2009 September » Tax Research UK

So much for competition

Economics Comments Off

Sep 222009

FT.com / Technology – EU produces evidence for €1.1bn Intel fine.

Internal e-mails at Dell purported to warn of “severe and prolonged” repercussions if the computer manufacturer switched business away from Intel and in favour of the chipmaker’s main rival, according to evidence made public by Europe’s top competition regulator on Monday.

Internal documents from other Intel customers, including Lenovo, NEC, Hewlett-Packard and retailer Media Saturn Holding, also showed rebates were linked to tight restrictions on the amount of chips that could be purchased from rival AMD, according to the European Commission.

The competition watchdog on Monday published a non-confidential version of its May decision, which accused Intel of breaching EU antitrust rules and imposed a €1.1bn ($1.6bn) fine. This was the largest single penalty imposed on any company for competition breaches in the EU

Demonstrating that big business does not believe in the merits of free markets.

Stop Paradis Fiscaux

Uncategorized Comments Off

Sep 212009

Great, isn’t it?

Get the story here.

Action Aid’s new tax report

Country-by-country, Development 2 Responses »

Sep 212009

Action Aid have really swung into action on tax.

Their new report, which amongst many other things fully endorses country-by-country reporting, is available here.

Lloyds has said…

Banking, Jersey 1 Response »

Sep 212009

This is the BBC statement to Panorama:

In response to claims made in Panorama: Banks Behaving Badly, Lloyds Banking Group issued the following statement:

Lloyds Banking Group aims to comply at all times with all its obligations under tax law, both within the UK and overseas. We treat very seriously our obligations to comply with all tax legislation and we believe that we do so.

Offshore subsidiaries

It is common practice for organisations such as ours with an international presence to have offshore subsidiaries, which can be used for a number of purposes, from providing expatriate banking services, to facilitating the administration and funding of international operations.

Transfer of funds between subsidiaries

The transfer of funds to and between subsidiaries is a normal business activity for large companies. We can confirm that the transfer mentioned to us by Panorama involved Cayman Island and British Virgin Island companies. Both of these jurisdictions provide a legal framework with regard to repatriation of capital that is more flexible than the legal framework for UK companies. The transfer involving the British Virgin Islands subsidiary was made based on guidance from the FSA on their new rules relating to the funding of non UK subsidiaries by banks. The FSA was notified of the transfer shortly after it took place. For the avoidance of doubt, the Group did not pay less tax as a result of this transfer, as the companies concerned are resident in the UK for tax purposes and consequently pay UK tax on their profits.

We strongly and categorically refute any allegation of involvement in systematic or deliberate tax evasion.

Providing advice to customers

The orderly and efficient management of an individual’s tax affairs, within the law, is a legitimate exercise. Any advice or information we offer customers is made within the context of the robust anti money-laundering systems and processes we have in place. These processes are designed to ensure that colleagues are able to identify and report any suspicious activity on the part of our customers. Colleagues are provided with regular training as appropriate to ensure compliance with these systems.

Individual employees

We have been provided with information by Panorama which could suggest serious misconduct by a member of staff in one of our Jersey offices. We take these allegations by Panorama very seriously and a full and comprehensive investigation into this matter is already underway. The member of staff has been suspended pending the outcome of our investigation. If the investigation concludes that serious misconduct has occurred, then the company will take the appropriate disciplinary action.

The group has shared the main elements of its approach with HMRC and the appropriate regulatory authorities and will continue to do so.

Push for a global corporation tax

Economics, Tax management 3 Responses »

Sep 212009

Push for a global corporation tax | This is Money .

Plans to harmonise corporation tax rates around the world to stop companies switching their base of operations to cheaper jurisdictions are to be discussed at this week’s G20 summit in the US.

Financial Mail understands that the idea of putting a floor under company taxation with a minimum rate globally has been talked about behind closed doors in some G20 capitals, including London, for a number of months.

I have no idea of this is true. But it does make sense and the tax base should be allocated on the basis of a destination based sales formula.

The odd thing is, that allows real tax competition in a form with which I would find it hard to argue.

If the Treasury is serious then don’t ask the usual culprits

Economics, HMRC, Tax management Comments Off

Sep 212009

Last week the World Bank’s Managing Director applauded the role of civil society for its pioneering role in tackling tax abuse. She demanded we take the lead on this issue where to date, as she recognised, we have driven the agenda. The UK’s HM Revenue & Customs were there and witnessed this. So were the Department for International Development.

