Edition 21 of the Tax Justice Network Arabic monthly podcast 21# الجباية ببساطة

Welcome to the twenty-first 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’d like to broadcast it. You can also join the programme on Facebook and on Twitter.

Taxes Simply # 21 – Tunisia’s elections: an economic interpretation
Welcome to the 21st edition of Taxes Simply الجباية ببساطة

We begin with a summary of the most important tax and economic news in September from the Arab region and the world, including:

In the second part of this edition, Walid Ben Rhouma talks with Tunisian financial analyst Bassam Ennaifer about the economic dimensions of the programmes and discourse of presidential and legislative candidates in the elections currently taking place in Tunisia.

الجباية ببساطة #٢١ – قراءة اقتصادية لانتخابات تونس

مرحبًا بكم مجددًا في العدد الحادي والعشرين من برنامجكم الجباية ببساطة. في هذا العدد نبدأ بملخص لأهم أخبار الضرائب والاقتصاد في شهر سبتمبر/أيلول من المنطقة العربية والعالم. يشمل ملخصنا للأخبار: ١) زيادة معدلات البطالة من جديد في تركيا؛ ٢) السعودية تناقش فرض ضريبة بنسبة ١٠٠% على كل منتجات المطاعم المقدمة للتبغ؛ ٣) الإمارات تتوسع في ضرائب الاستهلاك؛ ٤) ٤٠% من الاستثمار الأجنبي على مستوى العالم “وهمي”.

في الجزء الثاني من العدد، يجري وليد بن رحومة حوارًا مع المحلل المالي التونسي بسام النيفر عن الأبعاد الاقتصادية في برامج وخطابات مرشحي الرئاسة والانتخابات التشريعية التي تجرى حاليا في تونس.

http://traffic.libsyn.com/taxessimply/Al_Jibaya_Bibasata_20190929_.mp3

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Tax Havens: Britain’s Second Empire

In August 2012, the UK-based New Left Project published an article entitled “Britain’s Second Empire,” which involved an interview with the London-based academic Ronen Palan (pictured). The idea is that after the collapse of its formal Empire, Britain created a new, more hidden financial “empire” of tax havens around the world, which handled increasing amounts of money from around the world.

This imperial theme had already been explored in the book Treasure Islands, and its relevance has been underlined by a number of recent studies and intiatives, not least our Corporate Tax Haven Index, which is dominated by British tax havens.

Unfortunately, the three websites that had originally hosted this interview are now defunct. So we have decided to re-publish it, with permission from Palan, and from Jamie Stern-Wiener of the New Left Project. The interview follows.

Britain’s Second Empire

Originally published in August 2012, New Left Project.

Why, in the era of Wall Street hegemony, do close to half of global financial transactions still flow through territories linked to Britain? New Left Project’s Jamie Stern-Weiner spoke to Ronen Palan, Professor of International Political Economy at City University London and co-author of Tax Havens: How Globalisation Really Works, to find out.

What has London’s preeminent international financial position got to do with British empire?

Historically there is a strong interlink between the rise of the City of London and the rise of the British empire. Usually, large financial centres emerged in the world’s large trading centres. In 1850 Britain was the largest manufacturing centre—about 50% of all global manufacturing was produced in the UK—and so, not surprisingly, it was serviced by the largest financial centre. So the City of London was at the core of the British economy and the British empire.

How was Britain’s imperial decline after WWII reflected in the financial sphere?

This was an interesting period and a challenge to the City of London. The City’s power and success during the twentieth century had been in servicing not only the ‘formal’ British empire, but also the ‘informal’ empire: areas, for example in Latin and Central America, which were under the informal tutelage of Britain without being formally part of the empire.

To understand the success and function of the City of London you have to recall that this was a period before the internet and before faxes. At a time when information was relatively immobile and inaccessible, it was very difficult to maintain investment overseas. But in the City of London there emerged all sorts of middle- and small-sized commercial institutions that were really specialists on different countries: they had specialists on Nicaragua, on Peru, on Colombia, on Ghana, and so on. This was the bedrock of the City’s success: highly specialised knowledge of various areas in the world.

With the decline of the British empire after WWII this specialised knowledge was still required, and so the commercial institutions in the City continued to be the main vehicle for investment in what were then called ‘developing’ countries (i.e. decolonising countries). But that was a shrinking business, and the City of London was, in terms of its importance within the British state as a whole, in decline. It was still a very important financial centre, but in relative terms it was in decline.

That said, we should recall something that most people have forgotten: after WWII the British state re-established what was called thesterling area, which ensured that trade between certain countries was conducted in sterling. It was initially established in 1932, but was broken up at U.S. insistence. However it was then re-established in 1946. As a result, until the early 1960s about 40% of all international trade was denominated in sterling, and the City of London of course played an important role because of that.

What was the Euromarket?

The Euromarket was essentially an informal agreement between the Bank of England and the commercial banks in the City of London that any transaction through London between two non-residents and in a foreign currency—at the time, mainly dollars—would not be subject to British regulations.

