More comment on this issue from Jerome Turquey who has more reason than most to know what he is talking about.
Recommended reading.
Luxembourg’s Financial Integrity
Ethics, Luxembourg
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May 192009
IoMtoday, published by the Isle of man press carries the following story:
CUSTOMS and Excise bosses have rejected claims that the UK Government is ‘subsidising’ the Isle of Man.
Critics argue that the Isle of Man receives more back from the VAT sharing arrangement it has with the UK than it puts in — effectively providing a subsidy from the UK government.
The Tax Justice Network, which has spearheaded the campaign to close tax havens and reform offshore jurisdictions, claims this so-called ‘subsidy’ amounted to some £221 million last year.
But figures produced by Customs and Excise show this not to be the case — and that in fact the Isle of Man has made a net contribution in each of the last two years.
In 2007-08 the Island’s share of VAT receipts was about £339m but the Island collected and so contributed some £420m to the pool.
I am, of course, the source of this criticism of the Isle of Man. Please follow the link to see exactly why I say the UK provides a heavy subsidy to the Isle of Man – something that is never denied when I am in discussion with officials in London by the way.
But now we have new data which suggests that in fact the IoM collects more VAT than it receives back from the Common Purse agreement (again, follow above link for explanation). We do at least agree on the figure of £339 million – but it is now claimed that this is an underestimate of VAT collections on the Isle of Man.
Let’s consider this for a minute. Do so remembering these facts (updated since I last wrote): that the Gross Domestic Product of the Isle of Man is now £1.8 billion according to the latest data I can find from the IoM government. Even the CIA do not seem to have more up to date data than that. That for the UK is £1,460 billion, in contrast (computed for March 2009, from data here).
In 2008/09 the Isle of Man expects to collect £339 million in VAT – 59% of its total government income of £574 million. This is 18.8% of IoM GDP.
In the UK the identical VAT system (for all practical purposes) collects £83 billion a year – or 5.6% of GDP.
That means the IoM, which has reason to have a much lower VAT collection rate because of the very large size of its exempt VAT outputs in the financial services sector collects 13.2% more of its GDP in VAT than the UK does using an identical (indeed, shared) system.
From that I impute that over £230 million of the VAT receipt in the Isle of Man is subsidy and not derived from real economic activity. The Isle of Man press quote a lower slightly earlier estimate. The ball park remains the same.
Note also that the population of the Isle of Man is 76,500. That of the UK is 61.1 million. That makes IoM GDP per head about £23,529. That in the UK is, by chance, £23,701. According to the CIA this is about right. They say Isle of Man GDP per head is $35,000 pa and that in the UK is $36,600. Remarkable consistency there then.
But, apparently each of those people in the Isle of Man pays net £5,490 of VAT according to the latest Isle of Man data that £420 million a year of VAT is collected. That requires them at 15% VAT rate to spend £36,600 a year each on VAT chargeable goods (priced net of VAT, or £42,090 in total). In contrast in the UK each person pays net £1,347 each – requiring spending of £8,982 a head each (£10,329 gross) on VAT chargeable items.
Now I have to say that the UK data appears entirely plausible; take food, taxes, rents and mortgages and so on out of account and I think that level of spend per head looks plausible. There is a sanity check inherent in this data.
And I have to say this: to suggest that each person in the Isle of Man spends 178% of their annual income on VAT chargeable items a year is just plain straightforwardly utterly implausible. I hate to say this: but at face value the IoM data is simply wrong. How can people spend 178% of their income on VAT chargeable goods in the IoM? They can’t: that is obvious
So what are the explanations. They appear to be:
1) The IoM data is wrong. It doesn’t appear to be far out on GDP: there’s a sanity check on that. So it must be the VAT data that is wrong. I find it incredible that the £420 million figure is right. I have a strong suspicion that is gross for a start i.e. before claims for repayment from traders for input tax.
2) I’m right: easily the most plausible explanation. It is well known that the Common Purse was meant to subsidise the IoM. Why is it still not doing so?
