2009 December » Tax Research UK

The Swiss seek any excuse to renege

Switzerland, Tax evasion Comments Off

Dec 172009

UPDATE 1-Swiss seek French tax deal freeze over HSBC breach | Reuters .

Switzerland wants to freeze a treaty aimed at helping France catch tax cheats after Paris
obtained used stolen client data, some of which was taken from
HSBC's  offshore banking headquarters in Geneva.

 "I am requesting the responsible commission of parliament's
upper house, which is going to be dealing with this tax treaty
at the beginning of February, to cease negotiations on the
double tax treaty until we have clarity about what happened,"
Swiss Finance Minister Hans-Rudolf Merz said.

But not a hint that HSBC is being investigated for handling funds the French think tax evaded.

Which shows exactly where Swiss sentiment remains: on the side of the criminal.

San Marino drains away

Secrecy jurisdictions, Tax evasion, Tax Havens 1 Response »

Dec 172009

Italy amnesty drains money from San Marino – BusinessWeek.

The tiny mountaintop republic of San Marino long served as a tax haven for Italians. Now it is watching helplessly as its neighbor’s hard line on undeclared funds drains it of billions in capital.

In all, euro1.25 billion ($1.87 billion) has been withdrawn from accounts in San Marino since Italy announced a tax amnesty in October for scofflaws hiding income abroad, according to Finance Minister Gabriele Gatti.

The amnesty threatens to deepen San Marino’s recession and is creating worries about the future of its lucrative banking industry, which grew behind a veil of banking secrecy to represent 18 percent of the country’s economy.

As a result of the amnesty, Fitch Ratings has downgraded the Republic of San Marino’s long-term credit rating to “A” from “AA-.” Fitch said the Italian tax amnesty threatens “the country’s business model.”

Can the facilitation of fraud be called a business model? Because it is clear that was what it was doing.

Discuss.

Little ships come for the bankers

Banking Comments Off

Dec 172009

FT.com / Columnists / Robert Shrimsley’s Notebook – Little ships come for the bankers.

And the FT launches BonusAid:

BonusAid is a wonderful organisation which aims to raise cash to keep our bankers and brokers in Britain by offering a hardship fund to those suffering from lost bonuses.

Its second mission is helping with the resettlement costs of those forced to flee financial persecution in Britain by a government that bailed them out but failed to look after their bonuses

Read it: there is a sense of humour in the pink’un after all.

Jersey would welcome UK bonus tax escapees

Jersey 18 Responses »

Dec 162009

I welcome UK bonus tax escapees, says minister ¬ª Business ¬ª This Is Jersey.

RICH City workers fleeing the UK to avoid rising tax rates will be welcomed into Jersey, according to the politician who approves residency applications from wealthy immigrants.

Housing Minister Terry Le Main sees a ‚Äòhuge benefit’ to the Island if British financiers, angered by Labour’s new 50% tax rate and one-off 50% levy on all banker bonuses over £25,000, move across the Channel.

But as the print version of the paper (which I’ve got – miracles never cease given it was published at lunchtime) makes clear – there have been just 10 such people arriving in Jersey this year.

So this is just more completely bogus hype for something that is not happening.

Sir Mike Rake goes North Korean

Private equity Comments Off

Dec 162009

FT.com / Lex / Alternative Investments – Private equity disclosure.

I admit I’m no fan of Mike Rake. He headed KPMG to near disaster and a $456 million fine during his tenure as worldwide senior partner. How and why he got a knighthood and got further work after leaving that firm beats me.

But he did. He was asked to review the voluntary code of conduct for private equity firms, and has now reported. It looks like the Lex column at the FT are no bigger fans than me:

Most research into the private equity industry has little credibility. It is partial, based on carefully selected information and usually sponsored by the industry itself. The naturally suspicious will therefore look with scepticism at Sir Mike Rake’s glowing report into compliance with the voluntary code of conduct that the industry adopted last year. Intended to stave off accusations that the private equity model depended unduly on leverage, job-cutting, asset-stripping and tax avoidance, the code is part of an industry strategy to deflect calls from politicians and trades unions for regulatory and legislative constraints on the buy-out artistes.

