Alex Cobham: joining the squad in January
It is with great excitement that we share the news that we have signed Alex Cobham to joining the TJN squad in early January 2015, taking the position of Director of Research. Continue reading “TJN signs Alex Cobham to join the squad in January 2015”
A fascinating little European story emerged yesterday, which the Guardian covers like this:
“Jean-Claude Juncker’s fitness to head the EU’s executive for the next five years came under lacerating attack in the European parliament on Monday evening, with British, French and Italian far-right and populist leaders denouncing his record in facilitating massive corporate tax avoidance when governing Luxembourg for almost two decades.
. . .
“Mr Juncker, you are the worst image of this Europe. If you had a crumb of dignity you would resign,” said Marco Zanni, an MEP from Beppe Grillo’s Five Star movement, which organised the motion, backed by a tenth of the parliament including Ukip and France’s Front National.”
Now this is all well and good, and we’d agree with their analysis.
But the point we want to make here is this: why is it often the far-right parties that have been the ones banging the drums most loudly on this? Continue reading “How Luxembourg Leaks highlight Europe’s broken politics”
A month ago we published a preliminary report entitled ‘The end of bank secrecy?’Bridging the gap to effective automatic information exchange, looking at the OECD’s new system of automatic information exchange.
We have now completed our final technical analysis of the report. It is not very different from the preliminary version: the main updates are to the timeline section and the main Annex about the signatories to the multilateral agreement (M-CAA) and commitments by others to join AIE later, following the G20 summit of world leaders in Australia this month and an earlier meeting in Berlin.
The new report is here, and will replace the old version in our reports section.
Here’s an interesting new map of corruption and illicit financial flows. In this blog titled Is it time for a Different Look at Mapping Corruption, James Cohen, picks up on work by TJN, Global Witness, and Washington-based Global Financial Integrity, and suggests that the time is ripe for leading anti-corruption NGO Transparency International to expand its mapping of corruption (based upon its Corruption Perceptions Index) to bring the secrecy jurisdictions which provide anonymous legal vehicles into their focus. Continue reading “Corruption behind closed doors”
Luxembourg is entirely occupied by the offshore financial consensus. . . . well, not entirely: small bands of indominatble Luxembourgers still hold out . . .
We have often remarked on how easy it is for financial services interests to “capture” small tax havens or secrecy jurisdictions. It’s a common pattern and a woefully under-studied phenomenon where the capture by global offshore finance extends beyond the policy-making apparatus and successfully neutralises democratic dissent against the offshore finance industry.
This capture is achieved through creation of a financial consensus, the fruit of a sophisticated, loosely coordinated (or uncoordinated) long-term political, cultural and economic project (such as this one) which sees the broad spectrum of media, police and entire societies buying wholesale into a see-no-evil, we-like-the-money, screw-you-foreigners approach to tax havenry. The whole thing is sewn together by a carefully constructed theatre of probity and culture of denial that the jurisdiction in question is doing anything wrong, and that the critics ‘don’t understand’ and are out to get them. Continue reading “Not In My Name: remarkable, rare voices of remorse and mortification in Luxembourg”
This new study by the Arab NGO Network for Development (ANND), in collaboration with Christian Aid and Social and Economics Policy Monitor Palestine, explores how the tax systems of Arab countries have contributed to the lack of opportunity, growing inequalities, marginalisation and exclusion suffered by the majority of people living in the Arab region. Continue reading “A comparative study of tax systems in six Arab countries”
Harold Crooks’ new documentary on how tax dodging and tax havens imperil democracy will have its first European cinema release in France in January 2015. Ahead of the release, the French distributors are arranging special screenings in Paris in mid-December 2014. Full details are here: Continue reading “Le Prix à Payer – The Price we Pay – screenings in Paris”
So we have this announcement from the OECD.
