TJN beats OECD, Big 4 to be voted leading force in global transfer pricing
"This year's poll acknowledged that not everyone agrees with the concept of unitary taxation, but the campaign is strong all the same."
Why tax havens cause poverty
"This year's poll acknowledged that not everyone agrees with the concept of unitary taxation, but the campaign is strong all the same."
EU leaders must end financial secrecy
In three steps, the European Council can end financial secrecy and take decisive action on corruption and tax evasio
Brussels, 21 May 2013 – EU leaders meeting tomorrow have an opportunity to end the financial secrecy that facilitates corruption and tax evasion. As many cases of proven corruption have shown, anonymous shell companies and other opaque legal structures based in secrecy jurisdictions are the favoured vehicles to hide illicit financial gain. Finding out who ultimately profits from these legal structures - the question of beneficial ownership - is central to efforts to close down this avenue for ill-gotten gain.
Building on recent international developments, EU Member States can help stop the flow of corrupt funds with three simple steps:
- Unanimously agree to the proposed reforms of the EU Savings Tax Directive . The proposed reforms would address major loopholes in the legislation, for example by obliging trustees and directors of shell companies to collect and transmit information on the beneficial owners of these legal entities.
- Agree that automatic exchange of financial information should be the global ‘gold standard’. Corruption and tax evasion are not just problems in the EU. Developing countries suffered $586 billion per year in illicit outflows in the first decade of this century . EU leaders should recognise their obligations to citizens in the developing world by committing to a global, multilateral system for the automatic exchange of financial information, based on the model that 10 EU countries have agreed to pilot . EU legislation should also reflect this commitment.
- Agree to mandatory public registers of beneficial owners. To help banks and other financial institutions do their work properly, EU leaders should agree to revisions of EU anti-money laundering legislation that would require Member States to establish and update public registers of beneficial owners of companies and other legal entities. Today, information on beneficial ownership is provided by business registers in only four EU Member States (Estonia, Italy, Romania & Slovenia).
“At a time when citizens are going through the toughest economic crisis in years, EU leaders have an opportunity to clamp down on illicit financial flows”, said Carl Dolan, Senior EU Policy Officer at the Transparency International EU Office. “Effective action has been prevented before by Member States putting narrow national interests before doing the right thing. It is time to end the squabbling over perceived competitive advantage and recognise that by facilitating corruption everyone loses”.
Transparency International has also demanded action from G8 and G20 governments against financial secrecy in order to prevent corruption and illicit financial flows.
Notes to editors:
 The 2003 Savings Tax Directive requires EU Member States (as well as Andorra, Liechtenstein, Monaco, San Marino and Switzerland) to automatically exchange information on bank accounts held by residents of these countries. Exemptions were granted to Belgium, Luxembourg and Austria. Proposed amendments to the Directive would require banks and other financial institutions to establish whether the beneficial owner of certain entities or legal arrangements established in secrecy jurisdictions are EU residents or residents of the participating countries. It would also require legal entities such as companies and trusts to automatically transmit information about their beneficial owners to competent authorities in EU member states. The amendments also address loopholes relating to the beneficial owners of certain financial instruments such as investment funds.
 A report by Global Financial Integrity has estimated that developing countries lost at least $586 billion per year in illicit outflows between 2001 and 2010.
 In April 2013, Belgium, Czech Republic, France, Germany, Italy, Netherlands, Poland, Romania, Spain and UK agreed to a pilot multinational initiative for reciprocal exchange of tax information. The pilot initiative will be based on a model agreed with the U.S. government following the passage of the Foreign Account Tax Compliance Act (FATCA). FATCA requires non-US financial institutions to report directly to the Inland Revenue Service (IRS) information about financial accounts held by U.S. taxpayers, or held by foreign entities in which U.S. taxpayers hold a substantial ownership interest.
Carl Dolan, Senior EU Policy Officer (Private Sector Policies)
T: +32 (0)2 23 58 603
M: +32 (0)488 563 435
Benjamin NorsworthyEU Policy Officer (Anti-Money Laundering)
T: +32 (0) 2 23 58 645
Anyone looking at the websites of accountancy firms will see claims of ethics, integrity, and a burning desire to serve the public interest and uphold the law. Yet, following a briefing from a former PwC insider the PAC chairperson said (see page Ev4) that the firm “will approve a tax product if there is a 25% chance – a one-in-four chance – of it being upheld. That means that you are offering schemes to your clients where you have judged there is a 75% risk of it then being deemed unlawful”.Our emphasis added.
"A large number of tax avoidance schemes have been declared illegal by the UK courts. The UK Ministers have referred to the schemes marketed by the big accountancy firms as “blatantly abusive avoidance scams”, but this has not been followed up with any investigation, inquiry, prosecutions or fines. No accountancy firms has ever been fined or disciplined by its professional body for selling unlawful tax avoidance schemes. In fact, there are no negative consequences for the designers of such schemes."The rule of law, and the economy, is being progressively undermined and subverted by some of the best-paid people in the country. It's time to throw the book at them.