This year’s report gives the sector North Korean-style acclamation. All 34 private equity firms covered by the guidelines met all the code’s disclosure requirements.

Mike Rake less than objective? Shurely not?

But it remains fair to ask why did he get this job given what happened at KPMG?

In a functioning audit market

Auditing 3 Responses »

Dec 162009

A commentator on this blog made the following excellent point:

In a functioning market, if the auditors are seen as less than competent, there should be a cost to this e.g. a company goes to the bank and asks for a loan. Bank asks to see audited accounts. Then says, these were audited by (to pluck an example out of the air) PWC. We don’t have confidence in their audit procedures so we’ll either refuse to give you the loan or charge a premium rate.
The shareholders then say "why are we paying these cowboys?"

This doesn’t seem to happen. I can suggest partly why:

1) Virtual monopoly of audit services by 4 suppliers
2) The banks don’t criticise the big 4
3) Lack of transparency in the process above. Even if the banks do charge higher because of the auditor, the shareholders won’t get to hear of it, at least not through official channels.

How can all this be changed?

I have three suggestions:

Let’s stop assuming only the Big 4 can audit. The evidence is they can’t.
Let’s stop assuming only the private sector can audit: the evidence is there is market failure requiring intervention;
Let’s create a state run audit function and let’s give it the power to advise HMRC and other regulatory authorities of its findings when tax abuse and other regulatory offence is identified.

Discuss.

Charity abuise – the sickness of tax avoiders

Accountancy, Ethics, Tax avoidance Comments Off

Dec 162009

Another aggressive scheme sparks charity tax crackdown – Accountancy Age.

Accountancy Age reports:

HMRC has foiled another charity tax avoidance scheme, leading to a governmental overhaul of the rules governing relief for charitable donations.

The scheme is the latest arrangement the taxman has nipped in the bud after the well-documented case against Vantis, which has seen two of its directors hauled to the High Court.

As the Age notes though:

The scheme exploits the relief available for donations of listed shares and other types of qualifyinginvestments such as land to charities and HMRC has issued draft legislationto counter it.

As part of the changes which are effective immediately, anyone giftingshares to charities will only be able to claim relief on the lower of the acquisition value of the shares, or the current market price.

It is particularly offensive that individuals seeking to avoid tax do so in a way that exploits charity tax reliefs

The government respone is appropriate:

Stephen Timms, financial secretary to the Treasury branded the arrangement an “artificial, aggressive and offensive tax avoidance scheme that seeks to abuse those tax reliefs available for donations to charity.”

“This Government will not tolerate tax avoidance or tax evasion, and will act promptly to tackle both of these, so I am today announcing changes to be made to legislation, with immediate effect, to counter these schemes.”

I added the emphasis.

It’s appropriate.

This scheme was morally offensive and abusive. Thoxse who argue what is legal is acceptable should be ashamed of themselves.

It is time the Institute of Chartered Accountants in England and Wales and other institutes made it cleat tax avoidance is beyond the pale. Until they do accountants stand alongside bankers in the scale of social acceptability, which, unlike bankers, we have room to correct.

And the government too should take action: there is need for radical reform for charitable tax relief. I‘ve outlined how here.

The UK’s (postive) jobs surprise

Economics Comments Off

Dec 162009

FT Alphaville ¬ª Blog Archive ¬ª The UK’s (postive) jobs surprise .

No one can celebrate the number of unemployed

That the number has stabilised is credit to the government and the government alone

There’s one big risk on the horizon though: George Osborne. His policies will send unemployment sky-rocketing.

How many banks are there in secrecy jurisdictions?

