Page 30 – Tax Justice Network

Protecting enablers: attorney-client privilege is just the tip of the iceberg in facilitating illicit financial flows

A recent US case gives timid hope after unlimited attorney-client privilege in relation to tax cheating. But is this enough? Is the real issue being addressed?

We’ve paid a lot of attention to “enablers” – that is, the bankers, accountants, lawyers, and others who put together the system of global financial secrecy that underpins a world of crime and abuse. This was the theme of the Tax Justice Network’s 2019 conference.

Our main concern is, why do we enable “enablers” to invoke and use laws and rights conferred by society to protect criminals and tax dodgers that end up hurting society? Putting the riddle more simply, why do we protect a system that hurts us?

The enablers’ arguments against transparency are peculiar

The Tax Justice Network opposes illicit financial flows, understood as funds of legal or illegal origin (related to corruption, money laundering, the financing of terrorism, tax evasion and a lot of tax cheating by multinationals) enabled by secrecy jurisdictions and their enablers.

The enablers, however, regularly oppose our opposition. But their arguments typically come in the form of riddles. Here’s one.

When we say, “We estimate that the scale of the problem (illicit financial flows, tax avoidance, etc) is $X trillion.”

Banks, the Big Four accounting firms, or other holders of secret information often respond, “Your numbers are wrong: you know nothing.”

So we answer, “Well, our numbers are just estimates because you keep all the data secret. Publish the data and prove us wrong!”.

They respond, “Why would we listen to you or do what you ask, if your numbers are wrong? You know nothing.”

So we are “wrong” because we don’t have access to the data being kept secret, but we cannot get access to the data because our “wrongness” prevents us from requesting it. That’s a classic Catch-22.

We’re supposed to take the word of enablers who may be abetting criminal activity, who claim that “all the money held in this bank, or country, or freeport, is of legal origin, from honest people and we have complied with all laws”. We are expected to believe them, even after the Panama Papers, Paradise Papers, LuxLeaks, Swiss leaks, and now Mauritius Leaks continue to confirm our assessments.

Another common ruse is to invoke arguments about protecting the sick and vulnerable as justifications for activities that shield criminals or the very rich from the rule of law.

For instance, when we call for more transparency on trusts, the enablers respond: “No, trusts are private family matters. They are used to protect sick and vulnerable people, children and spouses after the settlor dies.” One lobbying organisation went so far us to attack us for putting “Jews in France, or homosexuals in Saudi Arabia” at risk by threatening their privacy. To which we replied:

Really? We are not aware of a single transparency campaigner, street protestor, anti-corruption campaigner, trade union official, investigative journalist, or dissident of any kind who has been protected from oppression by virtue of having a secret bank account or offshore trust. On the contrary, we can name any number of their oppressors – Augusto Pinochet, Obiang Nguema or Sani Abacha come to mind here – who use and have used secrecy jurisdictions extensively to preserve their power and wealth at the expense of their millions of victims.

Lawyers and lobbyists whose fees are unaffordable to most vulnerable people, invoke the rights of vulnerable people in order to oppose transparency of trusts, often for the benefit of people who may be oppressing or cheating the vulnerable. Let’s face it: there is ample evidence of trusts being used by dictators, corrupt officials and money launderers, rather than the sick and vulnerable (see our briefing paper on trusts and our follow up paper). Perhaps most commonly, we see trusts used by wealthy husbands to rip off ex-wives in divorce proceedings.

Similarly, when we ask for public beneficial ownership registries for companies and other legal vehicles in order to find out who are the individuals that ultimately own and control them, we are told this creates unnecessary red tape and that it will lead to individuals being kidnapped or subject to violence. However, it’s the lack of beneficial ownership transparency that allows corrupt officials, drug smugglers and other money launderers to infiltrate and corrupt the economy and politics of a country, creating instability and violence. Most honest people who own shares in a normal company have nothing to hide and don’t need complex offshore structures. They directly own their shareholdings (so their information is often public in many countries with basic commercial registries.)

Attorney-client privilege: is transparency finally making its way against enablers’ last defense?

The basic financial secrecy strategies to engage in illicit financial flows usually involve a corporate service provider helping a client set up secretive companies or trusts, and using these to open secret bank accounts or hold unregistered assets in tax havens that don’t exchange information, so that the identity of criminals and their wealth will remain hidden from local authorities. The ultimate defense, however, is when the corporate service provider (who created the secretive entities to own the secret bank accounts in a secrecy jurisdiction) is actually a lawyer who prevents any cooperation with authorities by invoking attorney-client privilege: the confidential status of communications, strategies and documents related to a defense attorney and their client.

However, transparency has been creeping in, step by step.

For instance, banks have a contractual (and sometimes legal, or even constitutional!) obligation to their clients not to disclose their bank account information, so as to protect client privacy. However, this privacy principle clearly clashes with other principles, such as the need to combat illicit financial flows and financial crime. And in fact, it is now increasingly accepted that this latter principle should predominate. Given that banks have such a pivotal role in enabling financial crimes, in many countries they now have to routinely report information to local authorities, including for purposes of automatic exchange of information across borders.

There has been progress also in another, related area. Setting up companies without disclosing any information on their owners used to be commonplace. However, there has recently been progress when It comes to the transparency of companies and trusts, with some countries requiring that the beneficial owners of companies and trusts (the real individuals who ultimately own and control and benefit from these legal vehicles) be registered. In some cases, like the European Union’s amendment to the 4th Anti-Money Laundering Directive, beneficial registries will be made publicly available – something we started calling for years ago.

Despite this progress, corporate service providers (eg nominee directors who on paper are supposedly administering thousands of companies) continue to pose risks. The biggest threat is when these service providers are lawyers and shield themselves behind the cover of attorney-client privilege as if they were defending their clients in court.

The Financial Action Task Force’s (FATF’s) 2013 report “Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals” confirmed:

“[the] perception sometimes held by criminals, and at times supported by claims from legal professionals themselves, that legal professional privilege or professional secrecy would lawfully enable a legal professional to continue to act for a client who was engaging in criminal activity and/or prevent law enforcement from accessing information to enable the client to be prosecuted.”

Attorney-client privilege is certainly necessary for society to ensure a fair trial, in the context or threat of a trial.

But this doesn’t mean that literally anything a lawyer does with their client should enjoy this privilege. It should not allow a lawyer to stay above scrutiny or the rule of law, especially when acting as a corporate service provider or nominee director, or when designing schemes to allow individuals and companies to cheat on their taxes or commit other financial crimes.

But this line is usually blurred. On the one hand, the Financial Action Task Force’s Anti-Money Laundering Recommendation 23 requires lawyers to report suspicious transaction when, on behalf of or for a client, they engage in buying and selling of real estate managing client money, securities or other assets; managing bank accounts, savings or securities accounts; creating, operating or managing legal persons or arrangements; and buying and selling of business entities. On the other hand, however, the Financial Action Task Force’s Interpretative Note to Recommendation 23 establishes:

Lawyers, notaries, other independent legal professionals and accountants acting as independent legal professionals, are not required to report suspicious transactions if the relevant information was obtained in circumstances where they are subject to professional secrecy or legal professional privilege.

It is for each country to determine the matters that would fall under legal professional privilege or professional secrecy. This would normally cover information lawyers, notaries or other independent legal professionals receive from or obtain through one of their clients: a) in the course of ascertaining the legal position of their client, or b) in performing their task of defending or representing the client in, or concerning judicial, administrative, arbitration or mediation proceedings. [emphasis added]

Based on these ambiguities, it’s no surprise that the Financial Action Task Force’s “Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals” report concluded:

It is apparent that there is significant diversity between countries in the scope of legal professional privilege or professional secrecy. Practically, this diversity and differing interpretations by legal professionals and law enforcement has at times provided a disincentive for law enforcement to take action against legal professionals suspected of being complicit in or wilfully blind to ML/TF activity.

This is also reflected in the poor performance by major countries in complying with the Financial Action Task Force’s anti-money laundering recommendations. The Financial Action Task Force’s assessment on Recommendation 23 (which includes the requirement for lawyers to file suspicious transaction reports) has the following ratings, which go from “non compliant”, “partially compliant”, “largely compliant” to “compliant”. As of April 2019:

“Non-compliant” countries include among others: Australia, Canada, China, Mauritius, and the United States.

“Partially compliant” countries include among others: Barbados, Cayman Islands, Isle of Man, Singapore and Switzerland.

A recent US case, however, brought some hope on the limitations of attorney-client privilege, when a law firm was required to hand in list of clients that could have used a scheme to evade taxes. In the recent case Taylor Lohmeyer Law Firm PLLC v. United States of America, Civil Action No. SA-18-1161-XR, 15 May 2019, the US tax authorities (the Internal Revenue Service) were granted access to certain information related to the clients of the firm including the clients’ names.

The real challenge: authorities, enablers and confidentiality

The fact that US authorities were granted access to the list of clients of a law firm may sound like a big step for transparency. But it’s definitely no giant leap for humankind, or big advance in the fight against financial crime.

While narrowing attorney-client privilege in the fight against illicit financial flows is relevant, it would be rather foolish of us to think that the battle finishes there. There will always be another corrupt official, money launderer or tax cheat. The only real way to deal a hammer blow to the system is to take on the system: the private enablers.

In fact, when looking at the US case, if the only thing US authorities got from the law firm was a list of clients, this would then be a rather “pyrrhic victory”, aka not that great really, when considering what the Internal Revenue Service described to be the role played by the law firm and some of its lawyers:

The IRS [Internal Revenue Service] previously audited a taxpayer (Taxpayer-1) who used the Firm to “set up foreign accounts, foreign trusts, and foreign corporations to avoid paying U.S. taxes for which he was liable… the IRS seeks names of and other information related to the Firm’s clients between 1995-2017 to investigate the tax liability of those who used the Firm to “create and maintain foreign bank accounts and foreign entities that may have been used to conceal taxable income in foreign countries.”…
An interview with John Taylor, former partner of the firm, Taylor estimated that he structured offshore entities for tax purposes for 20 to 30 clients between the 1990s and early 2000s…
Taylor Lohmeyer PLLC’s services to their U.S. clients, as described by Taxpayer-I and Taylor himself, are the kinds of activities that, in the experience of the IRS, are hallmarks of offshore tax evasion, including: (1) structures of offshore trusts with compliant trustees, and foundations and anonymous corporations managed by nominee officers and directors, (2) the use of “straw men” to contribute nominal funds to foreign trusts to create the false appearance that such trusts have foreign grantors, and (3) the concealment of beneficial ownership of foreign accounts and assets in jurisdictions with strong financial secrecy laws and practices.
The information obtained by the IRS and discussed in this Declaration suggests that the still-unknown U.S. taxpayers doing business with Taylor Lohmeyer PLLC may not have reported their offshore accounts, entities, or structures. Instead, they have likely relied on the assistance of Taylor, and the fact the structures are hidden offshore to support a decision not to report the existence of those entities and accounts, expecting that the IRS would not discover the accounts, omitted income, and/or the existence of the entities. [emphasis added]

A case from Canada is even more outrageous, when considering that confidentiality took place between the tax cheaters and authorities, against the wider public.

In 2015, CBC Canada reported on a case brought by the Canadian Revenue Authority (CRA):

KPMG has been fighting a court order to provide the list of names of multi-millionaire clients who had used what the CRA has alleged in court documents is a “sham” Isle of Man tax avoidance structure. The court file, which had seen virtually no activity for much of that time, had remained mysteriously stalled…
Last July, KPMG lawyers told the court they were having confidential discussions with the Department of Justice on behalf of the minister of national revenue to settle the matter out of court…

One might expect the authorities would fight until they obtained the full list of all those who used the tax cheating structure, to prosecute them. After all, CBC also reported:

The Trudeau government’s previous tough talk on the so-called sham had come after a document leaked to The Fifth Estate/Enquête showed the CRA itself had offered a secret “no penalties” amnesty in May 2015 to many of the KPMG clients involved in the scheme…

But in 2019 CBC reported that the CRA had signed a secret settlement with KPMG clients caught in the case:

The CRA cites privacy in keeping settlement details secret… ‘there is generally substantial savings to the public and a benefit to the justice system when cases are resolved through a settlement,’ a CRA spokesperson said in a statement.

So, what’s the response to the public outrage after a leaked document revealed “no penalties” amnesty for those involved? A secret agreement — and Canadians must, apparently be grateful that it’s secret!