Today HMRC is holding a conference on Institutional Taxation Analysis. No one, not a single person, is there from civil society. KPMG are though, as are PWC. But they are the problem we are up against.

The Institute for Fiscal Studies and Oxford University Centre for Business Taxation are also present, but both propose solving the problem of corporation tax by abolishing it and placing the burden of the tax on ordinary people through imposition of Vat at something like 28 to 30%. That is not relevant thinking: that is straight out of the Washington Consensus.

And this comparison with the bankrupt thinking of the Washington Consensus is relevant. The conference brief says:

Standard micro-economic models make simplifying assumptions about human behaviour both for ease of analysis and tractability. Some of these assumptions concern the rationality of individuals and, for example, assume that they have possession of all relevant information and are able to make complex optimisation decisions without taking account of cost consequences. Many economists have recently been relaxing these assumptions in various ways in order to try and capture more of the true processes by which people make decisions.

I agree, but the reality is the people who are doing so are not at this conference. The Oxford University Centre for Business Taxation is about hard core micro-economics. Unless you believe in the Washington Consensus, unless you believe in the absolute primacy of the form of microeconomic analysis that is noted as troublesome by HMRC you cannot work at Oxford. That’s true of all UK economics departments with regard to this issue. So there is not a hope of finding new thinking in these places.

As Oxford recently proved in a paper for the Department for International Development, they are the obstacle to progress on this issue. It is civil society that is the basis for progress. Oxford are going out of their way to oppose it. As are the Big 4 who are also doing their utmost to block transparency and accountability – as papers from Deloittes at the World Bank and PricewaterhouseCoopers at the Task Force on Financial Integrity and Economic Development last week proved.

And yet, as HMRC note:

There is considerable scope for developing this work in the context of tax policy and operations. Possible areas for new and innovative research include: savings and pensions tax policies aimed at providing incentives to behave in certain ways; compliance and personal risk behaviour modelling; and many other areas of contact between tax operations and individuals and businesses. Research could be focussed on identifying the full range of tax policy and operational situations that are likely to be affected by this, so called, ‘non-standard behaviour’.

That’s true: two papers last week at the World Bank tried innovative approaches. They came from Alex Cobham of Christian Aid and me. Oxford argued against our approach and instead promoted a research programme that included all the flaws noted by HMRC in the first quote, above. Their paper also showed they had no understanding about data availability offshore, or of deferred taxation or of the fact that transfer mispricing can be disguised in corporate accounts by deferred tax accounting – of which the authors clearly know very little. And yet their critique of the work of Alex, me and others is being heard at HMRC today, but we are not.

This is ludicrous. Stephen Timms is right to say tax is a moral issue. He has, today. Dave Hartnett has done great work promoting that issue. But not a single academic, bar one maybe from the Institute for Development Studies at Sussex, will argue this today. Most outright deny it. In that case to look to the Big 4 and academia to make progress on this issue is absurd.

It is the Tax Justice Network that has done more to publicise this issue than anyone else. Few deny it.

Oxfam started the ball rolling in 2000.

The TJN / Tax Research Paper of 2005 on The Price of Offshore, whether right or wrong, lit up the tax haven debate.

My work on country-by-country reporting is highlighted as a way forward by Stephen Timms. It is pioneering, cross disciplinary and innovative. It is about the very issues HMRC says they want to address. It was in Stephen Timm’s speech today because of support from Publish What You Pay, Tax Justice Network, Christian Aid, Global Witness, Action Aid, CAFOD, Oxfam, and many, many more. But it is not on the agenda for debate today at HM Revenue & Customs.

The TUC backed ‚ÄòThe Missing Billions’ and pushed this item forward in the UK.

So to, of course, did the Guardian in their series on the Tax Gap.

It is civil society that has informed tonight’s programme on the BBC.

Christian Aid has shown real conviction and moral leadership with its reports.

No academic, bar Prof Simon Pak in the USA, who has been vilified for his efforts, has sought to address this issue constructively or quantifiably.

Not one academic, bar Prof Prem Sikka, has argued this is a moral issue.

The Big 4 block innovation at every move – including country-by-country reporting.

So why is HMRC talking to the cause of the problem when looking for a solution? This makes no sense at all.

