These are my links for July 31st:
These are my links for July 31st:
These are my links for July 31st:
Senator Carl Levin and the US Senate Permanent Sub Committee on Investigations have been back in action, looking at non-payment of payroll taxes in the US. As is usual they commissioned a report from the US Government Accountability Office on the issue. It’s findings are staggering:
IRS records show that, as of September 30, 2007, over 1.6 million businesses owed over $58 billion in unpaid federal payroll taxes, including interest and penalties.
And remember, that’s unpaid but declared liabilities.
More important though is this comment:
Although IRS has powerful tools at its disposal to prevent the further accumulation of unpaid payroll taxes and to collect the taxes that are owed, IRS’s current approach does not provide for their full, effective use. IRS’s overall approach to collection focuses primarily on gaining voluntary compliance-even for egregious payroll tax offenders-a practice that can result in minimal or no actual collections for these offenders. Additionally, IRS has not always promptly filed liens against businesses to protect the government’s interests and has not always taken timely action to hold responsible parties personally liable for unpaid payroll taxes.
This is really worrying, and I suspect the same is true of many tax authorities, and especially HMRC. Explanation is relatively easy to offer.
There are powerful forces in this world who do not like tax, who want to undermine the tax system and who want to destroy our democratic concept of society that is built on the basis of progressive taxation that funds programmes of social welfare, state education and health provision (for starters). These people have created a powerful lobby that suggests that tax is a ‘bad thing’. In the process they argue that the Revenue authorities should have their funding cut (as we are seeing in the UK at this moment), that programmes of voluntary compliance are the way forward with those who seek to abuse the system and that tax fraud is, for reasons that are almost inexplicable to ordinary people, a victimless civil offence to be treated quite differently from the criminal activity of state benefit abuse.
This lobby has powerful backers. The big four firms of accountants are key proponents of this idea, as are all the major banks and of course many firms of lawyers are more than happy with it. The professional bodies that are represent these people are willing participants in the process. Those who run these companies and organisations are members of the 1% club: that is the financial elite in our society who will be the sole beneficiaries of the destruction of the existing tax and social consensus. It is unsurprising that they stand where they do. They are ably supported by the avaricious owners of the majority of the media who belong to the same financial elite.
The result of their efforts is seen in the incapacity of the IRS. You cannot tell an organisation that what it’s doing has no social worth or see its staff vilified day in and day out in the media as if they were incompetent without undermining the morale and capacity to act of those people and that organisation. An increase in the tax gap is the inevitable consequence.
This is, of course, the intention of the media, the big firms of accountants, lawyers and bankers who wish to change our social structures that their own perpetual advantage.
It is the duty of the politicians to challenge this lobby. It is their responsibility to manage the state on behalf of the electorate, an electorate who have shown time and again that they want a mixed economy, a substantial involvement of the state in the provision of their well-being and are willing in exchange to pay 40% or more of the country’s GDP to the government.
So what is the solution? An immediate agenda might look like this:
1) Stop all funding cuts to HM Revenue and Customs
2) Stop the programme of local tax office closures
3) Increase funding for tax collection measures
4) Intervene rapidly where it is clear that non-payment is occurring
5) Offer as many mechanisms for payment as is possible
6) Encourage more regular payment of tax. It is a absurd that the self-employed pay only twice a year and companies just once a year. Everyone knows that more frequent, lower, payments on account are more likely to be collected so why hasn’t the Revenue adopted this approach?
7) Make company directors personally liable for all taxation contributions more than three months overdue. The change in behaviour that this would create would be enormous
Impose legal charges on directors properties to enforce liabilities due as a result of the previous recommendation.
As for voluntary compliance, I am all for it, but only when it can be shown to be appropriate. I will be returning to this theme shortly. For now I have one message: please get tough.
The FT has reported that:
Banks have been given a one-year reprieve by US accounting standard-setters from having to take up to $5,000bn (£2,520bn) of debt assets on to their balance sheets, easing fears that they would be forced to raise large amounts of new capital quickly.
Robert Herz, FASB chairman, said that the move was made reluctantly after a staff recommendation for a delay because there might not be enough time for all companies to adjust to the up-heaval.
As the FT notes:
Since the credit crunch, many banks have been forced to bring some such vehicles back on to their books, angering investors who did not know about the holdings.