Again, invoking the rights of the many to protect the few.

In this context, our recently published Corporate Tax Haven Index, which complements our Financial Secrecy Index, provides some useful pointers for reform. Both indexes assess, among other things “tax court secrecy” in countries to find out whether tax court proceedings and verdicts are open to the public. The Corporate Tax Haven Index also looks into secret tax rulings, such as the ones outlined in the LuxLeaks scandals.

But similar to the US case, this Canadian case shows that the problem is much larger than just the secrecy.

CBC Canada continued:

Documents show KPMG planned to take a 15 per cent cut of the taxes dodged, including $300,000 from the Cooper family. Internal records show the scheme was marketed across the country, with successful KPMG sales agents and accountants referred to as product “champions.”
…Documents had already begun to emerge detailing the extent to which KPMG was helping clients not only dodge taxes but also hide money from potential creditors, including circumventing the Canadian Divorce Act by “protecting” assets from ex-spouses…

In light of this, we couldn’t agree more with Dennis Howlett, executive director of Canadians for Tax Fairness, who actually said back in 2015 in relation to Canada’s case, as described by this CBC article:

At this point, the court case is only really about KPMG releasing the names of their clients but the real point of it should be to get evidence needed to take KPMG to court for facilitating aggressive tax planning.

Why don’t authorities go against enablers?

It’s not clear. Have they captured the State? Is corruption involved, to protect elites? Resource constraints?

The Financial Action Task Force’s “Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals” report summarised two main reasons (based on responses from countries) on why “legal professionals were not charged with the criminal offence of money laundering although it was clear to the investigating officers that they were involved in the money laundering activity”.

The first one suggests it’s a problem of resources:

Firstly, because of the inability to secure sufficient evidence to prove their complicit involvement in the money laundering schemes. Domestically, access to evidence may have been refused because claims to legal professional privilege or professional secrecy were upheld; or investigators decided not to pursue that evidence because of the more complicated processes involved in seeking access to such evidence and demonstrating that it is appropriate to be released. In the case of an international investigation, the evidence-gathering process can be hindered by the fact that privilege and secrecy varies across the countries that are trying to cooperate.

The second reason is far more problematic because it suggests that authorities would rather use enablers as cooperators rather than going against them, hoping that the reputational risk will be enough of a deterrent:

Secondly, because they are likely to make useful co-operators, informants, and/or cooperating witnesses. A legal professional has every incentive to co-operate with law enforcement once his/her illegal activity is discovered to avoid reputational harm, loss of license (livelihood), and censure by the bar.

In any case, the only thing that’s clear is that unless enablers are stopped, business will go on as usual. Society will keep getting hurt, and they will keep telling us that it’s for our own good.

Requiring all tax court verdicts and tax rulings to be placed on online public record would be a great start, a first reputational deterrent against this kind of collusion of the few against the many.

Second, countries should coordinate to narrow attorney-client privilege to situations involving the defence of a person before a court, but require full cooperation and reporting of suspicious transaction reports from lawyers who are acting as corporate service providers or nominees.

Lastly, governments should properly resource their tax authorities and prosecutors to ensure they will not be afraid of going against enablers.

Treating enablers of illicit financial flows as witnesses and friends of the justice system is like asking a drug kingpin to testify as a witness against a penniless dealer that sells drug on the street. It should be the other way round.

Immigration as reparations: the Tax Justice Network July 2019 podcast

In this month’s July 2019 podcast we speak with multiple award winning Suketu Mehta about his new book: This Land Is Our Land: An Immigrant’s Manifesto on the fastest way to fix global inequalities and injustices. (A UK version of the book will be published in August 2019.) Plus:

we discuss France’s 3% digital tax which has so angered the US president and yet another sign of the collapse of the supposed international consensus on tax rules and which countries have the power to dominate those agreements.
And, we discuss the high tensions with Iran in the Strait of Hormuz and how expensive navies are potentially protecting privately owned ships which are busy minimising their tax bills using flags of convenience.

Featuring: Suketu Mehta author of This Land Is Our Land: An Immigrant’s Manifesto, and John Christensen of the Tax Justice Network. Produced and presented by the Tax Justice Network’s Naomi Fowler.

No, colonialism isn’t over! It got replaced by the incredibly inequitable system of world trade and particularly tax havens…it’s a giant transfer upwards. We have this system of global corporate colonialism, which is actually as exploitative as the crown colonialism that it replaced. I believe that countries are responsible for their history, just like individual human beings are responsible for the crimes they commit. So what I am calling for is immigration as reparations, the west stole the future of the poor countries. And now you’ve desperate and starving masses and they want to come to the west, not to invade and conquer and loot and pillage, but to work.”
~ Suketu Meht a, author of This Land Is Our Land: An Immigrant’s Manifesto

In the last 50 years or so multinational companies have come to dominate the global economy, fewer than 400 multinational companies now dominate the global economy and yet we still haven’t got a system in place to tax their income and redistribute the wealth which they’re accumulating and this is causing huge instability, huge inequality – it’s urgent, truly urgent that G7 finance ministers and others, especially finance ministers from developing countries get round the table so that we don’t have these gigantic monopolies accumulating huge wealth which by and large is not being reinvested into the economy, creating new jobs. It’s urgent that we have a new tax order.”
~ John Christensen, Tax Justice Network

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Further Reading:

Why Should Immigrants ‘Respect Our Borders’? The West Never Respected Theirs

#MauritiusLeaks primer: What to know about corporate tax haven Mauritius

The ICIJ’s MauritiusLeaks has produced a series of revelations about the behaviour of international investors using the law firm Conyers
Dill & Pearman in Mauritius, typically to hold their assets in other countries across Africa. But why Mauritius? Here we set out the key features of this small island in the Indian Ocean.

1. Mauritius is a leading corporate tax haven

The Republic of Mauritius lies around 2,000 kilometres to the east of Africa. A former British colony, Mauritius on its independence in 1968 relied on sugar production. But by the late 1980s, it had followed in the path of many UK dependencies and became increasingly captured by the lobbyists of offshore financial services, who bent its law and regulation to their own ends.

Mauritius ranks 14th on our recently released Corporate Tax Haven Index, because despite being a small player globally, its policies are very aggressively focused on undermining corporate taxation in other countries by attracting profit shifting.

Researchers at the International Monetary Fund estimate that the global revenue losses due to profit shifting amount to around $600 billion each year. We estimate a slightly more conservative $500 billion a year. The key drivers are the “conduit jurisdictions” such as Mauritius, that make themselves attractive for investors and multinational companies to shift profits out of the places where they actually make money.

2. Mauritius is among the most aggressive corporate tax havens towards African countries

An important element in corporate tax havenry is the establishment of a network of bilateral tax treaties with other countries, which can reduce their ability to levy corporate tax before the profits are shifted away. The lower are the agreed rates of withholding tax, the less revenue a treaty partner can expect to hold onto.

Our research shows that the France and the UK have the most aggressive tax treaty networks worldwide, pushing treaty partners to accept worse terms. But in Africa, it is the United Arab Emirates and Mauritius which have the most aggressive treaty networks, and hence Mauritius is responsible for large revenue losses across the continent, as foreign investors channel their holdings in African countries through the island.

Normalised scores of most aggressive double tax treaty partners towards African countries

Following the publication of the Corporate Tax Haven Index in May 2019, the Senegalese government cancelled its tax treaty with Mauritius in June 2019.

3. Mauritius is one of the most financially secretive jurisdictions in the world

The provision of financial secrecy is central to “tax haven” success. This is the secrecy that allows the ownership of companies, trusts and foundations to be anonymous. That means, the holders of foreign bank accounts need not worry about information being provided to their home tax authorities, or that company accounts are hidden. The Financial Secrecy Index measures these policy failings and more, and Mauritius obtains an overall secrecy score of 72 out of 100 – one of the highest.

Mauritius’ scores on the 20 key financial secrecy indicators (Financial Secrecy Index 2018)

But Mauritius only ranks 49th on the Financial Secrecy Index, globally, because the volume of financial services that it provides to non-residents is relatively small in the grand scheme of things.

4. Globally, Mauritius is a small player and should not be singled out. Global solutions are needed.

In terms of corporate tax havens, the dominant players are UK overseas territories the British Virgin Islands, Bermuda and the Cayman Islands, followed by the leading European jurisdictions the Netherlands, Switzerland and Luxembourg. Among financial secrecy jurisdictions, Switzerland, the United States and the Cayman Islands dominate.

And so putting Mauritius up against a wall will not deliver the progress needed. Instead, raising global standards is key. We propose a UN tax convention which would require all jurisdictions to deliver, at a minimum, the ABC of tax transparency:

Automatic exchange of tax information between jurisdictions, to end the scourge of bank secrecy – and fully multilateral, as opposed to the OECD Common Reporting Standard which systematically excludes most lower-income countries.
Beneficial ownership transparency – public registers of the real owners, as standard for companies, trusts and foundations.
Country by country reporting, publicly, by multinational companies to reveal misalignments between the location of their real economic activity, and where they declare their profits for tax purposes.

In addition, the current reform process for international tax rules must ensure, finally, that profits are apportioned between countries according to the location of real activity – that is, where companies have their employment and where their sales take place. At a stroke, this would eliminate much of the current incentives for profit shifting that Mauritius and other conduit jurisdictions exploit.

As immediate steps, African governments should consider revoking abusive tax treaties with Mauritius, the UAE, and other jurisdictions that consistently undermine their corporate tax base.

Mauritius should take the leaks as a last, clear signal: if it wants to be seen as a responsible neighbour in the world, rather than damaging all around it, the island must act now.

Image credit: © Ashok Prabhakaran

‘Terrible Transactions’: How much does mining benefit the Brazilian state?

We’re sharing here details of a study by the Instituto Justiça Fiscal (the Tax Justice Institute) in Brazil researched by economist Guilherme Spinato Morlin with coordination and advice from the Instituto Justiça Fiscal. Instituto Justiça Fiscal directors Clair Hickmann and João Carlos Loebens take up the story:

‘Terrible Transactions’

In recent years, Brazil has experienced two major environmental and humanitarian tragedies caused by mining activities. In 2019, a dam collapse involving the mining firm Vale killed more than 240 people. In 2015, a dam from the mining company Samarco collapsed killing 19 people and polluting agricultural land and drinking water for hundreds of thousands. It left behind a trail of contaminated mud that destroyed about 700 kilometers of the river Rio Doce.

Billions in public funds will now be spent by the Brazilian State to address the problems, not even taking into account the loss of human lives. Although mining is an important part of the country’s economy, these disasters lead us to reflect on who wins and who loses with mining activity. How much in taxes and foreign currency inflows does mining actually generate for the Brazilian state?

A study by the Instituto Justiça Fiscal (the Tax Justice Institute) published in 2017 shows that the amount of tax revenue and foreign currency inflows generated by mining from 2009 to 2015 don’t justify perceptions about its importance to the economy. The research shows that taxes paid by the industry are much lower than they should be. Much of the profits are shifted to countries considered corporate tax havens to avoid taxes in Brazil.

The Instituto Justiça Fiscal study estimates that from 2009 to 2015 the losses of revenue for the Brazilian State amounted to R$50 billion, which is equivalent to US$ 13.3 billion. This includes US$ 12.4 billion in income taxes and US$ 0.9 billion due to the underpayment of the Financial Contribution for the Exploration of Mineral Resources (CFEM) concerning Properties of the State, which is a contribution paid by mining companies to the Federal Government as compensation for the exploitation of non-renewable mineral resources.

Loss in Brazilian wealth

Extraction of most of the iron ore is for export and not for use within Brazil. The iron ore is shipped directly from Brazil to Asia, which is its largest consumer.

The trick used to pay less taxes in Brazil is the under-invoicing of exports, which reduces taxable profits. This tax manoeuver is done through a subsidiary of the same company registered in a corporate tax haven, which plays a fictitious role of buyer of the products exported by the Brazilian company.

The sales destined for China or Japan are settled with a below-market price by the tax haven subsidiary. This subsidiary then resells the goods for the actual price to Asian companies. The profits of these Brazilian mining companies are transferred to its tax haven subsidiary, where taxation is very low or non-existent. These sums are thus lost to Brazil, where wealth is extracted and transferred to a country that’s not adding any value to the product.

