2009 March » Tax Research UK

What tax havens do – 6 – they undermine democracy

Ethics, Secrecy jurisdictions, Tax Havens 14 Responses »

Mar 312009

Tax havens undermine democracy. They do this through their promotion of a process called tax competition. As one of the proponents of tax competition, Richard Teather, a lecturer at Bournemouth University has said:

Tax competition acts as a check on governments’ ability to raise taxes; it ensures that governments have more limited
funds and thus provides incentives for governments to spend more wisely.

By preventing taxes becoming too high, tax competition boosts economic welfare, productive investment and
employment. Low-tax jurisdictions also make global capital markets more efficient.

There are many more quotes of this sort put out by those who support tax havens. There are a number of assumptions implicit in such statements:

That it is appropriate for one government to deliberately set out to interfere in another government’s ability to raise taxes.
That because a government does have a reduced capacity to raise taxation it is necessarily more efficient.
That taxation reduces economic welfare and well-being.
That flows of unregulated capital through tax havens without cost being incurred result in efficient financial markets.

Each of these has extremely dubious foundation. No group has protested more strongly that another state does not have the right to interfere in the setting of tax rates than the tax haven jurisdictions. By definition this undermines their argument that they can be used to influence tax rates in other nations.

If, as a matter of fact, low tax rates in tax havens are intended to reduce the capacity of other governments to tax then they are hopelessly inefficient at the task. Over the last decade or so average rates of government spending in OECD states have risen. Tax competition is a miserable failure on that score.

It is also widely known that the countries with the highest level of recognised well-being in the world are the Nordics states, where levels of taxation are high. At the same time, the countries with the lowest rates of overall taxation are to be found in Africa. It would be a brave person who argued that they have the highest levels of well-being.

As for the argument that the flows of hot money through tax havens in unregulated fashion have produced economic well-being – the current world financial crisis proves just how untrue this is, and that they contributed to that outcome.

And yet, each of these arguments ignores an even more fundamental issue. That is that tax rates, levels of spending and the allocation of reward within a society should be determined by the people of each state in free and democratic elections. If the people of a state wish to have a high rate of tax, and resulting high levels of public service, or even of income redistribution, then that is their choice. No one, especially a small group of financiers who have taken effective possession and control of the legislature of a small jurisdiction should be allowed to try to undermine that democratic process being undertaken elsewhere. Those who demand that these financiers have such power through such locations are in effect saying that the democratic process is one to which they do not subscribe.

The message is simple: tax havens are being used to undermine democracy. They are a threat to fundamental part of our way of life.

Tax justice – define, find, count, tax, reallocate, report

Economics, Ethics, Tax management Comments Off

Mar 312009

It has occurred to me that there are six stages in the process of creating Tax Justice. They are:

Define

It’s vital we agree what the tax base is. This has to facilitate progressive taxation and the promotion of better use of resources within society.

Find

If you can’t locate what is to be taxed there’s no point saying you’ll tax it, hence the attack on tax havens.

Count

If we can’t quantify the tax base we can’t tax it – hence the demand for country by country reporting.

Tax

Working out the right rates of tax, the inter-relationship between them and how they deliver the essential revenue raising, repricing and redistributive qualities of a just tax system is vital

Allocate

The resulting revenues must be spent efficiently and to best social effect

Report

Governments must be accountable for what they do with tax revenues or the democratic principle fails.

That’s it, in a nutshell.

I’m struggling to describe the blatant misinformation in here

Jersey, PWC 19 Responses »

Mar 312009

Geoff Cook of Jersey Finance was on the Today programme this morning.

John Whiting of PWC was the respondent.

Let’s be blunt this was blatant bias within the BBC – John Whiting is a recognised apologist for Jersey – has sought to exonerate its abuse in the past – has been paid to do so – and is a partner in one of the biggest firms purveying services out of the island (PWC). It is blatantly obvious he should not have been asked to say things like “There’s no problem with tax havens” and “Jersey is well regulated” (I paraphrase).

But worse was Geoff Cook about whom I am struggling to resist the temptation to use non-parliamentary language. So let’s settle for saying he made blatantly untrue statements in that they gave an impression that was blatantly different from the reality that exists. Amongst them:

“Our disclosure is better than the UK”. Oh yes Geoff. Try to get the accounts of Jersey company.

“In recent years we have entered into the new OECD tax exchange agreements” You mean in the last fortnight with the UK Geoff.

