Tax Research UK

Judge criticises conduct of Portsmouth administrator | Portsmouth - Times Online .

As the Times reports, Andrew Andronikou is administrator of Portsmouth football club.

And in December 2008 during a court hearing it was ruled by a judge that

“Mr Andronikou’s conduct in these proceedings, particularly in relation to evidence filed by him on behalf [of Ahmed and his family], was manifestly inappropriate.” The judge also found that Andronikou “did fail to meet the standard to be expected of a reasonably competent insolvency practitioner”.

Three questions then:

1) Why is he still a partner at Hacker Young?

2) Why is he still licenced as an insolvency practitioner?

3) Why did the court not block his appointment at Portsmouth?

Sorry - but if I’d had such a ruling against me I’d expect all three questions to have been asked.

And so should society at large.

Richard Murphy Accountancy

FT.com / Global Economy - Tax haven drive will mean greater scrutiny.

The FT notes:

The international drive to prise open tax havens could expose businesses to greater scrutiny as a result of a little-noticed feature of hundreds of new deals aimed at tracking down tax evaders.

Jeffrey Owens, director of the centre for tax policy and administration at the Paris-based Organisation for Economic Co-operation and Development, said the ability to request details about companies was “an important aspect” of the agreements on tax information exchange that have proliferated in recent months.

He said: “I think the world is in the process of changing. It will have a big impact on corporations and high net worth individuals.”

That’s true.

But as the FT notes:

Over the past year, campaign groups have succeeded in persuading the OECD to consider new guidelines on transparency after claiming that transfer pricing abuses allow companies to divert revenues from developing countries to tax havens.

This may have an even bigger impact!

Richard Murphy OECD

Lloyds accused of avoiding tax to artificially boost profits | Business | guardian.co.uk .

The Guardian reports;

A former employee of Lloyds Banking Group has accused the bank of artificially inflating its profits by almost £1bn through the use of aggressive tax-avoidance schemes and exotic “Lehman- style” offshore deals which he said amounted to false accounting.

The former senior tax manager at the bank told an employment tribunal Lloyds was involved in running battles with Revenue & Customs after it embarked on a hostile relationship with the tax authority over multimillion-pound corporation tax bills while involved in extensive manipulation of the way it accounted for unpaid taxes.

Between 2005 and 2007, he said, the bank insisted that finance staff devise ever more elaborate ways to depress a growing tax bill, many of them involving the now collapsed Lehman Brothers and the discredited financial products division of AIG, the American insurer that cost the US government $80bn to rescue. By 2007, the bank was excluding more than £900m of potential tax in its accounts, allowing it to inflate profits by the same amount.

They continue:

The bank’s former head of tax compliance, Andrew Constantine, told the employment tribunal that Lloyds refused to listen to staff who voiced concerns about the tactics adopted by the finance department, or institute reforms that would put its finances on a legal footing.

For three years he made representations to board members that the tax planning adopted by the bank was unethical and amounted to false accounting. He also warned that a breakdown in the relationship with HMRC would damage the bank and lead to even higher tax bills.

As for Lloyds it said:

Lloyds said it did not dispute that Constantine told senior executives of his deep misgivings. It said: “Mr Constantine’s allegations about the Group’s tax planning were fully investigated and found to be without merit. The Group maintains an open and transparent dialogue with HM Revenue & Customs. We have made adequate provisions for all our tax liabilities.

“Like any organisation, we will seek to reduce tax impact where it is practical and appropriate but we always comply with all aspects of tax regulations in all the jurisdictions within which we operate.”

I know Andrew Constantine. I have, I admit, discussed this situation with him.

I think he’s a good, honest and ethical tax accountant - not words I readily strong together too often.

And as the Guardian notes - Lloyds’ tax history is not great.

I have no doubt who I am backing to win.

But the law can be an ass.

Richard Murphy Banking, Tax avoidance, Tax compliance

It was good to be challenged about why we need much greater financial transparency to help developing countries by the IMF during an extended meeting with them on Friday.

The team from the Task Force on Financial Integrity and Economic Development  was able to address these issues, and clearly make the case. A number of explanations were offered.

