Fintech, hotbed of offshore deregulation and crime

Reuters has just published an article titled Swiss watchdog to propose looser anti-money laundering rules for fintechs. (Fintech is short for “financial + technology” and it is about bringing technology into the financial sector.) Switzerland’s move is, apparently:

part of a drive to boost innovation and shore up the country’s position as a leading money management hub.”

For the appropriate context for this, see a recent FT Alphaville column entitled Fintech as a gateway for criminal enterprise. It focuses on money transmission services, but it’s part of an Alphaville series examining the dark side of fintech, which is disturbingly large.

Equally disturbing, tax havens are rapidly jumping on the Fintech bandwagon.  Jersey has set up a “regulatory sandbox” to allow certain startups to operate “without the normal registration requirements and associated costs.” The Isle of Man, another tax havens, has “thrown its arms wide open” to cryptocurrencies. In the words of Appleby, the star of the Paradise Papers:

The Isle of Man Government appears keen not to suffocate this evolving area with onerous regulation.”

If that doesn’t set the warning lights flashing take a look at sleazier tax havens, like Malta, which is a “hotbed for fintech” and which has dived in with “Bitcoin ATMs.” Or try the Russian enclave and “Special Economic Zone” of Kaliningrad, where participants enthuse that

Whatever is not illegal is legal . . . there are no laws regarding cryptocurrency mining because it’s a new kind of business.”

And that gets to the nub of the issue with fintech. It is racing ahead of regulatory protections for consumers and wider society — and that can be a highly profitable place to be. Which is why it is so compatible with the offshore tax haven model: these places are in the business of offering escape routes from the rules.  As one of the boosters of this technology puts it — a booster with the fitting name of ‘escape artist’ — Cryptocurrency Is The New Tax Haven. 

The word “crypto” should offer a clue — in this case, secrecy. Bitcoin, the best known of these currencies, is not just a vehicle for secrecy and crime, but also a way for those running the system to abuse millions of poor mugs who thought they could get rich by buying into this once in a lifetime opportunity (a “fraud worse than tulip bulbs,” as a top banker put it, with only some exaggeration.)

There’s a sucker born every second

And there’s this:

According to a working paper from the University of Luxembourg, lesser-known hubs like the British Virgin Islands, Gibraltar, and the Cayman Islands now count among the world’s top ten ICO [Initial Coin Offering] destinations, owing to their ease-of-ICO administration, laws, and tax benefits.”

Having made a business model of racing ahead of regulations, the best way to stay ahead is to be regulated in a tax haven.

For a dose of sanity on fintech, there’s plenty more here.

Update: the Marshall Islands, a rather secretive tax haven, is also keen to join the bandwagon. 

Tax “stability” short-changes Burkina Faso

A couple of years ago we wrote a blog entitled Beware the siren song of “tax certainty, which took apart a widespread consensus that it is important for countries to embrace ‘tax certainty’ and ‘stability.’ These motherhood-and-apple-pie terms hide a world of mischief: not least the fact that this ‘certainty’ is usually a one-way ratchet.

In other words, companies love the ‘certainty’ that taxes won’t be raised, but they don’t need the ‘certainty’ that taxes won’t be cut. This one-way ratchet is generally a bad thing for the countries that embrace it, because it prevents them from raising taxes (or from implementing other beneficial policies such as social or environmental laws) when they need to do so.  Continue reading “Tax “stability” short-changes Burkina Faso” →

Guest blog: Long Overdue Arrival of “Tax Justice Aotearoa New Zealand”

We are delighted to bring you this announcement from TJANZ, and to welcome them wholeheartedly to the growing global family of tax justice organisations:

Tax Justice Aotearoa New Zealand (TJANZ) has just been launched in Wellington. As a partner of the international Tax Justice Network, we will provide a voice for progressing tax justice in New Zealand. This blog introduces TJANZ, explains its goals and how it can contribute to making NZ and the world a fairer and better place.

Continue reading “Guest blog: Long Overdue Arrival of “Tax Justice Aotearoa New Zealand”” →

Webinar on Unequal Exchange – 29 August 2018 at 11:00 UTC – 12:00 UTC

Presentation by: Andres Knobel, Tax Justice Network

Developing countries lose billions of dollars every year due to illicit financial flows or IFFs. One of the big obstacles countries face in curbing IFFs is the access to information, especially from developed countries that happen to be tax havens. Automatic exchange of information allows countries to gauge the magnitude of illicit finance that has crossed borders. The webinar aims to demystify this issue, analyse its loopholes and its relevance from the perspective of developing countries. Click here to read more on Automatic Exchange of Information.