"I respect your right to be lower tax jurisdictions. I believe passionately in lower taxes as a vital driver of growth and prosperity for all."This raises several questions. First, whatever happens on transparency, these jurisdictions' zero-tax status create gigantic opportunities for global abuse, from transfer pricing shenanigans to offshore trusts. So there is a massive lack of coherence here, right from the get-go. Second, Cameron believes in lower taxes. But lower than what? In the case of the tax havens, he cannot mean lower than zero. So what is he talking about here? Second, why does he think that 'lower taxes' are a driver of growth and prosperity. Where, exactly, is the evidence?
"There is no point in dealing with tax evasion in one country if the problem is simply displaced to another."On the face of it, this is a nonsense argument. Defenders of the status quo often say that cracking down is like squeezing a balloon: activity is displaced elsewhere, while the volume of the balloon stays unchanged. Cameron's words "there is no point" seem to lie firmly in this belief system. But that isn't at all how things work in the real world. It's more like squeezing a sponge: you squeeze in one place, and you catch some and you lose some. Tax evaders, deprived of the easy options, will go to more exotic, risky and difficult locations. Many won't go to the trouble, and they will instead choose to obey the law. That's imperfect, but it's called progress. Still, Cameron's point that greater international cooperation and coherence here makes it easier for everyone is a good one.
"We also need to ensure information exchange works effectively for all, particularly the poorest countries in the world. That is why we strongly support the Multilateral Convention on Mutual Assistance in Tax Matters. I know many of you have been considering joining and I ask you all to commit to do so in the run-up to the G8 Summit."That's good, as far as it goes. As is this one:
"I very much welcome the commitments you have made to automatic tax information exchange, both on a bilateral and multilateral basis."Yes, and this is good to see. Though one question that this begs is: just how 'multilateral' will this be? Will this only help rich countries, or will it be rolled out to those vulnerable countries that need it most? What will be the position inside Europe on the EU Savings Tax Directive? This is the opportunity to put into place the improvements, the amendments to the Directive, and hopefully this week Luxembourg and Austria will be called to account on this by European leaders. It's too early to tell, but this important recent paper from Itai Grinberg plays a crucial role in addressing these questions.
"Dealing with tax evasion is not just about exchanging information. It is also about improving the quality and accuracy of that information. Put simply, that means we need to know who really owns and controls each and every company. This goes right to the heart of the ambition of Britain’s G8 to knock down the walls of company secrecy.Now that stuff in bold is very good to see. We like it, as far as it goes - but a reminder from Robert Palmer of Global Witness.
. . .
[Tax havens' action plans on beneficial ownership] will need to provide for fully resourced and properly managed centralised registries, that are freely available to law enforcement and tax collectors, and contain full and accurate details on the true ownership and control of every company.
"It's only really meaningful if accompanied by transparency eg open registries of beneficial ownership of companies & *trusts*"Even this does still, however, beg a number of questions.
"An independent Scotland would have a vastly oversized financial sector that would leave it vulnerable to a Cyprus-style banking crisis, Britain's finance ministry says.And from the Wall St. Journal:
"In an analysis paper, the third in a series the U.K. government is releasing ahead of the independence referendum, the treasury estimated that an independent Scotland would have banking assets worth more than 1,250% of Scottish gross domestic product.Wow. To us, that huge 1,250% number screams "tax haven" and, as our recent blogging on Cyprus reminds us, "captured state". We will have a whole lot more on that kind of vulnerability very soon.
The scale of Scotland's banking assets dwarfs those of Iceland and Cyprus, which had banking assets around 880% of GDP and 800% of GDP respectively. Both countries suffered severe financial problems due in part to the disproportionate size of their banking sectors.
"The experience of financial crises shows that countries with a large banking sector compared to the size of their GDP are significantly more vulnerable," the report says."
"The Treasury report will say any future bank rescues would place a heavy burden on Scottish taxpayers, and could generate concerns about state finances that might discourage firms from basing their operations there."Now, from the UK Treasury, we can provide an update with more details, including the following:
Charity is a cold grey loveless thing. If a rich man wants to help the poor, he should pay his taxes gladly, not dole out money at a whim’. Clement Attlee, 1920.The ever growing public awareness of the tax avoidance and evasion issue is central to how we put ‘austerity’ in context and challenge the prevailing orthodoxy that there is ‘no money’ available to protect public services and the most vulnerable in our society. Can we achieve a more equitable society without tax ‘justice’?
"The boss of Lloyds Banking Group pledged to pull out of tax havens where the bank is not conducting genuine business at its annual meeting on Thursday where investors hit out against its "cosy' boardroom and "appallingly high" bonuses.The devil will be in the detail, of course, but this is a hugely welcome step. And this bit in bold is also pretty remarkable:
Chief executive António Horta-Osório said the 39%-taxpayer owned bank had embarked on a systematic review of "so-called tax havens" after a shareholder demanded to know why the bank was the seventh biggest user of such facilities."
