2010 April » Tax Research UK

FSA is losing war on insider dealing

Corruption, Secrecy jurisdictions, Tax Havens, Trusts 9 Responses »

Apr 232010

FSA is losing war on insider dealing – Telegraph.

Some 60pc of the members of the Chartered Institute for Securities & Investment Institute responding to a survey on whether the Financial Service Authority was winning the war on market abuse said the regulator’s actions had failed to make serious inroads against financial wrongdoing.

“The FSA still has a long way to go and should seek Government approval for bigger penalties and a zero tolerance,” wrote one of the 235 respondents to the CISI’s internet survey, which polled the organisation’s membership of stockbrokers, analysts, fund mangers and investment bankers.

And I’m quite sure large quantities of this will be done through offshore companies owned by offshore trusts, all managed by offshore professionals, all of whom turn a blind eye – or more likely, have no clue what their client is doing.

And yet those same offshore professionals who turn up on this site say there is no need for any public disclosure by offshore investment companies.

And say there will never be a need for a register of trusts with accounts available for public scrutiny.

Tehy’re wrong. Those structures are designed to assist fraud.

And that’s what they’re used for.

NB Fraud need not be a crime. Fraud is an intentional deception made for personal gain or to damage another individual. The secrecy offshore provides is key to that deception. It is fraudulent by definition.

The Catch 22 of Trident

Election 5 Responses »

Apr 232010

I’m on record as being opposed to Trident. The Compass report “In place of cuts” which I co-authored does, for example, call for it to be scrapped.

There’s good reason why I don’t trust leaders who support Trident.

Launching Trident would for all practical purposes quite probably presage the end of life on earth as we know it. That’s the inevitable consequebce of nuclear war: mutually assured destruction (MAD).

To be willing to launch Trident you would, therefore, have to be insane, suicidal or a psychopath.

I don’t want such people as my prime minister.

And to say you want it but won’t use it suggests a complete lack of judgement or that you’re a liar.

And I don’t want either such characteristics in a leader.

Which means there is only one tenable and consistent sane position with regard to Trident – which is to scrap it.

Which also happens to help close the fiscal deficit.

One notion Tory

Election 4 Responses »

Apr 232010

The leader’s debate was good last night.

Channel 4 and the Guardian called the result correctly. Clegg won, Brown second and Cameron trailed in third.

Why did Cameron do so badly? Because, to quote a recent Private Eye, he came across as a one notion Tory.

His only notion is that he wants to win.

But he gave no clue as to why he should win.

Or what he’ll do if he does win.

Worrying.

Investments for development: Derailed to tax havens

Development, Secrecy jurisdictions, Tax Havens 1 Response »

Apr 222010

I have written a report with the above title for a group of mainly Scandinavian NGOs.The summary says:

Development Finance Institutions (DFIs) are state owned companies located in European countries that invest their capital in developing countries for the express purpose of advancing development in those places by promoting investment in local business. In this respect their activities can be compared to that of the European Investment Bank (EIB) and International Finance Corporation (IFC) – a part of the World Bank. All these institutions are closely related in the way they operate, including the use of tax havens in their investment operations or those of their beneficiaries. Therefore, the concerns raised and proposals addressed to DFIs in this paper are also applicable to the other two institutions.

At the end of 2008 the DFIs that were members of the European Development Finance Institutions network (EDFI) had combined funds invested in developing countries of about €16.7 billion.

In our opinion DFIs have a very special and very particular role in development. As state owned enterprises it is their job to encourage three things:

- the first is business activity in developing countries;

- the second is the dissemination of the benefit of that activity within those countries- without this their development objective is not fulfilled. This means that their activities should be fully in line with internationally agreed development goals, namely that of enabling mobilisation of domestic resources through proper taxation of economic activities in developing countries;

- thirdly, as agents for change they must be transparent and accountable in all they do and be seen to promote the highest standards of social, environmental and governance policy compliance.

There is, of course, potential conflict in these objectives. It is well known that profit can sometimes be made from abusing those standards that we believe DFIs should be promoting. In our opinion DFIs must promote the highest standards of conduct, if necessary at cost to the profit they can make. As it is known that regulatory abuse, corruption, tax evasion and illicit financial flows cost the developing world many hundreds of billions of dollars a year, and very much more than the amount of aid they receive, we think that part of the “catalysing role” that DFIs claim to have should be to promote better standards of business conduct.

This report argues that one way in which the DFIs can do that is to stop using tax havens as places through which they invest, and to implement stringent guidelines for DFI backed companies using tax havens.