The entire intellectual move in the direction in which the UK Treasury is now moving has come from Dave Hartnett and civil society. No one else. Apart from those I’ve named not a person from a Big 4 firm or a person in academia has stood up for transparency, honesty or accountability. None has promoted reform. None has suggested alternative economic modelling. None has changed to change the terms of the debate or the language used – as we have when defining such terms as ‚Äòsecrecy jurisdictions’.

And our reward? To not be invited to this conference which we must have inspired when our critics – most especially at Oxford – are present.

And our second reward – to see our work reviewed in our absence. I find it extraordinary that whilst country-by-country reporting is, for example, on the agenda for the UK and the OECD and yet not once have I ever been asked about it by a single official in HM Treasury or at the OECD and yet I created the whole concept.

If there is to be morality in tax, as Stephen Timms has called for; if there is to be innovative thinking on tax, as this conference calls for; if there is to be real progress on tax, as is so obviously needed, no one will find it by asking the ‚Äòusual suspects’ at the Institute for Fiscal Studies, Oxford University Centre for Business Taxation or the Big 4. They are the problem, not the solution.

It is time to talk to those of us who have put this issue on the agenda. Can we please do that? Can we please have the necessary meetings? Can we even have a tiny fraction of the resources others are given to pursue this work on which we, and we alone, have made the impact which has created the difference?

This would be the first test of whether the Treasury is serious in its new found and wholly appropriate attachment to morality in taxation.

The second source of evidential support for that conviction would be a copy of the Treasury’s email asking the OECD to consult with civil society on country-by-country reporting whilst the third would be serious discussion of funding for those who have lead this debate and have done so on a shoe-string. When that happens change will really flow.

And we need it.

Lloyds is making excuses already: the corruption cam from the top

Banking, Corruption, Jersey, Tax evasion Comments Off

Sep 212009

I note that AFP is reporting:

British tax authorities are investigating allegations that staff at Lloyds Banking Group encouraged rich clients to channel money through China to avoid taxes at home.

The allegations were made in a probe by the BBC’s "Panorama" programme which showed what it said was hidden camera footage of a bank employee in the Channel Island of Jersey advising an undercover reporter who said he had four million pounds (4.4 million euros, 6.5 million dollars) to invest.

The bank said the employee involved has been suspended pending an investigation, adding it "strongly and categorically refute(s) any allegation of involvement in systematic or deliberate tax evasion".

The civil servant in charge of tax at Britain’s revenue and customs department, Dave Harnett, told the BBC the advice was "incredibly irresponsible" and a spokesman for the department said the BBC’s evidence would be looked at.

I feel just a little sorry for the guy filmed by the BBC. Only a little bit – he was after all proud of what he was doing, and I consider it corrupt. But if Lloyds try to make him the scapegoat that is scandalous.

A minor salesman in Jersey did not think up the abuse of the European Union Savings Tax Directive that he was selling. He could not have done. The Hong Kong subsidiary that is used by Lloyds as its paying agent for its Jersey funds was created two weeks before the European Union Savings Tax Directive came into effect. This was a planned abuse. It required high level international coordination and planning. It would not surprise me if that went to main Board level for approval.

That’s the level where the suspensions are now needed. This is a bank that cannot excuse its systemic culture of tax abuse by suspending a salesman. This is an abuse that calls for the resignation of the chairman and CEO, a wholesale clear out of its tax department and its nationalisation to end the culture of abuse of the state that saved it but for which it has contempt.

And Lloyds needs to be given a choice: bank onshore or offshore, not both. All other banks in the UK need to be offered the same choice. Then we’ll see change.

I’m looking forward to some falling on swords tomorrow. But those who believe they can abuse the state in the way Lloyds has done don’t believe in responsibility either. They just believe in excessive pay for perpetrating such actions. So maybe time behind bars is what is needed. That’s a very sobering option.

And let’s be clear why I say this: Lloyds has unambiguously and knowingly set up a structure whose sole purpose is to get round the European Union Savings Tax Directive: the sales man in Jersey was right to say that. But there is only one reason to get round the European Union Savings Tax Directive, and that is to evade tax. So it follows as night does day that Lloyds knew what they were doing.

And that is why its directors must be held accountable.

At Her Majesty’s pleasure if appropriate.

