indicate what a country should do to improve its
own legal framework in terms of transparency and anti-avoidance to protect its
own tax base and to prevent becoming a corporate tax haven or secrecy
jurisdiction from the perspective of others.
Countries involved in regulatory
reforms may follow the Financial Secrecy Index’s or the Corporate Tax Haven Index’s detailed results by indicator in
open data. This way, they may identify best cases of other countries to use as
a basis for their own reforms (for this, check best results marked in green and
with the lowest possible secrecy score or haven score):
To wrap this all up, the Tax Justice Network’s indexes have a wealth of information ready to be put to use. If you are a researcher, tax authority or policy maker interested in learning more on how to use our indexes to tackle tax abuse and other illicit financial flows, please contact us at [email protected].
Terms of
Reference: Open data portal on risk-based illicit financial flows
The Tax Justice Network is seeking qualified consultants to design and build an open data portal to allow interested stakeholders and members of the public to view, analyse, query and export a dataset that we have built on the risk exposure of a range of countries to illicit financial flows, and to incorporate automated updates and additions to that dataset in the future. This will be followed by a centralised portal for other datasets, so can be thought of in part as a test case.
Welcome to the nineteenth edition of our monthly Arabic podcast/radio show Taxes Simply الجباية ببساطة contributing to tax justice public debate around the world. (In Arabic below) 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 would like to broadcast it. You can also join the programme on Facebook and on Twitter.
Taxes Simply #19 – Facebook’s plan to become a transnational
central bank
Welcome to the new edition of Taxes Simply, which will begin as usual with a roundup of selected news from the region and around the world as follows:
Trump passes retaliatory customs against French wine after France has imposed a 3% tax against giant digital multinational corporation
Egypt increase fuel prices for the fifth time in five years
US billionaires call for a wealth tax to be imposed on them
New tax haven leaks, this time from Mauritius.
As for the second part of this edition, Walid Ben Rhouma
interviews Osama Diab about Facebook’s ambition to create a new digital
currency as a first serious attempt to make digital currencies go into
mainstream use, which poses many questions about whether there is still a line
separating the functions of giant corporations and that of states.
الجباية ببساطة #١٩ – ليبرا: سلاح فيسبوك لأن تصبح بنكًا مركزيًا عابرًا للحدود
مرحبًا بكم في العدد الجديد من الجباية ببساطة والذي يبدأ كالعادة بملخص لأهم أخبار المنطقة والعالم، ويشمل ملخصنا الأخبار التالية: 1) ترامب يهدد بإجراءات انتقامية ضد النبيذ الفرنسي ردًا على ضريبة الخدمات الرقمية التي أقرتها فرنسا؛ 2) مصر ترفع أسعار المحروقات للمرة الخامسة في خمس سنوات؛ 3) مجموعة من مليارديرات الولايات المتحدة يطالبون بتطبيق ضريبة الثروة عليهم؛ 4) تسريبات جديدة من ملاذ ضريبي آخر، هذه المرة من موريشيوس.
أما في القسم الثاني من العدد، فيحاور وليد بن رحومة أسامة دياب بخصوص طموح فيسبوك إصدار عملة رقمية جديدة كأول محاولة جادة لخلق عملة رقمية واسعة الانتشار، وهو الأمر الذي يطرح أسئلة كثيرة حول الحدود الفاصلة بين وظائف ومهام الدول من جانب والشركات العملاقة من جانب آخر.
We’re pleased to share the sixth edition of the Tax Justice Network’s new monthly podcast/radio show for francophone Africa by finance journalist Idriss Linge in Cameroon. The podcast is called Impôts et Justice Sociale, ‘tax and social justice.’ It’s available for anyone who wants to listen to it, and, as is the case with all our monthly podcasts, (Spanish, Arabic, English and Portuguese), it’s free to broadcast for any radio station that wishes to. Our French language podcast aims to contribute to ideas and debates on tax justice and social justice in the region. Details of this month’s episode are below.