Register: here.

The Curse of Laffer: Trump’s tax cuts see revenues plunge 25 percent

We’ve previously blogged on Donald Trump’s plans for cutting corporate income tax, and now they’ve come to fruition we can see the results as far as the USA is concerned. Tax receipts are plummeting, despite the economic boom stimulated by his predecessor’s QE programme. Commentators have widely predicted that this will inevitably lead to a widening deficit, greater inequality, and harmful impacts on other countries as tax competition pushes the race-to-the-bottom, but these are just details!

Trump is not the first politician to be seduced by the alchemy of Arthur Laffer’s phoney curve, and he won’t be the last, but it’s not encouraging that they just keep on doing this despite the mountains of evidence refuting the idea that tax cuts yield higher long-term revenues.

Meanwhile, and notwithstanding the calamitous harm inflicted on the state of Kansas, which took the tax cutting route to its logical conclusion, some politicians just keep lapping up Laffer’s snake oil.

Are tax incentives in Nigeria attracting investment or giving away revenue?

For over a decade, Nigeria, like so many developing countries, has been granting a number of tax incentives to multinational companies in a bid to attract foreign direct investment. Proponents of the incentives argue that the measures are vital to the development of the economy, while critics point to the glaring lack of evidence supporting these claims. As the Tax Justice Network develops its Corporate Tax Haven Index, we ask: are tax incentives serving the people or a few individuals?

Recently there seems to be a move towards finding a middle ground between the proponents of tax incentives, usually the organised business sector, and the opponents, the civil society organisations and campaigners. In March 2018, at a meeting of civil society organisations organised by Action Aid Nigeria, there was a heated discussion on the role of tax incentives in the development of Nigeria. Although the meeting was intended for the third sector, it also had in attendance representation from the organised private sector and the Federal Inland Revenue Service (FIRS). One of the aims of the meeting was to gauge the perception of stakeholders on the issue of tax incentives, to discuss and agree on certain issues, and to chart a course for further action.

The interesting thing about the discussion was the diversity that it had. For example, while the representatives from the third sector were sceptical about tax incentives in general, the representatives of the organised private sector were inclined towards a more positive view about tax incentives. They support the notion that some tax incentives are good, and one example they cited to that effect is that the domestic manufacturing sector in Nigeria will simply cease to exist without tax incentives. However, the scepticism of the civil society organisations may not be unconnected to the fact that there is currently little or no evidence that suggests that tax incentives are significant to development.

The tax incentives offered by the Nigerian government

Tax incentives are generally categorized into two: cost-based tax incentives (such as tax credits and accelerated depreciation allowances) and profit-based tax incentives (such as tax holidays or reduced tax rates). The types of incentives that come under these two broad categories can greatly vary based on sector, income type, business size, and business location. The incentives can be temporary or permanent and can offer partial exemption or full-exemption.

The IMF defines tax incentives as any special tax provisions that are granted to qualified investment projects or firms that provide a favourable deviation from the general tax code. Included in the examples given by the IMF in their definition are tax holidays, which are widely used in Africa and happen to be the most abused type of tax incentive in Nigeria in the form of pioneer status. The pioneer status is an incentive governed by the Industrial Development (Income Tax Relief) Act, Cap 17 Laws of the Federation of Nigeria, 2004, and it allows certain businesses a tax holiday for three years, which is renewable for another two. The abuse of the pioneer status incentive is partly due to the discretionary powers of the Executive which enables it to grant pioneer status without the need for approval from the National Assembly. The Nigerian tax system permits registered businesses to change their name or business, or even leave the country, after the expiration of their pioneer status which creates more risk for abuse. This, among other things, raises questions about the effectiveness of these so-called tax incentives and the resultant opportunity cost.

Digging deeper or digging our way out?