The agreement arose out of the run on the pound of 1956-7 and a subsequent desire to avoid harmful effects on the British balance of payments. Rumours at the time suggested that the currency crisis was partly engineered by U.S., which was unhappy about the British and French invasion of Egypt to reverse Nasser’s nationalisation of the Suez Canal. In response to the run on the pound, the Treasury raised interest rates from 5 to 7% and imposed a moratorium on lending to non-British borrowers. The two policies aimed to strengthen the pound. The moratorium cut many commercial banks, which specialised in lending to ex-colonies or the ‘informal empire’, off from their business. It appears that they reached an agreement with the Bank of England—through the services of George Bolton, former CEO of BOLSA (the Bank of London and South America, which was acquired in 1971 by Lloyds Bank) and at the time the deputy director at the Bank of England—that they could continue lending as long as they interacted in dollars (or any other non-sterling currency) and intermediated between non-British clients. Such transactions—in foreign currency, between non-British clients—would not affect the British balance of payments. But the agreement seems to have yielded an unintended consequence: such transactions were ‘deemed’ by the Bank not to be taking place in London. This liberated them from the regulatory regime not only of the UK, but also of any other country. This was the origin of ‘offshore‘.

Effectively it created a new market. That wasn’t the intended impact: indeed, some eminent bankers felt sure it was only a temporary market that was likely to decline and disappear fairly quickly. But sure enough, once British banking institutions began to understand that by organising banking transactions in such a way they could sidestep key regulations, like capital / reserve requirements, they quickly realised that they had here an opportunity. And from that point, in the early 1960s, the market grew rapidly.

If the proximate cause of the emergence of the Euromarket was the 1956-7 sterling crisis, was there also a broader context of attempting to compensate for imperial decline?

That’s a very good question, and I don’t think we have a definitive answer. It’s a matter of interpretation. There is no doubt that successive British governments understood the importance of the City of London and wanted it to remain the global financial centre. There’s no doubt that there was the political will to support the City of London, and there’s no doubt that the City was always powerful politically, regardless of whether Labour or the Conservatives were in power. But the circumstances that gave rise to the Euromarket are so specific that it appears more like a series of accidents, an unforeseen result of decisions taken in response to very local issues, rather than an intentional strategy to revive the City.

Were there particular political forces that pushed for the development Euromarket and others that were resistant?

I don’t know of any resistance. We know that some of the people who pushed for it had previously worked in the commercial banks, like the George Bolton I mentioned above. He understood the interest of the commercial banks and many of us believe he acted on their behalf. But I don’t know of any resistance.

Did the development of the Euromarket have implications for the sustainability of the Bretton Woods financial order?

Yes, it punched a hole in the whole Bretton Woods system. Bretton Woods was based on financial regulations and restrictions on capital movements: that was the whole basis of the Bretton Woods agreement. But now you had a whole market with no regulations, a market that was truly global because it existed nowhere. It had no boundaries. It’s a bit like the World Wide Web: initially it was everywhere and nowhere. It simply created a new space. That space attracted a lot of funds and basically undermined the entire system of national regulation that was the basis of Bretton Woods.

Has the Euromarket persisted in the decades since the 1960s?

Yes. It grew enormously during and after the 1973 oil crisis. Today basically the entire wholesale global financial market is effectively an expansion of the Euromarket: it’s effectively offshore. It was for a long time completely unregulated, until it became subject to ‘voluntary’ regulation: Basel I and Basel II. These are sets of voluntary agreements agreed at the Bank for International Settlements (BIS) in which banks agreed to abide by certain rules of capital requirements and so on. So it’s no longer true to say that international financial markets are unregulated, but until recently they were subjected to largely voluntary regulation.

Presumably the existence of this market facilitates tax evasion, and enabled sidestepping of national regulations which contributed to the 2007-8 financial crisis?

Absolutely. People talk about financial deregulation as one of the causes of the crisis, but in fact financial deregulation followed rather than constituted deregulated financial markets. Governments essentially found themselves in a position whereby so much of international finance was already operating through this non-regulated parallel market, that they had no choice but to try and deregulate their own domestic markets in order to compete. They rationalised this ideologically—we call it neoliberalism—but the main cause was that there was already a non-regulated global financial market sucking in most of the funds in any case.

Would any attempt to impose regulations on that parallel market require concerted state action?

It would require concerted state action. The attempt that I know of to do this was made in 1978 by the United States. The U.S. came with a proposal at the BIS to effectively re-regulate the Euromarket, to renationalise it. They were resisted primarily by the UK, but also Switzerland and a few others. As a result the U.S. decided to change tack and instead of fighting the Euromarket they set up their own version of it, called the International Banking Facilities (IBF). This was initially established in New York, but now operates in L.A. and Chicago too, and about one-third to one-half of U.S. financial markets now effectively operate offshore. (The Japanese, incidentally, followed suit in 1986.)

In a journal article [£] you discussed the odd situation whereby, even at the height of what is conventionally seen as an era of U.S. and Wall St. financial hegemony, the leading international financial centres appear to be former British colonies and protectorates. How has Britain been able to sustain its leading position in global finance?

What really pricked my interest was simply looking at the data of international lending and deposits, and where they are located. On the face of it London is the largest international financial centre, followed by New York. But this data tends to treat British jurisdictions like Jersey, Guernsey, the Cayman Islands, and so on as entirely separate, independent territories. They are not: they are part of the British state. And if you add them all together, you find that at the moment roughly one-third of all international deposits and investments are going through these jurisdictions, which are remnants of the British empire and which remain part of the British state. And if you add ex-colonies whose independence was relatively recent, like Singapore, then you reach a figure of 40%. This compared to roughly 10% going through the US.