In May, analysts at Citigroup forecast that banks could be forced to bring up to $5,000bn of assets back on to their balance sheets when the new rules came into force.
Lawmakers and banking industry groups have issued calls for a delay in recent weeks because of the potentially huge detrimental effect the changes could have on banks’ capital bases and their ability to raise new capital.
As justification:
The FASB said it had decided to change the date as a result of “comments and feedback that we received”. The original proposed date was an “ambitious” one that had been reconsidered, it said.
Mr Herz said during the meeting he was “chagrined” by what had been uncovered as the rule changes were prepared.
He added that there had been a mixture of poor reporting and a lack of proper enforcement.
Now let’s be clear what this means. Banks who have been responsible for poor reporting, which has been tolerated due to their auditor’s failing to properly enforce existing rules have submitted comment to FASB that they cannot possibly comply with new accounting rules as yet because they need to raise new capital in the meantime, and can only succeed in doing so if they can continue to misrepresent the true extent of their assets of limited worth and actual liabilities.
In a litigious world wouldn’t you think that FASB might be putting themselves at risk of class actions from future aggrieved shareholders by knowingly putting those people’s wellbeing at risk by allowing continuing misrepresentation of the true and fair view in the accounts of US banks? That seems to me to be exactly what they are doing.
I am staggered at FASB’s complicity with this abuse, and lack of willing to impose appropriate rules. I do not agree that the banks could not comply: their inability is self motivated lack of willing, which is something quite different.
And whilst this continues expect the credit crunch to get much worse as the spiral of losses goes on.
And who do I blame? There are just four audit firms who can carry the blame for failure of proper enforcement. They are of course PWC, KPMG, Ernst & Young and Deloittes. They carry an enormous burden of responsibility for the failure of accounts to show a true and fair view, a failure that allowed the credit crunch to develop.
These are my links for July 30th:
It’s been a day for major stories. Another has just emerged from the UK’s Courts. The House of Lords, the UK’s highest court, this morning OVERTURNED the High Court’s ruling of April 2008 that the Director of the Serious Fraud Office (SFO) acted unlawfully when, acting on government advice, he terminated in December 2006 a corruption investigation into BAE Systems’ arms deals with Saudi Arabia after lobbying by BAE and a threat from Saudi Arabia to withdraw diplomatic and intelligence co-operation.
The High Court ruling was in response to a judicial review brought by the Campaign Against Arms Trade (CAAT) and The Corner House.
Today, the law lords described the threat made by Saudi Arabia as ‘ugly and obviously unwelcome’.
Baroness Hale said that she would have liked to have been able to say that it was wrong to stop the investigation as it was ‘extremely distasteful that an independent public official should feel himself obliged to give way to threats of any sort.’ But she felt she had to agree that the SFO Director’s decision was lawful because of the breadth of the Director’s discretion.
In response to the Lords’ judgments, Nicholas Hildyard of The Corner House said:
Now we know where we are. Under UK law, a supposedly independent prosecutor can do nothing to resist a threat made by someone abroad if the UK government claims that the threat endangers national security.
The unscrupulous who have friends in high places overseas willing to make such threats now have a ‘Get Out of Jail Free’ card — and there is nothing the public can do to hold the government to account if it abuses its national security powers. Parliament needs urgently to plug this gaping hole in the law and in the constitutional checks and balances dealing with national security.
With the law as it is, a government can simply invoke ‘national security’ to drive a coach and horses through international anti-bribery legislation, as the UK government has done, to stop corruption investigations.
Symon Hill of the Campaign Against the Arms Trade said:
BAE and the government will be quickly disappointed if they think that this ruling will bring an end to public criticism. Throughout this case we have been overwhelmed with support from people in all walks of life.
There has been a sharp rise in opposition to BAE’s influence in the corridors of power. Fewer people are now taken in by exaggerated claims about British jobs dependent on Saudi arms deals. The government has been judged in the court of public opinion. The public know that Britain will be a better place when BAE is no longer calling the shots.
The law lords judgment confirms that the UK is in flagrant breach of its duty to implement and give force to the OECD Anti-Bribery Convention.
