2011 February » Tax Research UK

George Osborne backs country-by-country reporting for the extractive industries

ConDems, Country-by-country, Development Comments Off

Feb 202011

Britain is throwing its weight behind European efforts to force oil andmining companies to publish details of every penny they pay to governments in poor countries where they operate.

George Osborne told his fellow G20 finance ministers in Paris on Saturday that the coalition was keen to support an effort by the French president,Nicolas Sarkozy, to throw open the operations of the extractive industries in the developing world to public scrutiny.

“As we enter a new decade when the resources of Africa are going to be heavily developed, I strongly believe it’s in everyone’s interests that mining companies and others operate to the highest standards,” said Osborne. “That’s the way to ensure some of the world’s poorest benefit from the wealth that lies in the ground beneath them.”

When multinational resources firms move into African states they often bring the promise of economic development, but campaigners say the result is all too often a bonanza for a tiny elite, while most of the population sees few benefits. In oil-rich Equatorial Guinea, for example, GDP per head is $30,000, equivalent to that of Italy or Spain, but most of the population still live on less than $1 a day. Exports of oil, gas and minerals from Africa were worth $393bn in 2008, while the continent received $44bn in international aid, and natural resources accounted for almost a quarter of Africa’s growth between 2000 and 2008.

The long-running Publish What You Pay campaign, supported by a coalition of civil society groups worldwide, argues that if the scale of the payouts to host-country governments were revealed, voters would hold their leaders to account.

The business secretary, Vince Cable, will lead the government’s push to secure a European agreement on the issue. A business department source said that legitimate firms had nothing to fear. “For businesses, it’s something that they should support as well, in terms of creating a level playing-field,” she said. A Treasury spokesman said: “George and Vince are working together on this.”

This is a major step forward: the Tories have been major opponents of this move in Europe.

Of course the devil will be in the detail and we do need full country-by-country reporting, a point on which Publish What You Pay and I are in full agreement – unsurprisingly as this demand is based upon my work for them dating back to 2004.

But however seen this is a big step forward.

And the inexorable move towards full country-by-country reporting for all companies – including banks – moves closer by the day.

A much fuller briefing is available here.

The conspiracy against the public

Tax avoidance 6 Responses »

Feb 192011

The Guardian’s editorial today seems worth noting in full.

Apologists for abuse and those who just want to abuse need not comment.

The reality is that there is abuse – against the shareholder, the ordinary employee, small business, society, government, the population at large. And some at least recognise it:

There was a time when the concept of tax justice might have been one to interest serious vicars and brown-bread socialists. But times change. Activists operating under the banner UK Uncut have taken to occupying stores whose owners and bosses have been avoiding tax. Today they move on to the organisation of a “bail-in” of Barclays branches, setting up schools, forests and libraries within the banks – an agitprop gesture to highlight the link between threatened services and the financiers that activists reckon could save them by paying their fair share.

It is a simple equation, and may not be an easy one for Whitehall to implement. But the Guardian’s Tax Gap series meticulously documented squillions of pounds in avoidance, establishing beyond doubt that the seepage of revenue was on a scale that constituted a pressing public concern. Fixing the leaks may not save every last swimming pool, but it could make a big difference. Barclays is an iconic case for making the point, seeing as bankers’ determination to minimise their contribution to public funds is matched by the lavishness of the benefits they have enjoyed at public expense.

Barclays did not, it is true, sell shares directly to HM Treasury during the great crash, preferring to punt them at the Qatari authorities instead. Nonetheless, it has benefited from all manner of subsidies and guarantees, whose total value to the sector the Bank of England estimatesto have been worth more than £100bn in 2009. Like most of the banks, Barclays would be deep in the dustbin of history were it not for this state support. Two years on, taxpayers stare on in disbelief as Barclays’ investment banking arm pushes up average pay – that’s right, average – to £236,000, and chief executive Bob Diamond is rumoured to be in line for a £9m bonus.

