2009 August » Tax Research UK

Turner: going behind the headlines

Banking, Economics Comments Off

Aug 272009

Much will be made of Lord Turner’s comments, made yesterday, that the City had grown "beyond a reasonable size", accounting for too much of British output and taking away too many of the country’s brightest graduates whilst undertaking "socially useless activity".

Perhaps as important though in the context of his job as head of the Financial Services Authority, former deputy at the Bank of England and former CBI director general is this:

In a statement that reversed a decade of policy at the regulator, he also said it was no longer one of his primary aims to promote the status of London as a global financial centre.

"The really fundamental question is whether the overall level of financial services pay is a consequence of the swollen financial sector which has resulted from over-simplistic financial deregulation. This is not a question that any of the politicians have focused on but I think it’s an important and legitimate issue of public concern," he said.

Now he had a role in promoting that over simplistic regulation, but let’s not dwell too much on that for now. the messages are clear I think: regulation needs to improve, regulation needs to curtail harmful activity; financial services activity can be harmful; taxes that promote financial services activity are by implication harmful and therefore tax and regulatory reform to curtail this abuse are required.

So let’s start with the tax items I noted earlier today and then move on to the list the Task Force on Financial Integrity and Economic Development asked for yesterday:

Beneficial Ownership Agree that the beneficial ownership, control, and accounts of companies, trusts, and foundations must be readily available on public records, and set a date for achievement of this goal.

Automatic Exchange of Information Agree that automatic exchange of tax information is the end toward which tax information exchange agreements should be directed, and set a date for achievement of this goal.

Trade Pricing Agree that pricing of imports and exports of goods and services by all trading parties should conform to considerably strengthened transfer pricing guidelines, and set a date for achievement of this goal.

Country-by-Country Reporting Agree that multinational corporations and financial institutions should report sales, profits, and taxes paid in all jurisdictions where they are established or active, and set a date for achievement of this goal.

Anti-Money Laundering Agree that predicate offenses for money laundering charges should be harmonized at the most restrictive level and codified, and set a date for achievement of this goal.

They’ll all help.

And all are deliverable.

Banks are “socially useless”

Banking, Development, Economics, Ethics 5 Responses »

Aug 272009

The Telegraph has reported (but using language almost identical to all other papers) that:

Lord Turner, chairman of the Financial Services Authority, has backed a tax on banks to curb excessive bonuses, saying the City has grown too big and parts of it are "socially useless."

He said that the City had grown "beyond a reasonable size", accounting for too much of British output and taking away too many of the country’s brightest graduates.

It should be cut down to size through new taxes if necessary, he said during a round-table discussion organised by Prospect magazine.

"I think some of it is socially useless activity," he said, referring to the complex financial instruments that have largely been blamed for triggering the biggest global financial crisis in decades.

Areas that had grown too big included fixed income securities, derivatives, trading and hedging, and possibly also asset management and share trading. Lord Turner said he would be in favour of imposing City-specific taxes, if necessary.

"If you want to stop excessive pay in a swollen financial sector you have to reduce the size of that sector or apply special taxes to its pre-remuneration profit," he said.

If higher capital requirements did not eliminate "excessive activity and profits", options could include taxes on financial transactions, so-called Tobin taxes, after the economist James Tobin.

The economist suggested a small tax on foreign exchange transactions in the 1970s to discourage speculative trading.

No such taxes are under consideration, aides to the Chancellor, Alistair Darling, have reportedly said.

Lord Turner said the FSA would push banks to defer more bonuses and to pay more in shares, not cash. There will remain four or five global financial centres, and it is almost certain that one will be London," he said.

What can I add? he’s reflecting what I’ve long said.

I worked on the major proposal for a Tobin tax for the UK for Stamp Out Poverty and have met the Treasury with them.

I have proposed higher taxes on bonuses to stamp out excess.

I have proposed additional taxes on bank profits.

I am one of those proposing a High Pay Commission.

Lord Turner is buying in – at least to a Tobin Tax. And commentators are wrong to say this will require international cooperation – Stamp Out Poverty show it could be operated on sterling alone. The deal could be done.

NB For more on Tobin Taxes read Larry Elliott in today’s Guardian.

You look one way and I’ll look the other

OECD, Switzerland, TIEA 9 Responses »

Aug 262009

Switzerland has signed its second double taxation agreement, with Luxembourg. – swissinfo.

