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” →

The case for supporting economic justice


The crisis of philanthropy

“We live in an age that loves the solution. But a lot of problems are problems of justice rather than problems of tinkering with an engine. And when you have a problem of justice, you can’t just move forward. You have to evaluate the whodunit.”

So says the author and journalist Anand Giridharadas in his recently published book, Winners Take All: The Elite Charade of Changing the World. The book has thrown down the gauntlet to philanthropists – society’s winners – to support efforts to reform the system that has made them rich while failing to improve living standards for the majority, rather than funding ‘sticking plaster’ initiatives that sound good but do little more than tinker around the edges.

Giridharadas argues that the top 1 per cent have a vested interest in perpetuating a system that produces ever greater inequality. In the USA, the incomes of the top 1 per cent tripled since 1980, while those of the bottom half stagnated. Similar trends are visible in other countries. This didn’t happen by itself. Vested interests successfully lobbied for low tax rates, less regulation and fewer social protections. These policies delivered an economy where the rewards of growth go to those at the top.

Many members of this elite recognise that the world has problems, but where they try to fix them, they do so in ‘safe’ ways that do not challenge the rules of the system: for example, by supporting entrepreneurship and social impact investing. Worse still, they support ‘safe’ initiatives while fighting the efforts of governments to address the real structural issues, because this would undermine their status, challenge their legitimacy and hurt their bank balances. (This has parallels with the historic and ongoing efforts of many Western governments to frame the causes of poverty in developing countries as anything other than an unjust global economic system that has been designed by the West to serve its own interests.)

As a result, concludes Giridharadas, most philanthropy is ineffective, and worse, it hides the real solutions. It is ‘fake change’. Many initiatives funded by the winners of the current system do help people in desperate need. But as they give back, elites aim to protect the system that causes many of the problems they try to fix. Their philanthropy masks the harm done by an economy that works in their interests. What we really need, he argues, is real systemic change to address the most pressing global problems in a sustainable way. Elites talk about promoting opportunity for all. But this is only possible when the economy is genuinely inclusive. This means higher taxes, more regulation, better social protections, and properly funded public services. Economic growth alone is not enough to produce a more equal society.

Broken economy, broken politics

At the Tax Justice Network, we strongly support the view that those people with wealth need to recognise that the global economic system that enabled them to become wealthy is deeply flawed and needs to be reformed if we are to have any hope of reversing inequality. And it’s not just about saving the economy – it’s also about saving democracy. Rocketing inequality is fuelling discontent around the world, as the principles and institutions of democracy and global cooperation are undermined and attacked by nationalist demagogues. The social compact that has shored up public support for open, democratic regimes has been weakened by the increasing dominance of a strain of market fundamentalism that has restricted the benefits of economic growth to the very top of society, without sharing it with everyone else.

Over the last 40 years, the neoliberal project has successfully persuaded people that a free and unregulated market is inseparable from individual liberty, and therefore from democracy. But neoliberalism has failed. The global financial crisis in 2008 and the subsequent downwards pressure on living standards has given birth to a breed of right-wing nationalists across the world who falsely blame these problems on immigration and free trade, when the systemic roots of these issues are rising household debt and falling real incomes combined with weak regulation and lack of transparency within the global financial system.

As it happens, the neoliberals were wrong. Liberty and democracy do not go hand in hand with unfettered capitalism. In fact, the opposite is nearer the truth. Democracy can only thrive if the economy can deliver fair and sustainable growth, support the social contract and provide the opportunity for everyone to participate in society. Political freedom is linked to freedom from want. The rise of antidemocratic forces as a result of the failure of neoliberalism to distribute the fruits of economic growth fairly are testament to this dependency. The unequal sharing of the proceeds of growth has been exacerbated by reduced tax and regulation, leading to reduced revenues for governments and the consequent haemorrhaging of public service budgets, coverage and quality. This has undermined public faith in the willingness and ability of governments to take steps to protect the living standards of its citizens and has led to the growing appeal of politicians who identify convenient scapegoats to blame for these problems.

Organisations like the Tax Justice Network, which seeks to make the global tax and financial system fairer and more transparent, have a critical role to play in defending democracy from the demagogues, as well as building the foundations of a fairer economy. The Tax Justice Network 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.

Our challenge to philanthropists

We are looking for those brave philanthropists who can give things up, not just give back, and help us. Philanthropists need to get out of the mindset that they can make a real difference by supporting projects that tinker around the edges. The only way to see real change is to tackle the deep structural roots of inequality, and to support governments to provide services for all of their citizens.