Lloyds proves Jersey is rotten to the core

Banking, Corruption, Guernsey, Jersey, Tax evasion 26 Responses »

Sep 212009

One of the things I never expected to do when I started campaigning on tax abuse was to help make television programmes. I am not sure how many I have done now, but tonight’s Panorama is something like the twentieth, and maybe the most significant/

Last week the IMF said Jersey was equal top in its ranking of FATF regulation compliance in the world.

Tonight that puff is blown apart. Jersey is shown to be rotten to the core.

Secret filming was done at just two locations to make this programme: Northern Rock, Guernsey and Lloyds, Jersey. I know. I was involved in planning it. The former offered the use of a shell corporation to get round the European Union Savings Tax Directive, the latter gloated about its abusive planning to help its customers evade tax, to which it stated it turned a blind eye.

How do I know both were willingly assisting tax evasion? Well, the European Union Savings Tax Directive official web site says:

In order to ensure the proper operation of the internal market and tackle the problem of tax evasion the savings tax Directive was adopted in June 2003.

The web site says the European Union Savings Tax Directive has a purpose – to stop evasion. It follows those who help people get round it help people evade tax. Northern Rock and Lloyds are doing that, in my opinion. And if these High Street names are, what happens elsewhere in the place?

Let me be candid: I love Jersey, and I hate corruption. Unfortunately far too many in Jersey are corrupt. Take this comment already on this blog from Jersey:

I doubt many people in Jersey’s finance industry will be losing much sleep about this. The programme will only end up giving people ideas on how to reduce their tax. Good publicity for Lloyds actually and the Island.

It shows how warped the view is in the island: local people think tax evasion is good for it.

I don’t.

I’m delighted Dave Hartnett agreed to be on the programme and is as robust as many will see him to be.

I think the pretence is over: now we know what Jersey and Guernsey supply: secrecy that hides corruption. It’s time to blow it apart. This programme starts that process.

And never again will someone from the Crown Dependencies be able to brag about how clean they are: these interviews show that when a person walks in off the street, unknown, they are sold corruption. The pretence is over. The truth is out. Now let’s act.

Time to change the definition and the rules

Secrecy jurisdictions 1 Response »

Sep 212009

I mentioned last week that my discussant at the World Bank did not much like my paper, and made comments for which i received fulsome apologies from the organisers. Even he though said that my definition of secrecy jurisdictions is a major contribution to thinking in this area. I define them as follows:

Secrecy jurisdictions are places that intentionally create regulation for the primary benefit and use of those not resident in their geographical domain. That regulation is designed to undermine the legislation or regulation of another jurisdiction. To facilitate its use secrecy jurisdictions also 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.

It it notable that the term ‚Äòtax haven’ is hardly used in serous debate of this issue now: even the OECD were using the term secrecy jurisdiction last week. I think this a major step forward.

It’s easy to see the use of this language. Take this from the FT today:

Nearly half of the UK’s hedge funds are likely to move abroad if new EU regulations are passed, according to a comprehensive new study of the alternative asset management industry due to be released on Monday.

The findings – based on a survey of 121 managers, looking after $384bn (£236bn, €261bn) of client assets, the bulk of the European industry – come as UK and American politicians step up their efforts to modify the EU’s controversial draft alternative investment fund manager directive.

The EU directive proposes greater transparency, restrictions on leverage and higher capital requirements for hedge funds, but has come under fire for being unworkable and heavy-handed.

According to the survey by the think tank Open Europe, just over 42 per cent of UK managers said the rules would be likely to force them abroad if the draft directive was passed in its current form.

So what are these people going to do? They’re going to use secrecy jurisdictions to undermine EU regulation.

As Stephen Timms said this morning:

People also deeply resent the small minority, who use their resources to move money offshore without paying the tax due. Those who enjoy all the rights of living here, but don’t want the responsibilities. Here too we are on the case.

We need to be. The definition of a secrecy jurisdiction shows what these people are doing. And as Timms said:

[E]ffective government has to factor in the international scene.

¬? Regulatory reform won’t succeed if businesses can play countries off against each other.

¬? Effective action on tax havens requires a shared resolve.

Good government requires an international perspective, not an isolationist one.

True. Beating hedge funds on this issue is a test of this resolve. Using the definition I have proposed of a secrecy jurisdiction underpins it. The term tax haven has to go.

Changing the rules on tax residence for companies will stop this abuse.

Now let’s see action on both issues.