2008 January » Tax Research UK

HMRC says offshore brand abuse is increasing

Tax avoidance, Tax Havens Comments Off

Jan 312008

Accountancy Age has reported that Dave Hartnett, HM Revenue & Customs’ acting chairman has said that HMRC is encountering new and aggressive avoidance techniques. He said there are:

pockets of advisers who were designing bespoke, niche avoidance schemes to business, and that a pattern was emerging where companies would move brands into an offshore company and then pay for the use of the brand in order to skirt tax.

It’s something we have been saying for some time (see page 51 here). I sincerely hope it will be cracked down upon. It is a blatant abuse of the concept of tax compliance.

Hartnett on the offensive

Tax management Comments Off

Jan 312008

Dave Hartnett, HM Revenue & Customs’ acting Chairman has told the Public Accounts Committee that: has told the

When I meet the chairman of a public company it is to look him straight in the eye to explain why and how we are conducting an investigation. That is why I told the chairman of a public company not many weeks ago that we are putting 150 tax inspectors into his company.

According to Accountancy Age Hartnett confirmed that the investigation was one of only ‘half a dozen’ that he had become personally involved in during the past two years. Since Hartnett has the reputation as the toughest investigator the Revenue has ever had others will be very relieved.

In view of data that I have researched that will be published tomorrow I can say I am delighted at this approach. It bis timely, appropriate and probably over-due.

Audit committees don’t understand off balance sheet finance

Accounting Comments Off

Jan 312008

Accountancy Age reports that:

Audit committees don’t understand the off-balance sheet structures that are blowing holes in company balance sheets, investors have insisted.

The comments, from the Association of British Insurers, are some of the strongest criticisms of the profession’s role during the credit crunch.

Let’s be clear though: audit committees won’t be alone in this. Off balance sheet finance belongs in the secrecy space, like offshore. The whole purpose of the secrecy space is to make sure that the true nature of what is going on is not understood.

The problem is not in educating audit committees: the need is to shatter the secrecy space and expose it to the transparent world of accountability.

Jamaica: Not likely to make it as a tax haven

Tax Havens Comments Off

Jan 312008

I was amused to note that tax haven lobby group The Sovereign Society had a feature on whether Jamaica might be the next tax haven on its site this week. It said:

Whenever we at The Sovereign Society look at possible offshore venues for investment, tax savings, asset protection and maximum financial privacy we ask these questions:

1. How long has the current system of government been in place? Is the jurisdiction politically stable?

2. How long a legal tradition has the haven had? Does its legal and judicial system have reputation for “fair play” with regard to foreign investors?

3. Does the jurisdiction have a large enough variety of legal entities to satisfy the average person seeking an estate planning or business solution?

4. Does the jurisdiction have and defend financial secrecy laws? How strictly are they applied? What exceptions to secrecy exist?

5. Taxes: Does the haven impose taxes on foreign investors? How easily can these taxes be avoided legally? Are there tax treaties or tax information exchange agreements in effect?

With a high national debt, unemployment, difficulty with criminal gangs, and no special laws in place to attract offshore financial interests, Jamaica would seem to have a long way to go to achieve status comparable to the Caymans, Panama or even Belize or Nevis.

I thought this useful as an indication of the tax avoiders mind set. I also was interested in the conclusion.

The tax haven market is now pretty much a closed shop for those already in the game. So much for free and fair competition!

Country-bycountry reporting in the FT

Accounting, Development, IFRS 8 Comments Off

Jan 312008

Prem Sikka had this letter in the FT yesterday, follwoing on from a blog here:

PM’s proposed cure for markets is problematic

From Prof Prem Sikka.

Sir, The UK prime minister’s view that a deficit of transparency, particularly in commercial organisations, is the source of many of the problems plaguing financial markets is spot on (“Ways to fix the world’s financial system”, January 25). However, his suggestion that the International Monetary Fund should lead the reforms is problematic.

The IMF lacks democratic accountability and is tainted by its tendency to promote corporate interests. In any case, it does not have experience of regulating companies. Such tasks will inevitably fall on national or regional regulators, but their capacities are hindered by poor information.

FTSE 100 companies have more than 15,000 subsidiaries and an unknown number of trusts and structured investment vehicles (SIVs). Yet company accounts do not provide any information about the constituents of global companies. They do not provide any information about corporate income, profits, taxes, investments, assets, liabilities or carbon emissions in each country of operation.

Companies use transfer prices and intra-group transactions to shift profits and risks, but do not publish any relevant country-specific information. Thus neither the regulators nor the markets are able to make a meaningful assessment of the quality of earnings or risks, which are often specific to a country.

Several academics and non-governmental organisations have proposed a “country-by-country” approach, which would require companies to publish the above information and thus improve transparency. The cost of publishing this information is negligible as most companies already have it. The requirement to publish it can be made mandatory by law, or through accounting standards.

