My work on the tax gap, with the Tax Justice Network was referred to on BBC’s Question Time last night.
Started at 43.00 in.
My thanks to the questioner who made the point incredibly well.
Ian Hislop made his best points of the night on this issue – and Vince Cable had an uncomfortable time.
The latest edition of Africa Tax Spotlight, the newsletter of the Tax Justice Network for Africa has just been published.
The theme of this issue is tax competition, with a special focus on the West African region and on tax incentives. The issue comes at a time when sub-Saharan African governments are prioritising efforts to reform and develop their tax systems in order to enhance the full potential of domestic resource mobilisation.
In the lead article Tax Incentives: Tool for Attracting Foreign Direct Investment in Nigeria, Adeniran Samuel Fakila looks at a range of tax incentives in Nigeria in various sectors, combs through the country’s long and troubled history in this area, and asks who benefits from these incentives.
In Taxation, Citizenship and National Development, Bishop Akoglo of ISODEC in Ghana looks at the challenges and limitations of taxation in countries with large informal sectors, narrow and rigid tax structures, undeveloped banking sectors and weak institutions and explores how the politics of taxation tends to take place in non-public arenas, typically small lobby groups pressuring for exemptions, though he sees local government as an exception to this. Overally, if tax is so important for nation-building, he asks, why is it rarely central in economic and policy debates?
ISODEC’s Daniel Chachu follows this with What’s oil got to do with it? Replacing baskets with buckets in Ghana’s Domestic Revenue mobiisation Efforts. Chachu traces some of Ghana’s post-independence tax history and looks at the prospects as Ghana enters the oil age.
This is then followed by Dr. Mohamed Jalloh’s Tax incentives and foreign direct investments: implications for the Sierra Leone Economy, and ontlines some of the major tax losses the country has suffered from tax incentives which tend to happen on a case by case basis without any unified framework.
Christian Aid’s Amadu Sidi Bah follows in the Sierra Leone theme with The paradox of incentive-based taxation and enhancing revenue mobilisation in Africa: the impacts on corporate taxation in Sierra Leone which sees tax competition as the direct result of an unfettered race between poor countries to attract investment, and drills down into different taxes and incentives in the aid-dependent country where tax constitutes just over 11% of GDP, as opposed to 30-50% in most OECD countries.
These articles are complemented by a series of reports on various TJN activities, from one on the French-language campaign Stop Paradis Fiscaux (in French), a report on our August 5-6 Manila meeting, a look at French civil society’s pressure on the French government; a look at our forthcoming film Ca$hback, on the recent policy round table meeting in Johannesburg, anothermeeting on tax revenues for poverty reduction in Cameroon, and an interview with ISODEC’s director Bishop Akoglo.
From the blog of the Task Force on Financial Integrity and Economic Development:
A debate was held on transparency and extractive industries in Africa at the European Parliament on 15 September 2010, organised byCIDSE, an international alliance of Catholic development agencies and its partner organisation SECAM, the pan-African bishops’ conference.
The debate highlighted how “the lack of transparency is killing the African people,” as stated by Bishop Louis Portella-Mbuyu of Congo-Brazzaville, who for years has fearlessly challenged his government and transnational extractive companies.
EU legislation could contribute to recuperating the huge amount of uncollected tax revenue, far surpassing development aid. The European Commission recently reviewed its EU transparency regulation setting up transparency requirements for European Multinational companies (the TOD Directive) however; country by country reporting has not yet been included. It is critical that information be reported and measures implemented that enable countries’ tax authorities and citizens to hold companies and governments accountable for the money earned on their natural resources. As expressed by Bernard Pinaud, Director of CCFD-Terre Solidaire, “the US has recently set the right example by passing such legislation, the EU should follow suit.”
I’m in Brussels in two weeks.
Vince Cable was on Question Time last night. He’s still not looking comfortable in his role, and his rhetoric came in for criticism, especially if it was just headline grabbiong.