Studies suggest that  tax incentives are generally considered to be the least important factors in making investment decisions in low-income countries, because the investments would have happened  with or without them. Factors such as infrastructure, security and rule of law, to mention a few are ranked higher.  Similarly, other studies confirm that tax incentives have more negative than positive impact on sustainable development in developing countries. Despite all the evidence and arguments on the ineffectiveness of tax incentives, the Nigerian government, through the Federal Ministry of Trade and Investment expanded its pioneer status regime by including 27 new industries. Although the Nigerian Government reviewed the list of companies and sectors eligible for Pioneer status in 2017, the review was premised on the notion that the businesses were mature enough not to need tax incentives, rather than carry out a thorough analysis on whether the tax incentives are at all useful.  Furthermore, last year, the Federal Inland Revenue Service, together with the Nigerian Investment Promotion Council (NIPC) launched the Compendium of Tax Incentives to promote Nigeria as an attractive investment destination using tax incentives. So on the one hand, while Nigerians have been inundated with talks about how the government intends to broaden the tax base and reduce its reliance on oil revenue and make taxation the source of development, the government on the other hand is signing away its tax revenues without any evidence that suggests that a careful cost-benefit analysis has been carried out to ascertain if the tax incentives are going to be beneficial or not. This is despite the recommendations from the newly reviewed National Tax Policy which states that:

“Any incentive to be granted should be broad, sector-based, tenured and transparent; Implementation should be properly monitored, evaluated, periodically reported and kept under review; Revenue forgone from tax incentives or concessions should be quantified against expected benefits and reported annually. Where the benefits cannot be quantified, qualitative factors must be considered; and tax policies on investments should not promote monopoly such as entry barriers or otherwise prevent competition.”

There is no evidence that shows that significant efforts towards the above have been taken, notwithstanding, Nigeria is a country where close to 70 percent of its population live below the poverty line and where, according to the UNICEF, 10.5 million children are out of school.

Perhaps another thing that complicates the issue of tax incentives in Nigeria is the fact that so many agencies are involved in its administration, which leads to the duplication of duties and lack of coordination that opens up avenues for abuse. So even if the said incentives were confirmed to be beneficial, it remains unclear if the existing complicated framework will be efficient and effective in implementation. One other concern is that the government has also never made transparent the cost of the incentives it grants, which may be attributable to the complex nature of the tax incentives framework. One can deduce that the government’s actions are not ill-conceived, however, the same cannot be said about the quality of the decisions.

The Corporate Tax Haven Index

Understanding the harmful nature of these tax incentives is part of the motivation behind the Corporate Tax Haven Index that we are developing at the Tax Justice Network, with tax incentives being a significant portion of the work. The Corporate Tax Haven Index will rank jurisdictions that contribute most to the global race to the bottom in corporate taxation. For tax incentives specifically, the aim is to analyse the problematic nature of tax incentives and how they contribute to the race to the bottom. This is an important step in addressing the inefficiency of tax incentives in Nigeria and other developing countries, because it will greatly aid in the pursuit of global tax transparency and fairness.

As a country that is desperate for funding development, with one of the lowest Human Development Index rankings in the world, and one of the lowest tax to GDP ratios, it is critical that we re-evaluate our tax incentives framework. For every tax we give away, we may be giving away healthcare, security, good roads, improved welfare for the civil service and so much more. It is vital that the Nigerian Government carries out a thorough cost-benefit analysis on tax incentives and make transparent the opportunity cost of these incentives such that it will be clear if the incentives are serving the people or a few individuals. The discretionary powers given to the executives should be reviewed so that if and when the government deems it necessary to grant any form of incentives, they should be based on evidence, approved by the National assembly and with the active participation of relevant stakeholders. Lastly, the government should implement the recommendations of the National Tax Policy to ensure that tax incentives, if and when granted achieve their purpose.

Extreme inequality levels in Bermuda despite its offshore services centre, in the Tax Justice Network’s August 2018 podcast

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

Also:

Featuring:

Bermudian Economist Robert Stubbs, formerly Head of Research for Bank of Bermuda, and John Christensen of the Tax Justice Network. Produced and presented by Naomi Fowler, also of the Tax Justice Network.

There is a reluctance to address the problem, there is a reluctance to increase spending by government. Obviously that will require higher taxes and it will require higher taxes especially from those who have more ability to pay and there is severe resistance to this…the locals have suffered by the lack of diversity in the economy and….the majority of the population don’t see the benefits [of the finance sector] and there is a widespread recognition I think in all these islands that we have to diversify the economy”

~Robert Stubbs

Continue reading “Extreme inequality levels in Bermuda despite its offshore services centre, in the Tax Justice Network’s August 2018 podcast” →

Tax Justice Network’s August 2018 Spanish language podcast: Justicia ImPositiva, nuestro podcast, agosto 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 August 2018 Spanish language podcast: Justicia ImPositiva, nuestro podcast, agosto 2018” →

Why is Amazon still paying little tax in the UK?