Tax havens have a significant and harmful effect on developing countries. Tax havens are the conduit through which illicit financial flows leave developing countries. The secrecy that tax havens provide hides corruption, crime and tax abuse. That same secrecy means that businesses located in tax havens are almost entirely unaccountable for their actions. As a result tax havens are associated with very low standards of social, environmental and governance policy compliance.

Most especially, it has been convincingly argued that tax havens undermine the tax systems of governments of many large and populous states, including those of developing countries. We believe that by paying tax, those companies and businesses in which DFIs invest located in developing countries could provide the governments of those countries with the essential means to build their own national infrastructure, whether physical infrastructure, or the education, healthcare and other services needed if these countries are to develop as independent nations, able to survive without aid. For this reason we believe that DFI use of tax havens is incompatible with their development objectives and incompatible with their duty to promote the highest standards of business conduct.

This report addresses these issues, and having identified the problems created by DFI use of tax havens, we posit that the new code of conduct for the use of tax havens that the EDFI is promoting is inappropriate. We offer in its place an alternative code of conduct for DFI activity. This code would fall within the broader scope of the Responsible Financing Charter promoted by Eurodad and would specifically promote:

‚Ä¢ Transparency, accountability and openness by DFIs;
‚Ä¢ The application of the accounting disclosure standards of the DFI’s sponsoring state to all companies in which the DFI invests, irrespective of the requirements of the local jurisdiction in which the company in which it has invested operates;
‚Ä¢ DFIs positively seeking the companies in which they invest to pay the right amount of tax in the developing countries in which they are located;
‚Ä¢ DFIs being open and explicit about their reasons for using a tax haven if that is required to avoid double taxation;
‚Ä¢ DFIs seeking to promote change in developing country tax laws to prevent the risk of double taxation occurring when investment is made in those locations;
‚Ä¢ DFIs seeking to remove the obstacles to direct investment in developing countries by offering training, legislative support and technical advice to the governments of the jurisdictions in question to overcome the obstacles to inward investment within their domain that they have identified to exist;
‚Ä¢ DFIs reporting their own activities on a country-by-country basis so that the full impact of their work and the full scale of their contribution to the economies in which they invest can be appraised, including by disclosure of the tax they pay, this proposal also applying to companies backed by DFI funds.

The document is open for comment until 14 May.

IMF Bank Tax Proposals Face Huge Hurdles – Forbes.com

Banking Comments Off

Apr 222010

IMF Bank Tax Proposals Face Huge Hurdles – Forbes.com.

This is my latest column in Forbes:

The International Monetary Fund’s proposal that there should be two new taxes charged on banks to ensure that they contribute fairly to compensate the risk they impose on the rest of society in future caught almost everyone by surprise this week.

The first proposal, called a Financial Stability Contribution (FSC), is designed to raise a reserve fund to bail out any failing institution before it can topple the whole world financial system, Lehman style. The IMF target is for a fund worth between 2% and 4% of a country¬?s GDP. On a worldwide basis that will result in a fund of nearly $2 trillion. Raised over ten years that¬?s a cool target of some $200 billion a year.

The second aim is to impose a Financial Activities Tax (FAT). This will be due as an additional tax on bank profits and bankers’ pay. I estimate each element could raise maybe $35 billion a year worldwide, assuming an extra 10% tax rate on banks and a bonus tax similar to that adopted by the UK in 2009.

All told that¬?s a significant additional tax charge of almost 0.5% of world GDP a year, despite which it fails to meet the demand from civil society that some form of financial transaction taxes be added into the mix to fund development and climate change projects as well. If this were to be done as well it would tip the total revenues to well over $300 billion a year.

Two questions arise, though. The first is whether this is likely to win support? The second is whether such taxes are likely to be enforceable? Of the two the second is easier to address.

Both taxes the IMF proposes will present considerable collection difficulties. The FSC is to be a charge on the liabilities on a financial institution¬?s balance sheet. The difficulty is that no one can yet agree what the valuation basis for bank liabilities is, so accounting will have to move on a long way before a level playing field will be created in charging the tax. Secondly, off balance sheet accounting remains far too commonplace as, meaning near insurmountable problems exist in determining just what the basis for charging this tax will be. Finally, and rather importantly, someone will need to find the appropriate balance sheets before they can be taxed and many are located in tax havens. All suggest real problems ahead for the IMF plan.

The FAT faces almost as many problems. The biggest problem is even if banks start making profits again they have an enormous pile of tax losses available to offset against them as a result of the crisis of the last couple of years. This means that taxable profits are going to be in short supply in banks for some time to come. Second, banks will, almost certainly, contract out payroll costs if additional taxes are imposed on them. This will then save them tax. Third, there remains the problem of offshore.

