Continue reading “Our paper “Trusts: Weapons of Mass Injustice?” – now available in Spanish”
We’d like to share the details of a fascinating course for those working on tax issues within the public and private spheres in Europe. It’s run by the COFFERS project team. COFFERS (Combating Fiscal Fraud and Empowering Regulators) is an EU Horizon 2020 Project. We’re sharing the details from the news section of their website here:
Continue reading “Master of Tax Course: Combating Fiscal Fraud and Empowering Regulators”
In this month’s Taxcast we look at the booming business of passports and residency for sale, and why it should worry us all. Also:
This Taxcast is dedicated to the memory of Daphne Caruana Galizia, Malta’s best-known investigative journalist who was murdered by a car bomb, a cowardly attack on all those who refuse to accept the corruption and state capture of our institutions and democracies by dirty money and financial secrecy. Our statement on the loss of this great citizen is here.
Continue reading “Passports and residency for sale in our October 2017 podcast”
I had the honour of giving a keynote address at the World Bank/International Monetary Fund annual meetings on 15th October 2017, for an event entitled ‘Technical challenges and solutions for taxing wealth in developing countries’ – which gave the impression that a new Washington consensus on tax justice may be emerging.
My slides and the video, kindly provided by the Bank, are below. Following a fascinating speech from Brooke Harrington of Copenhagen Business School on the role of wealth managers in creating anonymous, un-taxed assets, I ran through the development of the tax justice movement and the rise of the core policy platform (the ABC of tax transparency), highlighting the progress that has been made but also the extent to which lower-income countries remain excluded from the benefits – and what is necessary to enable effective wealth taxation.
The event, and the discussions with a variety of experts and senior figures from the two Bretton Woods institutions (BWIs), made clear just how far both the Bank and the Fund have moved towards tax justice – and also highlighted some key areas where they need to make progress now.
Continue reading “Tax justice, the new Washington consensus?”
As reported by Reuters, Daphne Caruana Galizia, Malta’s best-known investigative journalist was killed today by a powerful bomb which blew up her car. Only fifteen days earlier she had reported threats against her to the police. Her absolutely fearless blog Running Commentary continually broke revelations about the corruption of Maltese politics (on all sides), and her work went way beyond Malta.
She was reporting from Europe’s smallest member state. which is ranked 27th in the Tax Justice Network’s 2015 Financial Secrecy Index (FSI). It will be re-assessed soon – the 2018 Financial Secrecy Index data will be released in January. It is described as ‘a pirate base for tax avoidance inside the EU’ by the European Investigative Collaborations Network behind the Malta Files investigations, which also exposed the jurisdiction numerous times as ‘a target for firms linked to the Italian mafia, Russian loan sharks and the highest echelons of the Turkish elite.’ You can read about some shocking examples here, here and here. Much of the work she did over the last couple of years was focused on the Panama Papers leak of more than 11 million documents from law firm Mossack Fonseca.
The International Consortium of Investigative Journalists (ICIJ), has issued a statement, noting;
Caruana Galizia has been at the forefront of important investigations in the public interest and has exposed offshore dealings of prominent political figures in Malta.”
Welcome to this month’s latest podcast and radio programme in Spanish with Marcelo Justo and Marta Nuñez, downloaded and broadcast on radio networks across Latin America and Spain. ¡Bienvenidos y bienvenidas a nuestro podcast y programa radiofónica! (abajo en castellano). In the October 2017 programme:
Our CEO Alex Cobham recently addressed the 5th Pan Africa Conference on Illicit Financial Flows and Tax, organised by Tax Justice Network Africa and the UN Economic Commission for Africa in Nairobi, Kenya. Alex’s presentation focuses on the debate emerging over the inclusion of the goal to reduce illicit financial flows within the UN’s Sustainable Development Goals (SDGs).
Below you can hear him discuss the meaning of the word ‘illicit’, which he says is a cover for people who want to remove tax avoidance by multinationals from the Sustainable Development Goals. The battle to come is over the inclusion of a meaningful target in the SDGs for the reduction of multinational tax avoidance. In this presentation Alex explains why it is so important that the reduction of multinational tax avoidance is included as a target for the SDGs and puts forward a suggested indicator as to how that target could be monitored. Continue reading “The campaign to subvert the UN Sustainable Development Goals – TJN presentation from the Pan Africa Conference on Illicit Financial Flows and Tax”
According to the Institute for Public Policy Research’s Commission on Economic Justice report called Time for Change: A New Vision for the British Economy, we need a “fundamental reform of the British economy on a scale comparable with the Atlee reforms of the 1940s and the Thatcher revolution of the 1980s.” Like many so-called developed economies around the world, the British economy’s no longer delivering rising earnings for most of the population, and young people today are set to be poorer than their parents. In this Taxcast Extra I speak with Grace Blakeley of the Institute for Public Policy Research on the findings of their report.
we’ve had this massive explosion in inequality…and wealth inequality is actually even starker than income inequality…really very dramatically high, it’s almost as high as the level you see in Russia…over the last 30 years and that relates to a number of underlying broad structural trends in the UK economy, not least what the Tax Justice Network talks about quite a lot, which is the explosion of financial services and the financialisation of the UK’s economy…we find that whilst we have one of the world’s largest financial sectors, that is not financing investment in the wider economy, we actually have one of the lowest levels of investment of any major economy.”
