GRI invites feedback on its first global tax transparency standard

A new draft Standard on tax and payments to governments was published today by the GRI, the global standard setter for sustainability reporting. This is the first global standard designed to help organisations understand and communicate the impact of their tax strategies on the economies and societies they operate in using country by country reporting techniques. The GRI, whose Sustainability Reporting Standards are currently used voluntarily by over 4,000 organizations in over 90 countries, is now inviting public comment on the draft GRI Standard.

The draft Standard was developed by an expert, multi-stakeholder Technical Committee which included Alex Cobham, our chief executive. The Technical Committee was setup in 2017 with the task of making tax reporting more transparent and accessible in response to organisations’ tax affairs facing increasing scrutiny from stakeholders, tax authorities and citizens.

Tax and related payments to governments are the fundamental source of revenues, and consequently, a vital means to finance sustainable human development. The integration of national economies and markets in recent years has placed international tax rules under greater strain. Recent tax related scandals like LuxLeaks and the Panama Papers have prompted stakeholders to ask for greater and more transparent corporate reporting on tax and other payments to governments.

Tax transparency promotes trust and credibility in the taxation system and in the tax practices of organisations. It enables stakeholders to make informed judgments about whether an organisation’s position on tax and payments to governments is acceptable and informs public debate. Equal access to quality information also contributes to better-informed public debate on tax policy.

Since 1997, GRI Standards have become the world’s most widely adopted global standards for sustainability reporting. According to the GRI website, 93 per cent of the world’s largest 250 corporations now report on their sustainability performance. By helping organisations communicate their impact on climate change, human rights, governance and social well-being, GRI Standards have enabled real action to create social, environmental and economic benefits for people across the world.

The inclusion of country by country reporting in the new draft Standard on tax and payments to governments marks another milestone for tax transparency. Country by country reporting requires multinational corporations to provide a jurisdiction-level breakdown of activities, profits declared and tax paid. The practice clarifies where corporations are conducing real business activity and where they are reporting their profits, making it easy to identify risks of profit shifting for tax avoidance – and to identify the jurisdictions that are attracting profit shifting at the expense of other countries.

The first draft international accounting standard for country by country reporting was created for the Tax Justice Network in 2003 by Richard Murphy, an accountant who is also a member of GRI’s Technical Committee. The approach was initially written off as unrealistic, and a version for the extractive sector was blocked by the Big Four accounting firms at the International Accounting Standards Board in 2006 despite the support of investor and philanthropist George Soros and Publish What You Pay, a global coalition. Today though, there are a number of standards for country by country reporting including for financial institutions in the EU, and for reporting to tax authorities for all large multinationals under the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan. The new draft GRI Standard will not only help catapult the practice to thousands of organisations across the world, it sets out by far the most robust implementation of the practice.

There are three main ways in the GRI’s draft Standard’s approach to country by country reporting is superior to the OECD’s approach.

First, under the draft GRI draft Standard, organisations publicly share their country by country reporting data. Country by country reporting data currently collected by tax authorities under OECD rules is kept private. Making country by country reporting data public contributes to better-informed public debate on tax policy and serves as a strong deterrent against corporate tax dodging.

Second, the draft GRI Standard distinguishes between intra-group sales (which occur between a multinational corporation’s branches) and unrelated party sales. This distinction is crucial to separating real economic activity from purely accounting transactions.

Third, the draft GRI Standard requires reporting companies to either use audited financial statements or financial information filed on public record, or to reconcile the reported information with the data stated in these. Where numbers do not reconcile, companies can explain. This avoids a situation where public country by country data simply cannot be reconciled with published financial information which would otherwise undermine trust in all of a company’s reporting. The draft Standard’s distinction between intra-group sales and unrelated party sales is crucial to reconciling this information.

The draft GRI Standard will be open for public comment for 90 days, until 15 March 2019. GRI will offer free webinars during the public comment period, where stakeholders can learn more about what’s included in the draft Standard.

Sharing your feedback will help the GRI make tax reporting more transparent and accessible to a wider range of stakeholders. Make sure you have your say on whether the draft Standard is clear and feasible to report on, and if it will deliver the valuable information you need to make sound assessments about an organization’s tax approach. Input from investors and asset managers would be of particular value.

The draft Standard is available as an interactive PDF here. You can register and provide your feedback by downloading the PDF and completing the forms. Please submit the PDF with your completed feedback before 15 March 2019. You can learn more about the GRI Standard on tax and payments to governments here. In the December edition of the GRI podcast to hear directly from Technical Committee members, including Rob Wilson of investor MFS and our chief executive Alex Cobham, about why the need for increased tax transparency is so urgent, and the value the Standard offer.

The Tax Justice Network’s December 2018 Spanish language podcast: Justicia ImPositiva, nuestro podcast, diciembre 2018

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! (abajo en Castellano).

In this month’s programme:

Guests:

Continue reading “The Tax Justice Network’s December 2018 Spanish language podcast: Justicia ImPositiva, nuestro podcast, diciembre 2018” →

The US can be blacklisted under the OECD’s new rules due to a forgotten commitment

We recently criticised the report the OECD sent this month to the G20 which hinted that 15 (mostly small) jurisdictions are at risk of being blacklisted. We reiterated our concerns over the new OECD criteria to identify tax havens, particularly because of one arbitrary caveat, which looks like it was added just to let the US off the hook. But thanks to the useful memory and analysis of Alex Cobham, our chief executive, we’ve realised that the US should be blacklisted, even if we abide by the OECD’s capricious rules.

In 2014, automatic exchange of information finally became the new global standard for exchanging information, which the Tax Justice Network had been advocating since 2005. Therefore, when the G20 asked the OECD to come up with “strengthened” criteria to identify tax havens, the OECD rightly added an “immediate trigger” about automatic exchange of information.

Until then, jurisdictions simply had to meet two out of three requirements: (1) compliance with “exchanges upon request” (the old but surviving global standard for exchanging information), (2) commitment to automatic exchange of information (the new global standard) and (3) signing the Multilateral Tax Convention on Administrative Assistance (that would enable both types of exchanges of information). With the strengthened OECD rules, however, it wasn’t enough to comply with two out of three if automatic exchange of information wasn’t one of the two met requirements.

As we described in our blog about the previous version of the OECD’s criteria and in our blog about the truth-stretching “largely compliant” rating awarded to the US by the OECD’s Global Forum, the OECD faced a challenge when designing the new rules: how to actually become more strict on countries, while ensuring that the US would not be disturbed? We hypothesize that they came up with a clever plan: engineering compliancy ratings that were subject to discretion, and when this wasn’t possible, to simply “fix” the requirements themselves.

The US met the first requirement by achieving a “largely compliant” rating on the exchange of information on request. While the Global Forum considers most countries to be “compliant” and “largely compliant”, that the US has achieved a “largely compliant” rating in the second round of reviews is outrageous, particularly because  in this round a country’s rating must reflect how well it ensures availability of beneficial ownership information. Not only does the US not register any beneficial ownership information, it doesn’t even ensure that more basic legal ownership information is registered. It’s not just the Tax Justice Network’s Financial Secrecy Index that has called out the US for its poor performance on legal and beneficial ownership availability.  The Financial Action Task Force (FATF) also rated the US as “non-compliant” in respect to effective implementation of beneficial ownership (this is assessed by immediate outcome 5, where the US got the lowest possible rating, “low level of effectiveness”, that would be equivalent to a “non-compliant”). The FATF also rated the US as “non-compliant” in respect to Recommendation 24 on the legal framework on beneficial ownership of legal persons.

For the other two criteria, the OECD had to manipulate the actual requirements (similar to corrupt countries that manipulate bids for public procurement).