We’re a country blessed with natural resources, yet we’re still poor. Our wealth is extracted and sent to other countries, leaving only pollution, environmental damage and loss of human lives.

The current cycle of Brazilian mining does not differ much from the gold rush in colonial times. The extraction and export of gold was the main economic activity carried out by the Portuguese Crown at a time when Brazil suffered its worst abuses and domination by European countries. Finally, the gold mines of Minas Gerais (a name that means ‘general mines’, referring to the abundance in wealth that could be extracted from the site) ran out and the Brazilian economy descended into poverty and inequality.

Brazilian singer Chico Buarque has a song that goes something along the lines of

“thus slept our mother country, absent minded

Without realizing it was taken apart

In terrible transactions”

“Dormia, a nossa pátria-mãe tão distraída
Sem perceber que era subtraída
Em tenebrosas transações”

It seems that we are still asleep, absent-mindedly, without realising that our wealth continues to be taken away from us.

Who is the biggest buyer of Brazilian ore?

The Instituto Justiça Fiscal study reveals a curious and strange fact: Switzerland is the biggest buyer of Brazilian iron ore. Apparently, it acquires more than 80% of the product exported by Brazil, yet Ministry of Industry and Commerce reports show that Brazil’s major trading partner in this area is actually China. In 2016, Switzerland acquired 247,387,719 tons of iron ore, about 81% of the volume Brazil exported that year. 62% of that went to China. But why is the purchasing country different from the country the commodity is being shipped to?

The triangulation and under-invoicing of transactions confirms that Brazilian exporting companies are practicing fictitious triangulation by exporting to themselves through their subsidiaries located in Switzerland at a below-market price. The actual goods are shipped directly to China. Switzerland is considered a corporate tax haven which taxes the profits of foreign companies very little.

Up until 2005, a small Caribbean country, the Bahamas, also considered a corporate tax haven, apparently ‘bought’ 58.5% of Brazilian iron ore. But from 2007 onwards, Switzerland became the main buyer of the product. This did not happen by chance. In 2006, the Vale company opened a subsidiary in Switzerland. The following year, Switzerland bought 68.5% of the product exported by Brazil, rising to 87.5% in 2013.

Capital Outflows from Brazil – between 39 and 49 billion dollars

The under-invoicing of iron ore exports also negatively affects the Brazilian Balance of Trade. The Instituto Justiça Fiscal study estimates that capital outflow of foreign currency due to the under invoicing of ore exports amounted to US$ 39.1 billion between 2009 and 2015, an average loss of US$5.6 billion per year. This estimate is based on the comparison between the export prices declared by Brazilian companies and the trading prices of ore in the international market. An alternative estimate, which was based on the difference between export prices registered in Brazil and the import prices registered in the countries of destination (China), resulted in even bigger losses – US$ 49.06 billion in the same period.

Between 2009 and 2015, Iron ore reached China at a price 20% to 89% higher than that which the exporting companies declared to Brazilian authorities. The average export price declared to the Brazilian authorities (MDIC – Ministry of Development, Industry and Trade) in 2011 was US$ 116.90 per ton. Chinese importers, however, reported that they paid US$ 178.40, or 52 percent more than that. Meanwhile, the average international price was US$139.66, still 20% higher than the price declared in Brazil.

In 2015, the international ore price was 33.78% higher than the price of exports declared by Brazilian companies, and Asian companies declared to the United Nations that they had paid 89% more. The difference was that the profit was improperly transferred to Switzerland. Who moved Brazil’s cheese?

To stop these harmful practices, we believe that Brazil should have a law allowing the tax authority to arbitrage the price of the sale in case of triangulation between companies in the same group. The Brazilian legislation of transfer pricing already establishes that companies must apply the price ~~practiced/~~listed? in the public stock exchange in the trade of commodities. But in the case of iron ore exporting, this was only partially applied. Internationally, the exchange of information between tax administrations and international organisations could help a lot. Companies in the ~~acquiring/~~purchasing? country should ~~inform/~~declare? the price they’re paying? ~~paid~~ to the authorities of the selling country.

New times, old practices

In the old days, the wealth of the colonies was extracted and subtracted by the colonising governments. In our times, the same happens, only the exploiter has changed: now it’s transnational corporations that take away our wealth. We are still a colony.

Globalisation and the free flow of capital contribute to the expansion of multinational corporations and the extraction of wealth belonging to less developed countries. In recent years, transactions within ~~between~~ companies whave grown, representing more than 60% of global trade. These phenomena have facilitated the displacement of production centres from high cost countries to low cost countries. This has led many countries to reduce their taxes and to grant tax benefits to try to attract investment. The granting of these benefits has generated an international tax war and produced substantial negative effects on the economies of several countries.

This leads to transnational corporations and very wealthy individuals managing to escape from income tax, with the tax burden being shifted to the poorest through increased taxes on consumption. The risk here is that tax systems may become even more regressive if measures are not taken to address this problem.

The effects of this unlimited globalisation are: fiscal crisis in nations, more income concentration and social inequality, and the loss of public confidence in governments and the political system.

It is difficult to deal with the problem while politicians and governments are captured by private interests and old practices of wealth extraction and income concentration continue to be the norm.

Given this, we should not wait for iron ore mines to run out like gold in the colonial era. We must turn this unfortunate page of our history. We cannot allow our motherland to remain absent mindedly asleep without realising that it is being extracted through terrible transactions.

Image: Brumadinho, Minas Gerais (47021723582).jpg Author Ibama https://commons.wikimedia.org/wiki/File:Brumadinho,_Minas_Gerais_(47021723582).jpg CC BY = SA 2.0

Broadcasting for tax justice, now in 5 languages

The Tax Justice Network now speaks tax justice in five languages on radio stations and podcast platforms across the world, each with their own unique content and style – English, Spanish, French, Arabic and Portuguese. I produce the Taxcast, the Tax Justice Network’s first monthly podcast in English, now in its eighth year, and I coordinate teams across the world with their monthly programmes, each focused on their regions, exploring how power and decisions are working (or not working) and in whose interests.

Recently all the Tax Justice Network’s producers met face to face in London, and we made a podcast in which we discuss our experiences of broadcasting for tax justice – 30 minutes each month of unmissable corruption, scandal and analysis on corporate tax havenry, tax dodging and financial secrecy – the battles for transparency, fairness and greater democratic accountability in the public interest. The mainstream media isn’t doing a good job on this subject, so we’re filling that huge gap in coverage and understanding of one of the most challenging ethical and economic issues of our times. We hope you enjoy listening. Details of each podcast are below.

Broadcasting for tax justice in five languages – our story: LISTEN HERE

Covering the issue of tax for the media…is probably deemed as one of the most un-cool things and fields of research, and the way I think of it is that this [tax justice podcasts] is exactly what kind of makes it cool!
The thing I enjoy the most about this podcast is taking an issue that’s usually seen as too technical, too special and trying to make media for everyone out of it, I think this is the most rewarding thing about it and I think the media always gets something very wrong…
When you pitch stories like this to traditional media they will think ‘this is not interesting enough, people won’t be interested in it’ but what I think we’re proving as a team is that actually there is great interest in tax issues and it’s not just a technical matter for experts to be discussed in closed rooms”
~ Osama Diab, journalist, economic rights researcher at the Egyptian Initiative for Personal Rights and contributor to the Tax Justice Network’s Arabic monthly podcast/radio show
الجباية ببساطة

Our podcasts/radio shows:

All podcasts are available on podcast platforms such as Stitcher and Spotify. Here below are each of the Tax Justice Network’s podcasts on youtube, starting with the Taxcast in English with me Naomi Fowler, previously a radio journalist based in various countries for many years and regular commentator the Tax Justice Network’s John Christensen:

The Spanish podcast, Justicia ImPositiva with journalist Marcelo Justo from Argentina who worked for many years at the BBC World Service, and his co-presenter Marta Nunez from Panama, a defender of women’s rights:

الجباية ببساطة The Arabic podcast with finance and economics journalist and radio producer Walid ben Rhouma based at Express FM in Tunisia and
Osama Diab, journalist, economic rights researcher at the Egyptian Initiative for Personal Rights:

The French podcast, Impôts et Justice Sociale with finance and economics journalist Idriss Linge based in Cameroon:

The Portuguese podcast É Da Sua Conta with radio journalist Daniela Stefano, specialised in human rights and environmental reporting, Grazielle David is a tax justice and human rights expert and a top economics communicator and economics and public policy journalist Luciano Maximo:

US half-shuts door to financial secrecy, opens new window

The US is the world’s second greatest contributor to global financial secrecy, according to the Tax Justice Network’s Financial Secrecy Index, only faring better than Switzerland in complicity in enabling financial secrecy schemes that foster tax abuse, money laundering and the financing of terrorism. With all of the US’s major transparency shortcomings – eg no participation in global automatic exchange of banking information and lack of registered ownership information for legal vehicles – the US’s saving grace was that it didn’t permit private foundations to be created – this in part gave the US a lower secrecy score on the Financial Secrecy Index than Switzerland.. However, thanks to New Hampshire, private foundations can now be set up without needing to disclose the identity of their founders and beneficiaries, let alone their beneficial owners. But won’t the primary reason for setting up a private foundation be to make the world a better place, the way most people use trusts in places like the UK? No. This blog will show why trusts (and private foundations) should equally be required to disclose their beneficial owners in public registries.

If you want to prevent mosquitoes or a cold draft from entering your house, then shut your door and your windows. If instead you only half-shut the door, leave your windows open and decide to break a hole in the wall, you won’t achieve much…

Likewise, if the world’s largest financial centre allows secretive companies, trusts and partnerships to be created, illicit financial flows will smoothly enter its financial system and economy (with horrible consequences for the rest of the world). Being in the process to (hopefully) enact a law requiring companies to disclose their beneficial owners in non-public registries is, let’s say, a first step. It’s huge from the perspective of US American transparency activists given the challenges they have to face, but quite meager compared to countries like the UK that have already had a public register of beneficial owners online and in open data for years. If the (hopefully soon to be approved) US beneficial ownership transparency requirements for companies won’t apply to other types of legal vehicles like trusts and partnerships, the positive effects will be reduced because criminals, tax abusers and other unscrupulous individuals will simply shift to those less transparent structures. If on top of this, the US is now to allow a new type of legal vehicle, private foundations, to be created, then one could wonder whether there’s any intention at all to help in the fight against illicit financial flows.

The new New Hampshire Foundation

At the end of 2017 (after the cut off date for assessing jurisdictions under the 2018 edition of the Financial Secrecy Index), New Hampshire enacted Chapter 564-F – The New Hampshire Foundation Act to “benefit” New Hampshire’s economy at the expense of the rest of the world, like any typical secrecy jurisdiction:

The fiduciary services sector is an important and growing part of this state’s economy. The sector provides well-paying jobs for trust, investment, legal, accounting, and other professionals. Through the development of thoughtful, innovative laws, New Hampshire has become one of the best legal environments for trusts, trust companies, and fiduciary services. This legal environment attracts individuals and families to this state for purposes of creating new trusts or administering existing trusts, thereby supporting and encouraging the growth of this state’s fiduciary services sector. Continuing New Hampshire’s firm commitment to being one of the best legal environments for trusts, trust companies, and fiduciary services, this act further enhances modern trust design, further facilitates the efficient administration of trusts, promotes the formation of family trust companies within the state, and allows the formation and domestication of civil-law foundations. (emphasis added)

If the term “foundation” evokes thoughts of charity, philanthropy or other public interest goals, this Bloomberg article should evaporate them:

Thanks to New Hampshire legislators, advisors now have the option to use a New Hampshire-based foundation… Based on ease of use in the international arena and likely favorable tax treatment and asset protection potential, foundations are a wealth management game-changer in the U.S. and potentially internationally…
For example, take the case of a wealthy surgeon in Louisiana who would like to leave his assets to his wife, for her lifetime, but also wants to benefit their children. Ideally, he wants to allow the assets to benefit as many future generations as possible. Because of the risk associated with his career, he has concerns about creditors reaching these assets…he could protect assets from creditors by contributing them to a New Hampshire foundation because the foundation is a separate legal entity… his children and wife could be the foundation directors…the powers of the surgeon as the founder could be limited to prevent his creditors from being able to attach any assets of the foundation, much like an irrevocable trust. (emphasis added)

From the perspective of the Financial Secrecy Index, while the US secrecy score and ranking may improve in relation to companies (depending on whether the beneficial ownership requirements will actually become law and be loophole-free), the existence of private foundations without registration of their owners or controllers will push the secrecy score back up again.