3) The IoM has attracted a massively artificial tax base and these activities are not in any event taking place in the island, the VAT supplies are simply being ‚Äòbooked’ from there in classic tax haven fashion. They are actually, in that case, made in the UK but the profits are artificially booked in the IoM. In that case it remains the case that the UK is still subsidising the IoM with VAT because this would mean the VAT was always due in the UK in the first place and would have been collected here if, for example, the IoM operated VAT as does any other distance seller.
4) If option 3 is right there is another factor to consider: not only is there a VAT subsidy there is a corporation tax loss too. Let’s assume, generously, that the VAT profile of the IoM is the same as the UK, when we know it should actually collect less because of the profile of the financial services sector. And let’s assume the £420 million figure is right for a minute. In that case the implied VAT to GDP ratio is 23.3%. It should be 5.6%. That implies an excess rate of 17.7%. In this case that means about £320 million of excess VAT is collected. This is net, I’ll assume, of trader claims for input so a good approximation to profit – which is not being earned by staff in the IoM as we have already allowed for their normal rate of return in the calculation and so must not do so again. That means at a 15% VAT rate some £2.1 billion of excess profit must be declared in the IoM to justify this level of VAT on turnover that is not actually located there in reality. Let’s reasonably assume that this should be subject to 28% tax in the UK where the supplies must be taking place for the charge to arise. This sum of £2.1 billion is probably not taxed at all in the IoM. That’s a tax loss to the UK of £588 million.
So now we can say that the new data revealed by the Isle of Man proves first of all that the VAT subsidy of over £230 million from the UK government to the Isle of Man is undoubtedly real – because the VAT claimed to arise there cannot possibly relate to economic activity really located in the island, and that the corporation tax loss arsing from the artificial relocation of that VAT turnover to the Isle of Man is costing the UK not less than £588 million a year.
In other words in the case of just two UK taxes VAT and corporation tax – abuse promoted by the government of the Isle of Man costs the people of the UK a combined minimum of about £820 million a year.
But then we must add on the cost from the Isle of Man refusing to exchange data as it should under the European Union Savings Tax Directive. Directly this refusal costs at least £27 billion a year. Extrapolated, quite reasonably, using the methodology in the link, and the loss to the UK from income tax abuse through Isle of Man based structures is likely to be not less than £700 million a year.
Add this together and the total loss to the UK from allowing the Isle of Man to operate as a tax haven – an activity we directly subsidise – is not less than £1.5 billion a year.
So much for the Isle of Man’s government claim that it pays its way. Anything further from the truth is very hard to imagine.
May 182009
It has been drawn to my attention that the chair of Christian Aid in Jersey has resigned, saying:
[T]he decision made by Christian Aid UK to participate in the meeting held at St Paul’s Centre on Thursday 12th March 2009, entitled, ‚ÄòOffshore centres, past, present and future. Why reform is vital’ was hasty. The actual active involvement of Christian Aid UK, following considerable representation prior to the event from Jersey was an error of judgement, in which Christian Aid UK were na?Øve and negligent in not respecting the views of those within this Island who in recent years have been most generous supporters of Christian Aid through lent lunches, Christian Aid week collections and Overseas Aid Committee grants.
On April 24th, meetings took place which brought further illumination for Christian Aid UK to the fact that Jersey was and remains a well regulated international financial centre, committed to ensuring the highest standards of transparency in full co-operation with other jurisdictions. Jersey is not part of the problem, but our experience and models of good practice place us ahead of the game and therefore in a position to be a part of the solution. To suggest that Jersey is otherwise simply does not measure up to scrutiny.
The ongoing relationship of Christian Aid UK with the Tax Justice Network and Attack Jersey is, I believe, seriously misguided.
Personally, I can no longer represent Christian Aid whose position seems irreconcilable when on the one hand they are inaccurately critical of Jersey on Tax issues, but on the other hand keen to continue to receive financial support from the States of Jersey Overseas Aid Committee and residents of this Island.