Since the requirement on the Multilateral Tax Convention was beefed up from “sign” the convention to actually “have it in force”, the OECD added an alternative: “or have a sufficiently broad treaty network”. The US is the only major country not to have the Multilateral Tax Convention in force (they are only party to the original Convention that excluded developing countries and failed to ratify the amended Convention that is already in force for 112 jurisdictions). The OECD never defined what “a sufficiently broad treaty network” means, but we have no doubt they would consider the US’s treaty network to be sufficiently broad.

Up until now, the farfetched compliancy ratings and loophole-ridden requirements gave the US enough slack to meet two out of three requirements, but how could the US avoid the new immediate trigger about automatic exchange of information?

The OECD came up with a ridiculous caveat.

The immediate blacklist for failing to implement automatic exchange of information pursuant to the OECD’s Common Reporting Standard would be triggered only if a jurisdiction “contrary to its commitment to the Global Forum to implement the AEOI Standard by 2018, [has] not met the AEOI [automatic exchange of information] benchmark”.

This is worse than accepting the excuse “the dog ate my homework”. According to the OECD, the homework wasn’t even required, because the student never committed to submitting it in the first place! Fulfilling one’s commitments may be relevant to hold someone to account for their promises. But the OECD blacklist is supposed to identify jurisdictions that failed to be transparent, not those that broke their promises to be transparent.

This “commitment to automatic exchanges” caveat looks especially suspicious when compared to the other two requirements: jurisdictions must have a “largely compliant” rating and the Multilateral Tax Convention in force, regardless of any commitment to achieve those results.

To leave no doubt, the Global Forum 2018 report on automatic exchange of information described

“All jurisdictions asked to commit to the Global Forum’s AEOI Standard have now done so, except the United States.” (emphasis added)

We had celebrated that the Global Forum had finally called out the elephant in the room, that the US isn’t participating in the Common Reporting Standard for automatic exchange of information. But very likely, the purpose of this paragraph wasn’t to make us happy, but to leave no doubt that the US had never committed to automatic exchange of information in the first place (so that the immediate blacklist wouldn’t be triggered).

We thought the OECD and the US managed to get away with it, but then our Chief Executive Alex Cobham recalled an OECD declaration of May 2014 signed by the US showing that the US did commit to implement the OECD standard for automatic exchange of information:

“WE, THE MINISTERS AND REPRESENTATIVES of … the United States…

WELCOMING the OECD Standard for Automatic Exchange of Financial Account Information, which provides the key elements for establishing a single, common global standard for the automatic exchange of financial account information (hereafter “the new single global standard”)…

4. ARE DETERMINED to implement the new single global standard swiftly, on a reciprocal basis. We will translate the standard into domestic law, including to ensure that information on beneficial ownership of legal persons and arrangements is effectively collected and exchanged in accordance with the standard;…” (emphasis added)

This explicit declaration signed by the US confirms that the US did commit in May of 2014 to specifically implement the OECD’s Common Reporting Standard for automatic exchange of information: the declaration refers to the “new single global standard” and the recitals specify that this refers to the OECD standard. This means that the US’s commitment to automatic exchange of information was not a generic one that could have been fulfilled for instance, by the US Foreign Account Tax Compliance Act (FATCA) framework.

What is there left to say against such a blatant declaration of guilt? Perhaps some may argue that the US “declared to be determined” (but not “committed”) to implement the OECD standard. Or maybe that the US committed “to the OECD” but not “to the Global Forum” about implementing the OECD standard – the Global Forum happens to be part of the OECD. The grounds left for not blacklisting the US under the OECD’s rules are as narrow as the hairs these counterarguments would seek to split.

We hope the OECD won’t use these unscrupulous arguments, and instead will right a long standing wrong by blacklisting the US until they implement the OECD standard for automatic exchange of information. On a side note, the OECD could also hold the US to account on their other promises “including to ensure that information on beneficial ownership of legal persons and arrangements is effectively collected” since the US failed on this too.

If the OECD continues to undermine their own rules, throwing away any remaining credibility in order to avoid speaking truth to power, the EU should set aside this distortion when it comes to their own listing of non-cooperative jurisdictions. The OECD has demonstrated it cannot be used as a neutral arbiter, and any objective application of the EU’s own underlying criteria would require the US to be listed. We would, of course, recommend our earlier proposal to enlist US financial institutions as lobbyists for progress by reciprocating the FATCA threat of a 30% withholding tax.

More transparency rules, less tax avoidance

Guest blog
By Leyla Ates
Altinbas University in Turkey

The European Council has taken important steps to enhance the exchange of information between tax administrations in order to promote tax transparency and fair tax systems in EU countries. This in turn creates a deeper and fairer single market.[i] However, ambiguity in disclosure obligations and a high threshold requirement risks leave the door open wide enough for dubious tax schemes to slip through.

One of the benefits of the European single market is that EU citizens and businesses have the freedom to move, do business and invest across national borders. But since direct taxation is not harmonised across the EU, this freedom also entails that some taxpayers manage to avoid or evade paying tax in the countries they reside or do business in. In 2011, the EU Council agreed to ramp up cooperation between tax administrations to help make sure taxpayers pay their fair share (Council Directive 2011/16/EU).

On 25 May 2018, the cooperation between tax authorities was enhanced to include mandatory automatic exchange of information in relation to reportable cross-border arrangements (Council Directive 2018/822/EU).[ii]  The new directive further expands the scope of automatic exchange of information in tax matters, which had already been enlarged to include automatic exchange of financial account information in 2014, of cross-border tax rulings and advance pricing arrangements in 2015, and of country by country reporting in 2016.

Mandatory disclosure of aggressive tax planning schemes

Mandatory disclosure rules require intermediaries such as tax advisors, accountants and lawyers to report to tax administrations on aggressive tax planning schemes they are selling or making. Taxpayers are also required to report to tax administrations on the aggressive tax planning schemes they are making use of.

The mandatory disclosure rules aim to combat tax avoidance by means of helping identify regulatory loopholes, helping tax administrations to assess the risks, having deterrent effects on taxpayers and reducing the supply of these schemes by tax advisors.[iii]

In 1984, the United States became the first country in the world to introduce mandatory tax disclosure rules. Since then, a few other countries including some EU members have also introduced mandatory disclosure rules into their tax systems (the UK, Ireland, Portugal, plus Canada, South Africa, South Korea and Israel among non-EU countries). Indeed, the Lux Leaks and Panama Papers scandals and the fiscal State Aid cases pushed this anti-tax avoidance mechanism up on the EU base erosion and profit shifting agenda by demonstrating the role of intermediaries in the area of aggressive tax planning. As a first result of this political pressure, the European Council has now not only required common tax rules for mandatory disclosure in member states by 31 December 2019, but also placed an obligation on all member states to automatically exchange information on reportable cross-border schemes by 1 July 2020.

More information for all EU governments

The new directive requires the information is automatically exchanged with other EU members through a central directory. Thus, all EU countries will have access to a database on tax avoidance schemes. A similar database called the “aggressive tax planning depository” has existed within the OECD[iv]: such depository includes 400 types of schemes but is only available to a close-knit group of countries.[v] The new directive will create a level playing field for all EU member countries in terms of access to such relevant information.