Bonus track: trusts and their so-called private family matters to protect vulnerable people

While the European Union is at the vanguard of beneficial ownership transparency, it does allow trusts to benefit from more secrecy compared to companies and other legal vehicles, very likely because of the UK’s initial opposition to register trusts’ beneficial owners based on the claims that trusts are mainly private family matters. These claims were were repeated by New Zealand.

We have written a briefing paper and follow up paper on how trusts are abused for tax evasion, corruption and money laundering as well as to concentrate wealth and defraud legitimate creditors. There are more than enough reasons why trusts should be subject to at least the same transparency requirements applied to companies.

The following extracts should convince any remaining doubters.

Lowtax.net, a website that (as its name suggests) promotes tax haven facilities, published an article titled “US Trusts For US And Non-US Clients” that give its readers the following advice:

For clients who are US persons, we will be recommending the establishment of US domestic trusts, as there can be adverse tax consequences for US persons who establish foreign trusts. The only exception to this rule is when a US person is more concerned with asset protection issues, than tax, as US courts are known to be creditor friendly. In such cases, we will assist the client to establish a foreign trust in a jurisdiction with strong creditor protection provisions such as Belize, Nevis, the Bahamas, the Cook Islands and a couple of others…
[For non-US persons] we will usually recommend that they form US Hybrid Trusts, because … they will usually only have reporting requirements if a US person is the Settlor… The advantage of the Hybrid Trust is that there could be no direct reporting to the IRS even if the financial assets of the trust fund are managed within the US… Nevertheless, there is the added benefit that there is likely to be no CRS or FATCA reporting, in such circumstances, as a US financial institution is not currently subject to CRS reporting and FATCA rules apply to foreign bank/investment accounts and not to bank/investment accounts that are held with US broker/dealers, banks and other financial institutions.
Nevertheless, we do not recommend that US trusts are established, for the sole purpose of CRS avoidance, because US Trusts have many advantages… Thus, a US Trust should be established to meet the Settlor’s estate and wealth planning needs and not for CRS minimization alone.
US Trusts can offer the following benefits:
– Settlor directives to the trustee do not invalidate a US Trust and it is even possible to establish “Settlor Directed” trusts, in certain US states, where the US Trustee is obligated to follow the directions of the Settlor…
-Most US states have very long perpetuity periods if they exist at all..
-Several US states also have asset protection provisions that provide a statute of limitations for creditors to attack the gifting of assets to the trust…
-A US Hybrid trust with a foreign grantor and no US source income may have no US reporting requirements; (emphasis added).

Similarly, a recent law case from Bermuda shows that these abusive goals aren’t only how trusts are promoted, but why they are actually used by wealthy individuals who want trusts to last forever and not to distribute its assets to beneficiaries to avoid both taxation and access to the trust assets by creditors (including spouses):

In addition to the preservation of existing and future tax benefits, important family wishes and objectives will also be attained. The family looks upon its wealth as dynastic in nature and wish the Trusts to continue in perpetuity, or at least so long as the family line continues…
Secondly, with the trust assets being held by the recipient generation, absolutely, the assets will not only be subject to the rigours of taxation noted above, but will also be exposed to claims of the recipient’s creditors, spouses and others. (emphasis added)

In conclusion, requiring companies to register their beneficial owners is a very important step, but forgetting to extend those same requirements to other legal vehicles like trusts and private foundations is a big mistake, especially when these legal structures are being promoted and used precisely for illegitimate goals such as tax avoidance, secrecy and shielding assets from legitimate creditors. The Financial Secrecy Index will continue to assess the transparency framework of each type of legal vehicle, so closing one loophole while opening another will do little to improve a country’s secrecy score and ranking.

The Tax Justice Network’s July 2019 Spanish language podcast: Justicia ImPositiva, nuestro podcast, julio 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:

¿Qué pasará con el acuerdo de libre comercio entre Mercosur y la unión Europea? Entre los ganadores están el sector financiero y los paraísos fiscales. ¿Qué pasó en los tratados europeos con Colombia, México y Ecuador?
Los principales bancos del mundo tienen redes paralelas en los paraísos fiscales. ¿Para qué sirven esas sucursales de papel?
Disipamos algunos mitos sobre los Papeles de Panamá: ¿Quiénes son los buffetes de abogados y contadores que facilitan la fuga de capitales en la Argentina? ¿Es Uruguay tan fundamental como siempre se ha dicho?
¿Hay diferencia entre la elusión y la evasión fiscal como alegan multinacionales, multimillonarios, abogados y contadores?

INVITADOS

Jocelio Drummond, secretario regional para la región americana del Sindicato Internacional de Servicios Públicos
Julia Strada, doctora en economía del desarrollo, miembro del Centro de Estudios de la Política Argentina, CEPA
Verónica Grondona, miembro de Tax Justice Network y ex asesora de la izquierda europarlamentaria.
Economista e investigador ecuatoriano Andrés Arauz
Tomás Lukin co-autor de Argenpapers y miembro de la fundación SES, una ONG concentrada en la lucha por la justicia fiscal.
Magdalena Rua, autora de “Fuga de Capitales: el rol de los bancos internacionales y el caso HSBC”.

MÁS INFORMACIÓN:

El enlace de descarga para las emisoras: http://traffic.libsyn.com/j-impositiva/JI_julio_19.mp3

También para emisoras, el enlace de nuestro ‘trailer’: http://traffic.libsyn.com/j_impositiva/JI_Trail.mp3

Subscribase a nuestro canal de youtube en el playlist de Justicia ImPositiva aqui

Subscribase a nuestro RSS feed: http://j_impositiva.libsyn.com/rss

O envien un correo electronico a Naomi [@] taxjustice.net para ser incorporado a nuestra lista de suscriptores.

Sigannos por twitter en @J_ImPositiva

Y estamos en facebook

SWIFT data can be a global vantage point for tackling global money laundering

The Tax Justice Network has published today a proposal on how to use SWIFT data on bank transfers to detect money laundering schemes. Download the report here.

While many people are rightfully concerned about the serious risks for money laundering raised by new cryptocurrencies, banks and financial institutions that have been around for decades and centuries – and have been subject to several anti-money laundering provisions and know-you-customer procedures – are still abysmally failing to detect money laundering schemes.

In 2011, the UN reported that “the ‘interception rate’ for anti-money-laundering efforts at the global level remains low. Globally, it appears that much less than 1 per cent (probably around 0.2 per cent) of the proceeds of crime laundered via the financial system are seized and frozen.” In 2016, Europol reported that “the amount of money currently being recovered in the EU is only a small proportion of estimated criminal proceeds: 98.9% of estimated criminal profits are not confiscated and remain at the disposal of criminals.”

In 2014, OCCRP exposed the Russian Laundromat scandal that involved a USD$20 billion money laundering scheme and how, despite warnings, banks failed for years to shut it down. Billions were moved from Russia into 112 bank accounts in eastern Europe and then into banks around the world. In 2018, the Danske Bank scandal broke out, revealing that USD$200 billion of suspicious transactions flowed through Danske’s Estonian branch.

What can be done to stop money laundering?

Public beneficial ownership registries which verify any registered data are essential. A global access to automatic exchange of banking information would also certainly help in the fight against illicit financial flows – especially if the USA joined the OECD’s Common Reporting Standard for automatic exchange of information, and if the standard’s loopholes were closed – including those that prevent banking information from being used to tackle money laundering and corruption.

In the meantime, however, there’s a low-hanging fruit to be reaped: the SWIFT messaging system.

You may have heard of SWIFT if you ever made an international bank transfer. SWIFT involves a standardised messaging system used by thousands of financial institutions all over the world to communicate to each other details about a bank transfer, such as the identity of the originator and the recipient of the funds.

The SWIFT consortium, in addition to providing the messaging standard, already offers anti-money laundering and other services to banks to allow them to comply with financial regulations. However, even this extra available information may not be enough for a specific bank to discover a sophisticated international money laundering scheme involving many banks in different countries. To detect an international money laundering scheme, an overview of all global fund transfers is necessary. SWIFT may be in the best position to provide this big picture given that thousands of financial institutions communicate every day through SWIFT messages.

A legal framework will be needed to allow SWIFT to run analytics on the details of the millions of bank transfers to detect money laundering schemes. These advanced analytics could be based on criteria established by a group of anti-money laundering experts. Then SWIFT could share any red-flags with the authorities of the countries involved in any case of suspicion of money laundering. Information could first be shared on an anonymised basis, only providing the full details if a country meets all confidentiality standards. SWIFT has been sharing this type of information for years with the US for purposes of the fight against terrorism. In this case, information would be shared to tackle money laundering – but with all relevant countries. After all, about 100 jurisdictions are already automatically exchanging banking information pursuant to the OECD’s Common Reporting Standard. If these 100 countries are deemed compliant with confidentiality provisions to obtain information about the account holders and beneficial owners of bank accounts and their account balances, they would also likely meet confidentiality requirements to get access to data on bank transfers.

Lastly, we need transparency in the form of statistics. While SWIFT already publishes some statistical data on the number of SWIFT messages sent, their distribution by market and on their distribution by region, it should also publish anonymised and aggregated data on all international transfers at a country level, so that civil society and investigative journalists have access to basic data and can hold authorities to account. Statistics could look like this: “In 2020, Bank 1 in Germany (or all banks in Germany) transferred $100 billion to banks in France, $50 million to banks in Spain and received $100 million from banks in the US”. This would allow civil society organisations, researchers and journalists (as well as countries unable to receive SWIFT data for confidentiality shortcomings) to perform basic analyses of cross-border transactions. Additionally, reported statistics should allow observers to sort through financial transactions depending on the type of account holder (eg individual, company or trust) in order to detect patterns based on the type of legal vehicle involved in the financial transaction.

Download report

Canada invests in whistleblower awards, and reaps the rewards

In some countries there’s been controversy over whether or not whistleblowers should be compensated financially. That’s not the case, however, in the United States, in Korea and in other countries where they recognise that the State benefits by recovering funds due to it on behalf of its citizens and where it’s recognised that most whistleblowers will never work again in their industry, will often incur huge legal fees in cases they may end up losing, and they may risk in some cases imprisonment and harassment. It is, however, controversial in countries like the UK where even though whistleblower award schemes exist, they’re not publicly promoted and payouts are surrounded in secrecy.

Canada’s ‘Offshore Tax Informant Program’, set up by the Canadian tax authority in 2014 to track down tax cheats, has yielded some interesting results. The Financial Post reports:

Since inception, the program has generated more than 1,400 calls, over 600 written submissions, and 39 contracts with informants, which has allowed the CRA to identify $50 million in taxes and penalties owed, the CRA said in an emailed statement to the Financial Post.
About $19 million has been collected so far, of which “under $1 million” has been paid to an eligible informant or informants…”

An investment of less than one million Canadian dollars for a potential return of fifty million dollars, nineteen million recovered so far, seems like a good return to us.

It also goes to show that investment in enforcement justifies itself many times over. Despite that fact, Canada is one of the few countries bucking the trend of cuts to the essential work of tax authorities worldwide. However, let’s not get too excited here, Canada has much work to do to tackle its ‘snow washing‘ problem, otherwise known as corporate tax havenry and secrecy offerings. It is also ranked number 21 in the most recent Financial Secrecy Index. (It wasn’t included in assessment for the first Corporate Tax Haven Index results, launched in May 2019).

Also of crucial importance in empowering whistleblowers to come forward in multiple ways, (of which awards are only a part), is changing the culture of impunity which exists in some industries as well as those working as public servants. At our 2019 annual conference on the professional enablers of tax abuse and crime – banks, law firms, real estate agents, trust companies, lobbyists and the major audit and accounting firms – we discussed these issues on a fascinating panel chaired by international whistleblower lawyer Mary Inman of Constantine Cannon: Whistleblowing in Asia and the UK: then and now.

Do watch the following presentations and the fascinating discussion below. All conference videos are available to watch here.