“If the UK have concerns about anybody, corporate trust or private individual they can request information in the required form and we will disclose it” No you have not. You have never done so with the UK yet. And in eight years you have done it five times with the USA. That’s because the required form makes it nigh on impossible to get anything out of Jersey – and Geoff Cook must know that.

I’m sorry – I’m disgusted with the BBC for allowing this. I’m disgusted with PWC and John Whiting for being patty to such blatant misinformation. And I’m disgusted by Jersey for simply saying things that are not true – but which I mean the interpretation that the ordinary listener would place on what was said was blatantly different from the reality that exists.

And if Jersey Finance are willing parties to blatant misinformation on air then why on earth should I trust them when it comes to eliminating tax evasion? I don’t. And with good reason.

And I don’t rate PWC much higher. After all – they advised Barclays.

The CIOT wants the perpetuation of abuse

Accounting, Tax avoidance 5 Responses »

Mar 312009

The Chartered Institute of Tax issued a press release this morning saying:

The Chartered Institute of Taxation (CIOT) is calling for a moratorium on further major changes to the tax system from the Chancellor, Alistair Darling, when he stands up to deliver his Budget on Wednesday 22 April.

The CIOT believes, that in these turbulent economic times, it is better to consolidate and complete what is in hand and not introduce new measures.

The Institute is concerned that new proposals, however well-intentioned, will inevitably add to administrative burdens on the taxpayer when business taxpayers in particular need to concentrate on business matters.

Nick Goulding, CIOT President, says: “At a time when business and individuals are facing very challenging financial circumstances, they need stability. Part of achieving that is to ensure there is certainty and that the Government works towards a simpler and fairer tax system. If the Government wants to help people by using the tax system, reform needs to be thought through very carefully. A less complex, and therefore simpler, system would be one way to make things easier for the taxpayer.”

The CIOT’s firm view is that when the Government looks at the tax system they should take into account three underlying principles: simplicity, fairness and certainty.

I’ve got two comments.

The first is that this is a straightforward plea that the injustice in the current tax system be allowed to continue. As a result, for example, the CIOT wants Barclays to be allowed to continue its tax abuse. And as a consequence they want the burden of tax to remain on the middle classes and poorest in our society when reform needs to shift it to those best able to pay.

Second, I sit on a Treasury committee with the CIOT. It’s amazing how complicated the CIOT want tax reform to be when in the interest of the richest clients they represent and how much they dislike the simple alternatives I propose.

I can say no more right now – but candidly the CIOT needs to walk the talk – and from my experience it is not.

What the Dunfermline proves

Banking, Code of Conduct, Corruption, Regulation 5 Responses »

Mar 312009

The collapse of the Dunfermline Building Society proves:

The urgent need for a Glass Steagall Act in the UK to enforce a split between routine banking based on deposit taking and speculative activity. It was speculative activity in buying second-hand mortgages and in property related speculation that seems to have brought this building society down.
The urgent need for a People’s Bank in the UK. Please support the campaign.
The need for action to bring directors of how organisations, including banning them from being directors of other organisations for considerable periods of time. I watched with absolute astonishment the CEO of this failed building society blaming the government for its failure on Sunday night. He ruined this building society. Having imposed a cost of more than £1 billion in all likelihood upon the state he should never be allowed to direct another company in the UK again.
The weaknesses in the Turner report. I do not think that Turner would have stopped this abuse.

When will we learn the lesson?

When will we stop a tiny minority of people acting in pursuit of their own greed from abusing the common property of millions of other people, and the taxpayer?

Where, apart from Vince Cable, is the politician in a position of serious authority with the nerve to say this?

3,000

Blogging 4 Responses »

Mar 302009

The 3,000th post on this blog happened this morning.

Roughly 1,000,000 words in 27 months.

Has it been worth it? Oh yes. Look at the NGOs who have taken courage to campaign on this issue. Look at the role of the tax haven issue now.

I’m not saying for one minute that’s all because of this blog. It isn’t. But it’s helped.

Some challenges for the Banking Code

Banking, Economics, Ethics, Tax avoidance, Tax Havens 2 Responses »

Mar 302009

A banker of my acquaintance sent me the following list of challenges for the Banking Code:

Banks should be asked to sign up at Board level

The code will apply to all taxes

Banks should be encouraged to issue a press release to confirm when they have signed

Banks that have signed up may be allowed to use the tax pay tick

Banks will agree to be subject to 3 monthly real time audits of their tax affairs

Banks will be asked to sign up their tax staff to an ethical code (either their own if approved by HMRC, or one attached as an appendix to the Code)

Banks will be encouraged to have the same compliance approach to all their companies and branches (even those the business of which may not be strictly banking), where so ever located

Banks will have to keep records of all material tax advice so that this can be inspected by HMRC

Banks will authorise their auditors to speak directly to HMRC at half year and yearend to check compliance with the code

HMRC will form an expert committee with the BBA and LIBA to discuss issues

HMRC will seek the advice of selected tax professionals who will advise them of any issues

HMRC will issue guidance and informal clearances when banks have questions about what is the spirit of a particular law. Banks should contact their CRM for this purpose.