That data raises a question: why are these jurisdictions, many of which are still controlled by the British state and some of which only recently gained independence, playing such a prominent role in global financial markets? I came to the conclusion that in fact we have, to put it provocatively, a second British empire which is at the very core of global financial markets today.

There are broadly speaking two views about the City of London. One is that the City of London refers to those activities and transactions taking place in London itself. The other is that the City of London is the core of a whole network of other financial centres which are linked to it, particularly places like Guernsey, Jersey, the Isle of Man, Bermuda, Cayman Islands, and also Switzerland and Luxemburg. This second view is more useful if you want to understand how international finance operates. In many cases financial transactions are being decided and agreed upon in London, but are being registered for various reasons (mainly tax-related) in, say, the Cayman Islands. As a result the Cayman Islands appears statistically as the fourth largest financial centre in the world, about the size of Frankfurt and much larger than Tokyo. But it’s only a paper centre: most of the activities attributed to it in fact take place in London.

In the same paper you talk about ‘hegemonic cycle theory’, associated with theorists like Giovanni Arrighi and Immanuel Wallerstein. How can that help us understand the role of the City?

Within field of International Relations there is a strong theory: hegemonies (i.e. large, powerful states) emerge as manufacturing centres, develop into commercial centres, eventually become financial centres and then decline. That cycle seems to represent very well the rise and decline of the Netherlands, then London and now the United States. But the picture that emerges if you look at the role of the ‘second British empire’ described above is much more complex: whereas the old British empire declined, it re-emerged again in different guises. The second empire is not as big and doesn’t incorporate as many territories, but in financial terms it’s very significant. So while the whole notion of cycles of hegemonies, which is very seductive and simple, contains an element of truth, the world out there is, as usual, much more complex than our theories tend to allow for.

Does the story you’ve been telling of the development of deregulated global financial markets have implications for how we should understand economic globalisation in relation to state power? 

Yes, it has many conceptual, theoretical and also practical implications about how we understand globalisation. A very simple view of globalisation sees it as an expansion of market forces that will eventually undermine the anachronistic state system. If you look more carefully at processes like the expansion of financial markets, however, you find that even the most unregulated market is in fact an aspect of state regulation: it survives only as long as there are states and state regulation to sustain it. It’s a difficult idea to understand, but the two go hand-in-hand.

That doesn’t mean that outcomes are always intentional: that a group of states or governments sat together as a committee and decided to develop an unregulated financial market. For the most part they didn’t understand what they were doing. Most governments cannot see five or ten years ahead and cannot plan. Nevertheless their policies, collectively, created the structures that are determining our lives, whether they intended these structures or not.

Has the City’s role as the centre of an international network of financial centres had an impact on the balance of power between the UK and other states?

Britain is very good at not advertising its position. It’s a great coup for the British state that the Cayman Islands etc. are presented in the data as independent states. Because if other states were to notice how much funds are effectively going through the British state they’d be a lot more cautious.

My view is that the British state plays a much more central role in international regulation than is attributed to it. But the British government has a continuing interest in playing down this role.

Do states like the U.S. look at Britain’s position enviously? Have they tried to claw back some influence?

They tried to claw it back by introducing their own offshore financial centre through the IBF, and by offering, or at least tolerating, secrecy jurisdictions (i.e. tax havens) in places like Delaware, New Jersey, Vermont and Nevada. American financial centres very much see themselves as being in competition with London.

Is it worth talking here about the City of London’s weird jurisdictional status as a city within a city?

It’s very interesting, the role of the Corporation of London as a unique political entity within the British state. However, you’ll be surprised to hear that, in spite of the success of the City of London and the importance of the Corporation of London, I could find no academic study of its politics and influence in the British state. Perhaps there is one, but I couldn’t find it. We don’t understand the Corporation of London.

Which itself illustrates what appears to be a theme here, namely the affinity between finance and protection from scrutiny.

It seems like there is a certain logic that pervades the whole system there: the logic of discretion, secrecy, and informality. That’s at the very heart of the financial markets worldwide, and the City of London is a paradigm.

Since the 2007-8 crisis have you noticed any shifts in Britain’s position in international finance?

Like everyone else I’ve noticed that there is an ongoing debate about financial regulation. Clearly the Europeans are in favour of much more stringent regulations and there is also an ongoing debate within the British state. The Financial Services Authority (FSA), now run by Lord Turner, has taken a much more radical view about the need to regulate the City of London. But I don’t know how much success he’s having.

However what we don’t hear in the discussion—and I’m simply puzzled by this—is the fact that much of the market exists in non-regulated spaces. Some of it is basically the old Euromarket, some of it is over-the-counter exchanges. So when people talk about introducing new regulations, I’m not sure the extent to which they will be universally applied. And I don’t get an answer to that question. If only the onshore, official banking system will be regulated, with the offshore component—including various aspects of shadow banking, which according to some estimates amounts to nearly half the global financial markets—remaining as it is, then we achieve nothing

A new vision for Europe amid the Brexit vortex: Tax Justice Network September 2019 podcast

In this month’s episode we discuss a new vision for Europe amid, or in spite of the Brexit vortex. Plus: Britain’s about to become the neighbour from hell, post-Brexit: how can the EU defend citizens from the race to the bottom between nations on tax and regulations precipitated by Britain’s destructive ‘Singapore-on-the-Thames’ model?

We speak to David Adler, DIEM25 (Democracy in Europe Movement) Policy director and Green New Deal for Europe coordinator, and John Christensen of the Tax Justice Network. We also hear from economist Yanis Varoufakis, co-founder of DIEM25 and former Finance Minister of Greece.

Produced and presented by the Tax Justice Network’s Naomi Fowler.

Further reading (highly recommended) A New Vision for Europe.

We are facing a systemic crisis in Europe, and the one thing we have not done is to deal with it systematically. None of them are asking the question, what is going on in Europe? And what should we do with the architectural design, with economic and social policy at the level of Europe? ”

~ Yanis Varoufakis

the question is, is the EU reformable – well, we like to say the EU is not reformable, but it is transformable. We are for the EU and against this EU”

~ David Adler

With a harmonised approach, the rules of the market applied consistently, you flip the competition. It’s the companies that have to compete rather than the countries that have to compete”

~ John Christensen

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Tax Justice September 2019 Portuguese podcast: Qual Reforma Tributária o Brasil precisa? #5

Welcome to our fifth monthly tax justice podcast/radio show in Portuguese. Details of this month’s show:

Bem vindas e bem vindos ao É da sua conta, nosso podcast em português, o podcast mensal da Tax Justice Network, Rede de Justiça Fiscal. Veja abaixo os detalhes do programa em português.

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.O

O Qual Reforma Tributária o Brasil precisa? Ouça no podcast #5.

A reforma tributária entrou na agenda política brasileira. No Congresso, há uma proposta sendo discutida na Câmara dos Deputados e outra no Senado. Ao mesmo tempo, organizações e movimentos sociais, pesquisadores e especialistas levantam o debate alternativo da reforma tributária solidária.

No nosso podcast de setembro mergulhamos nesse assunto e tentamos guiar os ouvintes pelos caminhos da reforma tributária no Brasil. Ela é suficiente? Consegue simplificar o sistema e torná-lo mais progressivo e, ao mesmo tempo, ajudar a reduzir as desigualdades do país?

No É da sua conta #5 você confere…

Além do podcast completo, você pode ouvir bônus. Confira algumas das íntegras das principais entrevistas dessa edição em:

Bonus: entrevista com Rodrigo Orair, economista e especialista em desigualdade
Bonus: entrevista com Nick Shaxson, jornalista e integrante da Tax Justice Network
Bonus: entrevista com Bernard Appy, economista e do Centro de Cidadania Fiscal
Bonus: entrevista com Luiz Carlos Hauly, economista e ex-deputado federal

Participantes desta edição:

Luiz Carlos Hauly, economista e ex-deputado federal

Bernard Appy, economista e do Centro de Cidadania Fiscal

Rodrigo Orair, economista e especialista em desigualdade

Nick Shaxson, jornalista e integrante da Tax Justice Network

Charles Alcântara, presidente da Fenafisco

Antonio Romero, coordenador de estudos socioeconômicos da Anfip

Camila Gramkow, da Comissão Econômica para a América Latina e o Caribe (Cepal)

Marcello Fragano, da ACT Promoção da Saúde.

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Tax Justice Network Israel publishes three new policy papers on taxing capital gains in Israel

On 21 May 2019, Tax Justice Network Israel, in collaboration with Friedreich Ebert Stiftung (FES) Israel, organised three parallel roundtables in the College of Management related to taxing capital income in Israel. The first roundtable focused on the gaps between personal income tax and capital’s gains tax, and the way these gaps increase inequality in Israel. The second roundtable revisited the different tax rates imposed on gains from employee’s option plans and the justifications for them. The third roundtable examined ways to employ the tax system to promote innovation, and predominantly the creation of intellectual property in Israel.

The participants in the parallel roundtables included representatives from the Israeli Tax Authority and the Israeli Innovation Authority, as well as lawyers and accountants from the private sector, academic scholars and civil society organisations. Based on the roundtables’ discussions and conclusions, Tax Justice Network Israel in collaboration with FES, has published today three policy papers (in Hebrew), which include specific recommendations for each one of the topics discussed at the roundtables.

The tax rate imposed on capital gains and its link to inequality in Israel

Unlike personal income tax which is taxed through progressive tax brackets up to the marginal tax rate, capital gains in Israel are held by the capital owners and are taxed at a flat and lower tax rate.  The paper explains that the current gap between personal income tax rate and capital gains tax is not justified and increases inequity in Israel. In fact, Not only is there doubt as to whether lower tax rates incentivise capital owners to invest their fortune, there is evidence that it damages the incentives of employees and freelancers to integrate in the working market. Furthermore, the gap between the capital gains tax and the personal income tax is a fruitful one for aggressive tax planning which may also exacerbates inequity.