Continue reading “Podcast: A New Vision for the British Economy, a Taxcast Extra”
The new Dutch government is to announce that it will cut its corporate tax rate according to leaked details of the current round of coalition talks. This move is the equivalent to the country jumping into the race to the bottom pool with both feet.
We’ve always highlighted the false narrative behind the race to the bottom tax ‘competition’ on which such policies are based. The winners are a tiny business elite (and we should give a dis-honourable mention to many politicians who seem to pass far too quickly through revolving doors from public to private servant – here’s one such example right here). The losers are, well, everybody else. Continue reading “The Dutch government cuts its corporate tax rate…”
If you were working on tax as a development issue in the early 2000s, not only were you a lonely figure but you were also faced with some of the most pathetic cross-country data imaginable. For a 2005 paper (which introduced the 4 Rs of tax, inter alia), I tried to put together a comprehensive picture of tax revenues – only to find that both the International Monetary Fund and World Bank data contained such basic errors as tax/GDP ratios in excess of 100%.
The need for a concerted effort to improve data collation methods was clear; but it wasn’t until 2008-9 when the British Government’s Department for International Development (DFID) decided to fund a research centre on tax that the funding came into view. When the Norwegian Agency for Development Cooperation (Norad) joined forces to match the money available, the International Centre for Tax and Development was born and so began the process to create what is now the ICTD-WIDER Government Revenue Dataset (GRD). Through the blood sweat and tears of altogether too many researchers, a dataset emerged. Along the way, more issues came into view – including some series that still included tax/GDP over 100%, and areas of irresolvable uncertainty – but the resulting dataset is unequalled in consistency and comparability. The original working paper with Wilson Prichard and Andrew Goodall sets out the process and the issues encountered.
There’s now a new release of the GRD (Government Revenue Dataset) fully updated and offering all kinds of new insights. With their kind permission, we cross-post from United Nations University WIDER Kyle McNabb’s great post on this new release. Continue reading “New release of global tax data”
New rules to prevent corporations using debt and interest payments to lower their taxbills have been one of the outcomes of the OECD BEPS programme. However, how effective are these rules? And is the new debt cap proposed by the OECD likely to have any impact at all?
Corporation tax is a tax on profits. Interest payments are counted as a business expense in corporate accounts and so any interest paid by a company is deducted from profits before tax is paid. The more interest a company pays, the lower the profits, the lower the tax bill. This is sometimes called the debt shield.
Using debt has been a well known and widely practiced form of tax avoidance. Multinationals can set up finance companies in tax havens to loan money to their operating companies around the world. The debt shield also encourages companies to take on debt as it makes debt a cheaper form of financing.
The OECD, under the BEPS programme, has proposed that countries limit the amount of debt that can be deducted from profits before corporation tax is paid. The OECD have suggested a cap on interest of between 10% to 30% of Earnings before Interest Taxation, Depreciation and Amortisation (EBITDA), sometimes referred to as operating profit. The cap takes into account all loans, whether intra-company loans or commercial loans from an external source.
These rules have been carried forward into the EU’s Anti Tax Avoidance Directive, which mandate the lowest cap of 30%.
I decided to run some numbers to understand what that cap means in practice. Take a notional company Dodgyco. Dodgyco has an income of $300,000,000. It makes a profit on its operations of 30%, which leaves it with $100,000,000 before interest and tax.
| Dodgyco | |
|---|---|
| Revenue | $300,000,000 |
| EBITDA | $100,000,000 |
| Debt | $600,000,000 |
| interest @ 5% | $30,000,000 |
| Interest to EBITDA | 30% |
Under the OECD rules the company is allowed to deduct $30,000,000 in interest payments a year from its taxable profit.
If we assume that dodgyco can borrow at an interest rate of 5% then an interest payment of $30,000,000 implies a debt of $600,000,000.
Lets say that dodgyco is valued at ten times its earnings – $1,000,000,000. This implies that the company will have a financial leverage of 60% before the cap bites.
In today’s low interest world a 5% interest rate is generous. Currently $ denominated investment grade corporate bonds are yielding 3.5% on average. European bonds see even lower yields.