So it’s odd to see I agree with this comment from the Torygraph for a change:
Vince Cable’s job is not to knock capitalism but to take a critical look at the way British business works within a global market and find ways of encouraging long-term investment and sound management. Because, heaven knows, the gap left by declining public sector employment is going to be extremely hard to fill . This means a lot of detailed work on dull areas of tax and accounting policy which won’t grip party members at conference. But I hope that is what he will now get on with doing.
I suspect the Torygraph and I profoundly disagree on what the accounting and tax changes needed are. But they’re definitely required.
But so too is a lot of state spending. Tinkering with the rules won’t save us from recession. Only spending will.
Great headline, I think. It’s in the Mirror this morning. The story says:
George Osborne is exposed as a hypocrite for talking tough over a VAT dodge in opposition – but not acting to end it now he is Chancellor.
Three years ago he wrote to Richard Allen that he would "hold the Government to account" for letting large firms route imports of items such as CDs via the Channel Islands to avoid VAT.
Mr Allen, 47, of Chalfont St Peter, Bucks, said he had to close his mail order business as giant retailers were able to undercut him on the VAT.
Although the scam costs £200million a year in lost tax, after two months in office Mr Osborne changed his tune.
In another letter, he said the dodge – known as the low value consignment relief – ”was introduced in the UK many years ago to simplify import procedures".
The Chancellor’s inaction is revealed as the ConDems unveil plans to spend £900million to target tax dodge loopholes.
Precisely.
And so nice to see the Mirror uses the ConDem terminology.
As some will know, Colin Powell, the man many think behind all power in jersey, one time head of its civil service, then head of the Jersey Financial Services Commission and now an adviser to its chief minister, 
and I have been in correspondence about my ‚ÄòPlan B for Jersey’. Previous instalments are here, here and here.
Colin explained to me in mid August he would not be able to reply for a while, but now has, as follows. I’ll be replying, probably next week. I have edited out one comment by Colin merely to protect sources of mine who I do not think should be referred to on this blog.
Dear Richard
I hope you are well.
I have now had more time to address your e-mail of the 15 August. Apologies for the delay in responding but you know the reasons for this from my e-mail of the 20 August.
Taking your points in turn –
1. Why our TIEA partners do not wish us to publicise the number of requests we receive from them under the TIEA is a question only they can answer. For our part we have no objections to making the number of requests public if our TIEA partners are happy that we should do so. The assessors of jurisdictions under the Global Forum Peer Review Programme however will know the number of requests, and how many of the requests have been responded to and how quickly, and so will be able to take this information fully into account when undertaking their review.
2. You state that “massive information hurdles” have obstructed the process of using Tax Information Exchange Agreements, and you say this is also the view held by tax officials with whom you have spoken. I have raised this matter with some of our TIEA partners, and also with the Global Forum Secretariat, and I can find no support for your statement. Indeed, the strength of the commitment to the TIEA programme, which includes a proposal for a multilateral approach, among the members of the Global Forum generally also would indicate that your views on TIEAs are not shared. The fact that we are receiving a steady stream of requests also suggests that the “obstructions” are not seen by those jurisdictions concerned as being as great as you suggest. There is one good reason why the number of requests is picking up steadily from a slow start. Most of the TIEAs have come into force in the past year or two. These TIEAs provide that for civil tax matters, for which the majority of requests are being made, a request can only be made in respect of cases arising subsequent to the date of entry into force. As a tax year will need to have elapsed before a failure to make a tax return is identified, or for evidence to be forthcoming of an incorrect tax return, there is an inevitable lag in the making of requests.
3. Contrary to your e-mail, determining the ownership and control of companies has not been difficult where this has been part of the request received – and a number of the requests received have sought this information. Having trust and company service providers (TCSPs) that are well regulated, and with requirements placed on them regarding KYC/CDD that are based on international standards, Jersey is in a much better position than most if not all other jurisdictions in providing information for companies and trusts when this is requested. In my view you are therefore incorrect when you say that “the chance of linking assets, such as the bank account, owned by a company which is in turn controlled by a trust to which a person, under investigation in a state with a TIEA with Jersey, may or not be a settlor and/beneficiary is remote in the extreme“.