Tax Justice Network Israel concludes there is no justification for imposing on capital gains lower tax rates than those imposed on personal income, except in cases where the Israeli government aims to incentivise a particular sector or resource (eg in cases where, based on informed research results, there is a shortage in real estate or there is a need to encourage pension investments). Furthermore, given that raising the capital gains tax rate to the personal income tax rate is likely to lead to an increase in the tax revenues, there is room to consider whether to use the future revenues from an increased capital gains tax rate to reduce the personal income tax rate.

Download paper 

Reconsideration of taxing employee option plan in Israel

With regard to tax imposed on employees’ option plans, we take the view that there are cases where it is not justified to impose lower tax rates on the gains received from exercising the options or shares. Granting favorable tax rates on the gains from employees’ option plans in Israel has originally been created to alleviate factories in difficulties, but for many years this purpose is largely irrelevant or at least no longer a consideration in providing these option plans. Thus, the paper recommends the government to consider changing the tax rate imposed on the ‘equity track’ embedded in article 102 of the Israeli Tax Ordinance. This is because where the options or shares allotted to an employee are of a trading company, there is no difficulty in assessing the value in any given moment as well as at the end of the vesting period. As such, there is no justification to postpone the tax event to time of realisation of the shares or options. Rather, it should be preceded to the end of the vesting period and the benefits up to this date should be taxed as personal income (rather than as capital income). Nonetheless, to avoid liquidity concerns, is the paper proposes to defer the actual tax payment to the time of realisation of the shares or options, but to add interest and differentials linkage from the end of the vesting period.

Alternatively, if this recommendation is not accepted, the paper suggests that at the very least the government sets an annual limit, by a certain income or percentage of allocation, to the benefits which are taxed at a lower tax rate in the equity track. Accordingly, the employee can enjoy the reduced tax rate only on the annual benefits up to this ceiling and will be required to pay the marginal tax rate on any amount exceeding the ceiling.

Download paper

Employing the tax system to encourage the creation of intellectual property in Israel

Finally, with regard to employing the tax system to promote the creation of intellectual property, some of Tax Justice Network Israel’s recommendations are the following: extending the options of companies investing in research and development activities to deduct their related  expenses; extending the tax benefits provided under the Israeli Law of Encouraging Capital Investment to individuals (rather than only to corporations or partnerships as is currently the case); modifying the eligibility criteria for receiving the benefit and to make sure these benefits are provided for various taxpayers who carry out research and development activities and not only for a limited number of taxpayers; setting a ceiling for the financial benefit that is subject to the reduced tax and  monitoring whether   companies that have received these benefits are actually initiating  significant research and development activities.

Download paper

Global Asset Registries: a game changer for the fight against inequality and illicit financial flows?

In July a workshop was held at the Paris School of Economics to start developing the concept for a Global Asset Registry.

In essence, the point of a Global Asset Registry is to understand (and then tackle) some of the most pressing issues of our times: inequality, and financial crime. The Moldovan Laundromat; the bigger Russian Laundromat; the “Luxleaks” corporate tax cheating scandal, the Danske Bank scandal, or the Cum-Ex “tax theft” affair: new shockers seem to be emerging almost every other day.

Since the global financial crisis, several new global transparency initiatives have popped up, such as the OECD’s push to promote automatic exchange of banking information across borders, or the ongoing drive for better beneficial ownership registries. Other transparency schemes are older: many countries have long had real estate registries, or asset declarations by public officials. Yet many of these initiatives are patchy in scope, riddled with loopholes, and implemented by only a minority of countries. Worse, authorities often work in silos, without effective national coordination between the areas of tax, money laundering and corruption.

The Global Asset Registry could tackle all of these problems by centralising all relevant information about assets owned by individuals. This would give two things: first, inform the big picture about global wealth distribution and inequality, and second, give the big picture about a single person’s wealth. Can this person justify their level of wealth given their (low) declared income? Are they under-declaring their income and wealth for in order to cheat on their taxes? Or, if they are able to buy all these mansions, yachts and jets, yet they have only declared a low income – is that because their wealth stems from drugs or bribes?

An initial discussion about a Global Asset Registry took place at an event of the Independent Commission for the Reform of International Corporate Taxation (ICRICT) in New York in September 2018. On that occasion ICRICT produced a roadmap towards a Global Asset Registry, (including some of the Tax Justice Network’s ideas). In 2019 the game was opened to more players to develop the concept further. The workshop was co-organised by ICRICT, the World Inequality Lab, the Tax Justice Network, Transparency International and the Financial Transparency Coalition. Participants included ICRICT Commissioners Thomas Piketty, Gabriel Zucman and Eva Joly as well as representatives from the OECD, the IMF, the World Bank, the Inter-American Center of Tax Administrations (CIAT), the European Parliament, a former FBI agent, researchers, academia and civil society organisations.  The workshop was organised as a closed roundtable to foster dialogue and intervention from everyone on an equal footing, allowing experts to speak at a personal level (not necessarily on behalf of the institution they work for). The agenda, list of participants and a brief of the discussions held is available here.

We are still some way away from defining a final concept and scope for a Global Asset Registry. The 2019 workshop discussed which assets should be within its scope, and some intermediate steps, such as aggregate statistics on individuals by wealth bracket, and overall taxes paid.

Many thorny issues are still to be developed. Who should host a Global Asset Registry?  Which assets should be in its scope? Who should have access: local or foreign authorities only – or the wider public? What are the data security issues?