This especially applies to people who work in finance and who want to change the world for the better. A recent Guardian article by our colleague Nick Shaxson, author of Treasure Islands and The Finance Curse, outlines the damage done to the wider UK economy by its oversized finance sector. A research paper by Sheffield University estimates that the ‘finance curse’ has taken £4.5 trillion out of the UK economy between 1995 and 2015. Many well-meaning finance professionals give to charities, either directly or through their own foundations; some even embark on finance careers in order to ‘earn to give’, encouraged by the effective altruism movement. But, as Giridharadas has argued, this philanthropy risks doing more harm than good by diverting attention away from the significant damage that the finance sector in its current form does to the rest of the economy and to society at large, and from the urgent need to reform it in order to reduce this damage.

So, whether you work in finance or have become wealthy by other means, or if you work for a foundation that is interested in progressive change: if you want to change the world for the better, don’t just do what’s comfortable. Support genuine, global reform in pursuit of economic justice. Be the change; don’t indulge in ‘fake change’.

And if you’re part of the 99 per cent, not the 1 per cent, then you need to be part of the solution too. Philanthropists won’t change the world by themselves, even if they ditch ‘charity’ in favour of justice. Your support is needed – in voting and campaigning for change, in exercising your rights (and responsibilities) as consumers, and of course in helping those organisations that aim to tackle the systemic problems that we face.

How oversized finance sectors are making us poorer in the Tax Justice Network’s October 2018 podcast

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

Continue reading “How oversized finance sectors are making us poorer in the Tax Justice Network’s October 2018 podcast” →

Country by country reporting for the Sustainable Development Goals

I had the honour this week of addressing ISAR35, the 35th annual session of the UN’s Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (all presentations are available here; my slides are also below). The focus was on developing a framework to carry the logic of the Sustainable Development Goals (SDGs) into a set of core indicators for reporting by individual companies.

The ISAR experts include accountants and integrated reporting specialists from all over the world as well as country delegations. Excitingly, they are well along the road to establishing meaningful country by country reporting – which would fit perfectly with the logic of our proposal, now going into country pilots, for an indicator for SDG 16.4 on the profit shifting component of illicit financial flows.

What remains for company reporting is to ensure that the scope is sufficient to deliver the relevant accountabilities for SDG progress; and that there is a single, robust, underlying technical standard. And there’s every reason to think this will be achieved…

Continue reading “Country by country reporting for the Sustainable Development Goals” →

Why the German government’s blockade of corporate transparency is harming all of us

The German government is currently blocking a measure to publish country-specific balance sheet data, known as country by country reporting, in Brussels. Citizens and European politicians could use this data to free themselves from the headlock of the world’s most powerful lobbyists and tax avoiders. So far, however, the German government has failed to recognise both the inherent opportunity for a renewal of the European project and the EU’s great weight as a standard-setter in the global economy.

Since the global financial crisis of 2008, journalists have used leaks and painstaking research to show the industrial scale of tax trickery by the world’s largest economic players. Whether Google, Apple, Facebook, Amazon, Ferrero, Starbucks, BASF, Ikea, Vorwerk or SAP: their stories all too often give rise to a picture of brazen bilks who are flouting the public on top of causing the injury of unpaid taxes when they reel off their mantra of paying taxes everywhere in accordance with the law.

This assertion is only partially correct, as is shown by the billions in additional taxes assessed to be due during corporate tax audits. In 2016, for example, the tax authorities in Germany collected over €10 billion in taxes that large companies had failed to include in their tax returns. Data by the OECD shows that in 28 countries that reported data for 2015, on average additional 10.7 per cent of total corporate tax revenues are assessed through corporate income tax audits. In these 28 countries, on average fifty percent of all corporate income tax audits resulted in additional taxes assessed. To claim that corporates always pay tax everywhere in accordance with the law is thus simple corporate spin.

But the corporate mantra is badly misleading for another reason, too. It contains the subtle pretense that these companies are completely detached and uninvolved in the legislative process. In reality, global corporations afford a highly efficient lobbying machine and professional helpers. These are privileged professional groups such as tax advisors, lawyers and accountants who devise highly complex legal constructs for tax avoidance on the assembly line. To do this, they resort to artistically woven networks that reach from the economy to the highest political circles in order to guarantee impunity and tax loopholes.

These insider relationships function as long as they can work in secret. Essential for this opaque, criminogenic environment is that the extent of industrial tax avoidance is not exposed to public scrutiny. In this respect, Paradise Papers, LuxLeaks & Co. are serious system errors, anomalies in the matrix that have allowed a rare look behind the scenes. Individual errors, however, cannot paralyze a system.

The worst case scenario, the system breakdown for industrial tax avoidance, on the other hand, would be the regular measurement of tax dodging by public country by country reporting. These reporting obligations would reveal important indicators of economic activity, profits and tax payments for all countries in which corporations operate. Similar obligations already exist in the EU banking sector. A few months ago, German economists at the University of Cologne showed that these disclosure requirements have led to significantly higher tax ratios, especially for banks with tax haven operations.