Once the interest rate hits 3%, then a $30,000,000 interest payment represents a debt of $1,000,000,000.
These ratios are very high. Currently the average debt to equity ratio of the Standard and Poor’s 500 is 50%, which has led to fears that US companies are over-leveraged. The historic average is just 14%, suggesting that when interest rates start to increase, leverage will decrease too.
It seems then that most companies will have little to worry about from the new rules from the OECD.
But one area where companies have much higher levels of leverage is infrastructure, particularly in cases where a company has been subject to a leveraged buyout. Infrastructure projects generally have very stable and sometimes government backed revenue streams. This allows companies to sustain very high levels of debt, as there is greater certainty that the money will be there to make the interest payments.
Heathrow, the UK’s largest airport, is just one example. In recent years the company has sustained a ratio of over 90%. In 2016, interest payments accounted for 91% of EBITDA, well over the OECD’s proposed upper limit of 30%.
But even in these cases, it appears that companies could have a get out. The EU’s Anti Avoidance Directive allows a get out from the interest cap for loans used to invest in “infrastructure” for the public benefit. How this will be interpreted will be an important issue for many companies, and is likely to have a serious impact on tax revenues too.
Clearly the OECD guidance, of a 30% cap on interest payments, is far too high, and the infrastructure exemption in the EU directive leaves a giant loophole for the most highly leveraged companies. So what would a more effective solution look like?
A hard cap on interest deductions that takes into account commercial loans is desirable because it discourages companies from over-leveraging. Within the OECD proposals countries are free to implement a cap of 10% EBITDA and should be encouraged to do so.
But why not disallow all tax deductions on loans that originate from related companies? By removing the tax incentive for firms to borrow from their parent companies or shareholders, we remove a major source of profit shifting.
From the point of view of the firm, a loan which comes from a related party can’t be considered to carry the same risk that a commercial loan carries. Why then, should they expect to be treated equally?
Continue reading “Tax Justice video: How can we avoid another crisis? Expert panel discussion”
There are two very welcome pieces of tax justice news today. Firstly, the European Commission has ordered the tax haven of Luxembourg to recover 250 million euros in taxes from Amazon, finding that the benefits extended to the company amount to illegal state aid. The support Amazon received, allowed it a competitive advantage over domestically located retailers. 
In her announcement European Commissioner for Competition, Margarethe Vestager said of the decision,
“companies must be able to compete on equal terms and not at the expense of European taxpayers.”
Update 30 October 2017: we have now successfully concluded recruitment for this job.
Tax Justice Network is recruiting a francophone researcher based in francophone Africa for our Financial Secrecy and Tax Advocacy in Africa (FASTA) project, which the Norwegian Agency for Development Cooperation (NORAD) intends to support. This researcher will work closely within this project with her/his counterpart, an anglophone African researcher we have already recruited.
The FASTA project focuses on accelerating policy progress on the African continent by means of increasing high level research and advocacy capacity around the issues of illicit financial flows, financial secrecy and tax avoidance. One of the two main pillars of FASTA consists of the creation of a TJN research hub in Africa that will act as a (two-way) transmission belt for applied research around financial secrecy and corporate tax avoidance, both of which are relevant for combating illicit financial flows. That hub will consist mainly of the two TJN-staffers who are resident and working in (one francophone, one anglophone) Sub-Saharan African country. They will form part of the core research team at TJN around the Financial Secrecy Index (FSI), and the complementary Corporate Tax Haven Index (CTHI). Supported by the core TJN research team, the researchers will be responsible for the regular FSI and CTHI reviews of African countries, by providing in depth comparative legal and policy analyses, and feeding this data into the core FSI/CTHI database with ongoing scientific monitoring of research output and quality.
In addition to this, the researchers will either lead or contribute to the preparation of reports that provide profiles of risks, vulnerability and problems in relation to corporate tax avoidance and financial secrecy for the African continent as a whole, and/or for sub-regions in Africa, and/or for individual African countries, by harnessing the data collected in the respective databases and indices. Some of these reports will be mostly technical in nature and speak mainly to an academic research community in Africa, and will be resulting from collaborations with African academic and other research institutions. Other reports will need to speak to a wider, yet mainly African audience, including civil society, journalists, tax administrations, regulators, decision-makers, parliamentarians, etc., and will be closely coordinated and, if possible, produced collaboratively with TJN-Africa.
The researchers will also support TJN-Africa’s advocacy activities, including internal meetings, presentations and briefings, and by participating in workshops and other events organised by TJN-A, especially on matters identified through research mentioned above.
Academic publishing will be encouraged.
The detailed job description for the francophone researcher can be found here.
