2010 June » Tax Research UK

Norwegian Church Aid launches online petition for country-by-country reporting

Country-by-country Comments Off

Jun 162010

Global momentum behind a shift towards country-by-country reporting by multinational companies is gaining pace. While OECD officials consider the pros and cons of adopting the proposed international standard, public campaigns are raising awareness and building support for this major step towards accounting transparency.

Norwegian Church Aid is the latest organisation to launch an online petition in favour of country-by-country reporting. Their petition draws attention to revenue losses of around $160 billion a year inflicted on poorer countries by the tax avoidance techniques of multinational companies, and contrast this with the $120 billion of aid flows funded by taxpayers in richer countries. As their petition says:

This year, the worlds largest companies owes the world poor 160 billion dollars in tax. By using tax havens and secrecy, companies avoids large tax sums when they operate in poorer countries. This is money which should be used for the benefit of the country. – I want to know that Norwegian companies don’t cheat on the taxes in poorer countries.

A moment’s reflection on how much that amount of tax revenue would contribute to the sustainable development of poorer countries underlines why country-by-country reporting by multinational companies is an idea whose time has come.

Hat tip to Tax Justice Network

Martin Wolf is at it again: the deficit hawks have got it wrong

Economics 4 Responses »

Jun 162010

From Martin Wolf in the FT:

Yes, I understand that huge fiscal deficits make people nervous. I understand, too, the desire to make solvency credible. But following fiscal rules blindly, while ignoring what is going on in the private sector or in external balances, is a recipe for disappointment and political conflict. Fiscal stabilisation that supports growth is welcome. Premature fiscal stabilisation that undermines it is yet another folly.

To prove his point, these graphs:

As he makes clear: equations balance. That’s the annoying thing about double entry for you.

And as the second graph makes especially clear, the government deficit in the US (and the same happens elsewhere) has arisen because there are massive private sector balances. For advanced countries as a whole the equation balances, of course. Private surpluses equal government deficits. We are lending to government.

So what’s the chicken and what’s the egg? As Wolf makes clear:

Which came first – private retrenchment or fiscal deficits? The answer is: the former. In the case of the US, the huge shift in the private balance between the fourth quarter of 2007 and the second quarter of 2009, from a deficit of 2.2 per cent of GDP to a surplus of 6.6 per cent, coincided with the financial crisis (see chart). The fact that aggregate demand and long-term interest rates tumbled at the same time shows that the collapse in private spending “crowded in” the fiscal deficits. Wild private behaviour drove the wild public behaviour.

In other words, as I have often said, the collapse in government revenue came because the private sector voluntarily withdrew from the economy leaving the state to pick up the pieces. That’s why this happened:

And so, as Wolf again says:

So how quickly should deficits be eliminated? We must recognise the danger here: cutting public spending will not automatically raise private spending. The attempted reduction in the structural deficit might lead, instead, to a rise in cyclical fiscal deficits, which would be running to stand still, or to a reduction in the private surpluses only because income fell even faster than spending. Either outcome would be grim. Yet neither can be ruled out.

As long as output remains depressed, the fiscal support is most unlikely to be inflationary. Nor will it crowd out the private sector: it is more likely to crowd it in.

Precisely.

Which means all the cards are in the ands of governments right now.

So why do the deficit hawks like to pretend otherwise? That makes no sense at all.

All pain, no gain

Economics, TUC Comments Off

Jun 162010

The TUC has published a pamphlet with the above title.

As it notes the pamphlet has one aim:

As, of course, they won’t.

Recommended.

UK probes E&Y on Lehman audit

Auditing, Big 4 2 Responses »

Jun 162010

As the FT notes:

A British investigation has been launched into whether Ernst & Young properly audited Lehman Brothers’ accounts in the months preceding the US investment bank’s collapse in September 2008, reports the FT. The Accountancy and Actuarial Disciplinary Board has launched a probe into E&Y’s accounting treatment of controversial transactions known as “Repo 105s” and “Repo 108s”, which Lehman regularly used in its quarter-end balance sheets.

It’s inevitable the Big 4 will become 3 one day.

And that at that point the whole edifice of auditing – with its current ludicrous state of claimed independence – will collapse with it.

The odds must be on E & Y being the one to create the tipping point now. How many more audit fiascos can it be involved in?

Secrecy jurisdictions: another one begins to bite the dust

Secrecy jurisdictions Comments Off

Jun 162010

Reuters report:

San Marino’s government on Tuesday accused Italy of imposing a virtual embargo and stalling on a treaty it needs to get off a tax haven blacklist, as the tiny state faces a mass outflow of funds due to Italy’s tax amnesty.