Even the Daily Mail has been outraged by how little tax Amazon is paying in the UK. But none of the comments so far, even by tax experts wheeled out by the media, have pointed to the central reason.

It’s clear that the profits attributed to the UK are low compared to Amazon’s global net income of $3b in 2017. But HMRC does not look at these global profits, it starts from the income Amazon attributes to its UK subsidiaries for performing services for the group. This income has been further reduced by deducting the value of Amazon shares allocated to its top UK managers in their remuneration packages. Yet these are shares in Amazon Inc., not in the UK companies they manage, which are 100%-owned affiliates. So, while Amazon’s top UK managers share in the firm’s worldwide success, HMRC is content with taxing the meagre profits attributed by treating the UK affiliates as sub-contractors.

Amazon of course is a multinational, and it operates through scores or even hundreds of subsidiaries around the world. But they are all under central control and direction, ultimately under the CEO Jeff Bezos, now top of Fortune’s rich list. It generates its enormous revenues from its success at combining all its activities. People use Amazon because it provides next-day delivery, and an excellent website with customer reviews even for the most specialist items, backed by good customer service. Electronic books can be ordered from and delivered directly to a Kindle. Amazon Prime also offers streamed movies, and Amazon Web Services has a key position in cloud computing, linked to its Alexa voice system.

It is this whole package that has put Amazon in such a dominant global position. It is far more than the sum of its parts.

Yet when it comes to tax, this reality is ignored. What we have been told is that Amazon UK Services Ltd, which handles warehouse operations and provides fulfilment services, paid tax of £4.6 million on pretax profits of about £72 million in 2017. In parallel, Amazon Web Services UK Ltd, which provides consulting and marketing services related to cloud computing, reported paying £155,000 in total tax in 2017 on profits of £5 million. In both cases this is far less than the corporate tax rate which applied in 2017 (19.25%, because it fell from 20% to 19% as from 1st April). But we are told that the reason for this is the perfectly justifiable and legal deduction of share-based employee compensation.

What has not been explained is how the profit for these companies has been calculated. This is confidential between HMRC and Amazon. But Amazon is clearly taking advantage of the bizarre concept that is still basic to international tax: the independent entity principle. In this perspective, these subsidiaries are merely providing support services to Amazon, so their profits should be calculated by comparing them with those of standalone companies providing similar services. This means applying a so-called ‘one-sided’ method to determine the appropriate taxable profit, taking the subsidiary in isolation from the group, and applying a benchmark rate of return to an appropriate base, such as operating costs. Services such as warehousing and delivery, or marketing, are generally low-margin businesses, so the profits declared are very low. The taxable profits are even lower, because of the employee compensation deduction, calculated on the basis of the value of the shares distributed.

But wait a minute: which company’s shares are these? Not those of Amazon UK Services, or Amazon Web Services UK, which are a wholly owned part of the Amazon group. The shares are those of Amazon Inc., and have continued to increase in value, hence the massive deduction. For UK Services it was £17.5m on profits of £72m, and for Web Services a whopping £12m on profits of only £5m, several multiples of the tax collected by HMRC.

Of course, it’s laudable that employees should share in the success of the company, although this obviously doesn’t extend to the warehouse employees, whose bad working conditions have been pointed out by the GMB union. But if the top managers in the UK can share in the company’s global success, why aren’t Amazon’s tax liabilities in the UK calculated in the same way? Why doesn’t HMRC take account of the benefits of synergy from the close integration of these services with Amazon’s activities as a whole, which is the result of performing them in-house rather than contracting them out?

The tax paid is also disproportionate to Amazon’s impact on UK markets and consumers, where according to its US filing it had $11bn (£8.6bn) out of some $178bn (£139bn) net income from worldwide sales through its websites in 2017. These are routed through Amazon EU Sarl, which is based in Luxembourg. But of course, as we are frequently reminded, tax is paid on profits, not sales. Nevertheless, Amazon in 2015 agreed to treat its UK sales as booked in the UK, by accepting that the Luxembourg company has a taxable presence in the UK – in tax jargon a ‘permanent establishment’ (PE). Since the Luxembourg company’s published accounts are not broken down on a country-by-country basis (as pointed out by Richard Murphy), we don’t know how much tax this PE will pay in the UK. Nevertheless, it is very likely that this entity will also be treated as simply supplying services, in this case managing sales, and declare very low profits, probably a low margin of operating costs.

