I have been looking at the Tax Information Exchange Agreements (TIEAs) that have, in the main, been signed as a result of g20 pressure arising in April this year.

There were 180 of these by 10 November, the cut off for my work. I think there’s one more now.

I have plotted them all. In doing so some interesting trends emerge. Take this table, for example. It shows the TIEAs signed by OECD non-compliant grey and black list states with each other.

I am well aware that this table is small: click on it and the whole thing comes up in a separate window.

I stress: the data relates to all TIEAs signed to 10 November 2009.

What the table shows is that 24 TIEAs are between grey list states (I know the total says 48 – but it does, of course, count each agreement twice). The implication is clear: these ‚Äònon-compliant’ secrecy jurisdictions listed by the OECD in April 2009 have been seeking to become ‚Äòinternationally compliant’ by signing TIEAs with each other. Remember when noting this that signing just twelve TIEAs makes a place internationally compliant. No information has ever to be exchanged: having the TIEA is enough.

I predicted this would happen as soon as I heard of this requirement. It was too obvious that this would be what they would do.

If I expand the sample to the jurisdictions covered by the Financial Secrecy Index published by the Tax Justice Network then 66 of the 180 TIEAs are between secrecy jurisdictions (expanded image is here):

Note that in some cases – like Andorra, Anguilla, Liechtenstein, Monaco and more like them the rate of TIEA with other secrecy jurisdictions is very high indeed. As is very clear: these places are seeking to run a closed shop where they are ‚Äòcompliant’ but will never have obligation to ever exchange any information because you can be sure none will be requested.

The rate of 66 out of 180 may not sound worrying, but it is. 67 of the remaining agreements are with Nordic states. Now I’m not chastising those Nordic states, but when 28 of all agreements are with the Faroe Island, Greenland and Iceland the standard is obviously wrong. Such agreements cannot be material to the setting of an international standard but right now they are 15.5% of all agreements.

So what’s left after insider dealing between secrecy jurisdictions and the Nordic states is excluded? Spain has just two agreements, Italy none, Canada 1, Germany 6, France a good (in this context) 11. But surely it is absurd that we aren’t measuring compliance in terms of the recipients of information and not the suppliers? Why is it Spain gets 2 and is told that secrecy jurisdictions need sign no more as they are compliant? That has to be wrong.

And so too are the absentees from the list very notable: India, China, Japan, Brazil, most of Africa, almost all developing countries. When will they get a deal from states that are willingly, knowingly and very deliberately abusing this new standard to sign deals with each other so that the people who need information to enforce their tax laws will not receive it?

The OECD standard for TIEAs is not good enough. It needs urgent reform. And very soon.

 

There’s a new report out on the secrecyjurisdictions.com web site. It’s entitled Key Data Report 3: The Share of the Workforce Engaged in Financial Services. The report does exactly what its ttitle says: it looks at the proportion of the workforce working in financial services in each of the secrecy jurisdictions surveyed. As the report notes:

A high proportion of people working in financial services in the overall economic activity of a country is likely to indicate the existence of considerable political influence by the financial services industry on the government of the jurisdiction. It is almost universally true that the more reliant a territory is upon a particular economic activity the more deferential it is likely to be to the demands of that sector. Such influence can undermine democratic decision making processes, can facilitate corruption, in the case of financial services can create a strong orientation towards the needs of those outsides the territory who would not normally be the prime concern of its government, and can be (but we stress, is not always) conducive to a criminogenic environment.

This is especially so as the issue of employment is always emotive and totemic in politics. A financial services provider in many secrecy jurisdictions will only have to claim that new regulation to limit its activity is “business-damaging” and will therefore threaten employment and if that sector is one of the largest in the economy then politicians will take great heed and the more likely it is that appropriate regulation will be rejected.

Alternatively, and as is well known, abusive regulation may be introduced at the behest of the financial services sector if it has influence of this sort. It is well known that Ernst & Young and PricewaterhouseCoopers paid for the creation of limited liability partnership law in Jersey to suit their own purposes and to bring deliberate pressure to bear on the UK. It is also recorded that the Society of Trust and Estate Practitioners has been active in promoting what many consider abusive forms of trust, including the VISTA trust in the British Virgin Islands. When Jersey introduced broadly similar trusts in 2006 the law was passed without discussion by its parliament at the behest of local professional firms.

The problem is at the end of the day, as we note:

[I]f a high proportion of the labour within a jurisdiction works for the financial services industry there is likely to be considerable and increased tension between the conflicting goals and interests that the state must address. In extremis the end result may be an overt dependency of the government on the financial services industry. Political scientists call such a situation “state capture”, when narrow and particular interests impose their will onto the state and society at large.

There is no doubt that this is happening.

So where is the problem most serious?:

This really is a case of ‚Äòthe usual suspects’. And a fairly comprehensive list of those likely to be subject to ‘state capture’.

There are, of course, places with more employees:

Powerful as the influence of financial services is though inn a place like the UK it will not be as serious as is the impact in places like the Crown Dependencies.

Note that the UK cannot even make the top 20 by proportion of work force.