As far as I can tell the person writing this is an ordained minister in the Church of England, although he has not signed it – the only attribution being to ‚ÄòAndy’.
I am sorry to see this person write in this way, for I feel it is he who is seriously misguided. I say so as someone who sees his work in seeking tax justice as a Christian vocation. It’s in that context that I regret to say that the person who drew my attention to this issue was probably right when he said:
I’m surprised you haven’t yet mentioned the resignation yesterday of the head of Christian Aid in Jersey, seemingly because he did not support the attack on Jersey’s finance industry by TJN and Attac, Christian Aid in Jersey has clearly been losing the financial support of local institutions which seems to be lesson in not biting the hand that feeds you.
The Church has an uncomfortable history of accommodating the government hand that feeds it. Doing so has rarely been to its credit. Apologies have almost invariably to follow. I suspect that might be the case here, but let me try to raise the level of the debate a little above that which Andy reaches. He appears to say that because the authorities in Jersey have access to the names of those who, for example, use the withholding option under the European Union Savings Tax Directive, which Jersey deliberately provides knowing that that chance of tax evasion elsewhere is significantly enhanced as a result, then it must be ‚Äòfully cooperative with’ other jurisdictions. This is, of course, very obviously untrue because by offering this option it is refusing full automatic information exchange, which it is clear those states want. But let me instead consider this issue instead at the level at which Andy is hopefully qualified to engage in it i.e. at the Biblical and maybe theological level. I stress that in doing so I am speaking purely as an individual and that I do not suggest for a moment that what I say represents in any way the opinion of any organisation I work with.
I think there are a number of unquestionable moments when Jesus defined what faith was. One was of course when offering the two principles of that faith. As recorded in Matthew:
One of them, an expert in the law, tested him with this question: ‚ÄòTeacher, which is the greatest commandment in the Law?’Jesus replied: ‘Love the Lord your God with all your heart and with all your soul and with all your mind.’ This is the first and greatest commandment. And the second is like it: ‘Love your neighbour as yourself.’ All the Law and the Prophets hang on these two commandments.
That seems like a statement he meant to be taken seriously. But note how the story develops in Luke, where the questioner asks “But who is my neighbour?”. I cannot see any way in which we can know that in Jersey: anonymity is guaranteed there so that we are denied knowledge of who we are dealing with in that jurisdiction and others like it. I see no way that this is consistent with the teachings of Christ. One cannot know one’s neighbour in that case: worse still, that neighbour might abuse us with impunity, and I believe they do. How can that be consistent with the Law?
Let me take another section of Luke I think pretty important (Ch4 18-19) when Jesus said in his first public address:
The Spirit of the Lord is on me, because he has anointed me to preach good news to the poor. He has sent me to proclaim freedom for the prisoners and recovery of sight for the blind, to release the oppressed, to proclaim the year of the Lord’s favour.
I believe that this is what Jesus really did mean his ministry to be about: I think that is played out in the Pauline theology which sees Jesus as the fulfilment of the promise made to Abraham on behalf of the people of Israel, which from the time of Jesus onwards would be extended beyond the Jews to the world at large. Jesus when saying this was, after all, referring quite deliberately to Isaiah 61. There is also no doubt at all that when proclaiming the year of the Lord’s favour Jesus meant he was declaring a Jubilee – a year in which debts will be forgiven and the poor set free, based on the teaching of Leviticus. That book, which (I fully accept) is hard to always apply to modern day life does in the chapter to which I link set out standards for behaviour which we can, however, all recognise as remaining ethically appropriate: that our business conduct be fair, open, transparent, accountable and respectful of the condition of each human being, all of whom are valuable.