This is just the start of a new initiative that may create synergies within many of the existing transparency initiatives but can also take it one step further: identifying other areas needing more transparency, and centralising information for the fight against inequality and financial crime.

The Tax Justice Network’s September 2019 Spanish language podcast: Justicia ImPositiva, nuestro podcast, septiembre 2019

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:

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Freeports: PM Johnson’s “free self storage” for the rich and powerful

The largest art collection in the world is currently collecting dust in Geneva Freeport, a fenced-off warehouse near Geneva airport, beyond the view of the public and outside the reach of law enforcement agencies and tax authorities. British PM Johnson has recently proposed establishing similar freeports in the UK, which he says will boost a post-Brexit economy despite plenty of evidence showing that freeports don’t boost economies. Since freeports don’t tend to produce significant net benefits, who then benefits when a collection of cultural heritage that dwarfs that of the Museum of Modern Art in New York and the National Gallery in London is cordoned off from society and its billions-worth of assets change hands in total secrecy?

Freeports are not a new idea. There’s a long history and wide pool of evidence showing that freeports don’t increase economic investment or activity, they just move it around. Even Margaret Thatcher recognised that her experiment with freeports, egged on by the Adam Smith Institute, resulted in comprehensive failure. On average, one additional job in Thatcher’s “enterprise zones” cost the public purse over £31,000 in today’s prices. “Free market” lobbyists loved the idea of freeports, not because it develops a free market (quite the opposite, it creates a deliberate obstacle), but because it offers a way both to circumvent regulation, including those which safeguard the well-being and human rights  of workers, and taxation in the rest of the economy, and to undermine it.

Ironically, one of the main reasons freeports don’t yield any significant benefits to a country’s economy is because they don’t operate as ‘ports’ at all. Whereas the term freeports may conjure images of bustling seaside towns brimming with commercial cargo ships and towering stacks of containers full of goods ready to be traded free from the oppression of bureaucrats and tax collectors, in reality freeports take the form of large, fortress-like warehouses with long, eerily quiet rows of unlabelled storage units holding unknown assets belonging to unnamed individuals. It would be more accurate to refer to freeports as “free self storage” for the ultra rich.

Compare the image used in the Telegraph article below of China’s Qingdao Port – one of the world’s 10 busiest ports – to what the Geneva Freeport and ARCIS freeport in New York actually look like (left to right).

  • Geneva Freeport, Switzerland
  • ARCIS freeport, New York

The easiest way to illustrate how freeports lock economic assets out of the economy and create security risks is to return to our opening question: who benefits from locking off the largest art collection in the world in a warehouse? Nearly 6 million people physically visited the National Gallery in London during the 2018 to 2019 financial year. For comparison, Scotland has a population of 5.4 million. Among those who visited, nearly 4 million where overseas visitors.

These free self storage units for the ultra-rich transfer economic value from the economy into warehouses that jurisdictionally sit outside of the legal system and the market forces that apply to the rest of society. Not only are high value assets parked outside of the economy, the tax contributions that would otherwise have been made to the public on these assets are also negated. This often exacerbates regional economic inequalities by further extracting wealth from struggling areas and creates competitive distortions and opportunities for rent-seeking. Moreover, freeports categorically do not reduce border friction – by definition, they create an additional border.

The economic value of the National Gallery extends far beyond ticket admissions. The Gallery provides 279 jobs. It boosts domestic and international tourism, which in turn boosts local service industries – food, travel, accommodation, etc. It raises the UK’s cultural profile and engagement on the global stage and enriches the public’s understanding of and access to cultural heritage. The National Gallery had over 170,000 school visits during the 2018 to 2019 financial year – research shows that cultural learning, including school visits to museums, has a positive effect on children’s development and life chances. The Cultural Learning Alliance found that students from low-income families who engage in the arts at school, including visiting museums, are 20% more likely to vote as young adults.

Now let’s imagine the National Gallery as a freeport – fenced-off, fully equipped with iris scanners and inaccessible to the public. The building effectively becomes a wealth crypt where nameless individuals collect and trade Picassos like pogs – all the while dodging tax contributions on the assets they’ve locked out of the economy. The 6 million visits to the Gallery, including the 4 million overseas visits, never happen. The gains to local industries, the cultural benefits to the public, the boosts to children’s life chances and Britain’s reputation as a cultural leader dry up. Now, a new, far far smaller clientele of visitors starts to arrive. A different profile of Britain spreads and the billions-worth of assets held in the building begin to exert a very different, opaque and unaccounted type of influence on the public and the shape of society. As our Financial Secrecy Index shows, by enabling the anonymous ownership of assets, freeports facilitate money laundering, major corruption and tax abuse. A decade ago drug lords, media moguls, corrupt politicians and mafia heads used bearer bonds to launder their money: now they exchange Van Gogh’s hidden away in freeports.

A new study from Stanford has examined one impact of the US Foreign Account Tax Compliance Act (FATCA), which made it much harder for US citizens to hold offshore financial accounts without declaring them to the tax authorities. In Switzerland, which tops our Financial Secrecy Index, the research shows that FATCA was followed by quite disproportionate growth of art held in the Geneva canton which is home to one of the world’s largest freeports: “This evidence suggests that some U.S. investors shift wealth from foreign financial accounts into this asset class and hold artwork – otherwise intended to be displayed – in a private and secure Swiss warehouse, possibly to escape U.S. income tax.”