First, greater transparency in developing countries will be of benefit in those places. Without data markets cannot operate effectively. If you do not know with whom you are dealing; if you do not know how they are using resources; if you cannot be sure entities can meet the claims made against them; if you cannot even be sure how you can register that claim, then quite clearly there is a significant risk premium within those markets that increases the cost of capital in those places. There is also substantial risk of the misallocation of resources, reducing the rate of return on capital, which has the same effective consequence. That means the cost of doing business in developing counties is significantly increased without full and open disclosure of what all entities other than natural persons are undertaking in these places.

Second, the maintenance of effective systems of regulation to prevent bribery and corruption, crime and the abuse of tax systems through transfer mispricing is not and cannot be claimed to be an internal matter which developing countries alone can tackle. When there are states around the world – the 60 or more secrecy jurisdictions that we know exist – offer facilities that are deliberately designed to undermine the effectiveness of the law enforcement agencies in these places then quite clearly they face an almost insurmountable issue in tackling the problems they face internally with the scarce resources that they have available to them. This means solving the problem of illicit financial flows cannot and never will be a matter for the developing counties of the world to tackle in isolation, and individually.

Third, this problem of secrecy jurisdictions is  not a problem the developing countries of the world created. It is one we in the developed world created, and from which they suffer, along with us. We created the limited liability corporation. It has been useful, and nothing will now make it go away. But we also allowed it to be debased, to became opaque to the point we know little or nothing about most of the world’s corporations - even to the extent of not knowing where some of them are incorporated, or if they even exist on registers anywhere. We allowed that to happen. We provided the space for that to happen. We do at present continue to tolerate that happening. This is a problem we must tackle or law enforcement in developing countries (and our own) will be continually undermined.

Fourth, we have allowed the secrecy space that the combination of multinational corporation group accounts and secrecy jurisdictions in combination provide and which between them enable the whole process of transfer mispricing to occur – to far too great a degree undetected.

Without a doubt there is a problem of law enforcement in some developing countries. It would be entirely wrong to deny it. But to say that this is their problem to solve alone and that we have no duty to reform the requirements of the international financial system to improve its efficiency as a mechanism for allocating resources, for enforcing property rights, for preventing bribery and corruption , for preventing crime and for preventing tax abuse is just wrong.

Richard Murphy Accountancy, Banking, Development, Secrecy jurisdictions, Task Force

The Robin Hood Tax Campaign has published its Budget Submission to HM Treasury. Readers of this blog might recognise the writing style.

The submission says:

The Budget debate provides the opportunity for all political parties to show their support for the Robin Hood Tax, not just on an ideal international level but starting here and now in the UK with a  unilateral sterling CTT. 

Without new sources of government revenue, cuts will hit vital public services, poverty relief, prevent the world fulfilling the Millennium Development Goals and reduce funding available to  tackle climate change.

The Robin Hood Tax can also be part of the policy response to the economic crisis by helping reduce irresponsible banking and putting pressure on bank bonus pay - outs. Unlike other proposals for tax increases such as a rise in VAT, the Robin Hood Tax is progressive and falls on those who not only  can afford to pay it, but bear a large share of the responsibility for the downturn. 

Robin Hood Taxes can deliver on these issues. Now is the time to commit the UK to such taxes. 

As the submission also says:

We are quite realistic: Robin Hood Taxes won’t solve all the world’s problems by themselves. They can’t. 

Of course that is true, but it does not undermine the argument that we need action now to tackle the problems we face – and new taxes on irresponsible banking are part of that solution.

It will be interesting to see if any commitment is made.

Richard Murphy Transaction tax

A new report released today from Global Financial Integrity (GFI) on private, non-resident deposits in secrecy jurisdictions finds that the United States, United Kingdom, and the Cayman Islands are the most popular destinations for financial deposits by non-residents.   Switzerland, Luxembourg, and Hong Kong also make the top 10 list of destinations.

"This report looks at deposits held offshore by private entities on a country-by-country basis, achieving a level of specificity previously unavailable to the public," explained GFI director Raymond Baker.  "With overall deposits in secrecy jurisdictions currently approaching US$10 trillion, this report measures a sizable chunk of global wealth and helps us to better understand where individuals and corporations are putting their money."

Privately Held, Non-Resident Deposits in Secrecy Jurisdictions analyzes data from the Bank of International Settlements and the International Monetary Fund to measure total deposits by non-residents in areas considered secrecy jurisdictions under the definition established by the Tax Justice Network.