I cannot relate that to tax haven activity. As Christian Aid has shown, tax havens cause deaths in developing countries. This is not by chance: tax havens as secrecy jurisdictions set out to do this. Secrecy jurisdictions are places that intentionally create regulation for the primary benefit and use of those not resident in their geographical domain that is designed to undermine the legislation or regulation of another jurisdiction and that, in addition, create a deliberate, legally backed veil of secrecy that ensures that those from outside the jurisdiction making use of its regulation cannot be identified to be doing so. The fact that Jersey knows the identity of those undertaking this abuse which I think is in contravention of Christian law makes no difference to its standing: it does nothing to stop it. Whether it is legal does not matter: Christians of all people have a duty to work to a higher standard.
And Christians of all people have a duty to bear witness to that. as the liturgy says in the post Eucharist prayer of the Church of England says:
Almighty God, we thank thee for feeding us with the body and blood of thy Son Jesus Christ. Through him we offer thee our souls and bodies to be a living sacrifice. Send us out in the power of thy Spirit to live and work to thy praise and glory. Amen.
This is not the moment when the service ends: it is the moment when the service to God, the other 167 hours of the week if you like, begins. A Christian says when offering this prayer that they will continue that service until they next come to the Eucharist. There is sacrifice in the process of doing so. That’s not easy. It’s not meant to be. It involves, as the word sacrifice implies, forgoing what is available but inappropriate in the pursuit of the path of faith if one is to live and work in accordance with that faith.
I do not see how the work of offshore finance is consistent with living and working to the praise and glory of God. I cannot see how it treats a neighbour as oneself, for the very essence of that activity is to deny to others what one has claimed for oneself. I cannot see how that trade brings good news for the poor, for it is designed to increase the gap between rich and poor, and most assuredly does so. I cannot see how there is in the ethical standard that Jesus required of those who follow, however inadequately in his footsteps.
In saying that I am not condemning those who work in offshore finance: many have no choice. Their home jurisdictions have been taken over by offshore finance. They are left with little choice but work in a sector that is doing harm, at least when seen from what I believe to be a Christian perspective. But there are many – those who set up and direct these organisations, those who support them in politics, those who excuse them in the Church, who have a choice. When they make the wrong choice – are wide of the mark – sin if you like – then it is the duty of the Church to say so. When it does not it fails in its duty. I think there is risk of that in Jersey.
And in saying so I am not for a minute decrying banking, finance or commerce. The tale of the Good Samaritan which follows on from the question ‚Äòwho is my neighbour?’ in Luke did require that the Good Samaritan had the means to settle the innkeeper who cared for the victim of a crime. But it did not ask that he secured those funds unethically: his ethical act could not have been condoned his unethical procurement of the means to undertake it. That is not possible.
So I will not apologise for believing in the merits of trade, of business, and of the right to make an honest profit. But I stress the word honest. And I cannot see how honesty is possible behind closed doors, when the light of transparency is denied, when the accountability for ones actions which is at the heart of Christian belief is not present – both here and now and in what is to come.
Put simply: I think the Chair of Christian Aid in jersey is profoundly wrong. For me at least the action of the Tax Justice Network is profoundly motivated by Christian belief, by the conviction that this is indeed the way in which I am required to ‚Äòlive and work to Thy praise and glory’.
You can differ if you wish. I’m sure some will. If done appropriately then I will of course welcome comments. What would be really good was if the church in jersey could accommodate alternative opinion as well. Surely, that is part of its role? But I should warn, rather more than usual I will moderate those out which do not respect the aspect of faith within this post.
May 182009
I’ve been asked:
In your view, is there any room for legitimate “tax planning”? In a “perfect” world what would the role of the tax profession be?
Sorry if this has been previously dealt with, as I said in the other post, I am quite new to your blog.
My answer is an emphatic ‚Äòyes’.
Tax planning must, I think, be tax compliant. Tax compliance is seeking to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes.
To put tax compliance another way – it means you can place all your cards face up on the table in front of your tax authority and know thee is nothing there they would want to challenge. Everything you have done is legal, above board and in compliance with the spirit of the law.