Michael Woodford – Exposure: From President to Whistleblower at Olympus: former Olympus CEO Michael Woodford recounts his tale of exposing a $1.37 billion accounting scandal at Olympus Corporation, as told in his critically acclaimed book Exposure:

Joohyun Baek describes the whistleblower reward schemes the Korean Tax Authority has in place to encourage whistleblowers to provide information about evasion of Korean taxes domestically and offshore:

Chief Executive of Whistleblowers UK Georgina Halford-Hall discusses the work of the newly formed All Party Parliamentary Group on Whistleblowing in seeking legislative reform to protect and empower whistleblowers in the UK:

And here’s a very interesting discussion session afterwards:

Dear WEF, let’s tax corporations in the real world

I was invited to speak yesterday at the World Economic Forum’s seminar on
“Digitalization and International Economic Policy: Tax, Competition, Trade and Investment”. Also invited to speak were Director of Global Tax Policy at IBM Linda Evans, Head of Tax Policy at KPMG Chris Morgan and Fellow at the Council on Economic Policies Agustin Redonda. We spoke about tax policies in a globalised and digitalised economy, specifically on a white paper to be prepared by a working group within the World Economic Forum that the Tax Justice Network is currently integrating. A few days ago, Open Democracy published a worrying piece about the creeping capture of the United Nations system by corporations, after the World Economic Forum signed an agreement with the UN. This relationship is one to watch closely, and likely one to work towards undoing as soon as possible in order to safeguard the UN from becoming a corporate puppet.

Here is the full speech I presented yesterday:

Thank you for the invitation to present. There is now consensus that multinationals are avoiding hundreds of billions of dollars a year in taxes and this affects especially lower-income countries, amplifying social inequalities, including gender inequalities.

The BEPS process has failed to solve the problem of tax avoidance, creating instead patches and complex rules based on the same old system.

Now, with the new OECD consultation, there is an opportunity for real change based on the long-standing tax justice positions: that taxing rights should be aligned with the location of real economic activity; that jurisdictions should not engage in a race to the bottom; and that the resulting redistribution of taxing rights should benefit lower-income countries in particular.

What would effective reform look like?

1) The decision process should include all countries, especially low income ones. Asking countries to implement rules decided by others isn’t really “inclusive”, no matter what you call yourself.

2) The new taxing rules should apply to all industries, not only to the digital economy.

3) The longstanding tax justice proposal for unitary taxation should apply, that is, assessing profits at the level of the multinational group rather than as separate entities within the group.

4) The formulary apportionment of the tax base should include not just sales, but also employment (at headcount, rather than at payroll level) to truly benefit low-income countries.

5) Unitary taxation based on real economic activity should apply to the whole tax base of multinationals, not just to “residual” profits. The application to all profits (both routine and residual) would not only address tax avoidance, but would also reduce the “complexity” and “uncertainty” that so many multinationals and accountancy firms seem to be worried about.

6) A minimum tax rate will be helpful to counteract the race to the bottom. However, such minimum tax rate should apply at each-jurisdiction level, and not as a global average. In other words, multinationals should not be able to claim that they need not pay taxes in country X because their overall average taxation already reached the required minimum, for example because they paid higher taxes in rich countries. Instead, every country, especially low-income ones, should be allowed and required to apply the minimum tax rate to every multinational that operates there. This isn’t a matter of affecting their tax sovereignty, but rather giving them the chance to obtain the required tax revenues. In any case, tax sovereignty should not be construed so as to allow beggar thy neighbour policies. Just as the Financial Action Task Force prevents countries from facilitating or benefiting from money laundering, so should countries be prevented from facilitating or benefiting from profit shifting and tax avoidance.

To be clear, these tax reforms will involve important technical aspects, but the key choices will be fundamentally political.

Even if the new rules will require new consensus, such as what elements the formulary apportionment should include, it is worth the effort. The new system will at least get closer to taxing multinationals based on how they actually operate.

If the process fails to deliver truly useful reforms, the UN should try to find better rules. If these also fail, countries will – and should – establish unilateral measures, and hopefully countries in the global south will coordinate to do so.

Lastly, no matter what decision is taken, it will be necessary to define criteria and give civil society organisations and journalists, access to data to see if the system is actually working. As for the criteria, the Tax Justice Network has published the “Corporate Tax Haven Index” which could be used to track countries’ progress. As for access to information, an obvious first step would be to get public access to country by country reports, as the Tax Justice Network has been asking for years.

Thank you.

Edition #5 of the Tax Justice Network’s Francophone podcast/radio show: #5 édition de radio/podcast Francophone par Tax Justice Network

We’re pleased to share the fifth 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 5ème 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 en français du mois de juin 2019, nous revenons sur le Corporate Tax Haven Index publié par Tax Justice Network pour rappeler que quelques détails importants. L’Afrique qui est très pauvre continue de faire des cadeaux fiscaux qui profitent à des multinationales dont les actionnaires sont originaires des pays qui sont les plus riches de la planète.

Nous abordons aussi la campagne « Arrêtons l’hémorragie » par Tax Justice Network Africa au Cameroun avec le CRADEC.

Comme intervenants et invités :

Rachel Etta-Phoya, Chercheuse chez Tax Justice Network et de Corporate Tax Haven Index
Maïmouna Diakité, Chercheuse chez Tax Justice Network et de Corporate Tax Haven Index
Lucas Millan, chercheur chez Tax Justice Network et deCorporate Tax Haven Index
Jean Mballa, Directeur Exécutif du CRADEC
Et Philibert Ndzana, citoyen engagé, acteur de la société civile camerounaise

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]

The Anderson-Lucas-Norman award 2019 awarded to Ms Eva Joly

The Tax Justice Network is honoured to present the Anderson-Lucas-Norman award for tax justice heroism to Ms Eva Joly MEP.

Ms Eva Joly MEP is an investigative magistrate and a European Parliament member with an extraordinary track record in fighting corrupt activities and financial crime at the highest echelons of business and politics.

Most notably, Ms Joly investigated the financial scandal of the French state-owned petroleum company Elf Aquitaine, which the Guardian described as “the biggest fraud inquiry in Europe since the Second World War”. In the face of death threats, she carried on the case to uncover several cases of fraud, leading to the conviction of tens of persons involved in the oil business. Ms Joly investigated former Minister of City Affairs Bernard Tapie for corruption leading to his arrest. She also took on the bank Crédit Lyonnais.

As the main facilitator of the Paris Declaration against Corruption, Ms Joly has contributed to the work of several international organisations and has advised the Afghan, Norwegian and Icelandic governments on issues of anti-corruption and financial crime. She was a candidate for the 2012 French presidential election, and elected to the European Parliament in 2009 and 2014 for the Île-de-France region.

The Anderson-Lucas-Norman award is named after Jean Anderson, Pat Lucas and Frank Norman, three Jersey islanders who were among the first to challenge the financial sector’s state capture of Jersey, sparking the global tax justice movement.

Jean Anderson, Pat Lucas and Frank Norman met with former Jersey senior economic advisor John Christsensen in the early 2000s, urging him to help them save their island and “kill the tax havens”. They inspired him to establish the Tax Justice Network. Jean, Pat and Frank’s early meetings, protests and fundraising work – which included cake baking and car boot sales – provided the foundations needed to launch the Tax Justice Network and the global movement that followed and has been changing the world ever since.

Tax Justice Network Conference 2019 #TJN19

The challenges of tax justice do not exist in a vacuum. It is not an accident that billions of dollars are lost worldwide to tax avoidance and tax evasion each year. Nor is there anything random about the failure to tackle loopholes, or to move forward proven measures to improve transparency and accountability of the actors, or simply to maintain progressive taxation.

The professional enablers – including banks, law firms and the major audit and accounting firms, along with real estate agents, trust companies and others, and myriad lobbying groups– are key players in both the design of schemes for tax abuse and the prejudicial political influence that undermines tax justice, and in some cases in facilitating criminal activities. The resulting impacts on human rights, including women’s rights, are dramatic.

This year, our conference focused on qualitative and quantitative research that explores the role and the influence of the enablers, and innovative proposals for their better regulation. Additional topics included tax competition and the race to the bottom, tax justice and human rights, financial secrecy, scale of revenue losses, and whistleblowers.

The inaugural TJN lecture and prize took place on the evening of 2 July. The lecture, by Professor Sol Picciotto of Lancaster University, was on the past, present and future of international tax rules, and was followed by the presentation of the inaugural Anderson-Lucas-Norman award for tax justice heroism to Eva Joly.

Conference programme

Conference materials (abstracts, biographies, videos, slides, papers)

This conference was the latest in an annual series dating back to 2003. The events bring together academics, researchers, journalists, policy staff of civil society organisations, consultants and professionals, elected politicians, and government and international organisation officials to facilitate research, open-minded debate and discussion, and to generate ideas and proposals to inform and shape political initiatives and mobilisation. Recent events in this series: 2018 | 2017

Edition 18 of the Tax Justice Network Arabic monthly podcast/radio show, 18# الجباية ببساطة

Welcome to the eighteenth 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 #18 – Palestine joins the tax race to the bottom

Welcome to the 18th edition of Taxes Simply. We start as always with our news summary which includes:

Tunisian Dinar devaluation leads to debt explosion
Egypt to pay half a billion dollars to Israel in arbitration case settlement
Inflation on the rise again in Egypt
Oman taxes tobacco and soft drinks
The United States receives more taxes from individuals and less from companies
Matteo Salvini threatens to resign if the EU does not agree to his tax cuts plan

In the second part of this month’s edition, Walid Ben Rhouma meets with Firas Jaber, a researcher at the Palestinian Social and Economic Policies Monitor to discuss the distorted Palestinian tax structure in light of the recent statement by the Palestinian Minister of Finance announcing the reduction of the corporate tax rate from 20% to 15%.

الجباية ببساطة #١٨ – فلسطين تشارك في السباق الضريبي إلى القاع

أهلا بكم في العدد الثامن عشر من الجباية ببساطة. نبدأ في القسم الأول بأخبارنا المتفرقة التي تشمل: ١) تخفيض قيمة الدينار التونسي تفجر الدين العمومي؛ ٢) مصر تصل لتسوية مع إسرائيل قيمتها نصف مليار دولار في قضية تحكيم؛ ٣) زيادة التضخم في مصر من جديد؛ ٤) سلطنة عمان تفرض ضرائب جديدة على التبغ والمشروبات الغازية؛ ٥) الولايات المتحدة تتلقى ضرائب أكثر من الأفراد وأقل من الشركات؛ ٦) ماتيو سالفيني يهدد بالاستقالة إذا لم يوافق الاتحاد الأوروبي على تخفيضاته الضريبية.

أما في القسم الثاني من عدد هذا الشهر، يلتقي وليد بن رحومة مع فراس جابر، الباحث المؤسس في مرصد السياسات الاجتماعية والاقتصادية الفلسطيني، ويحاوره بشأن هيكل الضرائب الفلسطينية المختل في ضوء التصريح الأخير لوزير المالية الفلسطيني عن تخفيض الشريحة العليا على ضريبة الشركات من ٢٠% إلى ١٥%.

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

Our June 2019 podcast in Portuguese: nosso podcast em português: Índice de Paraíso Fiscal Corporativo

The Tax Justice Network now speaks tax justice in five languages on radio stations and podcast platforms across the world, all with their own unique content and style – English, Spanish, French, Arabic and now Portuguese. So, welcome to our second 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]

In the June 2019 É da sua conta #2 we look at the new Corporate Tax Haven Index

What it is and how countries were assessed
The shocking example of Vale
The economic effects: tax unfairness between national and multinational corporations
The social effects: financing capacity reduction to finance rights, as health and education
Solution: unitary taxation of multinationals
We discuss India’s push to force the G20 to agree sensible and fair international tax rules with Nick Shaxson of the Tax Justice Network and author of Treasure Islands and the Finance Curse

Podcast É da sua conta #2: Índice de paraíso fiscal corporativo – o que é, exemplo, efeitos e solução proposta

Bem vindas e bem vindos ao É da sua conta, 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.