Failure of the promoter-based approach

The assessment of the recent progress however is not entirely positive. The potential for ambiguity on what constitutes a tax avoidance scheme creates a serious risk that cross-border arrangements go unreported. Precisely because there are numerous and regular conflicts between tax administrations and taxpayers/advisers on the interpretation of tax laws, it should be expected that many schemes will be designed in grey areas which certain promoters might chose to interpret as not being subject to the remit of the reporting obligation. To mitigate against this risk, the reporting obligation should not just fall on either the client using an aggressive tax planning scheme or the promoter (tax advisers) of the scheme, but on both.[vi]

Unfortunately, the directive places the disclosure obligation primarily on the intermediaries, ie the tax advisors, accountants and lawyers designing and selling aggressive tax planning schemes. In some limited instances, taxpayers are also obliged to disclose tax planning schemes. If both were obliged to report independently on marketed/used tax avoidance schemes, the detection of illicit schemes would have been facilitated.

High threshold requirement: the main benefit test

The new directive sets out generic and specific hallmarks for describing whether a transaction is reportable or not. This is a general implementation under existing mandatory disclosure regimes. However, the directive also sets ‘the main benefit test’ as a threshold that a reportable scheme must satisfy before it is assessed against the generic hallmarks and some specific hallmarks. For a scheme to satisfy the test, it must be established that the main benefit, or one of the main benefits, which a person may reasonably expect to get from the scheme is a tax advantage. While threshold requirements are often used to filter out irrelevant disclosures and reduce tax administrative burdens, setting up a high threshold for disclosure can create an inappropriate justification for escaping mandatory disclosure obligations. The OECD stated that the main benefit test is a high threshold for disclosure.[vii] Thus, the European Council has opened a door through which intermediaries may inappropriately skip out on their mandatory disclosure obligations.

This article was originally published by Leyla Ates on The Progress Post on 12 November 2018. The article has been reproduced here with permission from the author and magazine.

 

References

[i] European Commission Staff Working Document Impact Assessment, SWD (2017) 236 final, Brussels, 21.6.2017, p. 4, available at https://ec.europa.eu/transparency/regdoc/rep/10102/2017/EN/SWD-2017-237-F1-EN-MAIN-PART-1.PDF.

[ii] Official Journal of European Union, L 139, 5 June 2018. According to Article 3, the Directive came into force on the twentieth day following its publication in the EU Official Journal i.e. 25 June 2018.

[iii] Tax Justice Network, Financial Secrecy Index 2018 Methodology, p. 95, https://www.financialsecrecyindex.com/PDF/FSI-Methodology.pdf.

[iv] http://www.oecd.org/ctp/aggressive/co-operation-and-exchange-of-information-on-atp.htm.

[v] Only to the members of the ATP Expert Group that is a sub-group of OECD Working Party No. 11.

[vi] Tax Justice Network, p. 96.

[vii] OECD, Mandatory Disclosure Rules, Action 12 – 2015 Final Report (2015), p. 37.

The G20 and the OECD disappoint again

We recently published an optimistic blog post about the advances made at the OECD’s annual Global Forum meeting that took place on 22 November 2018. Now, less than 10 days later, the OECD has submitted a report to the G20 and the G20 have issued a Communiqué that together bear some disappointing news.

First, the G20’s Communique.

We thought it was hard for a non-binding communiqué that superficially refers (in just one paragraph) to all relevant issues on tax and financial transparency to get any worse. We were wrong.

The G20’s 2017 Communique made these positive remarks about automatic exchange of information and beneficial ownership:

We look forward to the first automatic exchange of financial account information under the Common Reporting Standard (CRS) in September 2017. We call on all relevant jurisdictions to begin exchanges by September 2018 at the latest (…)

As an important tool in our fight against corruption, tax evasion, terrorist financing and money laundering, we will advance the effective implementation of the international standards on transparency and beneficial ownership of legal persons and legal arrangements, including the availability of information in the domestic and cross-border context (…) [emphasis added]

(That we considered these remarks to be positive gives you an idea of how low our expectations were)

One could argue that the US was implicitly covered in the call “on all relevant jurisdictions” to start implementing the Common Reporting Standard for automatic exchange of information. In addition, it was important that the G20 recognized the importance of beneficial ownership transparency for both companies and trusts to tackle corruption, tax evasion and money laundering. Arguably, this applied to the US and to many other G20 countries where beneficial ownership isn’t even available. Argentina, which held the G20 presidency in 2018, not only failed to keep the status quo set by these remarks but actually made its own corporate transparency worse. Only the EU could be said to have made progress on this issue.

The G20’s 2018 Communiqué now seems to be backpedaling on its previous Communique. The new declaration removed the call on relevant jurisdictions to start automatic exchanges and erased all references to beneficial ownership. In place of these calls, the 2018 Communiqué merely welcomes the:

“…commencement of the automatic exchange of financial account information and acknowledge the strengthened criteria developed by the OECD to identify jurisdictions that have not satisfactorily implemented the tax transparency standard.”

We’ll get to the supposedly “strengthened” criteria put forward in the OECD’s report to the G20 in a minute, but there’s another  shortcoming in the Communique. Out of the blue, the G20 took a big step backwards in the fight against tax avoidance:

“We will continue our work for a globally fair, sustainable, and modern international tax system based, in particular on tax treaties and transfer pricing rules” (emphasis added)

Not only has the G20 toned down or erased recognition of the most important tools available today for tackling tax evasion, corruption and money laundering, it has specifically given recognition to the very mechanisms that can be abused to enable tax evasion, corruption and money laundering.

We wonder if this is a response to our welcoming of the IMF questioning the sustainability of the arm’s length principle while exploring unitary taxation, only a few months earlier. Or to the long list of recent publications on how tax treaties can negatively affect developing countries.

The Communiqué published in Buenos Aires has failed to comply with a popular Spanish expression “Si no suma, que no reste” (if it won’t add value, at least it shouldn’t take it away).

Now, back to the usual suspect: the OECD.

Based on the OECD’s “strengthened” criteria which it put forward in its new report to the G20   (just imagine what the weaker version looked like!), jurisdictions should comply with two out of three requirements and avoid the two immediate triggers to prevent being blacklisted. If they fail on any of the immediate triggers, they will be blacklisted even if they comply with the two of the requirements. The three requirements are

Thanks to the OECD’s report to the G20 we know that the OECD blacklist based on the new strengthened criteria isn’t ready yet, but we can deduct which 15 jurisdictions are at risk of being identified.

It also helps to compare these 15 jurisdictions, with the Tax Justice Network’s Financial Secrecy Index’ top 15 ranked jurisdictions:

Financial Secrecy Index compared against jurisdictions at risk of being blacklisted by OECD

The Financial Secrecy Index ranks jurisdictions according to the “worst offenders”, meaning those who are mostly responsible for global financial secrecy and which, if they became transparent, would have a positive and tangible impact on reducing financial secrecy in the world. This would clearly be the case for the US, Switzerland, Cayman Islands, Hong Kong, Singapore, Luxembourg, Germany, the United Arab Emirates, Lebanon and Panama among others. These top 15 jurisdictions on the Financial Secrecy Index account for 62 per cent of the global  market of offshore financial services. On the contrary, the 15 jurisdictions at risk of being blacklisted by the OECD (mostly small islands) account for only 0.64 per cent of the global market of offshore financial services. In other words, if the 15 jurisdictions at risk of being blacklisted by the OECD became fully transparent, it would be hard to tell the difference at a global level, given that they account for less than 1 per cent of the global offshore financial services. The 15 jurisdictions at risk of being blacklisted by the OECD provide almost 100 times less offshore financial services than the 15 jurisdictions identified by the Financial Secrecy Index.

Moreover, these 15 jurisdictions at risk of being blacklisted by the OECD, don’t really need to become fully transparent to be off the hook. Small improvements will do.