One hopes the prime minister and the UK government are ready to sponsor this much-needed change.

Prem Sikka,
Professor of Accounting,
University of Essex,
Colchester, Essex CO4 3SQ

The time for this has come.

My del.icio.us bookmarks for January 29th

Delicious, Uncategorized Comments Off

Jan 302008

These are my links for January 29th:

International Security – Emerging Threats – Dirty Money – UPI.com – TJN in the limelight on illict funds – again
The Treasury 2008-Varney and Northern Ireland – Is the Treasury planning tax cuts for Northern Ireland? One to watch
Optimizing performance for WordPress – Just for bloggers (with thanks to Dennis Howlett)
Comment is free: Our irregular regulators – Prem Sikka says without better reform of the UK’s political institutions for taming corporate power, a durable regulatory system cannot be developed
Frequently Asked Questions: Girl Scout CookiesÂ® – This is serious: people in the US ask if they can get tax releif on buying biscuits from Girl Scouts. Amazing, because apparently you can. Hat tip to Paul Carron at TaxProf Blog
Tax Justice Network: Africa Tax Conference – Africa’s building a new tax concensus, but can civil society take a part?
UN Corruption meeting – The UN quotes corruption data from Raymond Baker – a TJN adviser, and puts an estimate on Indonesia’s loss to Suharto

The Star Initiative: Tackling Corruption

Corruption, Tax Havens Comments Off

Jan 292008

The World Bank has a copy of the speech of Dr. Ngozi Okonjo-Iweala, Managing Director of the World Bank Group at the Fight against Corruption conference going on in Bali right now on their web site.

I’d recommend it all, because I agree with large parts of it. Like this:

Collective action against corruption requires the need to balance the burden of responsibilities. This is a fundamental point in the fight against corruption that has been overlooked. For too long the focus of anticorruption efforts has targeted developing countries. Developing countries get named and shamed. Developing countries are rewarded or punished based on compliance with standards set in the developed world. Far too often, the public opinion in developed nations seems to forget that corruption is not a developing country problem only.

Too true: and a point TJN has been pioneering.

As Dr. Ngozi Okonjo-Iweala continued:

Developing countries might have a long way to go in improving transparency, accountability, and good governance. However, progress made by these countries will be deemed insufficient, as long as the international financial architecture provides a risk-free alternative for the concealment of stolen funds.

Which fair and square bangs the nail on the head. None of this could happen without the suppliers of corruption services. As Dr. Ngozi Okonjo-Iweala puts it:

As long as kleptocrats think that they have a good chance of getting away with their theft, they will be looking for opportunities to steal. Viewed in this way, the failure of the international community to solve this situation actually sabotages (undermines) the efforts undertaken by developing countries.

That’s why tax havens have to go. As TJN has long said, they cause poverty. And the world and its bank is beginning to agree.

Guernsey: pretending to stand on its own

Guernsey Comments Off

Jan 292008

I was amused to read a story in the Guernsey Press and Star which had the headline:

GUERNSEY’S independence is seriously under threat from the EU and more has to be done to safeguard it.

According to the report the above was:

the overwhelming verdict from politicians gathered at La Trelade Hotel yesterday discussing the surrender of sovereignty by the British Government to the EU.

And the blame it all on Labour:. Guernsey housing minister Dave Jones said:

Our allegiance in this island belongs to the Crown, not to the men in grey suits who are at the head of the Labour Government who are here today and gone tomorrow and believe the sovereignty of our people belongs to them.

Funny how Deputy Jones has not noted the number of women in the Labour cabinet, but then you have to note that he was joined around the table at the conference by a selection of members of the European Parliament from the UK Independence Party, which included Roger Knapman, MEP for the south-west and Tom Wise, MEP for the east of England, which does of course help explain his paranoia, and his small world view.

That’s the trouble of living on a small island; it means that you have a horribly small world view. So does UKIP. To believe that there is a separate and somehow independent ‘Crown’ to which allegiance can be owed is absurd: Guernsey sinks or swims on the basis of its relationship with the UK. And in that respect I note that Deputy Jones said:

From our point of view we have seen increasing problems over the last couple of years with getting legislation through the Privy Council. It’s slowed to a snail’s pace on occasions.

Guernsey can’t even pass a law without the consent of the UK (the Privy Council is not the Crown, after all). And it is taking a long time to get its laws through for some good reasons: I suspect the UK does not like them.

Time to wake up and face reality Guernsey: if you think you can go it alone you are sadly mistaken.

If you don’t get flack for the Enron audit what do you get it for?

Accounting, Corruption, Ethics 1 Response »

Jan 292008

Reuters has reported that:

A former Arthur Andersen partner responsible for the Enron Corp account has settled allegations that he violated securities laws when he signed audit reports that were “materially false and misleading,” the U.S. Securities and Exchange Commission said on Monday.

But, they note: