2009 March » Tax Research UK

Putting the UK’s house in order

Accounting, Corruption, Regulation, Tax Havens, UK 4 Responses »

Mar 272009

I have already blogged a new report describing the shocking ease with which it is possible to create companies in the UK, published in the Economist and elsewhere today.

The report is timely. It is not a defence of tax haven behaviour. What it says is that the UK and USA are tax havens – and we are just about alone in the world the Tax Justice Network in doing this – critics please note.

What this report makes clear is that abuse is easy in the UK. It is something I have said for am long time – not just here but numerous times on the UK media.

It is absolutely essential that there is reform of company law in the UK as part of the whole process of writing down on abuse. In particular:

The UK should ban the use of bearer shares, which are outlawed offshore but remain legal in this country.
The true identities of the beneficial owners of all private companies should be put on public record. All trust arrangements should be’ ‚Äò looked through’ and the names of beneficiaries and settlors provided. Anyone who acts as a nominee shareholder should declare it and state on whose behalf they act.
Similarly, if anyone acts as a nominee director or company secretary then they must declare that fact and state the names of the persons on whose behalf they act. If they are accustomed to accept any form of instruction on a regular basis as to the exercise of their duty then the the name of the person giving them instruction should be put on public record.
The current registered office arrangement for companies is open to abuse. It gives no indications of where a company actually trades. The main place of trading for every company that is on the register must be put on public record.
Full accounts must be filed for all legal entities in the UK. Abbreviated accounts must be abolished. They are a characteristic of a secrecy jurisdiction.
Trusts should be considered legal entities for this purpose. All trusts should be registered.
The annual filing fee for a company, currently £15 a year, should be increased at least twenty fold with the funds being used to rigorously police the UK’s register of companies, to make enquiry wherever there is doubt as to the accuracy of information on the register, to pursue those who do not file information on a timely basis, and to impose substantial, automatic penalties upon those who fail to file that data at the time that the offence occurs.
The facility that allows companies to be struck off the register without ever having filed accounts or without ever having filed a corporation tax return must be abolished. It is a license for fraud and it is undoubtedly used for that purpose.

Lord Myners, Lord Mandelson and all who argue for tax haven reform: get the UK in order too. It will make us a more competitive economy if you do.

Swiss bankers fear arrest

Banking, Corruption, Switzerland Comments Off

Mar 272009

The FT reports:

Switzerland’s private banks have started to ban their top executives from travelling abroad, even to neighbouring France and Germany, because of fears they will be detained as part of a global crackdown on bank secrecy.

The head of one leading private bank in Geneva said the growing determination of countries such as the US and Germany to tackle tax evasion and secrecy meant banks felt they had to take extra measures to protect employees.

Now that’s what I call a sanction.

It’s working. The message is out. Handling stolen goods will not be tolerated. And those who do so might, quite reasonably, be arrested.

New study – Britain and the U.S. may be the dirtiest tax havens

Corruption, Secrecy jurisdictions, Tax Havens, UK, USA 4 Responses »

Mar 272009

Switzerland’s Le Temps newspaper has just pointed out a remarkable new study by Jason Sharman, an offshore expert (he wrote a book on the OECD project against tax havens, reviewed here.)

Le Temps said this:

With a small budget, and using classified ads that proliferate on the Internet or in the press, this professor of the Center for Governance and Public Policy at Griffith University (Australia) made bids to set up shell companies in 22 countries — some labeled as tax havens; others are very respectable members of the OECD.

What, pray, did he find?

His conclusion is doubly embarrassing for members of the G20 currently leading the hunt for tax evasion. First, it is easy to transfer money anonymously, despite all the rules of conduct and the conventions. Second, and more surprisingly, countries where the misuse of rules is easiest are not the exotic islands, Switzerland or Liechtenstein – but the United States and Great Britain.

This does not surprise us, and we’ve said this kind of thing many times before, but it has colossal implications. How did he find this out?

He began by identifying on the internet players that offer to set up front companies, and solicited 45 bids. In 17 cases, these service providers kindly provided the requested shell without bothering to check on the actual identity of the client. And it was not expensive: $800 to $3000. Interestingly, only four of these providers were located in tax havens (TJN: we presume they mean "classic" tax havens of the popular imagination), while 13 were located in OECD countries claiming to keep to the rules of verification: seven in Great Britain, four in the United States, one in Spain, and one in Canada.

The next step was to open an anonymous bank account. Here, the task proved more difficult: the process resulted in only five cases. Five out of 45? At first glance the system seems pretty tight. Jason Sharman did not believe it: he only had Google and 20,000 dollars available, "which is nothing compared to the capacity of criminal organizations," he adds.

The five successful attempts to open an anonymous account took place in Wyoming (where the laws have since changed), Nevada (a scanned driver’s license was the only proof of identity requested), twice in Great Britain (via the Seychelles, Montenegro, St. Vincent and the Grenadines) and once in Liechtenstein (in a joint arrangement through Somalia). Copies of passports were sometimes required, but not certified by notary.

Sharman’s conclusion?

The United States, Great Britain and other OECD states have chosen not to comply with the international standards which they have been largely responsible for putting in place.

I’m not surprised. I’ve pointed out the ease with which it is possible to create companies in the UK on many occasions – and the fact that there are far too many formation agents who are willing to offer nominee services. Indeed, when Jason Sharman began this survey he asked for my help to find some likely targets, and I was only too pleased to help as I want to eliminate this abuse in the UK, as elsewhere.

I will publish my recommendations for action that follow from this report in my next blog, bit I make clear: I welcome this report. It greatly assist those asking for reform here in the UK.

Appropriate noises on sanctions

Secrecy jurisdictions, Tax Havens Comments Off

Mar 272009

From the Wall Street Journal comes this:

The Group of 20 industrial and developing economies is expected to decide what sanctions should be placed on tax havens that don’t abide by international transparency standards, Paul Myners, U.K. Financial Services Secretary to the treasury said Thursday.

Myners said in a House of Lords debate the penalties would be designed to make sure that countries which operate as tax havens for the wealthy quickly meet standards on openness.

"The key now is to ensure the swift implementation of these commitments," said Myners. "Leaders will review progress at the London summit…and one of the issues they will no doubt review are the sanctions that may be required should the process not produce the results expected."

Good.

It’s encouraging that the word sanctions has not been forgotten. The world is not changed by press releases. It is changed by action. We have had the PR. Now we need that action. Sanctions will ensure it happens. Nothing else will.

Barclays – Early Day Motions

Barclays, Ethics, Tax avoidance Comments Off

Mar 272009

Two Early Day Motions now before Parliament:

EDM 1169

WIKILEAK AND BARCLAYS BANK

24.03.2009

Mitchell, Austin

That this House congratulates Wikileak for publishing documents relating to alleged tax avoidance schemes used by Barclays Bank; and urges the Government to place copies of those documents on the HM Treasury website.

and

EDM 1168

BARCLAYS BANK AND TAX AVOIDANCE

24.03.2009

Mitchell, Austin

That this House condemns Barclays Bank for indulging in alleged tax avoidance schemes which may have reduced the Treasury’s tax revenues by over £1 billion; and urges the Government not to provide any loans, guarantees and financial support to Barclays and suspend its deposit-taking licence until it cleans up its affairs and withdraws from manufacturing, marketing, sale and implementation of all tax avoidance schemes.

Is Lichtenstein suggesting real change?

Banking, G20, Liechtenstein, Tax evasion Comments Off

Mar 272009

A fascinating article in the FT this morning. It says:

Thousands of British investors with up to £3bn stashed in secret Liechtenstein bank accounts will be asked to come forward voluntarily under a deal to be negotiated next week that could be the first of many worldwide.

Lawyers said the Liechtenstein plan, discussed behind closed doors with the Paris-based Organisation for Economic Co-operation and Development, could serve as an international model for other tax havens seeking to avoid an OECD blacklist.

Liechtenstein’s government announced on Thursday it would begin talks with the UK’s Revenue & Customs next Wednesday, stating it wanted to encourage “voluntary disclosure of untaxed assets”. The decision follows agreement by the tiny alpine principality to ease its bank secrecy rules and to encourage foreign account holders to come clean.

Dave Hartnett, permanent secretary for tax at Revenue & Customs, said the intention was “to open up the historic bank accounts”.

So much hot air was my immediate thought – and yet more flannel about the useless Tax Information Exchange Agreements. And then came this:

Liechtenstein is trying to break away from the traditional image of tax havens by proposing an imaginative long-term process to tackle undeclared assets that could benefit foreign tax authorities, without excessively penalizing the rich.

I hate the caveat since I am unaware of an ethical basis for there being different law for the rich, but let’s continue

Revenue & Customs wants to prise open secret accounts by offering an “offshore disclosure facility”, along the lines of the 2007 partial “amnesty” that raised £400m from holders of undeclared offshore accounts. That would be unlikely to offer immunity from prosecution, but would provide a straightforward mechanism with limited penalties for investors wanting to put their affairs in order.

Liechtenstein banks would be asked to close accounts of customers who did not act on this offer, presenting them with difficulties finding a home for their money.

I won’t raise my hopes yet – but I am not just an idealist. I am also a pragmatist. I know that the realities of life require compromise. I’ve already noted that today with regard to the proposed US tax amnesty.

I don’t like Lichtenstein horse trading for tax evaders. But candidly – I also want those people to pay their tax, to get back into the declared world, and to allow Lichtenstein and other havens to move forward.

The price of these deals has to be real cooperation. It has to be voluntary disclosure or the offer of addresses of those who do not cooperate. The move has to be multilateral – there is no reason why the developing countries of this world should lose out from such moves. And the move has to be linked to joining the EU STD as a full member with the end of the withholding option. But do that and require that data on all companies and foundations be put on public record to a standard at least the minimum set by the UK and I could buy this deal as real progress.

If this is what Gordon Brown means by requesting multilateral agreements with tax havens then there is a prospect for change from the G20.