International attempts at reform

Those who recognise that this approach is unacceptable say that solutions must be sought through international channels. The UK helped to launch and has actively participated in the major initiative to reform international tax rules, the project on base erosion and profit shifting (BEPS), begun in 2012 by the tax specialists at the Organisation for Economic Cooperation and Development (OECD), and backed by the G20 world leaders in 2013. This delivered a package of reform proposals in 2015, but the OECD asked for 5 more years to complete the critical work on tax consequences of digitalisation of the economy. Under pressure to move more quickly, it managed only another interim report in March 2018, showing that countries are still deeply divided.

The rest of the 2015 package was mainly a patch-up of existing rules, as analysed in more detail here. The main advance was the creation of a system for country-by-country reporting by multinationals with turnover over €750m (£669m), although these reports will be seen only by tax authorities. In other respects, the OECD has continued to stubbornly follow the independent entity principle.

Alternative approaches for moving towards taxing multinationals in accordance with their economic reality as unitary enterprises have been examined by the Independent Commission for the Reform of International Corporate Taxation (ICRICT), which published a Roadmap for a new approach in February 2018. The BEPS Monitoring Group (BMG) has followed the international reform process since 2013, and issued detailed comments on all the OECD proposals and measures.

What has the UK done?

The UK does not have to wait, it can start to adapt its tax rules. Indeed, it jumped the gun on the BEPS project by enacting the Diverted Profits Tax (the DPT) in 2015, as well as related measures in 2016 to stop payments of royalties eroding the tax-base. It was clearly these measures that spurred Amazon to agree to book its UK sales in the UK. Recent data show that the DPT recovered £388m in 2016-7, of which £219m resulted from the tax itself, the remaining £169m is the estimated additional corporate income tax from firms such as Amazon changing their structures. Since HMRC issued only 14 DPT charging notices the previous year (which take effect after 12 months), the additional DPT revenues amount to an average of some £15.6m. The additional tax resulting from Amazon’s booking of sales to a PE in the UK would presumably be part of the estimated additional £169m resulting from behavioural change, but we do not know how many firms this covers. While these sums are substantial, they are a drop in the bucket compared to the revenues of firms like Amazon.

Clearly, better reforms are needed. In November 2017 the Treasury published a position paper stating the government’s preferred options, detailed comments on which from the BMG are available here. Regrettably, the signs are that the UK government is still unwilling to support a shift towards a unitary approach. The Treasury proposes only that the international rules should accept the contributions made by “active users” of web platforms in determining attribution of profits. In other respects, it seems to accept continuation of the independent entity approach. This would not solve the problems, it would only add another level of complexity in deciding who are active users. What about the customers who add reviews on the Amazon website? It would also ignore the enormous value generated by collection of data from users by such platforms. Under the current UK strategy, the UK tax on Amazon’s profits is unlikely to change.

What could be done now?

One way a unitary approach could be adopted under current rules is to take account of the integrated nature of the activities of subsidiaries of firms such as Amazon in a country such as the UK when deciding how to attribute profits to them. It clearly makes no sense to pretend that each affiliate operates independently of the others and of the enterprise as a whole, just like subcontractors. The OECD Guidelines on Transfer Pricing allow the use of the profit-split method, to apportion the combined profits of related entities whose activities are integrated. Clearly, the enormous volume of sales generated by Amazon Sarl are closely linked to both the website and marketing support and the warehousing and delivery services of its UK resident affiliates.

The OECD was urged to adopt such a holistic approach by the BMG in September 2017, available here. Yet the guidance finally issued in March 2018, was obscure. It still stressed the independent entity principle, while also mentioning that in some circumstances account could be taken in attributing profits to a PE of “the potential effect on those profits of the level of integration of these activities” (para. 8). It’s obviously no easy task to reach agreement by consensus among a large group of countries. This may help explain why, unfortunately, the international discussions are being conducted under a cloak of technical complexity and secrecy.

Yet it is surely time for a leading country such as the UK to state clearly where it stands on basic principles. It should support moves towards treating multinationals in accordance with the economic reality that they are unitary firms, and to move away from the fictions which allow giants such as Amazon to create complex group structures to avoid tax.