PM Johnson’s free self storage for the ultra rich promises little to address inequalities between rich and poor, or between struggling regions in the UK. Given that freeports in the UK would likely be most appealing to companies that prioritise “no tax or low tax” over other factors like the education and training levels of the local workforce, state infrastructure or political stability, British workers who have seen their rights and protection go unprotected in recent decades and hoping to see jobs come in from freeports will most likely find themselves working in a “take it or leave it” employment environment. So long as the logic of the race to the bottom reigns supreme, freeports as an answer to regional disparities will offer little more than a no-choice to work in a highly unregulated environment, ununionized and without rights to safe working conditions.

The new UK government’s insistence on promoting freeports in the face of comprehensive evidence, would in normal times be completely baffling. But look at the track record of so many of the special advisers who have been recruited after working for the most opaquely funded, far-right lobbyist groups, and at the financial support PM Johnson’s operation has received from people who stand directly to benefit from the policy, and things begin to become clearer.

The continuing pursuit of freeports can only be understood as a measure of just how deeply this UK government has been captured. For this to be any kind of focus of attention, for a government that risks leading its country into what may well prove to be the biggest self-inflicted economic shock of all time – with all the human costs that will follow – is simply unconscionable.

For more on freeports, listen to the latest Taxcast episode and read this interview with Ana Gomes MEP on freeports.

The short documentary ‘National Disintegrations’ provides a rare look inside Geneva Freeport.

Isle of Man: an awareness-raising swim and reflections on tax havenry

The Isle of Man is part of the UK’s network of satellite havens and secrecy jurisdictions, ranked number 17 in the 2019 Corporate Tax Haven Index and number 42 in the Financial Secrecy Index in 2018 by the Tax Justice Network. We identify the UK as “bearing the lion’s share of responsibility through its controlled network of satellite jurisdictions” for the breakdown of the global corporate tax system.

Now Global Witness campaigner Mike Davies has just completed an awareness-raising and fundraising swim around the island. You can read all about his experience and his reflections here on his blog. Here he is swimming…

John Christensen of the Tax Justice Network caught up with him between swims in the Isle of Man and they talked about financial secrecy, tax havenry and Mike’s fascinating family connections to the island. You can hear some of that conversation here in this special podcast:

We’re reproducing part of Mike’s blog below and we’d encourage you to read more there about this fascinating journey:

John has visited the Isle of Man on many occasions over the past three decades. He told me that he has always been impressed by its relative openness and civility when it comes to sensitive debates about the financial services sector that dominates the Island’s economy.

He worries, though, that the Isle of Man has fallen victim to the same ‘finance curse’ phenomenon that has affected his native Jersey and is the subject of a recent book of the same name that he contributed to. John’s concern is that the Island has got itself into a situation where its financial services industries are much too powerful, politically, and have pushed up property prices and living costs to a point where it is almost impossible for other types of business to emerge and flourish.

The Tax Justice Network that John founded publishes regular reports on levels of secrecy and tax policies of offshore financial centres and he showed me a couple of the most recent ones relating to the Isle of Man. They are less than flattering.

The Corporate Tax Haven Index, launched just three months ago, “ranks the world’s most important tax havens for multinational corporations, according to how aggressively and how extensively each jurisdiction contributes to helping the world’s multinational enterprises escape paying tax, and erodes the tax revenues of other countries around the world. It also indicates how much each place contributes to a global ”race to the bottom” on corporate taxes.”

The Isle of Man comes in at #17. That places it behind – so not as bad as – fellow UK Crown Dependencies Jersey (#9) and Guernsey (#15), as well as chart-toppers The British Virgin Islands. It compares unfavourably, however, with such less than reputable jurisdictions as Malta (#23), Panama (#26) and Liechtenstein (#37). The Island’s scorecard shows a clean sweep of red cards for ‘Loopholes and Gaps’, ‘Transparency’, ‘Anti-avoidance’ measures and ‘Double Tax Treaty Aggressiveness’ and an aggregated score of 100 out of 100 in terms of how corrosive its tax policies are to the global economy.

John points out that the Isle of Man’s score is actually worse than those of Jersey and Guernsey and it only ranks below them because it is a smaller global player.

I asked John what he thought about the arguments made by some on the Isle of Man that it should not be labelled a tax haven. His first reaction was to laugh, before saying that “Huff and puff as they may about not being a tax haven, the evidence tells its own story. There is no point in having this discussion. It’s like someone with a serious drug problem: no one believes you, it’s not credible, so stop saying it; you are just making life worse for yourself.”

Tax Justice Network’s Financial Secrecy Index, established in 2009, is published on a two year cycle. It “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.” Here the Isle of Man doesn’t fare so badly, coming in at #42, with its secrecy rating in the yellow, rather than the red.

Perhaps this secrecy level is in line with John’s observations on how the Isle of Man does at least allow space for a measured debate about the role of its financial services in a way that Jersey – where the political establishment has been ruthless in shutting down any such discussions – does not.”

Mike Davies’ blog: Mike’s Isle of Man swim 2019

No, corporate tax avoidance is not ‘legal’ – an update

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.