All of which allows enormous scope for tax planning because the law in most states, and most certainly in the UK, allows many options and choices that match those available in the commercial world. So, and taking a simple example, a new piece of equipment may be bought or purchased by a business. The law provides tax relief in differing ways for different businesses when these choices are made. It is quite appropriate to ask what those choices are and to decide between them and to claim the relief in any case is justified if the transaction has actually been undertaken in the form for which relief is claimed. The law intends that this should happen.
What is wholly unacceptable is deciding to create structures abusing those same laws so that the deal is treated as leased in some places and acquired in others with more than one tax advantage secured along the way across an international divide. That does not accord with the economic reality of the transaction: the location of the deals may also be artificial.
There are two stages required to undertake this planning. One is good knowledge of the law. The other is a moral compass. Some lack the former; many seem to lack the latter. A general anti-avoidance principle is needed for those who lack the second. Either a moral compass or a general anti-avoidance principle should ensure we get tax compliance, but that does not mean the end of tax planning. It just imposes upon it the ethical process we all expect of or MPs and professional tax advisers alike.
I blogged on the implausibility of the above new Institute last week. As a consequence I received the following mail from its Chief Executive:
Dear Mr. Murphy,
My name is Gibb McNeill. I am the Executive Director (also board member and president of the executive committee) of the newly established Luxembourg Institute for Global Financial Integrity.
I just read your blog on the nonprofit organization we have just set up. And I understand your skepticism.
The institute is a private, independent and impartial body that wants to address and promote ethical conduct from within the global financial sector. The institute has no hidden, or otherwise, agenda. It is not there to promote an organization, an interest group, or for that matter a country. What the institute wants is to see social responsibility and integrity become part of the business fabric of the financial sector worldwide and see the basic principles of integrity, namely fairness,transparency, responsibility and accountability commonly applied.
It so happens that a band of private citizens in Luxembourg came together just prior to the financial crisis and decided it was time to encourage ethical change in the global financial sector. The roots of the financial crisis, in our opinion, are the failure of ethical standards and practices noteworthy in some banks and other financial bodies.
We want this institute to be a global undertaking with members coming from all parts of the world and representing all bodies related to the financial sector, from banks, professional associations and service providers in the financial sector to nonprofit organizations engaged in the combat against corruption, like Global Witness and Transparency International, in passing through think tanks and policy centers. Everyone is welcome to contribute to the effort of addressing the plethora of issues and promoting ethical conduct in the global financial sector. (I would very much appreciate if you could give me a name in Global Financial Integrity in Washington as I would like to approach the policy center about becoming involved.)
We would welcome you to join our endeavors. Your initial membership fee will be 1.250 € and your annual membership fee 250 €. But then, as for all members, you could replace that by providing administrative support to the activities of the institute. You will find all that in the Statutes that you can consult on our website www.ligfi.org.
Finally, we would be very pleased if you agree to present a paper and make a presentation at the 10th and 11th December 2009 Conference on “Ethics, bank secrecy and fiscal paradise”. We want to have as many participants as we can with as many opinions as possible. That is what fairness and transparency is all about. What we want to see come out of the conference is a practical and impartial understanding of what the issues are and constructive proposals on practical and realistic solutions to them.
Please feel free to post my email on your Blog. And don’t hesitate to contact me, either by my email address or by phone at (+352) 621.644.388.
With best regards,
Gibb
Full marks for responding.
I was happy to respond, which I did, as follows:
Dear Gibb
Thanks for this mail
Forgive me if I sound suspicious; experience has taught me it is appropriate.
I note all you say and remain a little concerned. For a start I note the extraordinary fees you propose charging which are way beyond my means (and much more in the first instance than I pay a year to practice as a chartered accountant in the UK) and are, I have no doubt way beyond the means of most NGOs, let alone academics or others who might have interest. If you intended your organisation to be inclusive then this appears to be a strange way of fulfilling that objective. I would be surprised if Global Witness or TI (both organisations I know, and have worked with) have such budgets either.