Switzerland on Tuesday signed a revised double taxation agreement with Luxembourg, easing the restrictions on the exchange of tax information between the two countries.

It is the second of 12 such agreements Switzerland needs to sign in order to be removed from the “grey list” of tax havens established in April by the Organisation of Economic Co-operation and Development (OECD).

Wow, Switzerland and Luxembourg counts for the OECD

What next? The BVI and San Marino?

Economic Transparency: A Request to the G20

Country-by-country, Development, TIEA 1 Response »

Aug 262009

The Task Force on Financial Integrity and Economic Development promotes greater transparency in the global financial system, as a key measure required to alleviate poverty and maximize growth in developing countries.

We may be at a rare moment when the interests of rich and poor countries are synonymous. At the heart of the current worldwide economic crisis is a lack of transparency in the global financial system. This is the end product of a half century of creating and expanding a shadow financial structure comprising tax havens, secrecy jurisdictions, disguised corporations, anonymous trust accounts, and fake foundations. Also included in this system are trade mispricing mechanisms, money laundering techniques, and gaps left in national laws that facilitate movement of the proceeds of bribery and theft, criminal activity, and commercial tax evasion across borders.

The consequences of this murky structure and the money it moves are now clear:

In developed countries, credit collapsed in large part due to the difficulty of appraising the quality of assets held by financial institutions that operate partially or wholly within this opaque system.

In developing countries, an estimated US$1 trillion a year of illicitly generated money is shifted abroad through this system, constituting the most damaging economic condition hurting the poor, undermining poverty alleviation, delaying sustainable growth, and weakening democracy and the rule of law.

The Task Force on Financial Integrity and Economic Development urges the G20 to focus on substantially improving transparency in the global financial system. Thus far in communiqu?©s, discussions, and commentaries, greater emphasis has been given to strengthening regulation within the existing structure. While regulatory improvements are clearly needed, we believe that such steps alone are incomplete. If “the era of bank secrecy is over,” then more effective progress toward this goal can be accomplished by significantly curtailing the shadow financial system.

Accordingly, we ask that the G20 give careful consideration to the following steps:

Beneficial Ownership Agree that the beneficial ownership, control, and accounts of companies, trusts, and foundations must be readily available on public records, and set a date for achievement of this goal.

Automatic Exchange of Information Agree that automatic exchange of tax information is the end toward which tax information exchange agreements should be directed, and set a date for achievement of this goal.

Trade Pricing Agree that pricing of imports and exports of goods and services by all trading parties should conform to considerably strengthened transfer pricing guidelines, and set a date for achievement of this goal.

Country-by-Country Reporting Agree that multinational corporations and financial institutions should report sales, profits, and taxes paid in all jurisdictions where they are established or active, and set a date for achievement of this goal.

Anti-Money Laundering Agree that predicate offenses for money laundering charges should be harmonized at the most restrictive level and codified, and set a date for achievement of this goal.

These measures will accelerate the movement toward economic transparency in the global financial system, benefiting both developing and developed countries.

The Task Force on Financial Integrity and Economic Development

Raymond W. Baker Tom Cardamone
Director Managing Director

The Task Force on Financial Integrity and Economic Development is a consortium of governments, NGOs and foundations. The Task Force is guided by a Coordinating Committee which consists of the following entities: Global Financial Integrity, Christian Aid, Global Witness, Tax Justice Network, Transparency International and the Secretariat of the Leading Group on Innovative Financing for Development with Government members from Algeria, Bangladesh, Belgium, Benin, Brazil, Burkina Faso, Cambodia, Cameroon, Cape Verde, Central African Republic, Chile, Congo, Cote d’Ivoire, Cyprus, Djibouti, Ethiopia, Finland, France, Gabon, Germany, Great Britain, Guatemala, Guinea, Haiti, India, Italy, Japan, Jordan, Lebanon, Liberia, Luxembourg, Madagascar, Mali, Mauritania, Mauritius, Mexico, Morocco, Mozambique, Namibia, Nicaragua, Niger, Nigeria, Poland, Sao Tome and Principe, Saudi Arabia, Senegal, Sierra Leone, South Africa, South Korea, Spain, Togo, and Uruguay. The Task Force’s Partnership Panel comprising governments and foundations includes the Governments of Norway, Germany, Denmark, France, Spain, Chile, the Ministry of Foreign Affairs of the Netherlands, and the Ford Foundation.

