2009 February » Tax Research UK

Antigua’s bad – but no one should use it as an excuse

Corruption, Tax Havens Comments Off

Feb 192009

The fraud allegations against Sir Allen Stanford have thrown a spotlight on Antigua’s regulators and law enforcement agencies at a time when tax havens from Europe to the Caribbean are coming under growing pressure from rich nations.

The tiny island state has faced criticism from fellow financial centres in the region over shortcomings in its system for preventing tainted money from entering its financial institutions and flowing through them.

Time and again on this site we see people from one secrecy jurisdiction saying they’re clean and all is hunky dory where they are, but being happy to name another where things are, they say as they were a decade ago in the now reformed place in which they are currently located.

Expect the whole non-Antiguan secrecy jurisdiction world to now, with one voice, say the whole tax haven problem was located in Antigua and Antigua alone, so they should be left alone.

That isn’t true. The secrecy jurisdiction problem is in Cayman, Jersey, the Isle of Man, Guernsey, Bermuda, Luxembourg, Switzerland and many more. Antigua is clearly a bandit state. The rest are just better at hiding that fact that they too are governments that have been capture for the benefit of the financial services community and their corrupt, greedy or indifferent clientele.

They all have to go.

Real action on tax havens now?

Economics, Tax Havens Comments Off

Feb 192009

It is a little shocking to realise that Gordon Brown said this yesterday:

We want the whole of the world to take action. That will mean action against regulatory and tax havens in parts of the world which have escaped the regulatory attention they need. The changes we make will have to apply to all jurisdictions around the world.

It takes a seasoned campaigner like me a little while to realise quite how far we’ve come when someone who has been as died in the wool supporter of tax havens as Brown has been is saying things like this.

And it’s also worth noting this from the publication launched yesterday call The Road to the London Summit:

Financial activities should be regulated according to their economic substance rather than their legal form. This will involve addressing the emergence of the shadow banking sector; a shift in regulatory focus towards those institutions and markets that pose the greatest risk; and considering greater powers for regulators to oversee previously under-regulated sectors and how to ensure consistent regulation in all jurisdictions.

So what’s happening? First, there’s a lot of hype in here. As the FT notes:

Government insiders were on Wednesday night trying to calm down expectations.

Don’t get carried away in other words.

Second, as the Guardian notes:

Sources say it is important that everyone pays their fair share of tax but no country will want to damage the economic competitiveness of major companies.

Which means we have to be realistic: they’re not talking about taking on any of the major corporate tax abuses of the sort described in the Guardian over the last fortnight and here over the last two or more years.

The reality is that they’re talking about the two areas that dominate Britain’s hopes for the London meeting – economic stimulus and reforms to banking regulation. I have no problem with either – let’s be clear. But when it comes to tax havens it is very, very likely that the focus will be on personal tax. Again, I don’t argue that this is important, it is. It is the bigger part of the problem – I know that. But it’s not all the problem.

The reality is that there will be a conflict in the London Summit approach if the challenge to tax havens focuses on the personal use of them and the focus on regulation is only on banks. Note what that paragraph from the London Summit document noted above says. It argues that financial activities should be regulated according to their economic substance rather than their legal form. This is fundamental, but it should also be noted that regulation inlcudes tax. And it requires these things for it to happen:

1) We have to know where the conflicts between economic substance and legal form arise. This is exactly what country-by-country accounting reporting is designed to expose.

2) We have to be willing to apply this to all aspects of regulation. It can’t work for banking, hedge funds and private equity with regard to their obligations to the FSA. It has to apply to their tax obligations too.

3) There has to be an open willingness to say offshore structures will simply be ignored where they have no real economic substance. The revised EU Savings Tax directive does that. I would expect the G20 to endorse that approach, now. I would expect Gordon Brown to specifically endorse that approach, now. And I would suggest that sanctions to enforce this, including withholding taxes to places that refuse to cooperate with automatic information exchange to allow this approach must be endorsed, now.

4) The drive to better regulation must be for the benefit of all. It would be useful if governments could get better information on what is happening in the economy. Automatic information exchange will be of enormous benefit to tax authorities. But there are still the ordinary people of the world, the trading entities of the world and the countries who ultimately stand to bail these people out when things go wrong who are also suffering from an enormous lack of transparency in our economies. We need the full accounts of all limited liability entities to be on public record in every country in the world, and we need to know who their beneficial owners (the real warm bodies, that is) are in all cases unless that beneficial ownership is a publicly quoted company. In the case of trusts this means the settlor, or if they are dead, the beneficiaries who have either received funds or who are named in any instructions, including side letters of trustees. Only then will we massively reduce the risk of trading in the world economy and so cut the risk premium now having to be paid on borrowing which is such a massive impediment to economic recovery.