Unsurprisingly as a result the IMF suggests international cooperation will be desirable to make these taxes work. Canada has already indicated a lack of willingness to support the measures though. As a result a smooth ride is by no means guaranteed, even if the new measures would seem to meet the requirements of the Obama administration.

That though may not be the real issue here. That real issue may be subliminal right now, and yet fundamental. Never before has a body like the IMF talked about coordinating tax rates, agreeing on common taxes bases or establishing methods on tax cooperation of this sort before.

As a result maybe, just maybe, the real IMF aim is not to tackle banks, however useful that might be, but to restore government balance sheets by raising revenue through tax cooperation and so keep those same governments from knocking on the IMF¬?s door for a bail out.

Whichever goal is right, and whatever taxes are involved two things are certain: news taxes are on their way and some countries will be cooperating to ensure they are effective. This is the new world we live in. Get used to it, now.

Tax Justice Network: National Geographic: Guarded Treasures

Financial Secrecy Index Comments Off

Apr 222010

Tax Justice Network: National Geographic: Guarded Treasures.

National Geographic magazine has picked up on ourFinancial Secrecy Index and published a fascinating graphical representation of the top 15 secrecy jurisdictions according to opacity and scale of operation.

The horizontal axis on the chart below shows scale of operation. The vertical axis represents opacity. As you can see, the United States tops the index by virtue of the scale of its offshore financial services activity and the opacity of laws at federal and state level (Delaware was cited in the 2009 index as an example of state level opacity).

Luxembourg comes second due to the sheer scale of its offshore activities, even though Switzerland (ranked third on the index) is more opaque.

Interestingly, the City of London, which has the largest offshore financial sector in the world, ranks fifth because it is comparatively transparent when set alongside the other main players. That does not let London off the hook, however, since if you look closely at the top fifteen shown on the chart below you will note that half have historic links to the British Empire(Bermuda, Cayman Islands, Guernsey, Hong Kong, Ireland, Jersey, Singapore). In practice, City firms are happy to shunt their really dirty stuff offshore to the Crown Dependencies and Overseas Territories where they can more easily bypass political and regulatory processes.

As the National Geographic article notes: “some free marketeers say havens improve banking competition and economic growth. Yet the U.S. Treasury loses an estimated $100 billion a year to them.” And, citing TJN’s John Christensen, they point out that the biggest losers are the poor: “A 2009 study found that developing countries forfeit up to a trillion dollars a year” due to the activities of secrecy jurisdictions.

This is a fascinating insight into the emerging new geography of corruption.

NB: reposted from the Tax Justice Network blog, with permission.

ITV 7.30pm, tonight

Economics, Green New Deal 1 Response »

Apr 222010

For those interested I am on ITV1 at 7.30pm this evening in a programme called “Paying Britain’s Bill”

They say:

The economy and the size of our national debt is arguably the most important issue in the run-up to the 2010 General Election. Morland Sanders looks at how our money is being spent, how we are going to pay it back – and what this means to ordinary families across Britain.

I say “problem, what problem?”

European Commission explicitly supports country-by-country reporting

Country-by-country, Europe Comments Off

Apr 222010

The European Commission issued a paper this week entitled “Tax and Development: Cooperating with Developing Countries on Promoting Good Governance in Tax Matters”. Amongst its commentary is the following:

In order to enhance transparency and facilitate access of relevant data by tax administrations in developing countries, there is an increasing interest in a country-by-country reporting (CBCR) standard for multinational corporations operating in developing countries. The Commission supports the timely conclusion of ongoing work being done by the OECD with respect to a CBCR guideline, which should then be referred in the OECD Guidelines for Multinational Enterprises and in the OECD Principles of Corporate Governance. Moreover, the Commission supports research work currently undertaken by the International Accounting Standards Board towards the possible inclusion of CBCR in an International Financial Reporting Standard for extractive industries and encourages further investigation into other methods which could be used to help developing countries authorities to correctly assess, at low cost, the tax liabilities of their taxpayers.

it’s more than seven years since I wrote the first version of country-by-country reporting. Now it has a life of its own, and a trajectory towards implementation which, whilst inevitable makes that outcome look probable. The European Commission support is another welcome step on that path.

The paper concludes by saying (and I have edited here):

The Commission proposes to promote the principles of good governance in tax matters, and support developing countries to fight against tax evasion and other harmful tax practices, by supporting ongoing research on a country-by-country reporting requirement as part of a reporting standard for multinational corporations, notably in the extractive industry.

As a message to the International Accounting Standards Board this is very powerful indeed.