Here are all the changes the 15 jurisdictions need to undertake to avoid the blacklist:

The Global Forum ratings

Obtaining a “largely compliant” rating is one of the three factors needed to avoid the blacklist. How hard is it to achieve it? Not that difficult, as long as you are a powerful country. If you don’t believe it, just look at the number of countries considered “compliant” and “largely compliant” by the Global Forum:

Table of jurisdictions categorised by Global Forum peer review ratings

Source: 2018 OECD report to the G20 (red underline added)

The vast majority of members of the Global Forum are considered to be “compliant” and “largely complaint”, including the worst offenders on the Financial Secrecy Index (underlined in red).

We wonder which rose-tinted glasses the Global Forum is looking through at the world of transparency and how they can ever explain the likes of the Russian Laundromats and other cases of grand corruption given how perfectly transparent their world appears to be.

Other organisations, including the Tax Justice Network, are not as optimistic at the Global Forum. Let’s take a look.

The OECD report to the G20 includes a colour-coded table showing the ratings of 39 jurisdictions from the second round of peer reviews against the exchange of information on request (EOIR) standard. This table, reproduced below, refers to the three sections (A, B and C) of the peer reviews that assess availability of ownership information and accounts, access to information by authorities and exchange of information.

Given that many organisations apply the same traffic-light colour coding (green = transparency; yellow = partially secretive; orange= largely secretive; red = fully secretive), we can compare colour composition of the Global Forum’s transparency table to the colour composition of the Financial Secrecy Index’ Secrecy Score and the Financial Action Task (FATF) 4th round of mutual evaluations on compliance with anti-money laundering recommendations.

To make it comparable, we only focus on the 39 jurisdictions assessed by the Global Forum’s second round of reviews that have also been assessed by the Financial Secrecy Index and the FATF. We only show the colour ratings of indicators from the Financial Secrecy Index and the FATF that are relevant to the Global Forum’s second round of review. In the case of the Financial Secrecy Index, these are indicators 1 to 3, 5 to 7, 18 and 19 on ownership information, accounts, banking secrecy and exchange of information. In the case of the FATF, these are recommendations 24 and 25 on availability of beneficial ownership information and effective implementation of these recommendations (Immediate Outcome 5).

This is what the ratings for the same jurisdictions (where available) look like according to each organisation:

Comparison: Financial Secrecy Index vs FATF vs Global Forum ratings

Both the Financial Secrecy Index and the FATF have overall much more red, orange and yellow (the FATF uses light green in place of yellow) especially with regard to ownership information (the first six columns of the Index and all three columns of the FATF). While the Global Forum overall has more green (aka compliance), the Global Forum’s first column (on availability of ownership information) does show much more colour diversity and less green. Nevertheless, the Global Forum’s last column, which shows the overall rating, is the one that matters for the OECD blacklist, and in this case, the vast majority of countries are “compliant” (green) or “largely compliant” (yellow).

In conclusion, we would love to live in the world portrayed by the G20 and the OECD, where most countries are fully transparent (including all major financial centres) and where some automatic exchange of information among some countries, tax treaties and the arm’s length principle are enough to tackle all illicit financial flows (including tax avoidance). However, we happen to live in a world where illicit financial flows are alive and kicking, in many respects thanks to the G20,OECD countries and their dependencies that fail to implement real transparency and instead engage in a race to the bottom offering less regulation, less taxes and less questions asked when it comes to accepting non-residents’ money.

Tax justice pushes forward at OECD’s Global Forum

The OECD’s Global Forum held its annual meeting in Uruguay on 22 November 2018 where more of the Tax Justice Network’s proposals and those of our allies on automatic exchange of information have been incorporated into Global Forum policies and remarks – albeit some watering down.

Momentum for tax justice has been steadily growing since the start of the 21st century. The last few years in particular saw significant grounds made following a number of major tax haven leaks. A long list of Tax Justice Network proposals based on the ABC’s of tax transparency – automatic exchange of information, beneficial ownership and country by country reporting – which were brushed off at first as unrealistic – are now endorsed in some form or fashion by most countries and major organisations, including the G20 and the OECD.

As lines in the sand get redrawn, it becomes more urgent than ever to make sure policy changes result in real financial transparency rather than face-saving window dressing. The outcomes of the OECD’s Global Forum have critical implications for the implementation of the automatic exchange of information between countries signed up to the Common Reporting Standard. But do these go far enough to address the asks that the Tax Justice Network is calling for today?

First, the good news.

The OECD calls out the non-reciprocal, American elephant in the room

We repeatedly warned about the US’s lack of participation in the Common Reporting Standard in 2014, 2015, 2016 and especially in our 2018 blog post about how the OECD tax haven blacklist let the US off the hook. Most recently, our bilateral financial secrecy index analyses found that the US was creating the highest risk for offshore tax abuses for the European Union. But now, the Global Forum’s Automatic Exchange Implementation Report surprised us with this mild, but still relevant statement:

8. All jurisdictions asked to commit to the Global Forum’s AEOI Standard have now done so, except the United States. As of 2015, the United States exchanges certain information automatically pursuant to its various Model 1 FATCA intergovernmental agreements, which includes recognition by the government of the United States of the need to achieve full reciprocity.” (emphasis added)

This is relevant because it’s the first time that the OECD states the obvious: that the US isn’t implementing the Common Reporting Standard and that the US exchanges only “certain” information automatically. The OECD’s list of jurisdictions committed to the Common Reporting Standard only has a footnote saying that “the US exchanges information automatically pursuant to FATCA” (without saying that this means the US is not implementing the Common Reporting Standard). In the past, Switzerland and Luxembourg tried to treat the US as participating in the Common Reporting Standard in order to disregard anti-avoidance measures applicable to non-participating countries. This new statement from the Global Forum helps narrow the grey area the US has operated in.

Curtain call for the automatic exchange of information dating game

The Tax Justice Network has insisted the automatic exchange of information between countries can only bring about real transparency when all countries automatically exchange information with each other. But the OECD’s legal framework for automatic exchange of information effectively created a dating game where countries can cherry-pick who they share information with. For a good example of this, see our blog on  Switzerland’s approach to automatic exchange of information.

The Global Forum has now called on members to share information with all participating countries, putting an end to the dating game:

7. All Global Forum members (…) were asked to commit to: (…) 2. exchange information with all interested appropriate partners – being all those interested in receiving information and that meet the standards in relation to confidentiality and the proper use of data.” (emphasis added)

More, though not enough, light on which countries are choosing financial secrecy

Up until now, we were unable to determine which countries were choosing “voluntary secrecy”, that is, to send but not receive any information via the automatic exchange of information. Through voluntary secrecy, tax havens can effectively offer a way out of the increasingly global system of automatic exchange of information by selling passports or residencies. Passports and residencies for sale schemes, aka “golden visas”, from voluntary secrecy countries create a huge risk because anyone acquiring them (and claiming to be a resident from these voluntary secrecy countries) would become a non-reportable person, meaning that banks wouldn’t even bother to collect any information about them.

The OECD had previously omitted to name which countries were choosing voluntary secrecy. The OECD merely listed all countries sending and receiving information, mixing together those that were not receiving information because they lacked the technical or legal requirements with those that were not receiving information because they voluntarily chose not to. The Global Forum is now naming some names:

As an example, some jurisdictions do not wish to receive information. This includes 11 jurisdictions that do not have systems for direct taxation and exchange information only on a non-reciprocal basis (i.e. they send but do not receive information)1

1 Anguilla, The Bahamas, Bahrain, Bermuda, British Virgin Islands, Cayman Islands, Marshall Islands, Nauru, Qatar, Turks and Caicos Islands and United Arab Emirates”

It appears that out of all the countries choosing voluntary secrecy, the above listed 11 countries do not receive information because they do not have systems in place for direct taxation. Additionally, Switzerland has confirmed that both Cyprus and Romania do not receive information because they do not yet meet international requirements on confidentiality and data security. What reasons, then, do the other countries choosing voluntary secrecy, like Costa Rica, have for not receiving information? Why is the refusal to receive information that can be used to tackle tax abuse, corruption and money laundering accepted as a valid choice?