Notable report findings include:

• Total Current total deposits by non-residents in offshore centers and secrecy jurisdictions are just under US$10 trillion;
• The United States, the United Kingdom, and the Cayman Islands top the list of jurisdictions, with the United States out in front with more than US$2 trillion in non-resident, privately held deposits in the most recent quarter for which data are available (June 2009);
• Contrary to expectations of perceived favorability for deposits, Asia accounts for only 6 percent of worldwide offshore deposits, although Hong Kong is the tenth most popular secrecy jurisdiction by deposits in this report;
• The rate of growth of offshore deposits in secrecy jurisdictions has expanded at an average of 9 percent per annum since the early 1990s, significantly outpacing the rise of world wealth in the last decade. The gap between these two growth rates may be attributed to increases in illicit financial flows from developing countries and tax evasion by residents of developed countries.

The report also contains two case studies of Switzerland and Iceland, which show measurable fluctuations in financial deposits correlated to events in which financial secrecy or overall market solvency were threatened.

"This report shows that offshore deposits are on the rise, and the quantities of money being sent into these jurisdictions are massive," said Mr. Baker.  "The report also helps us to better understand where reporting may be improved to better differentiate between licit deposits and illicit deposits, which will ultimately enable better law enforcement in cases of tax evasion and other financial crimes."

Privately Held, Non-Resident Deposits in Secrecy Jurisdictions is the second report by GFI economist Ann Hollingshead.  Her earlier report, Implied Tax Revenue Loss from Trade Mispricing, was released last month.  Click here to download a copy of Privately Held, Non-Resident Deposits in Secrecy Jurisdictions, click here to download a copy of Implied Tax Revenue Loss from Trade Mispricing

Richard Murphy Banking, Secrecy jurisdictions, Task Force, Tax Havens

The right wing libertarian Lib Dem economist Giles Wilkes has responded to a blog here.

I’ll try to ignore the patronising bits and try to find arguments, such as:

I am utterly convinced that the 50bps stamp duty in the UK (a) falls on pensioners and (b) increases cost of capital for companies, for example.  Abolishing it would improve welfare, and not introduce dangerous destabilizing speculation.

Only in saying that he depends upon an Institute for Fiscal Studies report that assumed that the efficient market hypothesis was valid – a somewhat big leap of faith these days – but to which he obviously subscribes.

And then I can’t ignore the patronising bits. He says:

So the point should be to move the debate over to where it is conducted along grown-up evidence based lines, as I think Lord Turner is capable of.   Not everyone involved in this debate is so capable.  So instead of:

“How much shall we take from Evil People to do Good Things, given that there are No Bad Consequences and that the people who disagree with me are clearly evil and corrupt or stupid?”

we move to:

“Transaction taxes can raise money and lower liquidity.  At what level could they be set so that the liquidity lost is not harmful or if harmful is made up for by the money raised?”

Much more boring.  Not sure it will attract the quantity of luvvies that the Robin Hood Tax campaign has

I’ve offered evidence based thinking. He’s ignored it – as if by pretending the counter argument does not exist he’ll win. But having used this ruse and abuse to further his cause as to the social worth of socially useless activity in the City (Lord Turner’s words – not mine) he goes on to say:

Incidentally it would also help if some of the people in the debate recognised that Corporations are not People.  The tax on Corporates then fall on employees, shareholders, and so on.  Read Tim’s post on this.

Intriguing that the unholy alliance between the Lib Dems and the far right marches ever onward, but he also ignores the fact that I have engaged extensively with Tim Worstall on this issue – using a degree of respect in that exchange which appears beyond Giles’ capability. But in doing so both Worstall and Giles did, again, miss the elephant in the room – and again, I am sure, quite deliberately so. I summarise that elephant in a comment on Giles’ blog where I say:

But let’s get to the real nub – since you clearly can’t / won’t address the issues on liquidity – and deal with incidence

As you know I have discussed this at length with Tim and he could not disprove the arguments I presented – indeed – he agreed they were logical is my assumptions held – he just disagreed with the logic

So why don’t you address incidence instead and answer these questions:

a) On whom does the incidence of churning costs fall in pension funds?

b) Does stamp duty reduce churning?

c) If so is stamp duty beneficial in welfare terms assuming your answer to (a) is pensioners?