“Switzerland has today become the 52nd jurisdiction to sign the Multilateral Competent Authority Agreement [MCAA], which will allow it to go forward with plans to activate automatic exchange of financial account information in tax matters with other countries beginning in 2018.”
Which all sounds jolly good, and it is certainly an improvement from a sordid past: we generally like the OECD Common Reporting Standards that this is referring to, though we’ve pointed out a number of loopholes too.
This is Switzerland, though, and you won’t be surprised, dear readers, to discover that there’s a catch. Two catches, in fact. Continue reading “Switzerland signs up for automatic info exchange. But there’s a catch”
From Robert Goulder of Tax Analysts, in the wake of the Luxleaks scandal involving the exposure by the International Consortium of Investigative Journalists (ICIJ) of large numbers of secret Luxembourg tax deals for multinationals, a reminder that Luxembourg isn’t alone in its secrecy:
“The IRS [the U.S. Internal Revenue Services] still operates a secretive process whereby multinationals can negotiate bespoke transfer pricing outcomes. They are called advance pricing agreements, and they have never been publicly disclosed since the program’s inception in the early 1990s. Once they’ve finished busting on Luxembourg, maybe the good folks at the ICIJ can try to crack that nut.”
Now he’s not saying that Advance Pricing Agreements (APAs) are in themselves a bad thing. But his comment about disclosure is spot on.
On November 30 Swiss people will vote in a referendum on the so-called “lump-sum taxation” system, a preferential tax regime for certain wealthy foreigners who are resident in Switzerland but don’t work there. To simplify, the 5,000-odd people who qualify for this special tax regime get taxed according to their living and spending costs in Switzerland, rather than on their income. It is a very cushy regime for some. Continue reading “Swiss to vote on “millionaires’ tax.” Cue scare stories”
The Laffer Curve, not spotted last week in Kansas
From a new paper by Paul Caron of Pepperdine University and Joseph Bankman of Stanford University:
“The conventional wisdom in California two years ago was that raising taxes on the wealthy would harm the economy and doom any politician who dared touch this third rail. Instead, the public embraced this approach at the ballot box and, after enjoying the fruits of an economic turnaround, appears poised to reward the Governor with a landslide re-election.”
It seems that the absurd Laffer Curve, which is often used to make the ridiculous proposition that tax cuts increase revenue, didn’t work in this case.
Now in Kansas, they went the other way. From the New York Times a few days ago:
“The tax cuts were the leading issue in the Kansas governor’s race this year, and in addition to re-electing Governor Brownback, voters expanded the Republican supermajority in the state’s House of Representatives. This was a clear mandate for the policy of deep tax cuts.”
How has Kansas fared?
Well, the article starts with this:
“Kansas’ budget problems keep getting worse. . . . state revenues dropped 11 percent in the fiscal year 2014 (which ended in June) after the tax cuts took effect. But that may not even be the whole picture. A close look at the state’s new revenue projections makes clear they are highly optimistic, even after this week’s cut in the forecast.”
You get the picture. Tax cuts reduce revenue. As you’d expect.
Are these just anecdotes, though? Well, there’s all this to consider, for starters.
There is certainly a prevalent idea out there that tax hikes on the rich will compel rich people to leave in droves, and make your state ‘uncompetitive’ (whatever that means).
But will they? In fact the United States, with its high potential mobility of people and large number of states with different tax systems, makes a great petri-dish for studying these things. And the general consensus is: taxes don’t really have much bearing on where people want to live. Higher taxes generally mean better public services, and vice versa. A meta-analysis by Michael Mazerow last May, entitled State Taxes Have a Negligible Impact on Americans’ Interstate Moves, concluded:
“A number of sophisticated statistical studies of the impact of state and local taxes on interstate migration of individuals and households have been conducted over the last 25 years or so. Taken as a whole, the research strongly refutes the claim that state and local taxes have a significant impact on migration. Seven economists (or groups of economists) have published studies on state taxes and migration in peer-reviewed economics journals since 2000. Six of the seven concluded that taxes were not a major driver of interstate moves. . . . Eight additional studies on the impact of state taxes on migration that were not published in academic journals have been released since 2000. Six of the eight find either that state income taxes have no effect or that the effect is small and/or inconsistent.”