This is a programme that forms the basis for real reform. I urge the Prime Minister to take it very seriously. It is a programme wholly aligned with his goals. It is a programme that is deliverable, and which supports rather then undermines real economic competition.

This is a win for all people in all nations who want to see a secure, safe, stable and law abiding economy. Who can argue with that?

The Foot review of tax havens has not yet decided what it’s going to do

Isle of Man, Tax Havens 3 Responses »

Feb 182009

In the pre-budget report last November Alistair Darling announced that he would commission a review of the UK’s tax havens. It was said it would report in time for the budget.

Yesterday was budget day in the Isle of Man and Alan Bell said in his speech:

Our proactive response to the events of last October will extend to the review into crown dependencies’ regulation being undertaken by the United Kingdom and referred to as the “Foot Review”. I understand Members frustration in relation to hearing how the review is to progress, but to date we have yet to meet Mr Foot or his team, to hear how he proposes to undertake this work. I look forward to such a meeting taking place at an early opportunity as I know that we can demonstrate that we the meet highest standards of regulation, and as such this will be another opportunity to demonstrate this to the international community.

I find that amazing: this review has not met the havens, has not said what it is proposing to do and has not established a work plan.

Great for Mr Foot’s consulting fees no doubt.

Bad for any prospect for real change.

But that suits the UK government well: they really would not have wanted anything embarrassing to have come out before the G20. And it killed the Treasury Select Committee review into these places. Oh, how convenient it’s all been.

Call me cynical? Just a tad.

Why tax havens are costing us all money now

Banking, Tax Havens Comments Off

Feb 182009

I was on File on 4 on BBC Radio 4 yesterday evening explaining why the UK banks’ tax haven operations will all cost us more now as they increase their bad debt risk.

The broadcast is available here.

If you just want to here my bit start at about 30 minutes in.

I had a dream..

Economics, Ethics Comments Off

Feb 182009

I had a dream and in it a politician said this:

The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.

What’s amazing is that Roosevelt did.

And then I woke up. And re-read Stephen Timms in the Guardian……..

Not good enough Mr Timms – so now please address the issues

Tax compliance Comments Off

Feb 182009

Stephen Timms, Financial Secretary to the Treasury has written a response to the Guardian’s Tax Gap series. It’s not good enough. He says:

The Guardian was right in its Tax Gap series to highlight the issues of tax avoidance and evasion. The vast majority of people in Britain pay the right amount of tax, and they have every right to be angered by reports of a small minority of people, including companies, deliberately seeking to evade or avoid tax.

As a Treasury minister, I understand the need to make sure the tax system works fairly. … The government does not expect people to pay more than their fair share. It expects them to pay what is due. …. But it is my responsibility to make sure that taxpayers who comply with their obligations are not disadvantaged by the actions of a minority who try to avoid paying their fair share.

There then follows a massive list of platitudes before he says:

The Guardian articles rightly highlight how avoidance is now an international activity. The UK plays a leading role in international efforts to counter avoidance and evasion through sharing of information and intelligence.

We will be using our presidency of the G20 to push the tax evasion issue further up the international agenda, in order to boost efforts in the EU and the OECD to tackle it.

Protecting tax revenues is key to delivering fairness. In the current economic downturn we need to support businesses so they can provide the jobs of the future. But they need to play by the rules. We will remain relentless in taking action – domestically and internationally – to tackle both tax avoidance and evasion.

Of course I want to believe him: the reality is that this is not what is happening.

The UK is supporting its tax havens.

The UK is massively cutting tax staff.

The UK is saying no, no, no to all its partners in the G7 and G20 on tax reform. Ministries tell us so.

The UK refused cooperation at the UN on tax.

The UK is refusing to work with the EU on the CCCTB

The UK is (I know) sending misinformation to the EU on the revised EU STD

The UK is still subsidising the Isle of Man to be a tax haven.

The UK refused to close down the internationally hated domicile rule.

The list goes on, and on, and on of occasions where the UK is relentless in taking action that is designed to facilitate tax avoidance and evasion and which is designed to undermine progressive taxation and the establishment of international justice in tax to ensure that each does really pay a fair share – not just as defied by abuse of the rules but in accordance with natural justice.

Why Mr Timms, why?

Why no mention of these issues here, for a start?