Public Services and Economic Injustice in Tax Break Ireland

The reality of ill-health leaves little time to dwell on rights and justice, or on what might turn out to be empty promises – as the Irish Examiner reports. And while the experience of living with ill health might be said to be something of a leveller, it is not. There is no ‘level playing field’ if health services are a postcode lottery,  or at the mercy of political short-termism, or market forces.

Shortcomings in the quality of healthcare in Ireland are likely to be directly connected to the economic model which successive governments in Ireland have adopted. i.e. of low corporate tax rates and a belief in “trickle down” economics. While this has attracted business to Ireland, taxation revenue has often ended up elsewhere. J. Kenneth Galbraith explains it well: “It is the ‘horse and sparrow’ theory of income distribution and its taxation. If you feed a horse enough oats, some will pass through to the road for the sparrows.” Continue reading “Public Services and Economic Injustice in Tax Break Ireland” →

Edition 7 of the Tax Justice Network Arabic monthly podcast/radio show الجباية ببساطة

Here’s the seventh 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.

In the seventh issue of الجباية ببساطة (Taxes Simply) we start with a summary of July’s tax news from around the Arab region and the world. Plus: Continue reading “Edition 7 of the Tax Justice Network Arabic monthly podcast/radio show الجباية ببساطة” →

The abuse of Limited Partnerships in the UK: predicting the future with the Financial Secrecy Index

The Tax Justice Network’s Financial Secrecy Index assesses jurisdictions on their transparency levels in their legal framework by looking into 20 different indicators including banking secrecy, beneficial ownership registration, anti-money laundering, etc.

One of the key principles of the index is the weakest link principle (or “lowest common transparency denominator”), meaning that a jurisdiction will be rated under each indicator based on the worst transparency case available. For example, if the United Arab Emirates has, in general, appropriate accounting regulations for companies but one of its 39 free zones allows companies not to keep proper accounting information, the whole country will be rated based on that worst case. Continue reading “The abuse of Limited Partnerships in the UK: predicting the future with the Financial Secrecy Index” →

Register for the 4th International Conference on Beneficial Ownership Registries, Argentina

The 4th International Conference on Beneficial Ownership Registries will take place in Buenos Aires on August 8th-9th at Argentina’s Attorney General’s Office (Ministerio Público Fiscal). It is co-hosted by Tax Justice Network with Fundacion SES, Argentina’s Anti-Money Laundering Prosecutor (PROCELAC), with the support of the Financial Transparency Coalition. We blogged about this event last year here and we’ll report back to you once again this year on the highlights.

On this year’s agenda for discussion will be the international context in this area, with TJN presenting its paper on “the state of play of beneficial ownership registration”, showing the best cases in Europe and Latin America as assessed by the Financial Secrecy Index. This year will also focus on global and regional progress, as well as challenges faced by investigative journalists, authorities involved in anti-corruption and anti-money laundering and the justice system.

Technological upgrades and challenges will also be presented, in addition to a new panel on anti-money laundering and compliance within the private sector and state-owned companies.

The former head of the Financial Action Task Force, as well as the heads of Argentina’s anti-corruption office, the Financial Intelligence Unit and the anti-money laundering prosecution office will open the conference, together with the Financial Transparency Coalition’s Executive Director. Public officers from the commercial register, tax authorities, the Central Bank, and ministries of Modernization, Defense and Justice from Argentina and Latin America will participate as speakers, together with journalists, civil society organizations and compliance experts from the private and public sector.

The agenda and registration details (in Spanish) is available here.

Blacklist, whitewashed: How the OECD bent its rules to help tax haven USA

We’ve criticised for years the farcical nature of ‘tax haven’ blacklists, whether EU or OECD ones. They all turn out to be politicised, misleading and ineffective. If you want an objectively verifiable ranking you need look no further than the Tax Justice Network’s Financial Secrecy Index.