We’re pleased to be able to share the recent work of the Arab NGO Network for Development, a regional network in 12 Arab countries. They’ve released research (available in English here and in Arabic here) which assesses tax systems in a number of Arab countries from an economic and social justice perspective (focusing in particular on Lebanon, Egypt, Jordan and Palestine) and also from a gender justice perspective (in Lebanon, Egypt and Tunisia). Continue reading “Tax justice in the Arab world: new research”
It’s an ill-wind that blows no one any good, as they say. There was a call that really seemed to resonate with those British voters who opted for their country to leave the European Union in the referendum: ‘take back control’. And who doesn’t want to do that? But as Dr Kevin Farnsworth of Corporate Welfare Watch points out in his recent article ‘Taking back control’ or Brexit and the dash for corporate welfare?“:
It was never quite made clear who would be the major beneficiaries of this. One thing was certain at the time: it wouldn’t be ordinary people. Instead, power is being consolidated by the same old political and economic elites and the state is becoming more, not less, beholden to big business and its demands. These are the real consequences of Brexit.”
Continue reading “Brexit and Corporate Welfare: ‘take back control’?”
Our paper, “Trusts: Weapons of Mass Injustice?”[1] asks some deep and searching questions about the role trusts play in our societies, and proposing radical remedies to some of the abusive roles that trusts have come to play. Our paper has already provoked two critical responses: an editorial by Trusts and Trustees and a paper by Jersey Finance[2].
Our initial paper was intended to start a debate on trusts, and to encourage societies and their governments to reflect on them rather than accepting the status quo. So we are delighted with this engagement. (If you have comments on our paper or see comments behind a paywall, please email [email protected].)
We can’t address all comments in detail yet, but we will. For now, we offer this below. If you prefer to download the response as a pdf, click here. Continue reading ““Trusts: Weapons of Mass Injustice?” A response to the critics”
The European Commission has released a statement which could well signal the beginning of the end for the OECD’s international tax rules, and the arm’s length principle on which they are based.
The current rules, which date to decisions taken at the League of Nations in the inter-war years, are based on the assumption that the ‘right’ price for a trade between different companies within the same multinational group is the price which would apply for the same transaction between unrelated parties. This “arm’s length” price is therefore taken as the basis to evaluate all such intra-group trade (transfer pricing). But of course this flies in the face of the economic rationale for the existence of multinationals, which is precisely that they can be more profitable as a group than if the individual entities operated separately – so it’s impossible that arm’s length prices could be the ‘right’ ones to determine where taxable profit should arise. Continue reading “Beginning of the end for the arm’s length principle?”
In edition 69 of our monthly podcast, the September 2017 Taxcast we look at our over-reliance on unhelpful economic measures like Gross Domestic Product and how it constrains us. Also:
Featuring: John Christensen of the Tax Justice Network and Professor of Political Arithmetic at University of Amsterdam, Daniel Mugge. Produced and presented by Naomi Fowler for the Tax Justice Network.
“If you use GDP as it’s currently measured in order to strengthen your economy, you’ll make choices that if you look at it closer, actually don’t make sense.”
“Because it’s been able to earn a lot of money the financial sector may show up as something that’s contributing positively to GDP and that seems like a serious mischaracterisation of how positive or otherwise the financial sector is for our individual countries.”
Professor of Political Arithmetic at University of Amsterdam, Daniel Mugge
“The last thing the world needs at the moment is an anti-government group of bitcoin suppliers and users who think it’s a good thing to operate beyond democratic or legal scrutiny.”
John Christensen of the Tax Justice Network
Tax Justice Network’s (TJN) 2016 Annual Report and audited accounts are available to view here. More than any other year they record a year of extraordinary achievement and an significant moment of transition as John Christensen, TJN’s founding director, steps into a new research role and hands on the Chief Executive baton. In enthusiastically welcoming Alex Cobham to the role of Chief Executive, the Board and staff acknowledge an incredible legacy developed under John’s leadership; the development of the ABC of tax transparency, the key elements of the policy platform laid out during 2003-05 have moved from the utopian fringes to the centre of the global policy agenda: –
We’re delighted that Michael Oswald’s documentary film The Spider’s Web: Britain’s Second Empire has won the monthly Global Award from the Berlin Around International Film Festival (ARFF).
The Spider’s Web, which was co-produced by TJN’s John Christensen, draws inspiration from Nicholas Shaxson’s best-selling book Treasure Islands and from P.J. Cain and A.G. Hopkins British Imperialism. The film tells the story of how, after the British were forced to withdraw from former colonies in the 1950s and 1960s, the City of London adapted from its role as the ‘beating heart’ of the formal British Empire by creating a new ‘offshore’ market for financial transactions – the Eurodollar market – and attracting hot money flows from around the world via a web of secrecy jurisdictions in tiny dependent territories. As Cain and Hopkins explain it: Continue reading “The Spider’s Web film wins ARFF Global Award”