My del.icio.us bookmarks for February 18th

Delicious Comments Off

Feb 182009

These are my links for February 18th:

Solicitors’ taxing concerns – Accountancy Age – The Law Society consulted me on this – asking if I'd now dropped my opposition to cash accounting in view of the credit crisis
My response was blunt – if solicitor's could not manage their tax payments they should not be in practice, I said
FT.com / Asia-Pacific – China urges west to establish ‘bad banks’ – We don't need them – we already have them
Read what I've written today
FT.com / US / Politics & Foreign policy – Greenspan backs bank nationalisation – "The US government may have to nationalise some banks on a temporary basis to fix the financial system and restore the flow of credit, Alan Greenspan, the former Federal Reserve chairman, has told the Financial Times."
It always worries me when I agree with Greenspan
Gordon Brown promises new curbs on bank bonuses – Times Online – Brendan Barber, the TUC General Secretary, said: “Whatever the legal niceties, the real question remains: why do bankers need bonuses to do their jobs properly when the rest of us are happy to put in a good day’s work for a straight day’s pay?”
Precisely
A razzie for obfuscating PwC | AccMan – PwC earns a razzie for Best Crafted BS of the Week.
PRESS DIGEST – Financial Times – Feb 17 – DARLING TO BOLSTER TREASURY RANKS WITH REDUNDANT CITY BANKERS
"Chancellor of the Exchequer Alistair Darling is looking to hire up to 70 bankers who lost their jobs in the credit crunch in an effort to boost the Treasury's relationship with the City. "

They wrecked the City. Now let's let them have a go at ruining the country. Is that the logic?
The World Bank: From crisis to opportunity – How we deal with the global recession will make all the difference to whether we avert the dangers of an even more ominous disaster: global warming.

Toxic banks

Banking 4 Responses »

Feb 182009

It seems every day brings news of a new banking crisis. HBOS continues to pull Lloyds down: RBS bumps along with the state unable to decide how or when it should intervene. Whatever initiative Brown and Darling showed last October has been long dissipated. Their current policy is based on fear, dogma and incapacity to make a decision.

It is glaringly obvious that Lloyds and RBS are now, for all practical purposes, toxic banks. We don’t need to create another one to collect the failed assets of our banks. We already have two sitting on the shelf under effective state control. There is no need to decide at what price the state needs to buy the toxic assets – or even to decide which assets they are. For all practical purposes we have already acquired and paid for them, there’s just a residual balance outstanding to the remaining private shareholders in these banks.

In that case the question is not how to extract these toxic assets from our banks, which most see as a necessary pre-condition to start any process of cleaning these banks up. It is more a question of how to get the shareholders out of these toxic banks so we can clear up the mess they’ll leave behind.

It seems to me that there is an obvious solution to this problem. Both banks own assets that are performing. RBS is, for example, the owner of Directline and other insurance companies. Lloyds also has brands that are likely to deliver both cash flow and profits in the short term, and which are, therefore capable of having value attributed to them, and of paying dividends to shareholders, which is a remote prospect in their parent companies right now. In that case my suggestion is simple. These assets, which were in the case of RBS up for sale until very recently, and for which as a result it is highly likely that a an appropriate valuation has already been determined, should now be floated in their own right as separate entities capable of performing as independent quoted companies. The shares in these new companies should then be used on a swap basis to buy out the remaining shares in public hands in RBS and Lloyds, and any other banks where similar arrangements might be required. As a result no cash need change hands to get the shareholders out of these banks, and to make those shareholders better off, all at the same time.

The consequence is simple: the toxic assets can be taken under state control without extensive effort and without considerable risk as to false valuation arising: the valuation process will be on the value of performing assets to be released to shareholders for their current benefit, when they have little or no prospect of securing real benefit from their current holdings in these banks.

Then the toxic assets can be isolated in banks where the problems of PLC status and multi-shareholder considerations can be eliminated for the time being before the remaining worthwhile assets of these banks (their retail, clearing bank operations, for example) can be returned to the private sector in a further flotation designed to release cash to repay the state for the cost of dealing with the toxic remaining element which is likely to remain under state control for some time.

The result would be simple: nationalisation of these banks could be undertaken with no cash cost to the Exchequer, and the cost of restructuring g of the banks could be considerably reduced by their being held in temporary complete state ownership.

Doesn’t that make sense? Isn’t this the strategy Brown and Darling are missing?

It’s time for the profession to engage

Accounting, Economics 3 Responses »

Feb 182009

It occurred to me that it was extraordinary that last weekend a major UK national newspaper called for reform of the international accounting system. And the accounting profession has completely ignored that fact.

The Guardian called for country by country reporting.

And what did the Big 4, the ICAEW, the UK Accounting Standards Board or the International Accounting Standards Board say in response to this call from a national paper that reflects serious concern in the community? Not a word. Nothing.

Can the profession really afford to hold the public in such contempt now? Can the profession continue to ignore the role it has played in creating the mess we’re in for much longer?

I suspect it thinks it can.

I suspect it’s wrong.

It’s time for the profession to smell the coffee. It’s time for us to go to them if they won’t come to us.

Either way, change has to happen.

Any response anyone?