But still they come… On July 23rd 2018, the OECD published its report to the G20. What interests us is Annex 2 of this report, which includes the OECD’s updated criteria – which it was required to prepare at the G20’s request – to identify jurisdictions that have not satisfactorily implemented the OECD tax transparency standard. Continue reading “Blacklist, whitewashed: How the OECD bent its rules to help tax haven USA” →

OECD stretches the truth to give the US a better transparency rating than Ghana

It’s baffling but the OECD’s Global Forum has awarded the US a “largely compliant” rating on its transparency in exchanging tax information with the international community despite the US being one of the most secretive countries in terms of company ownership. Troublingly, the US, which ranks in second place on the Tax Justice Network’s Financial Secrecy Index, received a better rating than Ghana, which already has a beneficial ownership register and has signed up for many of the international frameworks that the US refuses to join. Is the Global Forum giving the US favourable treatment? We delve into the details and compare the two countries side by side… Continue reading “OECD stretches the truth to give the US a better transparency rating than Ghana” →

A firewall to protect EU citizens from the Big Four accountancy firms and the tax avoidance lobby: the Tax Justice Network’s July 2018 podcast

In the July 2918 Taxcast:

Continue reading “A firewall to protect EU citizens from the Big Four accountancy firms and the tax avoidance lobby: the Tax Justice Network’s July 2018 podcast” →

Progress on global profit shifting: no more hiding for jurisdictions that sell profit shifting at the expense of others

The world’s largest economic actors are also the least transparent. Multinational companies and their big four advisers have been so effective in lobbying for opacity that their reporting requirements are actually less than is required from even small and medium-sized, purely domestic businesses. But change is coming…

The OECD has confirmed today that from late 2019 it will start publishing aggregate and anonymised data from the country-by-country reporting of multinational companies. The exact quality of the data remains to be seen, but this does seem to represent a massive step forward in global corporate disclosure – and is likely to be the best we’ll get until companies are required to publish their own reporting. [The OECD has always been against making individual companies’ country-by-country reporting data public; and the EU’s proposals for public reporting may unfortunately not happen for the moment anyway, as we covered here recently.]

And while the aggregate data will still allow individual multinationals to hide all sorts of things, it does have the potential to support powerful progress towards accountability for corporate tax havens that leech revenues from lower-income countries all over the world – undermining commitments to the UN Sustainable Development Goals. Continue reading “Progress on global profit shifting: no more hiding for jurisdictions that sell profit shifting at the expense of others” →

UK to introduce 5th Anti-Money Laundering Directive: eyes turn to Crown Dependencies and Overseas Territories

The UK government has confirmed to campaigning MP Margaret Hodge that, Brexit notwithstanding, the UK will introduce the major tax transparency measures in the European Union’s 5th anti money laundering directive. As the Guardian highlights, these include the following crucial measures:

This is progress in respect of two important matters. First, it means that in this area at least, the UK government will not seek to exploit Brexit in order to lead a race to the bottom on anti-money laundering measures. And second, it means that all eyes will now turn to the UK’s Crown Dependencies and Overseas Territories, to see if they’ll follow suit, especially when it comes to transparency of trusts.

Continue reading “UK to introduce 5th Anti-Money Laundering Directive: eyes turn to Crown Dependencies and Overseas Territories” →

More open data, greater transparency and layout changes added to the Financial Secrecy Index

The Tax Justice Network published today an updated layout version of the Financial Secrecy Index’s database reports. The Financial Secrecy Index (FSI), which ranks jurisdictions according to their secrecy and the scale of their offshore financial activities, is a transparent living document that we continue to finetune, in part based on the constructive feedback we gain from people engaging with the index. The update includes two new narrative reports on India and Romania, fixes to broken links, clarifications and more. None of the updates to the index have had any effect on the secrecy score or ranking of a jurisdiction.

The fifth edition of the Tax Justice Network’s FSI, published on January 30th, 2018, was another step towards transparency. For the first time it offered detailed technical reports in open data format (downloadable as Excel documents). This allowed each country’s transparency legal framework to be available in open data format. Following the publication of Tax Justice Network’s latest paper on beneficial ownership last month, which summarises the FSI’s results on legal and beneficial ownership registration across 112 jurisdiction, today we are releasing for download the full data by each of the 113 questions that drive the 20 key financial secrecy indicators (KFSIs). This format should be particularly interesting for researchers looking to analyse how countries differ on a specific issue, such as banking secrecy or beneficial ownership registration. You can access the data by ID for 113 out of 115 IDs feeding the 20 KFSIs here.

The FSI’s transparency has also enabled us to interact with users at the granular level. Our full transparency means that users can ask questions about the FSI on both a macro level (as some typical tax havens have already done) and a micro level (questioning a specific source, a word or sentence within a multi-paragraph response, etc). At Tax Justice Network, we have always welcomed any constructive engagements with our work and the FSI’s open data format has indeed led more experts as well as officials at high ranking secrecy jurisdictions to look in-depth at our data and to proactively engage with us on issues that may require amendments or clarifications. As a result, the FSI database reports have become a living document and on April 11th, 2018, we published our first update to the layout of the database reports. The update included clearer phrasing for some questions, interface amendments and tidier display items. It is important to emphasise, however, that none of the changes had any effect on the secrecy score or ranking of a jurisdiction.