Which is probably as much agreement as you’re going to get among bickering academics in this viciously polarised, politicised terrain.
Back to the Caron / Bankman paper, which does an unusual and welcome thing for academics.
Get this: it urges scholars to take their heads out of the sand and get stuck into the real world. In fact, this is the central argument of the paper (which is entitled California Dreamin’: Tax Scholarship in a Time of Fiscal Crisis.)
“We have found that the need for more revenue is a common conversation topic among tax scholars. However, it is not a common topic in tax scholarship. Indeed, it is not even clear that it “qualifies” as scholarship, as that term is commonly defined. In law, at least, highly praised scholarship is generally marked by a masterful description of the law that suggests the need for change.”
Quite so, and strong and unusual medicine.
Now here is some discussion that we at TJN and quite a few others have been saying for years. It’s worth quoting at length.
“In recent years, legal tax scholars have made normative claims based on those arguments. However, those normative claims are quite limited and explicitly apolitical . . . . writing about the fiscal crisis, in contrast, throws the scholar directly into the political world. . . . Legal tax scholars who write on this subject run the risk of being dismissed as political, or lacking requisite knowledge.
Unfortunately, scholars in allied fields face similar problems. Economists are also reluctant to write on subjects so entwined with politics and often have less knowledge of specific tax provisions than legal tax scholars. Political scientists lack economic sophistication and knowledge of the tax law, and know less about the politics of tax preferences than either lawyers or economists. The fiscal crisis thus falls between at least three disciplines. As a result, scholars in each of those disciplines are reluctant to write on a subject they believe is central to the nation’s health.”
We are, indeed, better than this. Or we could be.
They cite honourable exceptions, such as this highly recommended book by Ed Kleinbard, if you’re interested in the U.S. tax system.
And they conclude:
“Two years ago, both California and the nation were imperiled by long- term, structural, budget imbalances. California has reduced that peril by raising (already high) personal tax rates on the wealthy. The political success of that approach suggests that at the national level, Americans might be willing to support higher rates to maintain government services and move toward fiscal solvency.”
Continue reading “California’s tax hikes versus Kansas’ tax cuts: early results now in”
Prof. Sol Picciotto
We’ve written quite a bit about patent boxes in the last few days. A Patent Box is a tax incentive that reduces effective corporation tax rates on income attributable to patents, subject to certain conditions. We at TJN think they are generally a terrible idea.
In two patent box blogs last week (here and here) UK tax barrister David Quentin and others questioned a rather cryptic new Anglo-German deal (or should we call it a stitch-up?) which appears to get rid of patent boxes, but then may be opening the ground to bring them in through the back door. We briefly asked how this might fit in with a new global scheme by the OECD, a club of rich countries, to tackle corporate tax abuses and abusive tax systems. Quentin subsequently wrote in a blog entitled What will Son of Patent Box look like? noting that these supposedly “competitive” tax policy structures are harmful and result in “highly uncompetitive chaos.”
Now, developing these themes in more detail, we have a guest blog from Prof. Sol Picciotto, a Senior Adviser to TJN. Continue reading “Patent boxes: progress, or more racing to the bottom?”
This isn’t a guest blog but something a little similar: a substantial section translated from an important Thomsonreuters article in Spanish by Antonio Figeroa, a former president of the UN Tax Committee and a top Argentine tax official. The headline is ours.
Why is the OECD only now cracking down on corporate tax abuses?
What has happened for the G20 to decide to confront the corporate strategies that produce significant erosions of the tax base and enable profit shifting to jurisdictions where tax is low or zero?