The risk of voluntary secrecy is also relevant for the statistics on automatic exchange of information that we have been proposing since 2014 in different publications and interactions with policy makers (see the last point below). The idea of these statistics is to show how much money residents from every country hold in each financial centre. Our proposed statistics would be highly hampered if countries failed to collect information on residents of certain countries in the first place, especially on those claiming to be resident in a voluntary secrecy tax haven. In such cases, statistics would be able to show how much money Argentine residents hold in say Switzerland, but not how much money Cayman or Anguilla residents hold in Swiss banks. This would create a big black hole, reducing the effectiveness of statistics. So far it appears that only Andorra will address this properly by collecting information on all non-residents (the famous “wider approach”). Others, particularly Switzerland, Hong Kong and Qatar appear to be coordinating with the voluntary secrecy tax havens or with secrecy in general, since they will collect information on much fewer residents than other countries:

Table - Expansion of AEOI data collection from 2018 to 2019 exchanges

Using exchanged information to tackle corruption and money laundering

Since 2014, the Tax Justice Network has repeatedly made the case that information received through the automatic exchange of information under the Common Reporting Standard can help tackle not just tax evasion, but also corruption and money laundering. However, the OECD (very likely pushed by Switzerland’s “speciality” principle) wouldn’t allow authorities to use information for these “extra” non-tax purposes.

In order to address this, back in 2016 we joined the Financial Transparency Coalition in a letter to the OECD and the Global Forum, asking them to address this issue. We even drafted a declaration, based on the Multilateral Tax Convention requirements, which all countries could sign to allow for information to be used to tackle corruption and money laundering. We received no response. But now, in Uruguay, the Global Forum published the Punta del Este Declaration signed by Latin American ministers stating:

4. We encourage all Latin American countries to further strengthen their efforts in tackling cross-border tax evasion, corruption and other financial crimes through closer cooperation, both at the global and regional levels, including in particular through more intense use of all the available exchange of information tools for the purpose of deterring, detecting and prosecuting tax evaders;

(…)

6. We will consider the possibility of (i) wider use of the information provided through exchange of tax information channels for other law enforcement purposes as permitted under the multilateral Convention on Mutual Administrative Assistance in Tax Matters and domestic laws.” (emphasis added)

The Global Forum’s recognition here of the key role exchange of information plays in tackling wider corruption, crime and violence is paramount. Importantly, the Punta del Este Declaration breaks rank with the eyes wide shut consensus, although other countries within and outside Latin America should join the Declaration and start using information to tackle all illicit financial flows.

The impact of the all these tax justice successes at the Global Forum will go a long way in the near and far future. Some Tax Justice Network asks, however, were not addressed by the OECD or the Global Forum. Here’s the bad news.

The OECD sees the risks of golden visas, but not the risktakers

Since the OECD published the Common Reporting Standard (CRS) in 2014, the Tax Justice Network has warned that passports and residency for sale schemes can be abused to avoid automatic exchanges of information. The OECD finally addressed the risk in February 2018 when they opened a consultation on this issue. This consultation led us to write a report on risky jurisdictions offering golden visas and we joined the Financial Transparency Coalition’s response to the OECD consultation.

On 16 October 2018, the OECD eventually came up with a list of 21 risky jurisdictions whose golden visas schemes potentially jeopardised the integrity of the Common Reporting Standard. On November 13 2018, we published a blog post criticizing the OECD’s blacklist for not just being unproductively short, but for also failing to include OECD countries and for having a knack for getting even shorter (four jurisdictions had already been removed between 16 October and 13 November). Just over a week later, the OECD’s Global Forum decided to remove yet another jurisdiction for the list, this time Panama.

The OECD drag their feet on making automatically exchanged information publicly available

Based on our research on the loopholes affecting the effectiveness of automatic exchange of information, we have concluded that the best approach to address these loopholes is to publish aggregate statistics on the data collected for the automatic exchange of information under the Common Reporting Standard. These statistics would breach no confidentiality and demand no extra cost from tax authorities or banks. They have already collected all relevant information. All we are asking is for tax authorities to publish the totals by country of origins, eg “In Germany, all Argentine residents hold X million euros, all Austrian residents hold Y million euros, all Brazilian residents hold Z million euros.” We have created a template for this here, we have explained how it could be used to identify schemes that  avoid being reported under automatic exchange of information here, and we have given an example of similar financial data that’s already public here.

Now, we are waiting for the OECD to come up themselves with the idea of publicising statistics to ensure compliance with the Common Reporting Standard. Importantly, statistics would also give civil society organisations, journalists and authorities from developing countries that are unable to join the Common Reporting Standard access to basic aggregate information about where the world’s residents hold their offshore accounts.

The march of tax justice has proved to be irrevocable. As the year draws to a close, the progress achieved in 2018, on top of that achieved in 2017, is worth taking a moment to celebrate. And while a lot of work still lies ahead, we at The Tax Justice Network are very excited about taking the momentum for tax justice to greater heights in the year to come.

Comparing financial secrecy in Israel to other OECD countries

This week, Tax Justice Network Israel released a report in collaboration with the Friedrich-Ebert-Stiftung Israel comparing financial secrecy in Israel to that of other OECD countries. Based on the Financial Secrecy Index 2018 results, the report analyses Israel according to each one of the 20 indicators that compose the secrecy score in the Financial Secrecy Index and compares the results to those relevant to other OECD countries. Israel was ranked 34th out of 112 jurisdictions, with a secrecy score of 64 out of 100.

The report, covered in depth by the Times of Israel, indicates that out of OECD countries, banking secrecy in Israel is ranked the third most secretive of all OECD member states after Switzerland and Austria. This is mainly due to Israel tough stance against financial whistle blowers, and other financial institutions who break client confidentiality. The report also points out that while Israel maintains a central register of real estate owners, alongside 32 other OECD countries, the registry does not contain information on beneficial owners. Furthermore, it is accessible online only to the Israeli public.

In terms of trusts, Israel is classified in the most secretive category, along with another 10 OECD countries, for not requiring overseas trusts to register, even if they are managed by an Israeli trustee. This is because Amendment 168 of the Israeli Income Tax Ordinance (hereinafter: ‘amendment 168’) exempts new immigrants and returning veteran Israelis from reporting on such trusts. Furthermore, while trusts created in Israel have to provide details on their beneficial owners, the registry is made by Israel Tax Authority, rather than the companies registry, which means that the information is not publicly available.

In its recommendations, Tax Justice Network Israel called on the Israeli government to cancel amendment 168 which was passed in 2008 with the goal of attracting to the country wealthy new immigrants and Israelis who returned after living for at least 10 consecutive years overseas. Amendment 168 exempts these newcomers from reporting on their overseas assets and income for 10 years. The exemption prevents Israel from applying systematic procedures for collecting information on money held by Israelis overseas. Such procedures include, for example, cross-referencing information submitted to Israel with records held by other countries, real estate agents or media and internet reports.

The report argues that amendment 168 actually attracts to Israel people who wish to conceal their income, evade taxes, or launder their money. In fact,  a 2016 State Comptroller’s report has already warned  that the absence of such systemic procedures incentivises the laundering of capital or the use of capital which has been laundered overseas in ways that would harm both society and the Israeli economy. The State Comptroller further warned that this exemption did not meet international standards for transparency and information exchange because Israel cannot collect information on irregularities or criminal acts made by Israelis overseas.