We also responded shortly after the April 2018 update in detail to comments we received about the index.

As part of the latest update to the FSI published today, we have made the following changes:

You can access the updated FSI database reports here, the updated Excel extracts here and the narrative reports here.

We are aware that despite our thorough internal auditing and cross-checks, we cannot rule out the possibility of minor errors. We are thus grateful for any kind of engagement that will lead to the improvement of the FSI. Please note that we apply changes only if a source is provided and the change is consistent with the FSI criteria. That is, notifying us about a general rule or about the “best legislation” in a certain jurisdiction will not suffice to change an answer if the loophole or exception we had identified still applies. The FSI methodology is explained in detail here and answers to potential questions can also be found on our FAQs, as well as on our related infographics and videos.

We invite anyone who would like to add comments, criticism or queries to email us at [email protected]. We are committed to analysing the information we receive and responding to every commentator. While we cannot guarantee to constantly update and publish a new layout version every time we decide to apply a change, we promise that all relevant changes that have not yet been publicly addressed will be implemented in 2019/2020 when we undertake the next reassessment of the FSI.

Country by country reports: why “automatic” is no replacement for “public”

A critical battle is currently being waged in the international tax policy arena over the implementation of country by country reporting, a reporting process that deters and detects tax avoidance by multinational companies, among other things, by requiring companies to provide a global picture of their activities, structures and the taxes that they pay. While country by country reporting would have been quickly written off just a few years ago, the practice is now widely accepted as necessary for the healthy functioning of economies. On the backfoot, some actors pushing to make the implementation of country by country reporting as toothless as possible are now claiming “confidentiality” concerns. But do their concerns have any merit or are they just crying wolf?

The side fighting for transparency in this current policy battle lost a round last week at the hands of Germany’s new finance minister, Olaf Scholz, at the EU parliament. In our view, Germany’s  support of giving multinational companies and tax havens the power to veto any proposals on the implementation of county by country reporting sabotages European efforts to make companies be more transparent about their financial affairs.

Transparency NGOs want country by country reports to be made public. Big business and the OECD want the reports to be only viewed by tax authorities because they consider the reports “confidential”. Well, firstly, “confidential” is a rather subjective term and interpreted differently across different countries. The US president can opt to refuse to share his “confidential” tax return, while the income of any ordinary person in Sweden or Norway can be accessed by anyone. Perhaps ordinary Scandinavians are less afraid of being kidnapped than the US president, who’s protected by the Secret Service… Continue reading “Country by country reports: why “automatic” is no replacement for “public”” →

Who funds you? Transparency and think tanks: we score the maximum, again

The organisation Transparify provides the first-ever global rating on the financial transparency of major think tanks. Today they release their 2018 rankings. It’s vital that people know who’s funding organisations that shape the news and the narratives on key things like the economy, public services, healthcare, taxation, and the environment. In any healthy democracy we should all be in a position to judge for ourselves whether or not research has integrity and intellectual independence. Too often the media fails us on this, often uncritically interviewing spokespeople as ‘experts’ from organisations which are secretive about their funders, without any challenge or inquiry into whether or not these sources are credible.

Highly relevant to this discussion is the current investigation by the UK’s Charity Commission into whether pro-Brexit, anti-National Health Service think tank the Institute for Economic Affairs (registered as an educational charity – yes, we repeat, it’s a registered educational charity) has broken the rules on political independence, (reported on here by Open Democracy). The Institute for Economic Affairs is given a regular platform by the mainstream media, particularly by public service broadcaster, the BBC.

In the words of Transparify’s Advocacy Manager: “Do we want to listen to opaque outfits that refuse to come clean about who their paymasters are, or do we prefer to place our trust in transparent think tanks that adhere to democratic norms?  The choice is ours to make.” Continue reading “Who funds you? Transparency and think tanks: we score the maximum, again” →

Tax Justice Network’s July 2018 Spanish language podcast: Justicia ImPositiva, nuestro podcast, julio 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 July 2018 Spanish language podcast: Justicia ImPositiva, nuestro podcast, julio 2018” →