No É da sua conta #2, de junho de 2019, você confere o Índice de paraíso fiscal corporativo

O que é e como foi elaborado
O chocante exemplo da Vale
Os efeitos econômicos: desigualdade na tributação de empresas nacionais e multinacionais
Os efeitos sociais: redução da capacidade de financiamento de direitos, como saúde e educação
Proposta de uma solução: tributação unitária de multinacionais
Coluna de Nick Shaxson, jornalista da Tax Justice Network: iniciativa da Índia e outros países para que todos os países participem da tomada de decisão sobre combate à sonegação fiscal

Participantes:

Fabricío Muriana, Instituto Feira Livre
Shanna Lima, pesquisadora da Tax Justice Network (TJN)
Marcelo Oliveira, diretor do Instituto de Justiça Fiscal (IJF)
Alessandra Cardoso, assessora política do Instituto de Estudos Socioeconômicos (INESC)

Mais informações:

Nosso canal no Youtube
Inscreva-se: [email protected]
Twitter
Facebook
Download do podcast: http://traffic.libsyn.com/edasuaconta/EDaSuaConta2.mp3

The Corporate Tax Haven Index: solving the world’s broken tax system in our monthly podcast, the Taxcast

In this month’s June 2019 podcast we look at the new Corporate Tax Haven Index released by the Tax Justice Network. What does it tell us about the global economy and the international tax system? And how can we fix it? We also look at how India is pushing the G20 into action on global tax rules – if they don’t act it will implement its own rules.

The Corporate Tax Haven Index provides one of those really rare glimpses of what actually happens underneath the bonnet of the global economy. It tells several disturbing stories…in what we can only describe as a full frontal assault on the national tax sovereignty of every country on the planet. That’s what they’re doing. They’re attacking the tax regimes of other countries. What it reveals is a really disturbing picture of international failure. We see the powerful European countries and especially Britain lying behind their clusters of tax havens and they have wrecked economies across the world and are now threatening social stability and democracy across the world.
But when countries like India say, no, that doesn’t work for us, we’re going our own way, then it gets very serious indeed. And the G20 simply cannot afford to ignore this any longer. So the road is open for the next steps. And of course the next steps are going to take us in the direction the Tax Justice Network has always been talking about. And that is in the direction of proper apportionment of profits to the countries where the profits are aligned with the economic substance. In other words, we’re moving towards unitary taxation and formula apportionment…And I think we should all welcome the opportunity now to create a framework for taxing multinational companies that suits the entire world, not just the most powerful countries in the world.
John Christensen, Tax Justice Network

I think it is important to point out that the term of tax haven has done us a big disservice for many decades now. That is used instead of claiming what we think is much more accurate nowadays, instead of claiming a spectrum of secrecy, a spectrum of tax haven-ness each country now embodies. We have to be more specific than just tax havens, there are so many dimensions to this and that is why we prefer to speak on the one hand about secrecy jurisdictions…and the other element that we need to complement this terminology is the corporate tax haven, which designates those places that play a more important role for multinationals in shifting their profits across borders. And this is why we have complemented the Financial Secrecy Index with the Corporate Tax Haven Index. [They] paint a different picture, much more nuanced where we can see that many countries nowadays have joined the bandwagon, and have joined the race to the bottom
Markus Meinzer, director of the Corporate Tax Haven Index and Financial Secrecy Index research teams

Featuring:

Andres Knobel, Rachel Etter-Phoya, Shanna Lima, Lucas Millán Narotzky of the Tax Justice Network’s Corporate Tax Haven Index team
Markus Meinzer, director of the Corporate Tax Haven Index and Financial Secrecy Index research teams
Liz Nelson, director of Tax Justice and Human Rights research
John Christensen of the Tax Justice Network
Presented and produced by Naomi Fowler of the Tax Justice Network

Want to download and listen on the go? Download onto your phone or hand held device by clicking ‘save link’ or ‘download link’ here.

Want more Taxcasts? The full playlist is here and here. Or here.

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Follow Naomi Fowler John Christensen, The Taxcast and the Tax Justice Network on Twitter.

Read more about the Corporate Tax Haven Index here and the Financial Secrecy Index here.

Coal subsidies reveal G20’s failure to tackle climate emergency

Ten years ago the G20 countries committed to taking the global lead in combatting climate change. However, a new report tracking government subsidies to the fossil fuel industries reveals that despite the promises made in 2009, major G20 countries, including Japan which hosts the 2019 G20 meeting starting this coming Friday, continue to subsidise production and consumption of fossil fuels.

Despite coal being the most polluting fossil fuel, the new research shows that G20 countries are spending approximately US$64 billion annually on subsidising coal alone. To make matters worse, the G20 countries have neglected to define or document the full extent of their subsidies, making it harder for independent researchers to monitor their performance.

The report, published by the the Overseas Development Institute (ODI) and others, highlights Japan as one of the largest financial supporters of coal, despite Prime Minister, Shinzo Abe, having said in September 2019:

“Climate change can be life-threatening to all generations … We must take more robust actions and reduce the use of fossil fuels.”

Notwithstanding promises to phase out subsidies to coal, the report shows how G20 governments prolong subsidies while ostensibly supporting a market-led transition away from fossil fuels towards renewable energy sources. Subsidies to the coal sector take a variety of forms, and are applied at every phase from upstream exploration and production to downstream consumption.

The report reveals that while some governments have reduced subsidies to domestic coal fired production they continue to subsidise the construction of new coal fired power stations in other countries; a policy coherence failure that has been criticised by both politicians and campaigners.

Ahead of the 2019 G20 Meeting starting later this week campaigners are calling for:

the complete phasing-out of government direct and indirect subsidies to coal mining and coal-fired power;
comprehensive country-level peer review of coal and other fossil fuel subsidies within the coming 12 months;
agreement of country-level plans for ending government support to coal, implementation of measures to ensure that energy transition policies do not support coal production and consumption (especially in poorer countries);
and implementation of measures to ensure a ‘just transition’ for workers and communities, and target support at most vulnerable groups during the energy transition.

Fiscal support in the form of tax breaks are a significant part of the overall package of government support to coal producers, which also includes public financing of new coal fired facilities, and support for state owned coal industries. As renewable energy investment costs have tumbled in the past decade, coal-fired electricity production has become increasingly less profitable, and a large proportion of existing capacity is identified as being in high-level financial stress.

King Coal is clearly dying but is being kept alive on life-support, much to the detriment of ecological survival. G20 countries must now meet their promises to entirely remove subsidies to coal.

Statistics on automatic exchange of banking information and the right to hold authorities (and banks) to account

New publications in the US, the UK, Switzerland and Japan show that better statistics on cross-border exchanges of financial information are possible and necessary to hold governments and financial institutions accountable.

Large amounts of financial information are now being shared automatically across borders, to allow countries to find out where their (mostly wealthy) taxpayers have stashed their wealth and what income they are earning, for tax purposes. This is a great improvement on the situation just a few years ago, when wealthy folk could hide their money around the globe with almost complete impunity, safe in the knowledge that their secrets would be kept safe. This improvement is led by the OECD’s Common Reporting Standard (CRS) for automatic exchange of banking information, set up by the OECD, a club of rich countries.

It is still hard to know how well this system is working, however. We have been asking for statistics on automatic exchange of banking information since our first report in 2014 (see loophole 27), after the OECD trumpeted the “end of banking secrecy” but we showed that this was (and unfortunately still is) far from being real.

Publishing aggregated statistics on banking information shouldn’t be controversial. While banking information on specific account holders is of course confidential (for example, “John has $10 million in HSBC”), there is no legitimate reason why aggregate information – for example, “All Germans hold $100 billion in country X” should be kept under wraps. Aggregate numbers of this kind are already published by some countries’ central banks (such as those of the United States or Switzerland) and by the Bank for International Settlements. Similarly, information on the total number of foreign bank accounts that countries sent and received from each other (eg “Argentina received information about 20,000 bank accounts from country X”) should not be considered an existential threat either.

In essence, statistics on automatic exchanges of banking information are necessary to:

1) allow a wide range of interested stakeholders – citizens and governments in developing countries, academics, journalists, civil society organisations, and so on – to obtain essential information about the total holdings of their countries’ (wealthy) residents in financial centres. This statistical information would help measure capital flight, inequality and identify the most relevant financial centres chosen by a country’s residents to hold money and investments. In addition, for authorities in developing countries unable to join the automatic exchange system (to receive the specific bank account details), this statistical information would help cross-check information they receive from local taxpayers. For example, tax authorities could cross-check the statistical data (“our residents have X million in country Y”) against the data reported in the tax returns. Anti-corruption agencies could do the same in relation to asset declarations from high-ranking government officials.

2) hold to account banks and other enablers of the offshore secrecy system, and at the same time make sure the automatic exchange system is working

3) allow all interested stakeholders to hold public authorities to account, for subjecting their wealthiest citizens to the rule of law.

THE DETAILS

1) Basic information for developing countries

The CRS systematically shuts many developing countries out, thus removing a key tool they could use to stop the looting of their countries and the stashing of their national wealth offshore. The big problem is the principle of ‘reciprocity’, where countries must send information too. Many developing countries, especially the poorest and most vulnerable, simply aren’t equipped or resourced to collect banking information. So they aren’t allowed to get anything back. (Tax havens, by contrast, are allowed to implement non-reciprocity, albeit of a different kind: they can simply refuse to receive information from abroad, under “voluntary secrecy”.)

Statistics would provide at least basic aggregate data for these developing countries (for instance, “all Zambians hold $X million in Switzerland, $Y million in the United States, and so on.). Statistics are important even if a countries’ authorities aren’t asking for it – after all, they may have an interest in not receiving any information to protect their own corrupt officials. However, statistics would also give journalists and civic groups evidence to push their governments to investigate those offshore holdings, and to act.

2) Hold enablers to account and assess the exchange system’s effectiveness

The OECD’s CRS framework for automatic exchange of banking information lacks teeth to enforce its provisions on financial institutions, compared to the US domestic framework to exchange banking information automatically (called FATCA) that imposes a 30% withholding tax on non-compliant banks. However, even these high withholding taxes and other penalties seem to be little deterrent for banks. For example, in 2018 the US prosecuted an executive of Loyal Bank for failing to comply with FATCA. The US found out about this by using an undercover agent. Statistics comparing all banks with each other would allow the identification of outliers (eg most big banks filed X reports, but bank Z is saying they have no information to report). These statistics would be a much more efficient way to find non-compliant banks, in terms of time and resources.

As we described here (pages 37-52), and here, statistics are essential to identify avoidance schemes and to make sure that they system is working, and that banks are correctly filing information.

Some real-world cases illustrate how this can work.

Guernsey

After sending banking information to the US (based on FATCA) and to other countries (based on the OECD’s CRS), the British tax haven of Guernsey reported that it received notifications from those countries indicating “record level errors”, requiring Guernsey financial institutions to make relevant corrections.

The UK

The Society of Trust and Estate Practitioners (STEP) showed how the UK found out that banks are wrongly identifying entities as beneficial owners:

“HMRC has identified the most common errors made by financial institutions (FIs) when filing their Automatic Exchange of Information (AEOI) returns… [including:] 5. The FI reports entities as controlling persons. Some FIs report entities as the controlling persons of entity accounts, resulting in trusts and companies being reported as controlling persons. However, entities cannot be controlling persons; under CRS and FATCA, ‘controlling persons’ means natural persons who exercise control over an entity.”

The US

Banks are also reporting wrong information to the US. The US Treasury Inspector General for Tax Administration reported that in 2017, out of the 8.7 million forms received with FATCA information, 4.3 million (roughly half) didn’t have a tax identification number (TIN), including 3.2 million that had an invalid TIN, such as “000000000,” “111111111,” or “999999999,”.

If banks don’t report accurate information, or don’t report any information at all, there’s little that authorities can do to fight illicit financial flows, which takes us to the last point.

3) Hold authorities to account and make sure they are properly equipped

In March 2019, during the OECD Integrity Forum at a panel on exchange of information, Norway described that they had a matching rate of 90%, meaning that out of all the information received pursuant to automatic exchange of information, they could identify the correspondent Norwegian taxpayer in 90% of the cases.

The US Treasury Inspector General for Tax Administration report, in contrast, decided to redact information on the matching rates:

However, based on the Government of Accountability Office (GAO)’s report, we know that these matching rates are rather low:

Without valid TINs on Forms 8966 submitted by FFIs, according to IRS officials, IRS faces significant hurdles in matching accounts reported by FFIs to those reported by individual tax filers on their Forms 8938. As a result, IRS must rely on information such as names, dates of birth, and addresses that the filers and/or FFIs may not consistently report. Without data that can be reliably matched between Forms 8938 and 8966, IRS’s ability to identify taxpayers not reporting accurate or complete information on specified foreign financial assets is hindered, interfering with its ability to enforce compliance with FATCA reporting requirements, and ensure taxpayers are paying taxes on income generated from such assets. [emphasis added]

Given that in some cases roughly 50% of forms didn’t have a valid TIN (see point 2 above), it could be expected that the US matching rate is less than 50%…

And, as described in our blog, some EU countries didn’t even bother to open the data they received.