Accounting, Banking, Cayman, Lawyers, Secrecy jurisdictions, Tax Havens Comments Off

Dec 162009

There’s a new report out on the secrecyjurisdictions.com web site. It’s entitled Key Data Report 4: Number of banks, accountants and lawyers. The report does exactly what its title says: it looks at the number of banks, lawyers and accountants in each of the secrecy jurisdictions surveyed. As the report notes:

Having a large number of banks, lawyers and accountants in a jurisdiction is likely to generate two effects. Firstly, bankers, lawyers and accountants offer and support financial services and, by interaction and collusion, have the knowledge and means to handle and hide illicit financial flows if they so wish. Secondly, banks, lawyers and accountants active in financial services will have considerable power in any secrecy jurisdiction that is heavily dependent upon financial services (for discussion and explanation of this second effect, refer to Key Data Reports 2 and 3)

There is another issue: if bankers, lawyers and accountants are present in high numbers a culture of constructive non-compliance can be created. In effect this means that the appearance of compliance is present but the rate of reporting of potential money laundering offences is low in proportion to the likely risk that they occur.

The report gives numerous examples.

Accountants can contribute to hiding financial flows by devising complex multi-jurisdiction business structures and aggressive tax avoidance schemes, and giving questionable annual accounts a seal of approval by auditing them with little scrutiny. As example in 2005 the Big 4-firm KPMG “‚Ä¶agreed to pay $456 million to avoid criminal prosecution by the U.S. government over abusive tax shelters‚Ä¶” whilst Professor Prem Sikka noted the following sequence of events in the Guardian newspaper:

On February 27 2008, Carlyle Capital Corporation published its annual accounts for the year to December 31 2007. These accounts were audited by the Guernsey office of PricewaterhouseCoopers, the world’s biggest accounting firm, which boasts revenues of $25bn.

Amid one of the biggest credit crises, the accounts claimed on page five that the directors were “satisfied that the Group has adequate resources to continue to operate as a going concern for the foreseeable future”.

The auditors were satisfied, too, and on 27 February 2008 gave the company a clean bill of health (page 6).

Less than two weeks later, on March 9 2008, Carlyle announced that it was discussing its precarious financial position with its lenders. And on March 12, the company announced that it “has not been able to reach a mutually beneficial agreement to stabilize its financing”.

The company says that it paid $2.5m in fees “principally … to our independent auditors, our external legal counsel, and our internal audit service provider”.

Yet In less than two weeks, the mirage of assurance offered by auditors vanished.

So much for offshore assurance.

However, as the report notes:

While data on the number of credit institutions and banks in a secrecy jurisdiction is often readily available, that on the number of lawyers and accountants is often more difficult to secure even though lawyers and accountants, like banks, are subject to scrutiny within international anti-money laundering frameworks.

In the end we concluded the only reliable data was on banks – itself a damning indictment of the regulation of lawyers and accountants who play such a major role in secrecy jurisdictions.

The data on banks is, however, significant in its own right. Data was available for 57 of the 60 jurisdictions surveyed. although the US had to be excluded from the results presentation as it had far more banks than all other jurisdictions combined. The number of banks in other locations was as follows:

The absurd fact that Cayman has more banks than London is already apparent. Ranking the number of banks by head of population shows how over-banked secrecy jurisdictions are:

To put this in context this is similar data for a number of quite successful economies;

There appears to be capacity to survive on a low density per 100,000 of population exist in classic secrecy jurisdictions.

As we (for I am an author of this paper, with Markus Meinzer) conclude:

There is a clear and undoubted conclusion that can be drawn which is that as Graph 3 shows the smaller secrecy jurisdictions have far more banks than are necessary to meet their domestic banking needs and as such these institutions can only be in existence to manage international financial flows, some of which will undoubtedly, as alternative evidence shows, be illicit. It follows therefore that the population of lawyers and accountants in these places have the same purpose, with the same risk attached.

The conclusion that can be drawn is this: illicit financial flows through secrecy jurisdictions could not happen but for the presence of a disproportionate population of bankers, lawyers and accountants in these locations.