The tiny, landlocked state has been under growing pressure over the past year as it battles the downturn and a global crackdown on offshore banking centres.

About 5 billion euros, or roughly a third of total deposits, have left San Marino’s banking system because of an Italian scheme aimed at getting citizens to declare secret funds held abroad, San Marino Finance Minister Pasquale Valentini told reporters.

One by one, as I have long predicted, and as I noted of Andorra yesterday, the economics of the tax haven crackdown is beginning to close the world’s small secrecy jurisdictions down.

And that’s very good news for all honest people because 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.

Time Barack called for a Green New Deal

Green New Deal Comments Off

Jun 162010

The FT notes:

President Barack Obama on Tuesday night issued an urgent call for the US to lessen its reliance on oil and move towards cleaner energy, urging Congress to act to reduce the chances of a catastrophe like the Gulf of Mexico oil spill ever happening again.

Time for a Green New Deal.

What are they waiting for? Recession busting, tax raising, green generating, employment booming goodness – all in one package.

It’s just a call away Barack.

If Osborne does this I’ll have to say I’m pleased

Banking 4 Responses »

Jun 162010

The FT notes:

George Osborne will use the chancellor’s annual Mansion House speech to warn big banks that they will have to pay for the damage they inflicted on the British economy and could be broken up.

There’s another fault line for the ConDems.

But let’s not be churlish: if this one is delivered it will be good news.

Irish government comes down off the fence on country by country reporting

Country-by-country, Ireland Comments Off

Jun 162010

In May 2010, Christian Aid published a report entitled ‚ÄòTax of Life’ highlighting the impact of tax dodging on Irish Aid programme countries. It’s a somewhat obvious point. Why would a country in times of austerity give aid to a country without considering the impact of international policies on the ability of that country to develop.

Tax is something that is growing in importance in the development world. The European Council recently published conclusions which approved a paper emphasising the importance of tax for development and the need to explore transparency standards such as Country-by-Country reporting and Automatic Exchange of Information – recommendations which taskforce members have been pushing for some time.

Back in Dublin, the government’s committee on Foreign Affairs were so struck by Christian Aid’s report that they called in the relevant government departments to give an account of what they were doing about the problem of tax dodging.

This led to a somewhat humorous exchange where Senator David Norris accused the Department of Finance Official of sitting on the fence when it comes to Country-by-Country:

Senator David Norris: Mr. Tobin may have slightly misunderstood the question, although it may well be the case that I am thick. While he gave a useful historical account of the current position and the role Ireland plays in this area, he hedged his bets. I am curious to ascertain whether Ireland is actively in favour of country-by-country reporting and if this support is expressed at international levels.

Mr. Gary Tobin: I can honestly say that it is rare for the Department of Finance to sit on the fence. We tend to take either a black or white position on issues. Irish Aid views country-by-country reporting as a multilateral issue. Ireland can and does contribute to the debate but the issue is essentially being driven at‚Äî–

Senator David Norris: Mr. Tobin is sitting on the fence.

Mr. Gary Tobin: No.

Senator David Norris: Of course he is.

Mr. Gary Tobin: If the Senator would let me finish‚Äî–

Senator David Norris: I would be very pleased with a “Yes” or “No” reply.

Mr. Gary Tobin: We have absolutely no objection to country-by-country reporting. We are participating in the OECD and EU processes that are trying to drive it forward. Having said that, if country-by-country reporting is agreed and implemented, then we want it to work.

So there we have it – Ireland has “absolutely no objection to country-by-country reporting.“ With a growing number of governments in support and businesses recognising the value of transparency if feels to me like the tide is turning.

Reposted from the blog of the Task Force on Financial Integrity and Economic Development. Written by David McNair of Christian Aid

The folly of following Ireland – whose cuts have not worked

ConDems, Economics, Ireland 13 Responses »

Jun 152010

George Osborne has said, often, that Ireland is the model the UK should follow in tackling its deficit. So it’s fascinating to read a paper by Michael Burke presented at a conference in Dublin last week. he said:

2009 is the decisive year regarding policy divergence, with the overwhelming majority of the Euro Area economies then adopting fiscal stimulus while the FF-led government adopted fiscal contraction. The cumulative effects of that policy divergence are shown in the table below.

So the ‘fiscally responsible’ Irish policies will have produced more than 4 times the drop in real output and 3 times the rise in percentage unemployment than the (limited) Euro area stimulus AND their deficit still deteriorated more than twice as badly!

And this is what George Osborne says we should take as a model for UK policy. Just absolutely crazy, and more proof that ‘the cuts won’t work’.

Hat tip to Howard Reed and Jonathan Rutherford