HMRC should provide training material for accounting and legal firms

I like it.

What this proves is two things:

There are bankers who think appropriately
The willingness to comply can be found.

Now it’s time for delivery.

The TJN / AABA Code of Conduct for Taxation

Accounting, Banking, Code of Conduct, Economics, Ethics, Tax avoidance Comments Off

Mar 302009

I drafted the Tax Justice Network and Association for Accountancy and Business Affairs Code of Conduct on taxation. This is available here.

The actual Code is just two pages long and reads as follows:

A Code of Conduct for Taxation

Objective

This Code of Conduct relates to the payment of taxes due to a State or other appropriate authority designated by it.

Scope

This Code applies to:

Governments and their agencies in their role as tax legislators, assessors and collectors;

Taxpayers, whether individuals, corporate bodies or otherwise;

Tax agents, whether they are undertaking tax planning or assisting with tax compliance.

Application

It is intended that this Code be voluntarily adopted by States and should be used to guide the conduct of taxpayers and their agents who choose to comply with it whether or not they reside in a State which has adopted the Code.

The Code

The Code is divided under six sections, each of which includes three statements of principle.

1. Government

a. The intention of legislation is clear and a General Anti-Avoidance Principle (‚ÄòGantip’) is in use;

b. No incentives are offered to encourage the artificial relocation of international or interstate transactions;

c. Full support is given to other countries and taxation authorities to assist the collection of tax due to them.

2. Accounting

a. Transparent recording of the structure of all taxable entities is available on public record;

b. The accounts of all material entities are available on public record;

c. Taxable transactions are recorded where their economic benefit can be best determined to arise.

3. Planning

a. Tax planning seeks to comply with the spirit as well as the letter of the law;

b. Tax planning seeks to reflect the economic substance of the transactions undertaken;

c. No steps are put into a transaction solely or mainly to secure a tax advantage.

4. Reporting

a. Tax planning will be consistently disclosed to all tax authorities affected by it;

b. Data on a transaction will be consistently reported to all tax authorities affected by it;

c. Taxation reporting will reflect the whole economic substance and not just the form of transactions.

5. Management

a. Taxpayers shall not suffer discrimination for reason of their race, ethnicity, nationality, national origin, gender, sexual orientation, disability, legal structure or taxation residence; and nor shall discrimination occur for reason of income, age, marital or family status unless social policy shall suggest it appropriate.

b. All parties shall act in good faith at all times with regard to the management of taxation liabilities;

c. Taxpayers will settle all obligations due by them at the time they are due for payment.

6. Accountability

a. Governments shall publish budgets setting out their expenditure plans in advance of them being incurred, and they shall require parliamentary approval;

b. Governments shall account on a regular and timely basis for the taxation revenues it has raised:

c. Governments shall account for the expenditure of funds under its command on a regular and timely basis.

Enforcement

States seeking to comply with the Code will voluntarily submit themselves to annual appraisal of their Conduct. These appraisals will in turn be reviewed by a committee of independent experts appointed by participating States. Differences of opinion will be resolved by binding arbitration.

Any taxpayer or agent wishing to comply with the Code may do so. A State should presume that a person professing compliance with the Code has done so when dealing with any tax return they submit. In consequence the administrative burdens imposed upon that person should be reduced. In the event of evidence of non-compliance being found any consequential penalty imposed should be doubled.

The Banking Code is possible

Banking, Code of Conduct, Ethics Comments Off

Mar 302009

I’d draw attention to some articles I wrote about Barclays.

All suggestion the legal and ethical underpinning that could make a Banking Code on tax viable.

These dealt with the need for a change in the way the law on tax is interpreted. I argue we do not need to be constrained by 19th century thinking.

We also need a general anti-avoidance principle.

Lastly, we need a robust and public code for all companies, and government. I have drafted such a Code for the Tax Justice Network and for the Association for Accountancy and Business Affairs in 2007. This is available here.

And before you dismiss the thinking I’d advise you that those drafting the Banking Code are familiar with what I think – I’ve presented this stuff to them at their request. They have copies.