Second, and forgive me for saying so, but I cannot find out from your web site (which appears very incomplete) what you are really seeking to achieve and how you define the terms you use. If I can be candid, those of us in civil society are not used to associating the word transparency with Luxembourg, for example, and recent comment from some of its politicians has not encouraged us to do so. In that case might you elaborate just exactly what you do mean by the terms you use and what practical actions your organisation might promote to further these aims so that we might have illustration of your intent?
I will, of course, be pleased to discuss these issues with you. I will also be pleased to offer a paper for your December conference. I am co-author of a forthcoming book for Cornell University Press on these issues. Might you provide a little more indication of what you are looking for?
In the meantime I am copying this email to Tom Cardamone, managing director of Global Financial Integrity in Washington DC.
Regards
Richard Murphy
So it’s only fair to post Gibb’s reply in the interest of transparency:
Dear Richard,
Many thanks for your response. I much appreciate it.
You know suspicion is a good thing. And you have every reason to be skeptical. Actually, your comments on the press release in your blog are a reflection on how most will react to our setting up such a nonprofit organization. It is a legitimate and normal reaction.
Regarding the fees in general and those in particular for academe (the ones indicated in my email to you), we recognize that quite a few organizations do not have the means to come up with the funding. In our logic, either we have to come up with funds to cover ourselves certain expenses pertaining to the operation of the institute, or a member provides a service through its own activity that avoids us in having someone in the institute to assume it. For instance, an accounting founding member will handle the accounts for us. Another will do the press releases.
In the case of the Academe group of members we hope to have, I have no expectations that anyone will be able to come up with the fees, be it Harvard University, Transparency International or yourself. That is why in the Statutes it is indicated that a member can substitute the monetary contributions for membership fees by services provided. And the services provided by a member are essentially what it feels it can do to help. In practical terms, we all just try to work it out amongst ourselves on how the one or the other member can be helpful in making the institute work and supporting the institute in minimizing the expenses it would otherwise incur. So do think about how you could help as a member…..
Regarding the website, we just got it up and I am on a steep learning curve on how to prepare content for it. As you noted it is full of “holes”. And to be frank, what I have put up is difficult to read. I have attached the two charts on complex world and organization structure on the website that are frankly difficult to see. In working with a couple of volunteers I hope to change all that over the coming week or so.
You bring up a critical question here of words and definitions. As an old prof, I have always been adamant with students (be them undergraduate to postgraduate) that, if they don’t define the terms, there is no way they can talk about them. I feel that the lack of commonly accepted definitions on all terms pertaining to the financial sector, from the notion of fiscal paradise to those of corruption or tax evasion ( a crime), makes it impossible to have any viable dialogue and debate. You end up talking at people, but not with people. That is something I want to address and involve as many as possible so as to reach a consensus.
The other point taken to heart is what the institute is going to do in practical terms. In other words, what is its substance? Or, as you put it, what is its intent? I have to finalize a note on that. If agreeable, I will pass that by you and others for feedback. What is certain is that it has to do with addressing, in practical terms, issues and solutions within the framework of an open dialogue within and outside the financial sector worldwide.
We are pleased here that you are willing to present a paper at the December conference. Again, back to the website, I have not so far provided direction on the Conference. I hope to do so over the weekend. But, it essentially boils down to what you think you should contribute on that or those issues that you feel are foremost. What I would like to do here is to have a discussion amongst contributors so as to address the full range of issues without undue redundancy in papers. For the moment, I have tentative proposals from Howard Gardner at Harvard and Transparency International that need to be firmed up. I would much appreciate if you could let me know what you feel strongly about addressing, as well as any suggestions about areas other you feel need to be purposely addressed. That would be extremely helpful. We could then set up a “loop” amongst contributors to share thoughts and ideas.
I would very appreciate getting a copy of your book when available. Do you have a pr?©cis or any other materials you could share at this point in time?
Finally, I appreciate your taking the time to contact Tom Cardamone at Global Financial Integrity. I would very much like to see them come onboard in what is a “good cause”.