Up in front of disgruntled MPs last month, Mr Diamond suggested that much of the bounty would trickle down for the common good. He pointed out, accurately, that Barclays had handed £2bn to the Revenue last year, a figure that sounds respectable enough in the context of pre-tax profits of £6.1bn for 2010. What he did not point out, but we have now gleaned thanks to some forensic digging by the impressive young MP Chuka Umunna, is that just £113m of that £2bn was corporation tax, a 2% drop in the ocean of the company’s global profits. The rest was paid through other levies which scarcely touched profits and were largely paid by employees.

The banks might maintain that it does not much matter who pays the tax, so long as it gets paid. It is after all not so much financial corporations as their senior staff who have been taking us for a ride. Only yesterday a Financial Times analysis suggested bankers’ pay was squeezing shareholders, particularly at Barclays. And perhaps it is indeed as a result of their own greed that managers are forced to scramble so frenetically to reduce corporate tax. Not even Barclays would pretend that its mind-boggling structure – with 30 subsidiaries in the Isle of Man, 38 in Jersey and 181 in the Cayman Islands – is unconnected with tax. There is still the technocratic argument that the only thing that can pay a tax in the end is a person, so we should not worry about how much is stumped up from behind the corporate veil. But this case simply collapses when companies routinely reshape themselves to avoid tax in a manner which no mere human taxpayer could match.

It was the high priest of free markets, Adam Smith, who warned that joint stock companies encourage negligence. Limited liability is a terrific privilege for which companies ought to expect to contribute generously to the community’s coffers. Many fail to do so, including banks that have only recently drawn heavily on a common resource. Whatever the spin, they are coming to be seen – in another of Smith’s phrases – as “a conspiracy against the public”.

Quite so.

That’s what we have got.

And that’s what we need to deal with.

5.15am on Saturday

Barclays 12 Responses »

Feb 192011

I love living in Norfolk. There’s noting on earth would take me back to living in London now.

But having to get up at 5.15am to get to the BBC to do Breakfast Television on a Saturday is a challenge.

Worth it though when the story is about Barclays, and their not being anything like the tax we could reasonably expect of them.

Barclays – paying tax, but where?

Banking, Barclays, Country-by-country, Tax avoidance, Tax justice 29 Responses »

Feb 192011

It is I think quite fair to say that a great many people who callled me yesterday afternoon were stunned by the news that Barclays paid just £113 million in tax in the UK in 2009.

Barclays made £11.6 billion in 2009 – £4.6 billion on ordinary activities and the rest from selling Barclays Global Investors.

It’s total tax bill on this (and I’m ignoring deferred tax because there is no evidence it will be paid) was about £1.3 billion – of which just £200 million or so related to Barclays Global Investors’ sale due to the absurdly generous rules on capital gains by corporates introduced by Gordon Brown, and the rest realted to the ordinary activities. I’m going to leave aside Brown’s absurd generosity – but note that this error needs to be corrected – and concentrate on the current tax situation.

First note that Barclays does not pay tax at the expected rate of 28%. It pays tax at 23% – by its own admission. All its tax planning activity delivers some benefit.

But second, note from its accounts that its biggest retail operation is in the UK. Admittedly its biggest commercial loan book is in the US, but also note that 78% of its profits (or thereabouts) come from Barclays Capital which, if publicly available information is to be believed is largely located in London and New York. And yet, just 10% of Barclays worldwide corporate tax is paid in the UK.

So here we have a UK bank, seemingly able to offset all its head office costs, all its losses on Barclays Corporate, and maybe (i’m guessing here) some of its losses in Europe (after all, relocating losses isn’t hard for a bank) into the UK to offset what profits it does make here, and even so seeming to pay a disproportionately low amount of tax in this country. A staggeringly low anount of tax in fact.

I note the bank has said:

The corporate tax affairs of an organisation with the global footprint of Barclays are complex and not reducible to simplistic comparisons. Any link between Barclays Group profits and the amount of tax paid to the UK government is inappropriate – there is no direct correlation between the two.