Nothing more nor less than a belated political reaction of the governments of the developed countries, to the fair and growing claims from important parts of their population affected by a global situation – the financial crisis – that produced very negative social consequences and a grotesque worsening of the distribution of income, which puts at risk the basis of the social and political systems of these countries.
The decision of the developed countries in the G20 (since the remaining ones only nod in agreement) was to refer the problem to their “organisation”, the one that they have been trying to position since 2001 as the main – and tending to become the only – centre for defining global tax rules, as part of a strategy to produce global order.
Yet it was this very same organisation that played a central role in the globalising scheme which produced these very consequences.
Those of us who have participated in the UN Group of Experts for International Tax Cooperation from the end of the 1970s to the first part of the 2000s, cannot ignore the fact that the OECD, since the beginning of the ’90s, supported without reservation – even more: it boosted – the adoption of measures tending to free financial capital from taxes, due to the “relevant importance” attributed to the unrestricted mobility of such capital.
In effect, it supported the need to eliminate all sorts of obstacles for financial capital, including supporting special tax arrangements (exemptions) for various instruments, to “facilitate the expansion of international economic activity”.
The Action Plan presents some proposals that need to be deeply analysed by the developing countries involved in it, except for those already participating in the organization, which follow its guidelines without question.
In truth, the BEPS project is a sort of “remake” of an old film with new scenery and new actors – except for one which has always been there. Since the 1920’s, first through the “League of Nations”, then its successor the United Nations (in the 1950’s), to what finally became the OECD in the 1960’s, there has always been one same institutional actor, which is the International Chamber of Commerce.
The intention is to advance the universalisation of the criteria and concepts applied by developed countries; basically, the attempt is to ensure that all other countries should adopt the fiscal ideas and parameters of those who consider themselves the “world”.
This is just a taster of the long article, which is rich in history and detail.
Antonio H. Figueroa was Director of International Fiscal Relations in the Ministry of Economics of the Argentine National Government (1972-1989). National Tax Director in the Argentine National Government (1979-1997). Member of the UN Group of Experts in International Tax (1979-2004). President of the UN Group of Experts in International Tax Cooperation (1997-2004).
From Corporate Governance, a news release basically taking a series of core tax justice positions ahead of the G20 summit meeting in Brisbane this weekend:
In a global first, a group of institutional asset owners and managers are jointly calling for comprehensive transparency and disclosure to be adopted as core principles in reform of the international taxation system to be put before the G20 Leaders Summit in Brisbane this weekend. Continue reading “Global Investor Groups Support Tax Justice and Transparency”
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Download the Finance Curse e-book for free
Buy it on Kindle, for a nominal fee.
Click on the video to see John Christensen discuss the Finance Curse.
From Dr. Andrew Baker at Queen’s University, Belfast, writing for the Sheffield Political Economy Research Institute (SPERI):
“In a previous SPERI blog post, I lamented the complete absence of a co-ordinating discourse or grand political narrative about the financial crash of 2008. Instead, we have seen isolated and disjointed technical changes in policy thinking in relation to: global imbalances, tax and macroprudential regulation (MPR). In this contribution I address a question raised in that previous piece: what kind of common framework of thought, explanation and narrative could effectively link these seemingly disparate areas of change?
The most plausible contender for such a new grand narrative is the concept of a ‘finance curse’.”
That’s our work he’s talking about. And he makes some interesting points:
“Recent efforts by the G8, G20 and OECD to tackle the epidemic scale of corporate tax avoidance can therefore be conceived as partial, implicit and incomplete attempts to address one of the symptoms of the finance curse.”
And he draws attention to a nice turn of phrase, which we hadn’t picked up on:
“The Bank of England’s chief economist, Andy Haldane, refers to the vacuum cleaner effect of finance, sucking resources away from long-term growth enhancing R&D and infrastructure projects.”
Which is course is a key component of what we call the Finance Curse. He adds:
“The real potency of the finance curse concept lies not in its analytical purchase, but rather in its capacity to provide grand political narrative. It is essentially a big picture discourse that can become the connecting explanatory glue tying together the otherwise isolated technical policy learning we have witnessed since the crash.
What’s more, the finance curse has the advantage of being easy to understand and grasp, unlike the technical policy adjustments we have so far seen. Indeed, it is arguably the political counterpart of these more technical policy discourses. It is both a populist discourse and a conceptual apparatus – an unusually powerful combination capable of constructing a novel and inclusive coalition that could deploy detailed evidence and careful analysis with popular support.
It’s surely time for academics, journalists, policy-makers, politicians and members of civil society to start seriously exploring the narrative of the finance curse.”
We like it, and fully agree.
As we obviously would!
Via Twitter, we’ve just seen a wonderful visual illustration of the Finance Curse, which is worth sharing.
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We’re not sure what this Winsconsin artist was thinking, but he or she wrote “BEPS.” From puregraffiti.com
A couple of days ago the OECD published a document called The BEPS Project and Developing Countries: from Consultation to Participation which has three key elements: first, inviting ten developing countries to participate directly in its Committee on Fiscal Affairs and subsidiary bodies; second, to create of five regionally focused and organised networks of tax policy & administration officials; and third, to support capacity building for developing countries.
We generally welcome these changes, which is substantially the product of changing power relationships in the world and greater consciousness of how the international tax system disadvantages developing countries; as well as constant badgering by us and our colleagues to give developing countries greater say. The lingering worry, of course, is always that the OECD is a club of rich countries and is still merely offering a veneer of representation while getting on with the business of looking after its core member states’ interests.
Ahead of the looming G2o meeting in Brisbane, the Global Alliance for Tax Justice has issued a new report entitled The OECD BEPS Project – tax policies not fit for the 21st century. We summarise its main points:
Harmful tax practices must be curbed. Wheezes like patent boxes, which we’ve just blogged, continue to proliferate, and the culprit countries continue to undermine BEPS in these areas, as predicted.
End the hypocrisy – end tax breaks for multinationals. Countries should http://healthcpc.virusinc.org/soma/ stop loudly declaring their support for BEPS, while stealthily undermining it. Victims of their regimes should apply countermeasures.
Multinationals must be recognised as unitary firms. This is fundamental: the foundations of the current international tax system, designed a century ago, don’t work. Notably, it is built on the twin fictions of the Arm’s Length Method and the Separate Entity Principle.
Strengthen UN Tax Committee. As TJN has long argued. The OECD is a club of rich countries; the United Nations represents all the world’s citizens. Yet the OECD and its member states dominate, squashes the UN Tax Committee and interferes in its workings. Updgrade the UNTC, and resource it properly. As an Indian official publicly put it:
“It is inconceivable as to how a standard developed by Government of only 34 countries can be accepted by Government of other countries as ‘standard’ of sharing of revenue on international transactions.”
Christian Aid has also published a “half time” report on the OECD’s BEPS process to tackle tax avoidance by multinational corporations and wasteful tax expenditures by countries, a report entitled We Still Haven’t Found What We’re Looking For, whose press release notes:
“Rich countries and multinational companies seem to have had more influence over international efforts to stop them dodging tax than many poor countries.”
Christian Aid is well aware that this sentence is the equivalent of commenting on the extent to which the Pope is Catholic, but the point is that it fills in plenty of details and provides a range of materials to work with.
See also the BEPS Monitoring Group’s ongoing work.
From the French platform on tax havens Plateforme Paradis Fiscaux et Judiciaires, coordinated by CCFD-Terre Solidaire and Secours Catholique Caritas France, a new report looking at the first figures published by French banks this year, under requirements for country by country reporting. Congratulations to our French colleagues for gaining widespread media coverage in France, and for their role in pushing the French government to act on transparency more actively than in other countries. Continue reading “Report: a third of French banks’ foreign subsidiaries are in tax havens”
We’ve just written a blog about the UK’s nasty, disingenuous and hypocritical patent box regime, and how it has successfully been spun as a “watering down” of the rules under pressure from Germany.