Very much looking forward to hearing from you,
Take care,
Gibb
The emphasis added is mine: but I simply ask this? Can you see any hint in there of a reply to the questions I raised? Is it really the case that this ‚ÄòInstitute’ got as far as launching its web site and appealing for membership without resolving what it meant by ‚Äòfinancial integrity’? I find it astonishing that apparently it did.
So I have sent the following reply, seeking clarification. I’ll keep you posted regarding the reply.
Dear Gibb
Thanks for your mail.
I note what you have to say about membership fees. I regret I remain quite sure you will attract very few academics or NGOs. Let me offer you example of the fees academics are used to paying for membership of research bodies. I offer example of the British Accounting Association – easily the most important research umbrella body for UK accounting academics, for which the annual membership fee is £25 per annum. Despite this it offers a very full programme. I would hope your organisation might match such rates if it is to be truly representative of opinion on the important issue of global financial integrity. Without seeking the inclusiveness that such rates would allow I cannot see how there is any prospect of you being able to claim anything bar narrow sectoral support for the opinions you have to offer.
And please forgive me for saying so, but I am disappointed that you do not seem to have answered the reasonable questions I raised. I asked “might you elaborate just exactly what you do mean by the terms you use and what practical actions your organisation might promote to further these aims so that we might have illustration of your intent?” Your response is that you have yet to draft a statement on these issues, and yet you appear confident despite that to be asking for subscriptions of up to E40,000. How is that? What do those making this payment know that I do not?
I wish to pursue these issues with you if you’ll excuse me doing so, as they seem important. First, why is it that in your mission statement you define financial integrity as relating to:
(1) regulation, oversight and enforcement of such regulation,
(2) compliance, governance and social responsibility,
(3) money laundering, and
(4) funding of terrorism and organized crime.
Why, might I explicitly ask then do you completely ignore the absolutely fundamental question of tax evasion when addressing the issue of financial integrity when Global Financial Integrity (who partner TI in some of their work) have shown that this is by far the most important issue when considering the issue of illicit financial flows?
Second, why when dealing with the issue of integrity have you so clearly avoided the issue of secrecy when it is very obvious that without the secrecy some jurisdictions provide the opportunity for abuse would be largely eliminated?
Thirdly, might I ask what the terms fairness,transparency, responsibility and accountability, to which you refer with enthusiasm, can mean in an environment where the responsibility to pay tax in the right place, in the right amount and at the right time is ignored and when the duty to demonstrate that these qualities exist is absent because of an officially endorsed environment of secrecy, whether provided by bank secrecy, the operation of trusts or as a result of an absence of duty to place the accounts of limited liability entities on public record?
Next might I explicitly ask whether the Institute will subscribe to those standards of conduct which are now being internationally recognised: namely that tax havens cause harm, that secrecy is always undesirable, that full cooperation between governments to ensure that the payment of tax arises wherever it is due is a basic requirement of the state, and that a commitment to full information exchange to ever rising standards is a requirement of all members of the international community who wish to avoid sanction from those states committed to such processes?
Finally, might I ask that if you cannot provide positive answer to my questions that you provide reason for not doing so?
Best regards
Richard
I look forward to the answers. This debate might run, and run.
May 172009
Cayman had a meeting with the OECD last week in which they tried to get off the Organisation for Economic Cooperation and Development grey list and onto the white list alongside the Crown Dependencies.
They failed, as the Tax Justice Network reports here. And as THN says, much as we criticise the OECD this decision was right. Whilst Cayman spokespeople persist with their absurd claims that no financial problems have ever arisen in Cayman (which as TJN documents, is very obviously untrue) it is very hard to take their commitment to responsibility seriously.
A candid recognition that Cayman has caused problems and that it does have serious issues to address might well suit it well right now. Protestations of innocence in the face of the evidence make no sense for it at all.
May 162009
The following blog was not written by me. The person who wrote it is known to me. I have every reason to believe all that he or she says is offered with sincerity. I offer it here in the same spirit.