Bernanke – a mistake

Banking, Economics 3 Responses »

Aug 262009

FT.com / US / Economy & Fed – Bernanke reappointed for second term.

Ben Bernanke was reappointed on Tuesday by President Barack Obama for a second four-year term as chairman of the Federal Reserve.

Bernanke was meant to be the great expert on depressions.

He didn’t call this one’s coming.

He ha not delivered reform.

Why keep him? It’s a missed opprtunity for reform.

Is the US Practicing Hypocrisy?

Ethics, Secrecy jurisdictions, Tax Havens, USA Comments Off

Aug 252009

Tax Analysts has published a very long (albeit spot-on) article which analyzes Mexico’s request to the United States to be treated the same as Canada when it comes to exchange of tax information. Basically, the article demonstrates how the United States is an offshore tax haven that is being exploited by (among others) Mexican drug-lords.

Of course, the United States just fought Switzerland for having some of the same tax/reporting exemptions that Mexico is challenging.

Is the US practicing what it preaches? The short answer is no; it is not. Here’s a brief clip:

As if Treasury Secretary Timothy Geithner didn’t have enough on his plate, there’s one underappreciated problem his department now must address. This latest headache can be summarized in three words: U.S. bank secrecy.

The issue landed on Geithner’s desk shortly after he accepted his current job, in the form of a February 9 letter from Mexican Secretary of Finance Agustin Carstens. At first glance, its polite language seemed innocuous. Geithner most likely read the letter, mumbled “ho-hum,” and added it to the stack of low-priority items on the back burner.

But six months later, Carstens’s letter ‚Äî and how Treasury will respond to it ‚Äî has the potential to become a lightning rod for controversy. That’s because the IRS and the Justice Department, after decades of passive acquiescence, decided to pick a fight with Swiss banking giant UBS, the world’s largest manager of private wealth.

It’s really a fantastic article. Check out the rest of it (with a Tax Analysts subscription) here‚Ä¶

Reposted from the blog of the Task Force on Financial Integrity and Economic Development, with permission

Pensioners on the board

Pensions 1 Response »

Aug 252009

My friend Howard Reed has posted a comment too good to be lost in the comments section. Talking about the boardroom pay rip off he says:

[O]ne solution to the pensions crisis would be to give all pensioners below a certain income level non-exec director posts in a selection of FTSE100 boardrooms and use the wildly exaggerated corporate remuneration to subsidise their meagre state pensions. That way, at least the remuneration from these schemes would go to some of the people who really needed it.

It’s the kind of policy that you would have probably found in a Monster Raving Loony Party manifesto in the old days – claims to be crazy but is actually a good deal more sensible than what the mainstream parties are offering.

Yep – it’s time for “pensioners on the board”.

Sounds good to me. Nice one, Howard.

The great rip-off

Banking, Economics, Ethics 3 Responses »

Aug 252009

Consultants have leading part in great pay rip-off|Nils Pratley | Business | guardian.co.uk .

[Pay c]onsultants have designed increasingly complex schemes and encouraged the notion that their creations will improve executive performance. All that ha happened is that boardroom pay has exploded and corporate performance, as measured by share prices, has gone nowhere in a decade.

It’s not an accident: this is design. The plan is simple: to extract a top slice of reward today from the benefit due to investors tomorrow.

Except it’s not reard. It’s theft because that pay is not due.

But directors are doing it, all the same.

Bankers are doing it.

Investment fund managers are doing it.

And we don’t know because so few of us have any idea what is happening to our investemnt funds, endowment policies, pensions and more besides.

But some signs of this cannot be hidden forever, and the pension crisis is the surest sign of what is happening. We cannot apparently provide pensions out of stock market pensions but we can spend a fortune today remunerating the financial services community from out of the same funds.

Open your eyes – these events are directly related.

Bankers, directors and fund managers are stealing your future.

Support for Conservatives

Conservatives 3 Responses »

Aug 252009

ICM poll: Support for Conservatives high despite voters’ fear of tax rises | Politics | The Guardian .

An overwhelming majority of voters think a Tory government under David Cameron would push up taxes and leave families worse off ‚Äî but the paradox at the heart of the latest Guardian/ICM poll is that they still want to see the opposition in power.

Which just shows how badly New Labour failed the Left.