4. Taking up another of your points, when a request is received from a TIEA partner in respect of a company incorporated in Jersey (for which information is available from the Company Registry) or a company not incorporated in Jersey that is being administered in Jersey (for which information is available from the administrators) the information required can be (and has been) provided to the requesting authority. You refer to “tax residence”. This is not a condition to be met for a request through a TIEA. Any foreseeably relevant information that is in Jersey, or is obtainable, can be requested through a TIEA even if the company or trust is not subject to Jersey tax. There is therefore no insurmountable obstacle facing a TIEA partner in obtaining information about a company whether incorporated or administered in Jersey.
In common with other jurisdictions that have a Trust Law, Jersey may not know where every trust based on that law is being formed. They can be formed anywhere in the world. However, if any trust is being administered by a Jersey TCSP there will have to be information available, because of the regulation of TCSPs, and more information than would be the case where trusts are being administered without that regulatory oversight.
5. For companies, the rule being advanced internationally is that information on a company should be available from the country of incorporation and that it is the responsibility of the country of incorporation to oblige the company to keep reliable records. In this respect Jersey is again in a strong position by comparison with other jurisdictions because of the requirement that a company being formed in Jersey must give to the Company Registry information on who is the ultimate beneficial owner, and there is also a requirement that any subsequent change of beneficial ownership should be notified to the Registry or recorded by a Jersey TCSP. However, in discussions with the FATF on the subject of disclosure in respect of Recommendation 33, and with the Global Forum on Tax Transparency and Information Exchange for Tax Purposes, we have stressed that beneficial ownership information should be able to be obtained not only from the country of incorporation but also from the jurisdiction where a company is being administered. Again as noted above, because of the regulation of TCSPs, Jersey is in a stronger position than most if not all other countries in providing information to a requesting jurisdiction, and that has been recognised internationally.
5. You raise the question of information on the public record. We can and do assist jurisdictions who make a request for information under the cover of a TIEA or mutual legal assistance treaty. However, in common with other jurisdictions including G 20 members, the information requested in respect of bank accounts, beneficiaries of a trust, and ultimate beneficial owners of a private company will not be found on a public record. When greater public disclosure becomes an international standard, and a requirement that is generally applied, then Jersey can be expected to adopt that standard in the same way that it has adopted related international standards to-date.
6. On the subject of the EUSTD, the requirements that we meet are those set by the EU. We are assisting them in collecting tax, or in providing information on interest payments where individuals opt for the voluntary disclosure option. Knowing the number of accounts liable to withholding tax has not been required, and therefore it has not been necessary for us to collect it in order to meet our obligation to EU Member States. If the Member States were to request it I am sure we could and would obtain it. However, this may be considered somewhat of an academic issue as with the prospect of the ending of the transitional period in the not too distant future there will then only be the exchange of information.
Kind regards
Colin
Danny Alexander, George Osborne, Vince Cable, Nick Clegg and David Cameron all believe in a bond god. They’re not alone. As Paul Krugman has put it:
[T]he policy elite — central bankers, finance ministers, politicians who pose as defenders of fiscal virtue — are acting like the priests of some ancient cult, demanding that we engage in human sacrifices to appease the anger of invisible gods.
Late last year the conventional wisdom on economic policy took a hard right turn. [W]e were told, governments had to turn all their attention to reducing budget deficit. [T]he apostles of austerity ‚Äî sometimes referred to as “austerians” ‚Äî brushed aside all attempts to do the math. Never mind the numbers, they declared: immediate spending cuts were needed to ward off the “bond vigilantes,” investors who would pull the plug on spendthrift governments, driving up their borrowing costs and precipitating a crisis. Look at Greece, they said. Just you wait, said the austerians: the bond vigilantes may be invisible, but they must be feared all the same.
Or as one commentator put it this morning:
You might have noticed that the UK government is somewhat dependent on raising cash in the market. Even the demonic cuts that the ConDems are starting to announce are not going to get rid of all the structural deficit over the life of this Parliament. Those “gods” might have gone quiet, but they are still there; watching.