Which does, however, make it important to note that data was not available for all secrecy jurisdictions for which we sought data. Full details are in the report.

 

International Adviser :: Channel Islands trusts attacked by Austrian minister ahead of crunch EUSD talks.

The Channel Islands trust industry has come out fighting in response to an attack by Austria’s finance minister, who reportedly accused providers of promoting investor secrecy.

Ahead of December 2’s ECOFIN meeting of European finance ministers, at which political support for changes to the EU Savings Directive will be sought, Josef Pr??ll is said to have demanded action against trusts, and singled out the Channel Islands in particular for being responsible for helping mask the identity of settlors – those who set up the trusts – and therefore evade taxes.

Pr??ll has been quoted as threatening that Austria would use its veto on the proposed broadening of the directive unless trusts were included.

The exact meaning of his comments is unclear, however. Trusts are already included in the proposed broadening of the directive.

Some commentators believe there may be a hidden agenda aimed at extracting further concessions from the UK in relation to its trust sector in exchange for Austria giving up a withholding tax system that it currently operates under the EUSD.

Looks like dog eat dog.

And this has to go forward.

 

I challenged the growth figures for the Isle of Man earlier today. A commentator has said:

IOM Government GDP figures are audited and you’ll need more than a conspiracy theory before they can be tossed aside. Competitive tax rates in times of panic are very popular you know ;-)

So I did just a little research on this hypothesis using Isle of Man data.

I have questioned data since 2006. Since then total cash deposits have moved from £54 billion to a high of £70bn at end of 2008 since when they have fallen to £63bn. It’s hard to know how much currency impacts on this but since (rather tellingly for calculating loss of tax to the UK) two thirds of all deposits in the Isle of Man are in sterling (so much for being an international finance centre) the answer is probably not that material.

On the other hand loss of funds under management – where people can make serious money from selling services – have been spectacular:

There’s no evidence there to support the claim made.

Nor to support growth in the economy if it is really as heavily dependent on financial services as we think – they being 41% of its economy.

Sorry – your claims don’t stack.

Mine do.

So where did the growth come from? And is it real?

 

In a Guardian article titled A jamboree of repression, Tom Porteous, director of Human Rights Watch, raises concerns about the failure amongst Commonwealth countries to "muster the collective political will to uphold its core values of political freedom and respect for human rights" and concludes that the Commonwealth has become a ‘haven for human rights abusers.’

Porteous supports his case by highlighting recent actions by governments in Sri Lanka, Pakistan, Bangladesh, Kenya, Cameroon, Uganda and Gambia, all of which have engaged in repressive actions against their citizens without any sign of disapproval or action by the Commonwealth. As the article notes:

Its secretariat fails to push or fund its human rights unit as a viable mechanism to encourage its members to comply with international standards; neither the secretary-general nor the diplomats of leading member states make a serious effort to get the Commonwealth to act collectively at the UN and elsewhere to champion human rights.

This is important and Porteous argues his case robustly but with the appropriate degree of diplomacy. Tax Justice Network would like to come at this issue from another angle: the Commonwealth is also a haven for the majority of the world’s secrecy jurisdictions (generally known as tax havens).

Far from taking action to curtail their harmful practices (and let’s not forget that many of the victims of secrecy jurisdictions are the ordinary people of Commonwealth member states) the Commonwealth secretariat actively participates in organisations lobbying on their behalf. This includes the International Trade and Investment Organisation, the latter having been created specifically to counter the efforts by the OECD to counter harmful tax competition. The Commonwealth’s involvement in this organisation, and its lobbying efforts on behalf of secrecy jurisdictions more generally, is nothing short of scandalous.

Time after time, TJN’s observers at UN events have witnessed Commonwealth member states actively engaged in blocking international efforts to strengthen cooperation in tackling corrupt tax practices. Such behaviour is wholly inconsistent with the idea, recently expressed by Lord Howell, former chair of the British parliament’s foreign affairs committe, that the Commonwealth has a role to play as an "ideal soft power network" for the 21st Century.

Britain and the collection of states and dependencies formerly known as the British Empire, are collectively responsible for around one-third of the global market in cross-border financial services. A significant part of this cross-border trade involves illicit flows, largely routed through structures created in secrecy jurisdictions. These illicits flows devastate the efforts of countries aiming to achieve self-reliance and tackle poverty. There is a direct link between the corrupt practices of secrecy jurisdictions and the human rights abuses in the countries of origin of the illicit funds. In this respect the Commonwealth has a major role to play in engaging constructively with its members to address their shortcomings and take action to diversify their economies away from dependence on secretive offshore financial services.

Secrecy has no useful role in the modern world of globalised financial markets. The activities of secrecy jurisdictions are harmful to the vast majority of countries and people. They encourage and facilitate corrupt practices. They support the kleptocrats and business elites who abuse human rights and undermine undermine respect for democracy and the rule of law. Their activities are incompatible with the core values of the human rights agenda. The Commonwealth must urgently get its own house into order.

NB: re-psoted from Tax Justice Network blog, with permission

 

The Other TaxPayers’ Alliance | Happy birthday to us!.