More beneficial ownership loopholes to plug: circular ownership, fragmented control and companies as parties to the trust

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.

Global Witness analysed UK’s Companies House data and found that 487 UK companies are part of circular ownership structures.

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!

Geopolitics trumps EU tax haven blacklist

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.

IMF tackles tax havens

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.

Edition 20 of the Tax Justice Network Arabic monthly podcast 20# الجباية ببساطة

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:

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.

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

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Edition 7 of the Tax Justice Network’s Francophone podcast/radio show: #7 édition de radio/podcast Francophone par Tax Justice Network

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.

Comme intervenants & Invité:


Pour télécharger et écouter en permanence cliquer sur ce lien.

Pour écouter directement en ligne, cliquer ici, mais aussi sur notre lien Youtube, ou l’application Stitcher.

Vous pouvez aussi suivre nos activités et interagir avec nous sur nos pages Twitter, et Facebook.

Enfin vous pouvez nous écrire à notre adresse [email protected]

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

Tax Justice August 2019 Portuguese podcast: A tributação pode solucionar a crise climática?

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.

É da sua conta is produced by Daniela Stefano, Grazielle David and Luciano Máximo and coordinated by Naomi Fowler. The programme is free to download and for broadcast by any radio station around the globe that wants it. Contact us on [email protected]

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.

As queimadas na Amazônia brasileira viraram notícia no mundo inteiro e ampliaram o debate sobre a crise ambiental, que mexe com o mundo inteiro.

No episódio de agosto tentamos responder a pergunta: a tributação pode ajudar a solucionar a crise climática? Vamos ouvir…

NoÉ da sua conta #4, de agosto de 2019, você confere: 

● 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

● Darlene Braga da CPT (Comissão Pastoral da Terra) Twitter

● Tatiana Falcão, gerente da Green Fiscal Network da ONU Meio Ambiente

● Dennis Howlett diretor na Global Alliance for Tax Justice

● Congolinária

Mais informações a respeito da tributação sobre carbono:

● Tributação sobre carbono em British Columbia no Canadá, comentada por Dennis Howlett: https://www.pembina.org/op-ed/bc-carbon-tax-innovation?fbclid=IwAR3DKQdeZFG6g_pbadd-I-Peg3d_D5hcGccLm0SzUGU1XSBjc17928gb90E

● Proposta de tributação sobre carbono do economista James Boyce, comentada por Nick Shaxson: https://www.ineteconomics.org/perspectives/blog/a-plan-for-earths-survival-that-can-survive-u-s-politics

● Carta de Belém http://www.cartadebelem.org.br/site/

● Crise climática: www.ipcc.ch

Onde ouvir e baixar o É da Sua Conta:

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Ethical accounting, Brexit crisis and threats to public health services: August 2019 Tax Justice Network podcast

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?

Featuring: Professor Atul Shah of City University in London (author of books on Jainism and Ethical Finance, about the largest corporate failure ever in British history the HBOS collapse and on ‘Reinventing Accounting and Finance Education’. Also John Christensen of the Tax Justice Network.

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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Corporate income taxation in the digital age: Africa in the Corporate Tax Haven Index 2019

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.

In our new paper, ‘Corporate income taxation in a digital age: Africa in the Corporate Tax Haven Index 2019‘, we explore how African countries have responded to the challenge of tax avoidance in a digital economy and might be intentionally or unwittingly exacerbating profit-shifting activity and the race to the bottom in corporate taxation. The paper focuses on the nine African jurisdictions covered in the Corporate Tax Haven Index of 2019: Botswana, Gambia, Ghana, Kenya, Liberia, Mauritius, Tanzania, the Seychelles and South Africa.

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.

Download the paper.

You can find summary reports and detailed technical reports here for countries included in the Corporate Tax Haven Index online.

Job vacancy: Financial Secrecy Index Intern

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

Person specification

Skills and experience

Attributes

Download the full job description

How to apply

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 gets bullied on digital tax

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:

Source: Gabriel Zucman, The Hidden Wealth of Nations

“why not ask for a reimbursement of the difference between France’s past statutory rate and what firms effectively paid?”

A good question indeed.

Taxing foreign capital as an alternative to tariffs

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:

  1. The United States, like many countries, is awash in destabilising capital. Curbing this would be a benefit.
  2. If such a plan were flexibly designed, it could balance the current and capital accounts over the medium to long term.
  3. It would also contribute to financial stability, by “penali(sing) short-term and speculative inflows more than longer-term inflows into productive investment.”
  4. 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?)
  5. Reduces distortions. “taxing capital inflows doesn’t distort the relative prices of goods and services and disrupt value chains, as tariffs do.”
  6. 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:

Vulnerability and Exposure to Illicit Financial Flows risk in Africa

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.

The “Vulnerability and Exposure to Illicit Financial Flows risk in Africa” report published today by the Tax Justice Network addresses the gap by elaborating on an approach pioneered in the African Union and Economic Commission for Africa’s Report of the High Level Panel on Illicit Financial Flows out of Africa.

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:

  1. 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.
  2. 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.
  3. 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.

Download the report.

Download complete list of Country Risk Profiles for all countries.

Download individual Country Risk Profiles for select countries.

Download the presentation slides.