Then answer the same question on where the incidence of the costs of City trading in forex, derivatives, etc fall and then suggest why that incidence is beneficial

Then follow through and suggest why reducing the incidence of those charges would harm society

Arguing about the incidence of the tax – as you on the right like to do (sorry, but true – that’s an accurate description of your position on this) is a mere side show

Address the issue of the incidence of the charges the tax is designed to reduce – that’s the elephant in the room

If you can do that then there is a grown up debate – but right now you’re wanting to squabble in the wings

It’s not you as a result whose got the high ground – you’ve not even entered the arena of discussion until you do this

For right wingers to use the incidence argument as proof that financial transaction taxes are harmful is absurd whilst they refuse to consider who bears the cost of supporting the City and its economically useless activities (again, not my words, that’s Lord Turner again). This tax is designed to reduce the incidence of the charges for useless activity – which will always be several times greater than the incidence of any tax.

If that incidence of useless charging to pension funds and others is reduced the benefit to society is high – and the fact that the incidence of the tax appears to be on pensioners is irrelevant – they will be better off from reduced charges for management of their funds.

This is the basis of the claim we ‘luvvies’ make.

Now it’s time for the ‘nasties’ to justify why they are demanding continuing opportunity to abuse al the rest of us.

So I want reasoned answers to questions from Giles Wilkes on the real incidence issue – about why we should support City abuse from excessive trading.

I’m not expecting to get them. There’s good reason: Lord Turner is right. But no doubt Giles can try.

Richard Murphy Transaction tax

FT Alphaville » Darling to use revenues to cut debt.

Alistair Darling plans to use a revenue windfall to trim projected UK borrowing by £5bn to £10bn in next week’s Budget, making debt reduction a priority as he tries to put public finances on a sounder footing.

[O]fficial data on Thursday showed that receipts had not fallen as much as the chancellor feared in December. Public spending is on course to end the year close to target, meaning that the government will be in the red by about £170bn.

That’s a sop to the market that may be politically necessary for the moment, and highly timely.

But to think that deficit cutting is the priority is a massivce mistake.

Employment is the priority. The deficit wiull look after itself when people are in work as Keynes said.

And as for the EU’s demand the deficit be 3% of GDP - that’s just bankers being *ankers. This is a wholly arbitrary rule of complete inconsequence made in different circumstances that they want to enforce to increase unemployment, suppress wages, increase the divides in society and to undermne democracy.

So they should be ignored - along with their friends in the rating agencies.

Keep spending, I say.

Richard Murphy Economics

I’m at the start of a pretty frantic round trip to Washington to meet the IMF with the Task Force on Financial Integrity and Economic Development .

The discussion will be highly focussed on what additional statistical data is needed to monitor the world’s illicit financial flows.

I do, of course, want the data that country-by-country reporting could provide on world trade flows and transfer pricing abuse.

But there’s another issue of importance too. A lot of work is going on seeking to track flows out of tax havens / secrecy jurisdictions to make sure they are properly taxed. There is another side to this coin though. We need to know where they come from too. And we don’t, which is why, as the IMF has now noticed, there are potentially $18 trillion dollars in small island states alone that they cannot account for.

One hopes that at long last they’re now open to dialogue on this issue.

Richard Murphy Country-by-country, Secrecy jurisdictions, Tax Havens

CS sees withholding tax on Germans’ accounts-paper | Reuters .

Reuters report that:

The chief of Credit Suisse’s  private bank is proposing a withholding tax on bank accounts held by Germans in Switzerland to help ease strained ties with Berlin, a newspaper reported on Monday.

I have already discussed the absurdity of this idea but the Swiss are clearly still hanging on to it.

But what’s really funny is the justification for it:

Such a withholding tax could mean outflows in the short term but would not greatly harm his bank’s fortunes, Walter Berchtold told Germany’s Handelsblatt.

“Long-term I’m very optimistic, because our business doesn’t rely on untaxed funds,” he said.

Well that must make it the only bank in Switzerland that doesn’t since even Swiss officials seem happy to accept that half all money in the place is illicit.

It really is time the Swiss accepted that those facilitating fraud don’t set agendas and that the whole Swiss economy is structured for just that purpose.

Richard Murphy Banking, Switzerland, Tax evasion