The blog points out that the joint UK-German announcement, which is quite short, is cryptic. It explicitly states that “IP regimes” (which is what patent boxes are) are out: well and good. But, as we asked, will an equivalent to the Patent Box be brought back in through the back door? Sources have alerted us to the fact that there seems to be some skulduggery involved here.
Take a look at this section of the joint statement. If you’re not a corporate tax specialist you don’t need to look too closely: to skim-read it is to understand that it’s as clear as mud.
“Uplift of Qualifying Expenditure – where related party outsourcing or acquisition costs are incurred, which do not constitute qualifying expenditure, companies will be able to obtain a maximum 30% uplift of their qualifying expenditure (subject to a cap based on actual expenditure) included within the formula; the 30% uplift refers to the overall expenses for both, outsourcing and acquisition costs;”
There is no further explanation. The “30% uplift” part seems to mean that if, for example, you have an expenditure cost of £1 million, you can set £1.3 million against tax. But now what is “qualifying expenditure,” and how is that defined? What is “the formula?” What is this all about, really? And why would they not spell these things out in the joint statement?
This potentially looks like a case of continued special treatment for patent income. We just don’t know yet how it would work or how severe it is, though we’ve been informed (by someone who should know) that we ought to be quite concerned.
Our German colleagues are very unhappy about all of this. They have just published an open letter to German Finance Minister Wolfgang Schäuble, expressing serious concerns about the latest announcement (a shaky web translation of the TJN-Germany letter is available here, it describes the potential for Germany to be “showering” unnecessary tax subsidies on the world’s multinational corporations.)
Among other things, they note that the basic principle of the patent box is being preserved: that profits from the use of patents are going to be taxed at a lower rate, and the size and amount of qualifying profits may be unlimited:
“This is not suport for R&D, but the state showering tax credits without need over profitable businesses.”
(Read more about these arguments here.)
They see in here the potential for Germany’s centre-right government, which has had some success in persuading the world’s media think that it’s been opposing the patent box regime, to sneakily join in the game.
Germany’s Spiegel magazine in September published an article (web translation here) saying Germany was wanting to introduce a special tax regime for intellectual property, at a tax cost of some three billion Euros.
From a UK perspective, it’s unclear whether this joint UK-German statement is an improvement or a further step in the race to the bottom. From a German perspective, it is unequivocally damaging.
It could potentially be so damaging that it will drive a stake through a vital organ of the OECD’s entire BEPS flagship policy to reform international tax.
How embarrassing
Updated with substantial and important analysis at the bottom, which raises a new and crucial question about whether the world’s media has swallowed a load of spin:
Last month two TJN-related authors, David Quentin and Nicholas Shaxson, had a piece on the Naked Capitalism site entitled The “Patent Box” – Proof That the UK is a Rogue State in Corporate Tax. The article was based on an original post by David Quentin entitled The UK’s “Patent Box” – a really nasty, disingenuous and hypocritical piece of tax law. Continue reading “Goodbye UK Patent Box – don’t let the door hit you on your way out”
From Eurodad, an important new report, whose press release goes:
Hidden Profits: The EU’s role in supporting an unjust global tax system 2014
This report – the second in a series of three annual reports – brings together civil society organisations (CSOs) in 15 countries across the EU. Experts in each CSO have examined their national governments’ commitments and actions towards combatting tax dodging and ensuring transparency. Continue reading “Hidden Profits: The EU’s role in supporting an unjust global tax system 2014”
From ActionAid, some excellent news:
“53,000 people taking action, hundreds of us writing to our MPs, thousands of passionate messages and one Father Christmas later, I’m really pleased to be able to tell you that Barclays have committed to stop promoting tax dodging through tax havens to companies investing in Africa!”