Oh dear; the belief is widespread.
But it’s also wholly irrational;. You see, a god is usually assumed to be a higher order of being, possessed of powers beyond the human. Usually that will involve omnipotence. That is, the power in this case to see the future – something economists believe we all have when building their models which is, however, untrue, and which is a good reason why they do not work for us mere mortals. But the gods –surly they have this power?
Well my commentator’s comment suggests otherwise. Because if the bond god was omnipotent they’d price in the risk that he UK will inevitably be borrowing more and in that case demand the necessary premium on borrowing now, given that current borrowing will be part of the whole sum of UK government debt at risk when the total rises. But that’s not what is happening. Bond rates in the UK are falling. And since rate is inversely related to risk the bond gods are more than happy right now – but not only just right now but, if they really are gods, then for the future too.
So let’s explore the alternative options.
First there may be no bond god. Yes, I admit I’m a bond god atheist.
Or, alternatively, the bond god is a myth created by humans to serve their own purpose – a crux for their own beliefs. The sort of belief that we’re seeing acted out in Ireland. The sort of mythical belief that underpins neoclassical economics. The sort of myth that is confounded continually by evidence, but to which the true believers adhere none the less.
I put it to you, that’s all there is to the bond god: it’s make believe. A tale of fairies at the bottom of the garden. And just as my sons no longer believe that there’s a tooth fairy, but like the £2 she supposedly brings none the less, if you want to believe by all means feel free to do so. But let the real economy be resolved despite your belief, and not let’s presume that the only economic solution available depends upon a) our economy falling apart and b) a fairy bringing some private sector growth to fill the gap that’s left – when a good does of state spending to stimulate the economy will be the job much better.
Ireland is heading back for recession.
Just a week after Danny Alexander said British cuts were essential to tackle the sorts of problem Ireland had the crippling impact of the cuts he wants to emulate on the only economy that has been subject to such savagery in recent times has becomeeven more apparent as any sign of growth collapses.
The real lessons are clear. First slashing public sector spending depresses the economy. Second it escalates unemployment. Third it induces private sector decline, a fall in profitability and private sector unemployment. Fourth, the private sector does not flood in to fill the void left by government, it flees. Fifth, the deficit does not fall as a consequence. Sixth you go into recession. Seventh, you can see no way out of the decline.
That’s what’s happening in Ireland.
That’s what could happen here.
It needn’t. It needn’t because this is the excuse Osborne et al need to change track, to say they got it wrong, that the solution they’ve been following does not work. I doubt they will take that opportunity. Deficit hawks don’t want to,. Indeed, as Ireland’s Central Bank Governor said earlier this week, he thinks the answer is more cuts. Which is close to madness.
But someone has noticed: Ed Balls has noticed. He’s said:
These figures are a stark warning to governments across Europe including our own. That is not a credible economic strategy because lower growth and fewer people in work and paying taxes ultimately leads to a bigger deficit, not a smaller one.
It’s an argument made here whilst Ed was still in office. But what the heck? This is an opportunity to say the facts have changed, and their mind has changed with it: to push Darling’s deficit reduction plan into the long grass and to rebuild a new economic policy whoever is party leader this weekend.
it’s an opportunity they have to take.
That’s not me. That US Congressman Pete Stark writing in the FT saying:
Before I came to the US Congress, I was a banker – a bank I started grew into a billion-dollar business. I know the power and importance of banks to local, national and global economies. Yet I also know that transformations in the financial sector have moved too much of the activity out of socially productive investments and into speculative, short-term bets on markets.
The idea of a financial speculation tax is getting consideration in many corners of the world, and not a moment too soon. When the UN Summit kicks off next week, an international financial speculation tax to fund the Millennium Development Goals should be at the top of the agenda. Tapping into some of the enormous wealth that international currency traders create for themselves to pay for pressing international needs is the right thing to do.
Let’s do it.
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