The staff of tax authorities shouldn’t automatically be blamed, however: the buck stops with government, which often under-resource tax authorities, sometimes based on political decisions not to intervene.

What do tax authorities say when asked to publish statistics about automatic exchange of banking information?

Tax authorities usually invoke “confidentiality” to resist requests to share information. Of course, most of the information they hold may indeed be confidential by law (this depends on the country: some Scandinavian countries even make tax returns of regular citizens available to the public). However, central banks routinely publish aggregate data, while keeping specific bank account details confidential. By the same token, aggregate statistical information doesn’t violate any taxpayer’s confidentiality (no single taxpayer’s foreign banking information would be disclosed, only the total of all residents). So, if it’s not about the taxpayer, whose “rights” would tax authorities be breaching if they published statistics such as “our residents hold $100 million in country A”? Apparently, the rights of country A, as explained below.

Under the OECD’s Common Reporting Standard (CRS,) it is the Multilateral Competent Authority Agreement (MCAA) that determines the scope and process for exchanging banking information. The MCAA states:

Section 5. Confidentiality and Data Safeguards
1. All information exchanged is subject to the confidentiality rules and other safeguards provided for in the Convention…

(The “Convention” refers to the Multilateral Convention on Administrative Assistance in Tax Matters, which is the legal basis for exchanging information automatically.) The Convention states:

Article 22 – Secrecy
2. Such information shall in any case be disclosed only to persons or authorities (including courts and administrative or supervisory bodies) concerned with the assessment, collection or recovery of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, taxes of that Party, or the oversight of the above. Only the persons or authorities mentioned above may use the information and then only for such purposes…

One could argue that the above provisions seem to refer to a taxpayer’s information, not to statistics that involve aggregate data on all taxpayers. However, the main argument against ‘publishing statistics’ comes, in fact, from the Commentaries to the Convention’s Article 22.2, which expand the meaning to include also not disclosing information even if “not-taxpayer-specific”:

…Furthermore, the information received by the competent authority of a Party, whether taxpayer-specific or not, should not be disclosed to persons or authorities not mentioned in paragraph 2, regardless of domestic information disclosure laws such as freedom of information or other legislation that allows greater access to governmental documents. (emphasis added)

But this shouldn’t in fact be an obstacle. Even in light of Article 22.2, countries should be free to publish statistics about the information they received (“we received information about 1000 accounts held by our taxpayers in country X”), because in this case they wouldn’t be disclosing the “information received”: they would be disclosing the calculations (aggregation) they made about the information they received.

Indeed, some countries are already publishing statistics based on automatic exchange of information.

Here are Japan’s, for instance:

Uruguay’s news outlet Búsqueda published that in 2018 Uruguay sent information to other countries on 25.085 accounts held in Uruguay (half of which belong to Argentine residents), and that Uruguay residents hold 18,585 accounts in the following countries:

Switzerland’s statistics were published by Der Bund (“Bank accounts abroad. In which foreign states, Bern taxpayers hold the most bank accounts”):

The Swiss newspaper Blick also reported on 4.744 requests for administrative assistance on tax matters received by Switzerland from other countries. Leading the requests were Ireland, Denmark, France, the Netherlands and India.

Argentina’s La Nación published that in 2018 the country received information about 175.000 foreign accounts. The top financial centres used by Argentine taxpayers to hold their accounts were Spain, Italy, Uruguay, the UK and Germany.

The UK published that in 2018 they received information on 5.7 million accounts – compared to just 1.6 million accounts in 2017 (1.3 million of those held by individuals). The jump is likely to be because more countries joined automatic exchanges in 2018.

Even the OECD said they will publish statistics: not about banking information, but about another type of information that is shared among countries via automatic exchange of information: country-by-country (CbC) reports on multinationals’ activities, income employees, assets and taxes paid in each jurisdiction. Unlike banking information, we at the Tax Justice Network believe that country-by-country reports should be public and published online by every multinational. However, the OECD established a complex framework for it to be exchanged automatically, limiting the access and use that countries can give to these CbC reports. But at least there will be statistics about these country-by-country reports, as described by the OECD in its 2019 report to the G20:

In addition, the first aggregated and anonymised statistics prepared from data collected on CbC reports have now been prepared by OECD/G20 Inclusive Framework members and provided to the OECD for processing. The statistics are being provided for CbC reports relating to fiscal years beginning between 1 January 2016 and 1 July 2016, preserving the anonymity of MNE groups and the confidentiality of individual CbC reports. In total, there were 58 OECD/G20 Inclusive Framework members that had implemented CbC Reporting or had voluntary parent filing for the 2016 fiscal year, and it is estimated that only around 35 of those member jurisdictions received sufficient numbers of CbC reports to provide aggregated and anonymised statistics. Of those 35 jurisdictions, 26 jurisdictions have currently provided aggregated and anonymised statistics to the OECD covering around 4 100 CbC reports overall

How to ensure that all countries publish statistics about automatic exchange of information?

Some countries may disagree with our view and consider instead that the Convention’s current text doesn’t even authorise the publication of statistics. In relation to this, a few weeks ago we published another blog on automatic exchange of information, looking at why the international protocols only allowed this information to be used for tax purposes, even though many others (such as authorities fighting corruption and money laundering) had a legitimate and often urgent need to access the information. We recommended that countries sending the information sign a declaration authorising recipients to use the data beyond tax collection, based on another Article of the Convention. We believe the same could apply for publishing statistics.

The Convention does authorise these extra uses (beyond tax purposes) and sharing of information (beyond tax authorities), if a country’s domestic laws allow this extra use, and if the jurisdiction sending the information authorises this too.

The Convention’s Article 22.4 states:

information received by a Party may be used for other purposes when such information may be used for such other purposes under the laws of the supplying Party and the competent authority of that Party authorises such use…

Countries could thus sign a declaration stating something like “We declare in relation to the Convention’s Article 22.4 that, since our domestic laws allow the publication of statistics, we also authorise the recipient country to publish statistics on the information that we sent them pursuant to the OECD’s Common Reporting Standard for automatic exchange of information.”

A silver bullet that circumvents the legal obstacles

Yet there is an even stronger solution allowing countries to publish statistics without other countries’ authorisation.

As we noted here and here, statistics don’t need to be about the bank account information received from other countries, but about bank accounts held by foreigners in each country’s banks. In other words, the countries sending the information should publish aggregate data (statistics) about the information they are about to send. They hold the information in the first place, so they don’t need to ask permission from any foreign country. This is also better, because it is more comprehensive. Instead, statistics only on information being exchanged exclude data from residents in developing countries that aren’t able to join the system (because their information won’t be exchanged yet).

In Point 1 about “basic information for developing countries,” we were referring to statistics on the accounts held by non-residents in each financial centre. We mentioned that the Bank for International Settlements as well as the US and the Swiss central banks already publish this kind of data. Even so, their data may still be misleading because they refer to the “legal owners” who hold the accounts, but not to the “beneficial owners” (the real individuals who ultimately own or benefit from the accounts). For example, if an Argentine individual held an account in a Swiss bank through a Panamanian company, the central bank’s statistics would show that account as owned by Panama (the legal owner), but not Argentina (where the beneficial owner resides).

On the other hand, information collected by banks and sent to tax authorities for the purposes of automatic exchange of banking information do contain details on the beneficial owners of the accounts. Therefore, statistics on these data would be more relevant. Statistics published by Switzerland’s tax authorities would show, in the above example, how many accounts (and how much money) held in Swiss banks are owned by Argentine individuals, even if they held them via Panamanian companies.

To grasp how useful statistics may be, look for instance at these US statistics published by the Government Accountability Office (GAO), based on American taxpayers who self-declared their holdings, classified by the value of their holdings – sometimes as high as more than USD 5 billion:

Imagine if we had the same information but about non-residents holding assets in US banks. Illicit financial flows and inequality would then be much easier to measure and combat.

Conclusion
Tax authorities should publish statistics on banking data received from local financial institutions for the purposes of automatic exchange of information. These statistics would enable developing countries, civil society organisations and journalists to know how much money is held in each financial centre by the residents of each country. This statistical information would help measure capital flight, inequality, identify the most relevant financial centres chosen by a country’s residents, and also allow authorities in developing countries unable to join the automatic exchange system to do basic cross-checks against information reported by local taxpayers. Statistics would also allow authorities to hold financial institutions to account and make sure that they are complying with the system. If the statistics also covered information being exchanged, they would also show whether authorities can use and are using the information they received from other countries.

What should we be doing about tax and the climate crisis?

Climate breakdown represents an existential threat to the future of humanity. Unless governments around the world take urgent action to reduce carbon emissions to net zero, it seems likely that the very best-case scenario is that many of the global development achievements of the last few decades will be wiped out. The fight for climate justice is inextricably linked to the struggle for tax justice around the world, not least because the transition to zero carbon will require a root-and-branch restructuring of the global economic system.

There are many ways in which tax reform can support the transition to a zero-carbon global economy. Broadly speaking, well-designed tax systems can generate additional revenues, redistribute resources and reprice carbon-intensive activities to enable (and, in the latter case, incentivise) a quicker and more complete transition.

The Tax Justice Network is not currently working on climate issues, but we recognise the scale and urgency of the climate crisis, and hence the importance of taking action now. We also recognise that a number of initiatives around climate and tax are already underway, with others planned. We are therefore commissioning a scoping report to look at the opportunities for building on our expertise and networks to take on specific areas of work around climate and tax justice where we might be able to make a contribution in the coming years.

We are seeking a consultant to scope out the existing range of activities and initiatives around climate and tax, to undertake a gap analysis, and to develop and propose implementable options for the Tax Justice Network, acting alone or in partnership with others, to contribute in the short and medium term to the ongoing effort to reshape the global economy to enable a just transition to zero carbon, whether through the undertaking or commissioning of original research, the development of policy proposals, advocacy work, and/or communications activities.

Interested parties should submit a proposal by 15 July. We anticipate that the assignment will require 20 days of work in August and September, with a report due in early October.

Read the terms of reference and submit a proposal

Job vacancy: Data scientist

We’re hiring again! Details of the new Data Scientist role below, and job information pack to download here.

Key facts

Application closing date: Sunday 21 July 2019

Start date: September or October 2019

Reports to: Chief Executive

Contract: Permanent

Hours: Full-time (37.5 hours per week)

Salary: £42,000, plus 12% employer pension contribution

Location: Home-based (anywhere in the world, subject to contracting requirements)

Organisation

The Tax Justice Network (TJN) is an independent international network, launched in 2003. It is dedicated to high-level research, analysis and advocacy in the area of international tax and financial regulation, including the role of tax havens. TJN maps, analyses and explains the harmful impacts of tax evasion, tax avoidance and tax competition; and supports the engagement of citizens, civil society organisations and policymakers with the aim of a more just tax system. TJN pursues systemic changes that address the international inequality in the distribution of taxing rights between countries; the national inequalities – including gender inequalities – that arise from poor tax policies; and the national and international obstacles to progressive national tax policies and effective financial regulation.

Supported by a major five-year grant from the Ford Foundation, and grants from other funders including Norad and the Adessium Foundation, TJN is in a period of growth and transition, with a focus on institutional strengthening – building systems and capabilities to enable and support growth and impact through our ambitious five-year strategic programme. TJN is a virtual organisation, with staff working from home across multiple countries and continents, although its legal base (and that of many employees) is in the UK.

Role description

The Data Scientist is a new post, created to build on the increasing range of TJN projects and products that generate and analyse data, including the Financial Secrecy Index and the newly launched Corporate Tax Haven Index, as well as our work on the scale of tax injustice, human rights and the race to the bottom. Most of our work is data-intensive, and we need to be able to communicate technical data to a wider audience as part of our work to change narratives around the global tax and financial system. The Data Scientist will help us to do this by curating, using and presenting data in a more systematic, ambitious and user-friendly way.

The role will focus on creating baseline structures for our data use and dissemination, connecting and curating new databases and data visualisations to support future reports, undertaking rapid analyses of data produced by partners or covered in the news, providing original research and data support to the four TJN workstreams, working with internal and external stakeholders to ensure data integrity and compatibility, and undertaking other original (and often peer-reviewed) research.

We are looking for an experienced and capable data professional with strong technical skills, who combines attention to detail and a commitment to excellence with the ability to produce results quickly and with minimal support. The right candidate will have strong interpersonal and team-working skills, as well as a can-do attitude and the willingness to work remotely and with limited supervision. We are flexible about where in the world the postholder is located (and in which time zone), subject to the need to find a contracting arrangement that meets all applicable compliance requirements.

Responsibilities

Creating baseline (infra)structure for TJN’s data use and dissemination while maintaining integrity of, and engaging with, existing databases (for example, to enable the development of an online data portal on the risk exposure of a range of countries to illicit financial flows)
Creating databases and related data visualisations to support new reports and outputs (for example, a ‘state of the world’ report on tax justice, with indices and estimates of revenue loss and so on)
Undertaking reactive work based on reports and research published by other organisations (for example, running quick analyses and producing databases and visualisations using datasets or indices published by financial journalists or by other economic justice research and advocacy organisations)
Providing data support and original research for the four TJN workstreams (financial secrecy, scale of tax injustice, tax justice and human rights, and the race to the bottom)
Undertaking other original research and taking it through the process of peer review and publication

Person specification

Skills

Data / You will need to be comfortable working with and manipulating large datasets
IT / You will need to be very comfortable working with advanced statistical software
Communications / You will need to be able to tell compelling and accessible stories using data, as well as communicating effectively and succinctly with colleagues and partners in person and in writing
Delivery / You will need to be able to cope with a large, complicated and varied workload, working quickly and efficiently without sacrificing the quality of the results
Management / You will need to be able to engage with a wide range of stakeholders and to manage projects run by specialist external IT firms or contractors

Attributes

Commitment / To be focused on achieving high standards in pursuit of TJN’s objectives
Adaptability /To find ways of dealing with unexpected opportunities and challenges
Resourcefulness / To achieve results with limited financial and human resources
Collaboration / To work supportively and effectively as part of a team
Integrity / To choose the right course of action when the alternative might be easier

How to apply

Please upload a CV and answer a series of questions (addressing the skills listed in the person specification as well as your motivation) at www.taxjustice.net/ds by Sunday 21 July 2019 at 23.59 GMT. You do not need to address the attributes; these will be explored at interview. We anticipate that first round interviews will be held between in early- or mid-August, by remote video link (Zoom). For an informal discussion about the role, contact Alex Cobham, Chief Executive, on alex AT taxjustice DOT net.

We asked our stakeholders to challenge us on our work

Should we at the Tax Justice Network be doing more to engage with organisations in the global south? Should we be focusing more on high-level advocacy or talking more about progressive taxes instead of tax avoidance? These questions and more were put to us at our organisational retreat this spring by sector peers, network members and funders.

Each year, the Tax Justice Network invites a range of stakeholders to present us with a “challenge” to our current work and goals to discuss at our team retreat. The aim is to help us consider our work from different perspectives, to identify new avenues we could be exploring or to emphasise the importance of continuing work on specific issues. All in all, it helps keep us on our toes.

The “challenges” presented to us this year were:

The Tax Justice Network should do more to engage with organisations in the global south, made by Latindadd
The Tax Justice Network should do more to shape the next generation international tax system, by analysing more ‘second best’ solutions and thus increasing our influence on OECD and other global processes, made by the Norwegian Agency for Development Cooperation (Norad)
The Tax Justice Network should do more northern high-level advocacy on our key policy asks, made by the Ford Foundation and the FACT Coalition
The Tax Justice Network should develop credible and high-quality research to help guide tax justice campaigns, made by Sol Picciotto, emeritus professor of law at Lancaster University, coordinator of the BEPS Monitoring Group and Tax Justice Network senior adviser
The Tax Justice Network should contribute to rethinking financial accounting and audit, and how it relates to financial secrecy and tax injustice, made by the Norwegian Agency for Development Cooperation (Norad)
The Tax Justice Network should stop focusing primarily on tackling tax avoidance and evasion and make a broad case for progressive taxes, for example smarter taxes on wealth, made by Tax Justice UK

For each challenge made at our retreat, we broke out into smaller teams to discuss and write down both ‘for’ and ‘against’ arguments. The teams then came together to discuss and craft a unified response. You can read our responses here. We welcome all comments on these challenges and our responses to them.

Thank you to our sector peers, network members and funders for presenting us with these helpful, thought-provoking challenges.

How can Africa take action against corporate tax havenry? Solutions from the Corporate Tax Haven Index 2019

How have former colonial powers maintained their stranglehold on African economies? The UK with its spider’s web of satellite jurisdictions and France are complicit in undermining the ability of African governments to tax multinational companies. Other corporate tax havens also put African countries at risk.

The Corporate Tax Haven Index, published last month by the Tax Justice Network, reveals how the UK and a handful of other OECD countries are most responsible for the breakdown in the global corporate tax system. Globally, $500 billion in corporate tax is dodged each year. In Africa, estimates suggest that as much as $50 billion is lost annually through illicit financial flows. Across the African continent, multinational companies are extracting resources, selling products and using labour, but often they’re paying far too little tax.

Global corrosive corporate tax havenry

The new Corporate Tax Haven Index identifies the most corrosive corporate tax havens in the world as the UK, the Netherlands and Switzerland. The UK with its network of overseas territories and crown dependencies is responsible for over a third of corporate tax avoidance risks.

These corporate tax havens ruthlessly undermine the ability of governments to tax multinational companies. This means ordinary African citizens have to pay more taxes on personal income, on basic food items and on services since the most vulnerable in society end up shouldering the biggest burden of taxation. African nations may also be forced to borrow money or rely on aid from some of the very same corporate tax havens that are lining their pockets as a result of tax avoidance.

France and the UK are identified in the Corporate Tax Haven Index as the most aggressive OECD countries towards low-income and lower-middle income countries. France secured some of the largest reductions in withholding tax with its former colonies Burkina Faso, Niger and Togo. Withholding tax allows countries to deduct tax on royalties, dividends, interest or other payments made by subsidiaries to companies or individuals outside the country.

Over one-third of inward foreign direct investment in African countries is in partnership with the top 10 countries in the Corporate Tax Haven Index, those same countries that have done the most to proliferate corporate tax avoidance and break down the global corporate tax system.

The Corporate Tax Haven Index meticulously evaluates the tax system of each country by looking at its laws, regulations and documented administrative practices. The twenty haven indicators are spread across five categories: the lowest available corporate income tax offered, loopholes and gaps in a country’s tax system, such as tax exemptions and tax holidays, transparency in corporate reporting, tax rulings and avoidance schemes, anti-avoidance measures in place and the aggressiveness of double tax treaties.

Based on the haven indicators, the index gives each country a score on how much its tax system enables corporate tax avoidance and then combines that score with the amount of corporate activity taking place in the country in order to determine how much corporate activity is being put at risk of tax avoidance. The greater the share of the world’s corporate activity jeopardised by the country’s tax system, the higher the country ranks on the index.

Of the 64 countries included in the index, nine are African countries, and the world’s most well-known corporate tax havens and major financial centres. For all countries, a detailed scorecard is available on each of the 20 haven indicators: Botswana, Gambia, Ghana, Kenya, Liberia, Mauritius, Seychelles, South Africa and Tanzania.

Aggressive tax treaties

Even though no African countries feature in the top 10, we still need to watch out for the race to the bottom in tax rates between African countries. Mauritius, for example, exposes many African countries to corporate tax avoidance through double tax agreements with its lowest available corporate income tax of 0%. The agreement signed between Senegal and Mauritius is one of the most aggressive – no withholding tax on dividends, interest or royalty payments.

The chart below demonstrates how the former colonial powers France and the UK continue to negotiate aggressive double tax treaties with African nations. Yet even they are surpassed by the United Arab Emirates and Mauritius, which have negotiated the greatest withholding tax reductions with African countries.

Normalised scores of most aggressive double taxation treaty partners towards African countries

Despite evidence that the tax treaties signed by African nations result in revenue loss rather than additional investment, African governments continue to put pen to paper and lock their citizens into destructive deals.

On the launch of the Corporate Tax Haven Index, Alvin Mosioma, Executive Director of the Tax Justice Network Africa, has once again questioned the Kenyan government’s decision to re-sign a tax treaty with Mauritius. President Uhuru Kenyatta signed the agreement with Mauritius in April 2019 just after a court ruled that an earlier agreement was invalid, following Tax Justice Network Africa’s petition:

It is unacceptable that the Kenyan government is shifting the burden of taxation to the ordinary citizen, while deliberately opening doors for the wealthy elite and unscrupulous MNCs [multinational corporations] to evade and avoid taxes through DTAAs [Double Taxation Avoidance Agreement] with secretive tax havens.
Alvin Mosioma, Executive Director of the Tax Justice Network Africa

Action at home against corporate tax havenry

The individual policy categories and indicators in the Corporate Tax Haven Index reveal concrete policies and steps African nations could take at home in order to address tax avoidance across all sectors.

Comparison of five corporate tax haven categories for Africa, the EU and OECD and dependencies

As the chart above shows, in comparison with countries and their dependencies in the 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 encourage profit-shifting activity and the race to the bottom in corporate taxation. Nevertheless, African countries show a high presence of tax exemptions and holidays and in the categories of anti-avoidance and transparency, African countries have room to improve.

Improvements in transparency can assist African tax administrations in prioritising and conducting audits of multinational companies with local subsidiaries and indeed build trust with citizens. This includes taking steps like requiring all companies to submit accounts and for these to be freely available online, to file country-by-country reports locally and to report tax avoidance schemes or uncertain tax positions. Public access to information is vital to things like tax courts and decisions, and any unilateral tax rulings issued and contracts for mining and petroleum projects should all be freely accessible to the public.

Anti-avoidance measures can also be improved to reduce the risk of base erosion and profit shifting. Robust controlled foreign company rules and withholding taxes on outbound dividends can act as a barrier to shifting untaxed profits to secrecy jurisdictions and zero corporate 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 subsidiaries of the same multinational. Any upcoming trade agreement on the African continent should ensure that such defensive measures remain compatible with the trade regime and regulations. 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 temptation and false lure of introducing patent box regimes themselves and consider appropriate reactions to countries that do, including Botswana, the Seychelles and Mauritius.

A key area of improvement in the loopholes and gaps category in the Corporate Tax Haven Index can be achieved by addressing tax incentives. African governments have granted many sectoral exemptions and tax holidays. These profit-based incentives are costly and, contrary to popular opinion, they usually fail to attract additional desirable direct investment as shown in the Tax Justice Network’s study of incentives in Ghana, Kenya, Liberia, Tanzania and South Africa. Governments would be far better off raising taxes to pay for better roads and energy provision, since enabling conditions like good infrastructure, the rule of law and macroeconomic stability are more decisive for investors than tax incentives and a prerequisite for ensuring investment schemes are effective. This is shown time and again in investment climate surveys for low income countries.

Uniting behind the unitary approach

Corporate tax avoidance is a global problem that requires global solutions and action. Domestic reform will only go so far since the Corporate Tax Haven Index suggests that so far Africa is less engaged in the ruinous race to the bottom in corporate taxation than countries in the OECD and the European Union. The overarching solution that has gained some ground recently with the International Monetary Fund and the Tax Justice Network has been advocating for years is the unitary tax approach.

The unitary approach treats a multinational corporate group as a single entity. This means that total global profits would be allocated – or apportioned – to the countries where the company does business in proportion to genuine economic activity carried out by each subsidiary. In this way, corporate tax havens where there is little or no genuine economic activity would be cut out. Instead countries where the resources are extracted or where significant staff are employed, for example, will be able to tax the share of global profits. This approach would allow African countries to raise the taxes that are rightly theirs to achieve the sustainable development goals, reduce reliance on aid and address inequality.

During the OECD’s consultations on the best way to tax in the digital economy, unitary taxation with formulary apportionment has become the leading alternative to the arm’s length approach. African nations along with other lower to middle income regions need to remain alert and resolute in these discussions because they will have ramifications for taxation in all sectors, and hopefully lead to greater taxing rights and revenue. A good performance on the indicators of the Corporate Tax Haven Index helps in ensuring that a broad tax base is supported in any future shift towards unitary taxation, such as by including capital gains and investment income in the tax base, and by constraining tax loss carry backward or forward provisions.

Take a look at the Corporate Tax Haven Index to identify how your country’s revenue and resources are exposed to corporate tax avoidance.