———————-
For my sins, although not to bank, I was in Geneva last week. As I left, on the shuttle from my hotel to the airport, I was seated with a group of Syngenta workers. They discussed at some length the absurdity of MPs’ expenses claims, explaining them to non-UK colleagues – from moats and tennis courts to non-existent mortgage payments. Finally one said ‚ÄòIf I tried to put any of this through expenses at Syngenta I’d be fired.’
While I share the outrage at the MPs’ expenses system, I do think it has been overdone. On the one hand, because those who paid attention were fully aware that the deal was done, initially under a Conservative government, in order to allow MPs to draw a higher income without increasing their formal salary. UK MPs are paid less than many equivalents, without taking the expense allowance into account, but for political reasons it was felt easier to increase this on the side. The same somewhat dishonest political rationale explains increases in VAT and NI over nearly thirty years while headline income tax rates fell. In that sense, the expense payments were completely transparent but less prominent nonetheless.
Is it reasonable then to join a mob mentality against all MPs – many of whom either were not part of the decision to pursue this route, or have indeed not taken the opportunity personally to do so, or in a good many cases both? And of course many of whom were simply given the impression that the full allowance was effectively theirs to top up their salary. While I’m not absolutely certain about my feelings on each of these groups, it does inevitable that transparency will be part of the new regime, and regardless of the actual rules put in place, this transparency will be the most powerful deterrent to abuse. And of course we may well see formal salaries rise once the current crisis is over.
The funny thing about the comments I heard on the way to Geneva airport is that they highlighted the lack of proportion in many of these discussions. As a former Labour press officer said to me today, the money paid out in dubious expense allowance claims hardly compares to the public money wasted on, for example, continuing with rail privatisation.
More pertinently to the shuttle discussants perhaps, it does not approach the public money lost to corporate tax dodging. Christian Aid estimates that developing countries lose $160 billion a year to just one form of corporate tax evasion. The TUC estimate a UK loss of at least £4 billion a year. If each of the 646 MPs had falsely claimed £25,000, the annual loss to the public exchequer would only be £16 million.
Now, fair enough, MPs should be held to a higher standard than companies, but even so the difference in scale is startling. The employer of my travelling companions, Syngenta, is known to base its global operations in low-tax hubs, and as a result only pays 5.2% of its gross profit, or 18.1% in 2008 of its income, before taxes, in tax. On pre-tax income under IFRS of $1.7 billion, a further 1% paid in tax would mean an additional $17 million of public money.
Once again, transparency rather than strict regulation may be the key – let’s have country-by-country reporting to let us clarify who, if anyone, appears to be losing from individual company profit-shifting – which we assume, like most MPs’ expenses behaviour, to be completely legal. Then the court of public opinion can decide what they think is legitimate – a quite different question.
Excellent news from the Las Vegas Review:
President Barack Obama’s plan to limit tax breaks for multinational companies will include an amendment that affects alleged tax havens at home, including Nevada and Delaware, a knowledgeable source in Washington, D.C., said.
The yet-to-be-announced amendment will make sure that U.S. states do not replace offshore countries like Switzerland, Luxembourg and the Cayman Islands as tax havens for wealthy individuals and businesses, the source explained.
To prevent the corporations from turning to the Silver State and others, the Treasury Department will propose a legislative requirement that state officials obtain the identity of corporate owners and their tax identification numbers of any company registering in their states. The documents would be available to the Internal Revenue Service but not to the public.
They should, of course, be available to the public too. There is no reason why anyone using limited liability anywhere should be afforded anonymity: the very idea is an abuse of human rights. But it is a step forward if it happens, and an important one.
Thank goodness some people in Jersey can still ask awkward questions.
And that some want to hold the local profession to account.
Good work here by Mike Dun.
After all, why does the local charge of Woolworths owe £160m to GMAC, so removing almost any chance of a proper payout to local suppliers, or decent compensation to Jersey staff?
It’s a fair question – because the debt clearly did not arise there.