Public country by country reporting generates more tax revenue due to incalculable reputational risks. If a company has to assume that the “fruits” of the elaborate tax acrobatics will be easily visible to the public at the end of the day, then suddenly other goals than aggressive avoidance play a more important role: management must act for the good of the company and therefore avoid possible calls for boycotts and negative headlines. When in doubt, corporate leaders are more afraid of reputational damage and shareholder pressure than tax authorities. The same applies to the tax authorities: their political leadership is more likely to shy away from unlawful or questionable deals if they threaten to entice enquiries.

The EU Commission and the EU Parliament have therefore proposed introducing such reporting obligations for the largest corporations in all sectors. Annual, complete financial transparency for the largest corporations could trigger incalculable reactions from voters, small and medium-sized domestic companies and consumers. Equipped with such corporate data, they could make better informed decisions at the ballot box, in the chamber of commerce and at the supermarket shelf on how they want to use their vote, their influence and their household budget.

Those who suffer most from corporate tax dodging are average and low-income earners, because they can hardly evade taxation via value-added tax and payroll tax and thus step into the breach for missing tax revenues. In line with the trend of recent decades, these groups shoulder a growing share of the tax revenue. Generally, these are the same social strata that also suffer most from a lack of quality public services due to a lack of taxes – be it a shortage of teachers at public schools, under-equipped public universities or under-funded social services for single parents.

The same applies to small and medium-sized companies, which are losing out against big companies. Double standards are also applied when it comes transparency. Insofar as they are only active domestically, the annual financial statements of small and medium-sized enterprises usually contain the balance sheet data, the publication of which the global monopolistic giants have so far successfully resisted.

No wonder, then, that the EU Commission’s request rouses powerful, ancient forces to resist. In 1978, such a system breakdown was looming on the horizon when the United Nations was on the brink of obligating multinationals to publish annual accounts for every single subsidiary in their global corporate web – including in all tax havens. With the help of the USA, Japan and other OECD countries, economic lobbyists succeeded in stopping this push at the last minute. Instead of the United Nations, private accounting firms have since been enthroned by the OECD as standard setters.

In a classic manner, the fox was appointed guardian of the hen-house: to this day, it is above all the Big Four accounting firms that set the influential accounting standards for corporations. The European Union and many other countries in the world have so far nodded off these as supposedly non-political, purely technical standards.

This could change if the Federal Government finally gave up its opposition to the proposal for public country by country reporting. In the European Council of Ministers, Germany is playing the key role – and has so far rejected public country by country reporting alongside Luxembourg, Ireland, Cyprus, Malta, Hungary, Sweden and Austria. With the exception of Sweden, all other countries are more or less notorious corporate tax havens, and thus hardly surprising opponents of the reform.

In short: it is one of the regulations where the SPD-led ministry would be well advised to take an example from the CSU Minister of Agriculture and his Glyphosat decision and “do the Schmidt” – simply to give its approval in Brussels on its own. There are more unworthy plans to jeopardize coalition peace. Instead, every argument, however far-fetched, against this proposal is being made by the business community – and unfortunately many of them have so far been taken up by the government coalition and the SPD finance minister.

As long as Germany hides behind narrow-minded legal arguments, irrational fears of the decline of Germany as a business location or the retracting of half-baked intermediate steps already achieved, Europe cannot prosper. It is time for Germany to find its way from being Europe’s taskmaster to a new role. Germany should no longer deny Europe’s weight as a standard-setter for the world economy and help give globalisation a more human face. Europe needs to expand its efforts on this ethical mammoth project to the extent that its great transatlantic ally is failing.

For this very reason, however, Europe and Germany still have an important lesson to learn from the USA: to finally use our market access as a lever to enforce (transparency) standards. The window for the adoption of the proposal ready for signature in Brussels is closing rapidly – there are only a few weeks left to get it through before the EU elections. What are we waiting for?

How the UK can raise £2.5bn from tax-avoiding multinationals today

15 years ago the Tax Justice Network proposed that multinational companies be required to report publicly on their operations, profits and taxes paid in each country where they operate. Our aim was to bring the transparency of the world’s biggest economic actors more in line with that of individual companies operating in a single country. Tax expert Richard Murphy wrote a draft international accounting standard, and then we took it to the world.

In 2013, the G20 and G8 groups of countries recognised the importance of this data in the fight against tax avoidance, and mandated the OECD to introduce just such a standard. But as yet, the data remain private to tax authorities. The UK passed legislation two years ago that would allow it to make the data public – but for unknown reasons, the government has not used this power.

Now, in joint work with our independent sister organisation Tax Justice UK, we present new evidence showing that public country by country reporting could raise revenues of £2.5 billion a year. The Chancellor Philip Hammond should simply say the word in his budget speech next week.

Continue reading “How the UK can raise £2.5bn from tax-avoiding multinationals today” →