Nous sommes heureux de partager avec vous cette 6ème émission radio/podcast du Réseau Tax Justice, Tax Justice Network produite en Afrique francophone par le journaliste financier Idriss Linge basé au Cameroun. Le podcast s’appelle Impôts et Justice Sociale. Il est disponible pour tous ceux qui veulent l’écouter et, comme tous nos podcasts mensuels (espagnol, arabe, portugais et anglais), il est gratuit à diffuser pour toute station de radio qui souhaite le diffuser. Ce podcast en langue française vise à susciter des idées et des débats sur la justice fiscale et la justice sociale à de nouveaux publics. Nous partageons ci-dessous le tout premier épisode de ce mois-ci, suivi d’un communiqué de presse avec tous les détails sur le suivi de l’émission et où le trouver.
Pour ce podcast du mois de juillet 2019, nous revenons sur la conférence annuelle du réseau Tax Justice Network qui s’est tenue du 2 au 4 juillet 2019. L’occasion a été donné d’avoir un entretien avec Eva Joly, femme politique françaises et magistrate franco-norvégienne. Elle partage avec nous quelques mefaits de la corruption des multinationales en Afrique L’Actualité est celle du Mauritius Leaks, 200 000 documents fuités, qui permettent de lire dans le secret de transactions dont certaines ont été dommageable pour l’Afrique. Universitaire camerounais commente cette actualité.
Comme intervenants et invités:
Eva Joly, femme politique et magistrat franco-norvégienne, Ex-Eurodéputée, membre des commissions Libertés publiques et TAX du Parlement européen
Michael Woodford, célèbre lanceur d’alerte, ex-DG de la société japonaise Olympus
Dr Louis Hervé Ngafomo, Directeur Afrique Centrale du RICA
Eva Joly en interview sur des médias africains La
video d’Eva Joly, une pionnière de la lutte contre la corruption et de
la promotion de la justice fiscale en Afrique et la lauréate du prix
Anderson-Lucas-Norman a été largement consulté sur la page multimédia
de l’Agence Ecofin. La publication a généré près de 25 000 vues et 588
partages. Pour voir la video, aller sur ce lien Pour lire l’interview dans son intégralité, Cliquer ici
Welcome to our third monthly tax justice podcast/radio show in Portuguese.
Bem vindas e bem vindos ao É da sua conta, nosso novo podcast em português, o podcast mensal da Tax Justice Network, Rede de Justiça Fiscal. Veja abaixo os detalhes do programa em português.
In our July 2019 É da sua conta #3: A special issue on increasing income inequality, polarization and taxation.
Rising income inequality in Brazil, Portugal and Mozambique.
Interviews with researchers Rogerio Barbosa (Columbia University) and Marcelo Medeiros (Princeton University) on labour income inequality and how fair taxation can reduce it.
How inequality is contributing to political instability.
A reflection on the theme of the podcast with singer and songwriter Douglas Germano, who has just released a record that voices the struggles of Brazilians who are suffering the most from socioeconomic inequality.
Commentary from economist Thomaz Ferreira Jensen, technician of the Intersindical Department of Statistics and Socioeconomic Studies (Dieese)
No É da sua conta #3, de julho de 2019, você confere o aumento da desigualdade de renda, polarização e como uma tributação justa é uma ótima solução .
Emocionante
relato de um ex-metalúrgico que viu seu padrão de vida despencar após
ser demitido da Ford, onde trabalhou por 24 anos.
Dados sobre o aumento da desigualdade de renda no Brasil, em Portugal e Moçambique.
Os
pesquisadores Rogerio Barbosa e Marcelo Medeiros falam sobre
desigualdade de renda e como a tributação pode ser um bom caminho para
reduzi-la.
O
avanço da desigualdade no mundo contribui para a instabilidade
política, explicam Liz Nelson, Branko Milanovic e Kátia Maia.
O
cantor e compositor Douglas Germano fala sobre a relação das suas
músicas com o tema do É da Sua Conta #3. Ele acaba de lançar o disco
Escumalha, que retrata a população brasileira que mais sofre com a
desigualdade socioeconômica.
Comentário
do ouvinte do É da Sua Conta e economista Thomaz Jensen sobre a
importância de sabermos mais sobre Paraísos Fiscais. Ele é técnico do
Departamento Intersindical de Estatística e Estudos Socioeconômicos (Dieese).
The year 2018 was a year of social movements. From women’s rights to climate crisis, 2018 saw urgent issues break into the mainstream and garner great social momentum.
Among these waves of social change, tax justice issues similarly broke new grounds into the mainstream. Check out our infographic below on tax justice successes in 2018. For more information, download our Annual Report 2018.
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