Good work Clifford

Keep at them!

 

The Walker report on corporate governance in UK banks and other financial industry entities includes the most extraordinary missed opportunity. On page 17 it has the following enigmatic paragraph:

Recommendation 15

Deleted.

What might it have said?

What opportunity has been missed?

Could it have said:

All banks shall 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?  

Might it have said:

The use of secrecy jurisdictions increases governance risk and the chance that insufficient information on the risks and rewards of banking and other transactions are reported to a board of directors and other users of the financial statements of banks, both internal and external. As such detailed quarterly reporting of the activities of any bank located in secrecy jurisdictions, whether on or off balance sheet, shall take place?

Or was it:

The location of risk within a bank is vital to overall assessment of viability, As such the bank shall report not less than quarterly to the Board on a country-by-country basis?

What a tease Walker is: we’ll never know which of these great opportunities was deleted.

That is a loss to us all. The mystery of recommendation 15 might never be known, but we can be sure we’re worse off without it.

 

I have been sent a Freedom of Information request made in the Isle of Man concerning the new VAT sharing agreement with the UK. I publish here what is, for my purpose, the most relevant page – the illustrative calculation. The rest of the document has been put on line. This calculation is new.

Let’s talk about what is known in this new document and what is speculation. The 2006/07 income is known. The subsequent uplifts and adjustments are not yet confirmed – and it’s very hard to believe that a) the IoM really did have 8% growth in 2007 and b) has continued to grow through the recession. That is certainly not true of the UK, almost any other economy I know of, and Jersey, so why of the IoM claims to have done so I do not know. I take the claim with a considerable pinch of salt as a result.

The data for expected VAT and duty is based on the UK budget for 2009/10. The figures are for adjustments to that data are, of course purely speculative. I have, therefore, ignored them.

Let’s be clear what this shows: it is that at most the Isle of Man might expect to enjoy VAT income under this agreement of £156 million this year.

Use the more reliable 2006 income data to apportion benefit and the income due to the Isle of Man would be £135 million.

The actual expected VAT income of the Isle of Man under this agreement this year, before revision, was £338 million.

That means, depending on the final proven level of national income in the Isle of Man, the level of subsidy was between £182 million and £203 million. I, of course, predicted a figure of £230 million: but I was using 2008/09 data and I used GDP not GNI for the UK in doing so.

But, the maximum sum that we learn is to be withdrawn from the Isle of Man is £140 million a year. Which means that, quite categorically, the subsidy remains. It has simply been reduced to a sum now running at between £40 million and £60 million a year.

That remains a scandalous use of UK taxpayer’s money. It also gives a complete lie to the claim that the Isle of Man neither was subsidised, and will not be in the future. It still is being subsidised.

But I should make clear: I can live with that. The Isle of Man may need to be subsidised, but I utterly reject the idea that a subsidy should be given without conditions being attached. My conditions would be simple. The Isle of Man should earn this subsidy by:

1. Definitely becoming a full information exchanging member of the European Union Savings Tax Directive as soon as possible;

2. Supporting current proposed extensions to that directive;

3. Requiring that details of the beneficial ownership, real management and full accounts of all IoM companies be put on public record;

4. Requiring that the Isle of Man match any developments in the UK requiring details of trusts to be put on public record;

5. That the Isle of Man proactively seek to sign Tax Information Exchange Agreements until it reaches a target of at least 60 – the average number for a G20 state;

6. the Isle of Man actively seeks to pioneer automatic information exchange agreements with other states.

That’s worth a subsidy. But the current arrangement is not worth a penny.

And as that for that statement that I made that I accepted that the Isle of Man was no longer subsidised – I withdraw it forthwith. It was wrong. The evidence, now available, simply does not support it.

So the debate goes on.

 

Is Dubai about to default on its £50bn debt? | Business | The First Post.

Dubai could become an economic basket case on the level of the Icelandic disaster as the cost of insuring its astonishing sovereign debt skyrockets on investor fears the city-state may default on its debts.

Yesterday, to the considerable surprise of the financial world, Dubai announced it would restructure its largest corporate entity, Dubai World, a conglomerate spanning real-estate and ports, and announced a six-month standstill on the company’s debt repayments.

In all but name this is the Dubai government reneging on its debt.

And this place was going to be the next world financial centre? The place where all those Brits who were going to flee our supposedly oppressive tax system where going to set up shop?

Like Iceland, Cayman, Jersey, Guernsey, the Isle of Man, Ireland, Bermuda, the Turks & Caicos (the list goes on, and on) this is a secrecy jurisdiction whose own finances are collapsing. The business model of these places has failed.

You can’t build an economy on the basis of tax incentives.

You can’t win by beggaring your neighbour.

People – even in secrecy jurisdictions – need services. So tax has to be paid.

When will we realise – tax is a good thing that pays for what we all need in the world. It is, in fact, the bedrock of our prosperity.

Dubai’s failure will be a crisis for some – and will have human cost. But that’s inevitable until we rid ourselves of the pernicious consequences of neo-liberal economics. The sooner the better. And the smaller the human cost will be.

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