Shareholder Anne Edmonds said: "I want to know when this will be stopped. Tax avoidance is legal and what Lloyds is doing is legal. But to me there is little difference between tax avoidance, which is legal, and tax evasion, which is illegal."As we just said: wow.
This was "very wrong", she said. "That money should be kept in the UK for the benefit of the UK." Horta-Osório agreed with her comments. "In 2012 alone we have closed 60 of those companies and that is more than 20% of the total. We are going to close all of them unless there are strong business reasons for our customers to keep them there," he said at the meeting in Edinburgh. He later clarified that "business reasons" did not mean "tax reasons".
Dear President Van Rompuy,
One of the main problems affecting the EU and several EU Member States in particular is the lack of sufficient financial and fiscal resources to invest in the economies and job creation and to deliver to citizens even the most basic services and infrastructure they expect and deserve. Sadly, tax evasion, tax avoidance and corruption are a reality and they have been protected by Switzerland, Liechtenstein and other tax havens and money laundering financial centres (including EU Member States), undermining governance in the EU by covering up criminal activities.
To put an end to this long running conspiracy to defraud all EU Member States, that undermine all EU economies - with the excuse of financial secrecy - more than 24 thousand EU citizens, including me, have already signed the petition #TruthCH (#VeriteCH-#VerdadCH-#WahrheitCH-#VerdadeCH) demanding to the EU institutions the creation of an Independent Truth and Justice Commission on Switzerland to investigate its role in political corruption and tax evasion.
I hope that you agree that, at this time in European history, it does not matter how many thousands of citizens have signed this urgent demand for action. It is our obligation as representatives of all 500 million Europeans to act, without further delay, to stop this unacceptable behaviour, investigate the truth and prosecute all criminally responsible as they are not only undermining our economies with their secret cross border financial services but are also eroding our democracy by hiding corrupt and illegal assets. This has been the case for too many decades.
The ECOFIN meeting taking place tomorrow, 14th of May 2013, under the presidency of Mr Michael Noonan, Minister for Finance of Ireland, will decide on very important EU instruments to tackle tax evasion. I urge you, thus, to bring up the creation of an Independent Truth and Justice Commission on Switzerland in the discussion.
We cannot remain indifferent. I look forward to working with you to build a social and transparent Europe that will fight together against all forms of corruption, tax evasion and avoidance.
You may find the complete text of the petition, along with the weblink, below,
Member of the European Parliament
"Had Zambia received for its copper exports in 2010 the same price Switzerland obtained when the copper was resold to other countries by Switzerland-based traders, it could have doubled its GDP."The Christian Aid report contains this, in the introduction:
"Tax revenues are predictable and sustainable sources of income.They are fundamental to allowing developing-country governments to foster human development. But most poorer countries lack the staff, expertise and access to corporate information to counter activities such as transfer mispricing, in which some MNCs manipulate the profits they make and often hide them offshore.
In this report, Christian Aid provides new evidence of how an end to such practices, coupled with appropriate development policies, could make major progress towards eradicating world hunger. We realise that not all the revenues raised would automatically be channelled to priority areas such as health and nutrition.There are other priorities such as education and infrastructure. There also remain the challenges of corruption and government profligacy; challenges to which Christian Aid and our partners are rising. But without doubt, fairer tax systems and greater tax revenues could lead to increased practical measures to reduce food insecurity."
“Limited liability partnerships”, of which Vector Aerospace LLP was one, joined the lexi- con of British corporate law only in 2000 as a result of heavy lobbying from Britain’s big accountancy partnerships, which wanted to limit their liability for carrying out dodgy audits without becoming limited companies and so incurring extra taxes. [See Treasure Islands, and the Ratchet chapter, for the extraordinary story of how the accountancy firms got Britain to enact its LLP laws.] The new corporate vehicle allowed them to have it both ways by stipulating that an LLP would have limited liability but would not be a taxable entity itself (see Partnerships in crime).This is pure tax haven activity, and Britain is rapidly heading down this road. One last TJN-related section from the story:
The new hybrid had great appeal: not just to respectable accountants, but also to those who were up to no good. For if an LLP’s members can also claim that they are not taxable in the UK, there is nothing to trouble the taxman and no inconvenient questions will be asked by the authorities about what the LLP is up to.
"In 2009/10, a study by campaigning accountant [and a TJN Senior Adviser] Richard Murphy found that of the 2.6m companies on the UK companies register, just 69 percent were even asked for a tax return by the authorities and only 45 percent actually submitted one. While it is impossible to measure precisely how many of Britain’s ghost companies are part of interna- tional criminal networks, it is in these helpfully crowded and murky waters that some of the world’s most serious organised crooks swim undetected.". . . . and much, much more: this is just a taster. You can see the authors, Andrew Bousfeld and Richard Brooks, in a short video clip here. Among other things they watch a postman stuff large quantities of letters through a letterbox, and they're clearly visible through the glass door.
"Epic levels of money laundering, illicit arms dealing, frauds, counterfeiting and government corruption are the result, all thriving on emasculated British company law and political and official indifference. A clean-up is indeed badly needed. Right here and right now."Never a truer word written.