Well, let me be candid. I don’t believe them. Oh yes there is a link – a very real and very obvious link, and they’ve chosen, in my opinion, to engineer that link to ensure that they pay the least possible in the UK, exploiting on the way I suspect our lax attitude to offshore, our lax rules on the offset of interest costs, our lax rules on losses and the lax rules we have on head office operations.

Two things are needed. The first is not territorial taxation as the Tories propose – that will make Barclays tax even lower than it is now – but a rigorous review to make sure that the profit really arising in the Uk is actually taxed here, which by Barlcays’ own admission is far from the case now.

Second, we need the information to hold banks to account for what they do. This is, of course. country-by-country reporting. We must have banks report on were they operate, without exception, what profit they declare in each such location and how much tax they pay there as a result. It’s really very basic information. And yet we do not have it.

If Barclays want to say paying tax is a measure of their social contribution, that’s fine. But unless they tell us where they pay tax it’s meaningless. And the abuse of the UK will go on.

Open the books Barclays. That’s the message. And Lloyds, RBS, HSBC and every other major corporate too.

The Independent on Treasure Islands

Country-by-country, Secrecy jurisdictions, Task Force on Financial Integrity, Tax avoidance, Tax evasion, Tax Havens 22 Responses »

Feb 182011

The economics editor of the Independent has written a review of Nick Shaxson’s book, Treasure Islands. To be candid, it’s easily the most cynical to date.

As he concludes:

[A]part from new potatoes, gold-top milk and some tourism, Jersey has little going for it economically. Nor do most of the British overseas territories fingered by Shaxson – which are only nominally under UK jurisdiction, a point he neglects or misunderstands. Most are too small and poor to be independent states, even with their financial income. As a second-best they have been granted self-government and they are, uncomfortably for the rest of us, entitled to levy tax as they wish as of democratic, sovereign right – though their self-government sometimes leaves much to be desired. Why should the UK bully them?

Besides, it is an ugly but unavoidable truth that if Jersey or the Caymans didn’t do it, then someone else would. At least in “our” havens, we have a chance of keeping an eye on things. In tax, the one great wearisome certainty is that someone, somewhere, in some other obscure treasure island with an even more relaxed attitude to dirty money, will always undercut you in the great race to the bottom.

With the greatest pf respect for Sean O’Grady who wrote this he’s wrong. It’s obvious he knows he is too. These places – all part of the UK and issuing UK passports – are not self governing any more than the Isle of Wight is. So long as they tow the line they can create their own laws, but all their laws are scrutinised in London, are subject to UK approval and we have the right to legislate for them and take them over when need be – as we have with the Turks & Caicos Islands right now. So much for self government. That’s the convenient charade that suits the City, Westminster and these places and the financial services industry rather well. Implicitly he recognises this in his comment on being ‘second best’. This shows he knows the charade is a simple game of legislatures for hire.

And again, with the greatest of respect to Sean O’Grady the logic inherent in this analysis is only becoming of an economist, and a poor one at that. His argument on the race to the bottom is akin to saying ‚Äòlet’s not bother about crime as it will always be with us’. Or ‚Äòlet’s ignore the drugs problem as there will always be addicts’.

We don’t say that of crime, and for good reason. Nor do we say it of drugs, although the reality is that the statements I have made are true.

The difference in this case is that these statement he makes is simply not true of tax haven behaviour. As is being shown time and again, action is working. Under pressure tax information exchange agreements are being signed. As experience of them inreases people are demanding that they be made to deliver. India’s is the latest voice at the table. And as the EU has shown this week, contrary to all that Sean O’Grady says the EU and the UK have real power to impose change on the Crown Dependencies and demand real change, whether they like it or not.

O’Grady is wrong. There is no need for a race to the bottom. There are extremely effectiveweapons that can be used to tackle tax haven abuse. Automatic information exchange is one, and a simple mechanism for achieving this goal that makes tax information exchange agreements worth having is available. / so we would know what profits are recorded by multinational corporations in tax havens, and what tax is not paid as a result. Registers of beneficial ownership of trusts and corporations would transform tax haven secrecy. And the use of a genuine unitary basis of taxation would almost eliminate the allocation of tax haven profits by multinational corporations at least.