The fat lady has not sung yet.

More than that – we’re still in the opening bars of the overture – but if this story hints at real change then maybe we’re beginning to explore some of the themes that will require development as this sage develops.

Thank goodness for the Lib Dems

Banking, Barclays, Country-by-country, Ethics, Tax avoidance 1 Response »

Mar 272009

I have to say that without the Lib Dem Treasury team the world would be a worse place right now. Yesterday Matthew Oakeshott (a member of the House of Lords) said in that House:

Documents leaked to the Liberal Democrats, which appear to detail systematic tax avoidance on a grand scale by Barclays, were injuncted last week.

The Sunday Times and the Guardian had already made them front-page news and these documents are widely available on the internet from sites such as Twitter, wikileaks.org, docstoc.com and gabbr.com. Yet the Guardian had to remove them from its website and cannot tell its readers where to find them.

Oakeshott could reveal that the leaked documents were available because of the parliamentary privilege of freedom of speech, as guaranteed by the Bill of Rights 1689.

And as a result he could, quite rightly make a fool of the judge who injuncted the Guardian and deliver a boost for honesty, transparency and accountability all at the same time.

This works. As the Guardian notes today:

Two out of three US banks have terminated their involvement in a wide-ranging tax-avoidance scheme operated by Barclays.

The banks had taken loans from Barclays amounting to $11bn (£7.6bn), which they were due to hold for another year. But sources at Bank of America and BB&T confirmed yesterday that transactions under Project Knight have been terminated prematurely and the loans repaid.

Never ever tell me that the glare of publicity does not change corporate behaviour. It most certainly does. Which is exactly why we need country-by-country reporting.

IRS to offer tax amnesty

Uncategorized 1 Response »

Mar 272009

The New York Times says:

The Internal Revenue Service, under pressure to bring in money to the faltering economy, plans to give offshore tax evaders a big break.

The agency announced on Thursday a plan that lowers a penalty levied on wealthy Americans who stash billions of dollars overseas to evade taxes.

In another shift, the I.R.S. will generally not prosecute taxpayers who come forward voluntarily, provided they are not drug dealers, arms merchants or others with ill-gotten gains. And it will not assess a 35 percent penalty on money secretly transferred to foreign trusts ‚Äî a common method of tax evasion.

In principle I don’t like this.

In practice I see the reason. The process of recovering tax from tax havens needs a kick start. Right now there will be a lot of people with cash stacked offshore in all the usual culprit locations who have need for it onshore. I suspect very strongly that this intention in this move is not just tax recovery but the incentivisation of remittances as well.

The amnesty is time limited, and penalties are still due – but reduced. No one is going to get away free – which is essential. I could live with this if I was a US taxpayer.

But there are conditions all reasonable US people will, I am sure, put on accepting it. The first is that those who confess are required to provide full details of what they have done – names, addresses of suppliers involved , details of structures etc. The reduced penalty comes at the price of information. Second, the US needs to make clear it will aggressively pursue those who do not come forward now. Third it needs to employ enough IRS staff to make use of this data. It does not right now which makes a mockery of the law enforcement process.

Do that and there’s a deal to be done, I suspect, for which the timing may be right.

Hat tip to Dennis Howlett

A new e-book – The Crash

Uncategorized Comments Off

Mar 272009

I have contributed a chapter to a new e-book called The Crash, published today, here. The blurb says:

Our economy is in crisis. The future is uncertain and full of threats – before us lies a period of economic dislocation unparalleled since the 1930s, and the dangers of climate change and resource depletion loom ever larger. We are at a turning point in the life of our country.

The political fault-lines of a new era are beginning to take shape. They divide those who still believe that privileging the market and individual self-interest is the best way to govern society from those who believe that democracy and society must come before markets. These fault-lines cut across party lines and divide them from within: Thatcherite politics versus the New Conservatism; market Liberal Democrats versus social Liberal Democrats; neo-liberal New Labour versus social-democratic Labour. The pro-market politics of all three main parties have lost credibility.

The Crash offers an alternative politics of the social that is democratic, plural and green. Contributors analyse and explain the economic and social issues that lie at the heart of our crisis: the credit crisis, the housing disaster, secrecy jurisdictions, the practices of private equity firms and the intellectual failure of orthodox economics. They put forward ideas for a new kind of agriculture to ensure food security, a People’s Post Bank, and a Green New Deal for tackling global warming; and make the case that Britain should think seriously about joining the Euro. And, taking a wider view, contributors identify historical trends in economic crashes, the immorality of inequality, and the arguments for a left alternative.

The task of this new politics is not to capture the political centre ground, but to transform it, and to embark on the deep and long transformation that will bring about a good society.

Contributors: Jon Cruddas, Clive Dilnot, Bryan Gould, John Grahl, Colin Hines, Adam Leaver, Toby Lloyd, Lindsay Mackie, Robin Maynard, Richard Murphy, Carlota Perez, Ann Pettifor, Michael Prior, Jonathan Rutherford, G??ran Therborn.

Get it here.