The report urges Israel to pass regulations that will enable it to honor a commitment it made in 2014 to join the OECD’s Common Reporting Standard (CRS) and, as of September 2018, to automatically exchange financial information about accounts held by foreign residents. The report mentioned that 26 OECD countries have already begun to exchange CRS information since 2017, and that out of 101 nations that already joined the CRS, Israel is one of the only ones not to have done so, alongside Turkey and classic tax havens such as Dominica, the Caribbean island of St. Maarten, and Trinidad and Tobago (and of course, the US, which still refuses to join while sticking to its own bilateral Foreign Account Tax Compliance Act mechanism).

The report also mentions that Israel is in breach of its additional commitment to the OECD to meet country by country reporting requirements, i.e to force large multinational companies to submit financial reports on each country in which they operate, in order to prevent them from shifting their profits to tax havens or to low tax jurisdictions and thereby minimise or avoid paying tax.

The report further warned that if Israel does not honor its international commitments, it is likely to enter the lists of non-cooperative countries maintained by the OECD and the European Union. The inclusion of Israel in such lists could eventually lead to a lowering of its credit rating, which could then lead to an increase in taxes, a cutback in state expenditure and an increase in unemployment.

These recommendations coincided last week with an implied warning by Angel Gurria, OECD secretary-general, according to which if Israel does not swiftly pass the regulations to enable automatic exchange of financial information, the OECD would have to report Israel as a non-compliant country early next year.

Finally, the report also calls on the Israeli government to oblige both public and private companies to register their beneficial owners and to set a deadline for cancelling or converting bearer shares.

The report did provide some positive findings. Compared with other OECD countries, Israel cooperates well with other countries on money laundering and bilateral tax treaties, it does not give an Israeli citizenship in return for financial investment and is one of the few OECD member countries that require taxpayers to report on certain aggressive tax planning schemes.

Download the report

World Bank roundtable: illicit financial flows

Alex Cobham, Chief Executive of the Tax Justice Network, will be taking part in a roundtable discussion at the World Bank in Washington DC on 6 December about illicit financial flows. Details are above. Participants from outside the World Bank are welcome to join by Webex (meeting number and password above; you can also call in to one of these phone numbers using the meeting number as the access code; please RSVP).

WHAT IS THE CONTENT?

From the LuxLeaks to the Paradise Papers, by way of the Panama Papers, revelations about the exploitation of financial secrecy have provided an ongoing backdrop to international politics in the last decade. Illicit financial flows (IFF) is an umbrella term which has succeeded in uniting a broad range of related development concerns, from the tax abuses of multinational companies and high net-worth individuals, to grand corruption and the laundering of the proceeds of criminal markets. The resulting consensus for action drove target 16.4 of the Sustainable Development Goals (SDGs), a global commitment to reduce IFF. A process is now underway to develop technically-robust indicators to ensure national-level accountability for the financial secrecy that drives these corrupt and criminal behaviors.

WHAT WILL YOU LEARN?

This roundtable will explore the political emergence of the IFF agenda, the definitional and technical aspects, and the leading estimates and measures, including the proposed SDG indicators.

WHO IS PRESENTING?

BIOGRAPHIES

Alex Cobham (@alexcobham) is a development economist and chief executive at the Tax Justice Network. He previously held research and policy roles with the Center for Global Development, international NGOs, and at the University of Oxford; and has consulted widely, including for the UNCTAD, UNECA, DFID and the World Bank. Alex’s research has focused on the scale of revenue losses from tax avoidance; on comparative international measures of ‘tax haven’ secrecy; and on horizontal and vertical inequalities. The Tax Justice Network is an expert network of accountants, economists, lawyers and many others in professional practice, academia and civil society. Since its formal establishment in 2003, the Tax Justice Network has worked to bring issues of tax avoidance, tax evasion and other abuses of financial secrecy from the margins to the centre of the global policy agenda.

Edition 11 of the Tax Justice Network Arabic monthly podcast/radio show, 11# الجباية ببساطة

Welcome to the eleventh 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 # 11 – The “Nets of Oil” film and Jordan’s new income tax law

In the eleventh edition of Taxes Simply, we begin as usual with our news brief, which includes:

In the second section of the programme, Walid Ben Rhouma asks Ahmed Awad, Director of the Phenix Center for Economic and Informatics Studies about the most controversial points of the new tax law in Jordan, and its potential effects on economic and social rights and tax justice.

In the third section, Walid Ben Rhouma interviews Mabrouka Khedir, director of the film “Nets of Oil” which explores the devastating impact of oil leaks on the Tunisian island of Qirqana and its fishing-dependent economy amid the absence of any form of environmental taxation or effective compensation. Continue reading “Edition 11 of the Tax Justice Network Arabic monthly podcast/radio show, 11# الجباية ببساطة” →

The Spider’s Web documentary viewed over one million times on YouTube

Since it was uploaded to YouTube just ten weeks ago, Michael Oswald’s seminal documentary film on Britain and its tax haven empire has gained over 1,000,000 views. “The Spider’s Web: Britain’s Second Empire” documents how British elites created a network of tax havens after World War II and the lengths they take today to preserve it – exemplified in a chilling scene where a Jersey police officer harasses and interrupts the filmmakers’ interview with a tax haven whistleblower. Based on Nick Shaxson’s (pictured below) best-selling book Treasure Islands: The Men Who Stole the World, the film delivers a sobering account of Britain’s role in corrupting the global economy.

The Tax Justice Network congratulates everyone involved in the making of the film.

The Spider's Web documentary - 1 million views - Nick Shaxson on screen

The documentary is available for free on YouTube in English, French, German, Italian and Spanish. Subtitles are available in French, Spanish, German, Italian, Russian, Arabic, Korean, Hungarian, English, Turkish and Portuguese.

Director Michael Oswald said about his inspiration for the film: 

I realized that there was an interesting, coherent and self-contained story that had not been told, the story of Britain’s transformation from a colonial power to a financial power, and the myriad and obscure financial structures created by City of London financial interests that lie at the heart of this transformation.”  (read more here.)

Tax Justice Network’s John Christensen, who co-produced The Spider’s Web, traces his interest in the subject back to the late-1970s when he and various colleagues started to look at London’s role as a global tax haven:

We had no doubt that the City of London was a major player in the process of looting poorer countries of their wealth and in protecting Britain’s secrecy jurisdiction satellites from political attempts – at the United Nations, for example – to rectify the policy and regulatory flaws that enabled capital flight and tax dodging on such an immense scale.” (read more here)

Made on an astonishingly small budget, The Spider’s Web has been acclaimed by reviewers.  Here is a sample of what they’ve said:

Forget anything by John Le Carre, this is a real political drama which is more thrilling than anything seen in Tinker, Tailor, Solider, Spy.”
– Filmotomy

Framed with strong images of the City of London, tax havens and set to a haunting original soundtrack, The Spider’s Web is a film all ordinary, tax-paying citizens should watch.”
– Modern Times Review

The Spider’s Web gives an excellent overview of the scale of the global tax dodging problem and its corrosive effects on democracy.”

– Open Democracy

This film is not a thriller. There are no crimes, murders, war or rape. But it deals with the consequences of such acts, metaphorical or real, and you need a strong constitution to watch it, if you care about the state of capital. It is calm, professional and accurate, like a hitman should be. I can’t recommend it enough.”
– Mr Ethical, whistleblower

Watch the documentary for free.