In practice, the UK Government now has a green light to use an undefined and broad concept of ‘national security’ to cover themselves when taking potentially unlawful decisions.
The SFO, BAE and the Government might think that, with today’s judgments from the law lords, it’s now all over. Far from it! The real challenges have only just begun.
I wish the CAAT and Cornerhouse good luck in their continuing campaign on this issue.
The Congo basin contains the world’s second largest tropical forest and is of incalculable importance not only in terms of biodiversity and resources for local people but also as a giant carbon store that is essential for climate protection. Yet over 25 percent of this precious ecosystem is controlled by the logging industry with the majority in the Democratic Republic of Congo (DRC) and the Republic of the Congo – two countries suffering from endemic corruption.
In a new report “Conning the Congo“, published today, we expose how companies like the German-Swiss Danzer group are cheating the people in this region out of vast amounts in tax revenue every year.
Danzer have set up an elaborate profit laundering system whereby their Swiss subsidiary company (Interholco AG) buys timber from its African sister companies (Siforco and IFO) at way below the market price and then makes up the shortfall by depositing money in offshore bank accounts. In doing so the Danzer Group evades paying a wad of corporate tax and export duties.
This unscrupulous behaviour appears to be indicative of the entire logging industry operating in the area – exacerbating the problem of illegal logging and cheating one of the poorest regions of the world out of millions of euros each year. We have calculated that the loss to these governments from the Danzer Group alone could be nearly eight million Euros. This is equivalent to the cost of vaccinating over 700,000 Congolese children under the age of five or 50 times the DRC Ministry of Environment’s annual operating budget.
Last year we released a report “Carving up the Congo“, which uncovered the social chaos and environmental destruction brought about by the logging sector and exposed Danzer’s involvement in illegal timber trading, bribery and dealing with traders blacklisted by the UN Security Council for illegal arms trafficking.
This ongoing corruption and scandalous accounting processes pose a serious obstacle to genuine development and undermine the effort made by the global community to alleviate poverty in the region. Ironically, while many governments continue to pour billions into the war-torn DRC to help it re-build, they are standing by as their own corporations con the country out of substantial wealth while plundering the natural resources of the region – contributing to climate change and depriving local communities of sustainable employment.
The World Bank is currently failing in its stated objectives of controlling the expansion of industrial logging and improving governance of the sector. In fact some international donors are even considering providing financial incentives to boost the logging industry.
The sector clearly needs tighter legislation and enforcement. In May 2002 the DRC Government announced a moratorium on new concessions and the extension or renewal of old ones. The government has now committed to a legal review of the logging industry and we are calling on them to maintain and enforce the moratorium – withdrawing any illegal concessions. Currently the review is characterised by secrecy and sloppiness so we’re demanding the international community and the DRC Government ensure this review process is completely transparent, the moratorium is maintained and enforced and that a participatory land use plan is put in place.
International donors must not subsidise the logging industry and scarce public funds should be used to finance measures that effectively control logging while empowering local communities. International aid should benefit the Congolese people rather than the bulging bank accounts of greedy European companies.
The value of the DRC’s forests as a carbon store could be far greater than the income generated for the country by industrial logging. Deforestation accounts for about one fifth of global greenhouse gas emissions and replacing industrial logging in the DRC by an internationally-backed forest protection system would not only be financially beneficial to the people of the DRC it would make the country a key climate protector.
I note that the Right have already been reading the Guardian’s accounts, published today, and are spreading misinformation about its effective tax rate, no doubt because of the Tescos case.
To set the matter straight, this is their profit and loss account:
And this is the relevant note to the accounts:
Now let’s be clear: what this shows is that on trading the effective rate of tax was 46%. If good will were added back to profit the rate would be about 21%, a rate that is low largely because much of the profit came from the disposal of assets. If that were adjusted for then the rate would be above the statutory rate. There is nothing abnormal to comment on as a result.
The low charge is on the exceptional part sale of the Auto Trader group. No complicated planning was needed to produce a low tax charge: the government allows for tax to be deferred in this case if funds are reinvested. The Guardian did reinvest the funds. That’s not artificial, offshore, or complex. Indeed, it is tax compliant: the company is doing what the government wants, and for which it provides a relief.
So let’s stop the nonsense about low tax rates now: it’s just wrong.
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