To tackle tax abuse and crime, we must take on the enablers

  

There is increasing public awareness worldwide of the level of malpractice by (and lack of accountability of) banks, law firms, the offshore magic circle, real estate agents, trust companies, large corporations and so on. Yet the ‘enabler industry’ is mounting a fightback against the modest yet significant transparency obligations imposed on it after Lux Leaks, Swiss Leaks, Panama Papers, Paradise Papers and other scandals. Meanwhile it is lobbying governments, even helping to formulate government policy, and continuing to benefit from unbalanced power, opacity and impunity. The professional enablers are often natural allies for those behind the dark money that is distorting economies and politics globally.

Our annual tax justice conference on the 2nd and 3rd July in 2019 will strike at the heart of the beast. Co-organised with the Association for Accountancy & Business Affairs and City, University of London (CityPERC), the conference will focus on the role of professional enablers of tax abuse and crime, and will present and discuss ideas on how to deal with them.

We’re looking for qualitative and quantitative research on the role and influence of the enablers, as well as innovative proposals for their better regulation. We would particularly like to hear from you if you are a practitioner working in crime prevention and detection agencies or asset recovery, if you are working with whistleblowers or if you are a whistleblower, or if you are monitoring lobbying and dark money, researching offshore practices and law, developing ideas on accountancy values and ethics, or have new ideas for protecting the public, democratic institutions and economies. The deadline for submitting papers for the conference is 14 December 2018.

UPDATE: The deadline for submitting papers for the conference has been extended to 31 December 2018. Continue reading “To tackle tax abuse and crime, we must take on the enablers” →

Financial crime is a feature of our global financial system, not a bug: pioneering economist Susan Strange

We’re sharing, with kind permission, the following article written by journalist Nat Dyer for independent global media platform Open Democracy.

The global financial crime wave is no accident

Financial crime is a feature of our global financial system not a bug, pioneering economist Susan Strange recognised. Her message is more urgent than ever.

There was a little bit of good news this month for those worried about a tidal wave of McMafia-style financial crime. A new UK government agency tasked with fighting it – the National Economic Crime Centre (NECC) – opened its doors.

I say “little” because financial crime is far more deeply rooted in our financial and political systems than we like to acknowledge.

From the LIBOR-rigging scandal to the offshore secrets of the Panama Papers and ‘dark money’ in the Brexit vote, it is everywhere. In my recent work with anti-corruption group Global Witness, I saw first-hand how ordinary people in some of the world’s poorest countries suffer the consequences of corruption and financial crime. We exposed suspicious mining and oil deals in Central Africa, in which over a billion dollars of desperately-needed public finances were lost offshore. The story is about the West as much as Africa. The deals were routed through a dizzying web of offshore shell companies in the British Virgin Islands, often linked to listed companies in London, Toronto and elsewhere. Even if the NECC is given enough resources and collaborates widely, it has got its work cut out. Continue reading “Financial crime is a feature of our global financial system, not a bug: pioneering economist Susan Strange” →

A Climate of Fairness: new study analyses environmental taxes from a tax justice perspective

Guest blog by
Martina Neuwirth
Vienna Institute for International Dialogue and Cooperation (VIDC)

The Global Alliance for Tax Justice’s vision is a world where progressive tax policies support people to share in local and global prosperity, access public services and social protection, and benefit from an economy that acts in the interest of people and the environment.

But these tax justice considerations have so far not really entered the policy discourse of environmental finance. At the same time, the urgent need for climate and environmental finance has hardly been taken up in tax and tax justice debates. The Vienna Institute for International Dialogue and Cooperation (VIDC) therefore decided to commission a study that tries to bridge these two “silos”.

The timing of the report is opportune. Requirements to fulfill commitments assumed under international environmental agreements (UNFCCC, the Kyoto Protocol and the Paris Agreement) and under the Sustainable Development Goals (SDGs) create a political momentum for the advancement of environmental taxes and environmentally related policies. Environmental taxes can help all countries, but particularly developing countries, deliver on these commitments. They potentially can create a double positive, by bringing about an improved environment while mobilising domestic revenues for the achievement of the SDGs. Continue reading “A Climate of Fairness: new study analyses environmental taxes from a tax justice perspective” →

Whistleblower protection, plutocrats and dark money: the Tax Justice Network’s November 2018 podcast

In the November 2018 Tax Justice Network monthly podcast/radio show, the Taxcast:

Featuring:

the government can audit from the outside all day long but all it takes is one well-placed insider to bring the information to the government and show first-hand what was going on. Prosecutors will tell you their number one enforcement tool that they use is whistleblowers We need to see more and better whistleblower programmes.”

Continue reading “Whistleblower protection, plutocrats and dark money: the Tax Justice Network’s November 2018 podcast” →

New report on European tax administrations’ capacity in preventing fiscal fraud and tax avoidance

The Tax Justice Network released today a report on the capacity of tax administrations in the European Union to fight inequality by combating fiscal fraud and tax avoidance. The report analyses the results of a survey consisting of 71 questions that was sent by the Tax Justice Network to the tax administrations of all EU Member States. It explores the data we received from seven respondent jurisdictions and combines it with additional data available through the International Survey on Revenue Administration (ISORA). A condensed version of this report has been presented by Frederik Heitmüller on 2 November 2018 at the CESifo Economic Studies Conference on New Perspectives on Tax Administration Research.

In recent years, there have been several initiatives to assess the capacity of tax administration by international organisations and other bodies. These include the Revenue Administration Fiscal Information Tool  (RA-FIT) by the IMF, the Fiscal Blueprints by the European Union and the Tax Administration Diagnostic Assessment Tool (TADAT) by the IMF. However, these initiatives are all either limited in scope, in continuance, or in transparency. The ISORA report, a collaboration between the OECD, the Inter-American Centre of Tax Administration (CIAT), the Intra-European Organisation of Tax Administrations (IOTA) and the IMF, is to date the most comprehensive available database of tax administrations by far. Nonetheless, there are still many data gaps in the evaluation of the capacity of tax administrations and there is currently no mapping available on the published statistics or public datasets by national tax administrations.

One of the reasons for these gaps is likely to be the sensitive nature and confidentiality of the data involved. As tax is directly related to the core of statehood and sovereignty, it is often jealously guarded, and some jurisdictions may be unwilling to share data that may reveal shortcomings in sensitive functions of tax administration.  Furthermore, to our knowledge, specific issues that are relevant to inequality have not been assessed in any of the reviewed surveys.

This report published today attempts to close this gap.

The report focuses on several topics that address data gaps we identified in the available datasets on capacity of tax administrations. Based on the analysis of the data, we identify the most critical challenges tax administrations face in countering inequality. These are predominantly:

While the data provided by the seven jurisdictions may not be sufficient to draw final conclusions about the capacity of all EU tax administrations, it provides an indication about which hypotheses are worth pursuing more in-depth in future research.

For example, an interesting finding relates to the scale of audit activity. We looked at the number of tax returns tax administrations have audited between 2015 and 2017, checking separately for corporate income tax, personal income tax and VAT. What we found is a decline in the practice of auditing tax returns, predominantly with regard to tax returns of corporations, as well as a decline in the number of on-site audits in two out of three countries that responded to that question.  Further research should investigate how this decline can be explained. Potential hypotheses include lower budgets or political interference, but also a greater reliance on IT and data analysis solutions or pre-populated tax returns.

Number of audits of tax returns – Finland

European tax administrations’ capacity table 1

This is the analysis of data by Finland, but a similar trend was seen for other countries.

We also revealed that the effective collection of penalties seems to be a problematic issue, as none of the jurisdictions that reported data succeeded in collecting more than 50 per cent of the penalties that were charged in any of the years. Further research could explore what stands in the way of an effective collection of penalties, whether administrations lack the capacity to collect or whether there may be more political reasons for a lack of enforcement.

Percentage of number of administrative penalties collected so far

European tax administrations’ capacity_table 2

The analysis of all the data we received as a response to our survey can be downloaded here.

Tax laws, progressive as they may be, may become toothless and even regressive if they are not properly enforced. The report emphasises the importance of conducting further studies and assessing whether the legal tools are effectively used by tax administrations to combat fiscal fraud and tax avoidance.

Today’s report is the first from a twin project, funded by the European Union Horizon 2020 as part of the Combating Fiscal Fraud and Empowering Regulators (COFFERS) programme. The twin project aims to generate a comprehensive comparative analysis of administrative and enforcement capacity of tax administrations and corporate registries in European member states, to counter fiscal fraud and tax avoidance. We will publish the second part, which focuses on corporate registries, in a few weeks.

Download the full report

Tax Justice Network’s November 2018 Spanish language podcast: Justicia ImPositiva, nuestro podcast, noviembre 2018

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! (abajo en Castellano).

In this month’s programme:

Continue reading “Tax Justice Network’s November 2018 Spanish language podcast: Justicia ImPositiva, nuestro podcast, noviembre 2018” →

Passports and residency for sale: the OECD is sitting on its hands. Here’s how to fix the problem…

Passports and residency issued by many tax havens and secrecy jurisdictions in exchange for money (promoted as “golden visas”), are not only “golden” because they are valuable, but because they are expensive. They aren’t meant for the typical refugee fleeing a civil war, but for the very rich who have no intention of leaving their home, but want to pretend that they have (by using their newly purchased citizenship or residency) to escape from taxes and other laws, if necessary.

The Tax Justice Network has been warning about the risks of the sale of passports and residency to circumvent automatic exchange of information since 2014. It took four years for the OECD to take this matter seriously and in February of 2018 it opened a consultation about how to address this risk. As a response to this, the Tax Justice Network published a list of 56 risky jurisdictions offering passports and residency in exchange for money, based on the Financial Secrecy Index. Eight months later, on October 16th 2018 the OECD published a list of 21 jurisdictions whose residency and citizenship by investment schemes potentially pose a high-risk to the integrity of the automatic exchange of information. But within six days, four jurisdictions had already been removed from the blacklist, at a pace of one kosher “passport for sale” scheme every 1.5 days. I don’t know how she does it… Continue reading “Passports and residency for sale: the OECD is sitting on its hands. Here’s how to fix the problem…” →

Dos nuevos puestos en América Latina (two new jobs in Latin America)

 

Estamos buscando un/a investigador/a y un/a responsable de proyectos en América Latina. We are hiring a researcher and a project manager in Latin America. 

Investigador/a (researcher): https://taxjustice.net/lar (aplicar en / apply at https://taxjustice.net/latin-america-researcher antes del / by 09/12/18)

Responsable de proyectos (project manager): https://taxjustice.net/lap (aplicar en / apply at https://taxjustice.net/latin-america-project-manager antes del / by 09/12/18)

Seeking a French language radio and podcast producer (Chroniqueur radio et podcast, Afrique Francophone)

The Tax Justice Network is seeking a journalist from Francophone Africa (but not necessarily based there) to produce a monthly French-language 30-minute podcast and radio show. Each show will cover global tax justice news and ideas, with a focus on Francophone Africa, and will offer accessible, entertaining and solutions-based analysis. You will need strong and up-to-date experience of radio production, and preferably also of social justice reportage. As well as being a very strong communicator in French, you will need to be a confident English speaker to be able to follow our research closely and join occasional remote team meetings. You will be proactive, independent, fizzing with ideas and have a passion for tax justice and social justice.

« Tax Justice Network » cherche à recruter un journaliste originaire de l’Afrique Francophone (mais pas nécessairement basé dans la zone) pour produire chaque mois des émissions radio et podcasts d’une trentaine de minutes en français. Chaque émission portera sur des questions d’ordre général et d’actualité de justice fiscale qui seront traitées de manière compréhensible et ludique avec proposition de solutions et en se basant sur l’Afrique Francophone. Pour être éligible pour le poste, le candidat doit avoir une expérience solide et pointue en production radiophonique et de préférence, il doit avoir effectué un reportage sur le sujet de la justice sociale. En plus de disposer d’une excellente capacité de communication en français, le candidat doit être capable de bien s’exprimer en anglais pour pouvoir suivre de près les travaux de recherche que nous menons et participer occasionnellement et à distance aux réunions du staff. Les qualités personnelles recherchées sont la proactivité, la capacité à travailler de façon indépendante, la curiosité intellectuelle et une passion pour la justice fiscale.

Find out more and apply online at / En savoir plus et postuler en ligne via www.taxjustice.net/ftp

Edition 10 of the Tax Justice Network Arabic monthly podcast/radio show, 10# الجباية ببساطة

Welcome to the tenth edition of our new 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.

الجبایة ببساطة #10– الحرب على محاربة الفساد ومؤشر جديد للتقدم الاجتماعي في مصر  

Taxes Simply# 10 – The war on anti-corruption campaigners and activists, and a new indicator for social progress in Egypt

We start with a summary of October’s tax news from around the Arab region and the world, including:

In the second part of the programme, we talk with Mahinour El-Badrawi, the coordinator of Egypt Social Progress Index (ESPI), which is a project that seeks to present a multidimensional picture of Egypt’s social and economic well-being away from traditional economic indicators that ignore the experiences of tens of millions of those left behind. The Egypt Social Progress Indicator website: https://www.progressegypt.org/

In the third part of the programme, Walid Ben Rhouma interviews Achraf Aouadi, the president of I Watch, on the targeting of researchers and journalists working on issues of corruption and economic justice in the region and the world. The I WATCH website: https://www.iwatch.tn/en/

Continue reading “Edition 10 of the Tax Justice Network Arabic monthly podcast/radio show, 10# الجباية ببساطة” →

Women continue to take the lions share of austerity

Ahead of the UK Autumn budget statement (29th October 2018) the UK Women’s Budget Group (WBG) provided an important analysis of why austerity isn’t over, especially for women living in the UK. It is a useful point to reflect on the role of tax and its gendered implications. Continue reading “Women continue to take the lions share of austerity” →

Whistleblower Rudolf Elmer’s court victory: the long arm of Swiss secrecy law gets shorter

We’ve written many times about Swiss whistleblower Rudolf Elmer’s (pictured above) long legal battles against Swiss banking secrecy here, here, here and here. He’s endured 48 prosecutorial interrogations, 6 months in solitary confinement and 70 court rulings. Of one thing you can be sure – if the Swiss bank he worked for and the Swiss authorities thought it’d be easy to defend banking secrecy and the terrible harm it does, they picked the wrong person to fight. There are those who would have you believe that Swiss banking secrecy is over, but we can assure you that’s far from the case. Switzerland is still ranked number one in our Financial Secrecy Index. Let’s see how it does in our next assessment, due in 2020.

This October Elmer has achieved a significant victory against Swiss banking secrecy laws and how far they can be applied in jurisdictions across the world. He worked for Swiss bank Julius Bär in the Cayman Islands when he leaked data on wrongdoing. Now the Swiss Supreme Court has ruled that if employment contracts in locations outside Switzerland are local, Swiss banking secrecy doesn’t apply and can no longer be used to impose jail terms on whistleblowers. This is how the Economist covered the case:

The country’s supreme court decides that overseas employees of Swiss banks can leak away”

We’re also sharing here an English translation of a report by Swiss law professor Werner Kallenberger, published on 25th October 2018 here, in Die Linke Zürcher Zeitung. Continue reading “Whistleblower Rudolf Elmer’s court victory: the long arm of Swiss secrecy law gets shorter” →