The argument that the race to the bottom is inevitable is not in fact an argument at all. It is a statement of political wish, that the status quo be preserved and that as a result the abuse continue. But that is not necessary, at all. The members of the Task Force on Financial Integrity and Economic Development have shown that there is a viable alternative to this abuse. Apologists need to smell the coffee: we’re not going to let them get away with saying the abuse of the world’s tax systems is inevitable and nothing can be done about it because that’s just not true any more.

Find a job or lose benefits

ConDems 10 Responses »

Feb 182011

The callousness of the ConDems appraoch to welfare appals me

I make no claim to have a solution to the welfare payment issue: I make the simple observation that the system is messy because so too is the real world.

But then along come the Tories saying “get a job or we’ll cut your benefits”.

Haven’t they noticed they’re increasing unemployment rapidly – especially for women who are key target for their welfare abuse?

Sickening

But all so easy to know nothing about when daddy buys you your internship and meal ticket for life.

ECOFIN confirms Jersey and the Isle of Man have harmful tax systems

Isle of Man, Jersey 6 Responses »

Feb 182011

Unsurprisingly the EU’s Economic and Financial Affairs Committee confirmed on Tuesday that Jersey and the Isle of Man had tax systems that did not comply with the EU Code of Conduct on Business Taxation.

Now we await news from the Code Group on their reaction to Jersey and the Isle of Man withdrawing their deemed distribution rules.

And no, I have not heard yet.

But I suspect they’ll want more time to examine the detail. I would. The devil was in the detail last time. They’re not going to be caught out again, I hope.

The City of London’s only got £3 billion of spare cash

City of London Comments Off

Feb 182011

Nick Shaxson has done more digging on the City of London.

They tell him they’ve only got £3 billion of assets.

That’s £3 billion they don’t need to promote banking and £3 billion we need to save libraries, and so much more.

It’s so obvious what needs to be done – and the last thing that this money need do is promote global banking, but that’s what it’s being used for.

It really is time this tax haven within the UK was abolished.

Campaigners Urge Financial Action Task Force (FATF) to Strengthen Global Finance

Corruption, Country-by-country, Development, Secrecy jurisdictions, Tax Havens 1 Response »

Feb 182011

As governments around the world freeze the assets of former dictators, campaigners and governments from the Task Force on Financial Integrity and Economic Development (Task Force) meet in Paris this Saturday to discuss how to tackle dirty money flows. This is ahead of a high-level meeting of the Financial Action Task Force (FATF), which sets the international anti-money laundering standards.

“The recent events in the Middle East and North Africa have created a historic opportunity for substantive and lasting change,” said Heather Lowe, legal council and director of government affairs of Task Force member Global Financial Integrity. “This is a defining moment in global economics and political history; FATF must move forward to strengthen key standards for pursuing dirty money and bringing criminal and corrupt individuals to justice.”

“In recent weeks we have seen country after country freeze the assets of former dictators‚Äîbut why was the money there in the first place?” said Robert Palmer of Task Force member Global Witness. “This is not about cooperating to get the money back after it has gone; this is about proactive, know-your-customer, due-diligence requirements to ensure that banks know where their customers are getting their funds from and that they are not the proceeds of corruption.”

The “FATF 40+9 Recommendations” to be considered at next week’s FATF plenary meeting are the global standard for laws designed to stop the flow of dirty money, whether from corruption, terrorism or tax evasion. Task Force recommendations (PDF) to improve them will include: expanding and strengthening how banks handle money from high level political officials, preventing the creation of anonymous companies that can’t be traced to a real person and tax evasion being added as a trigger crime for money laundering.

Civil society organizations Christian Aid, Eurodad, Global Financial Integrity, Global Witness, Transparency International, Tax Justice Network and Tax Research will be meeting with several Task Force government partners and representatives of non-partner governments who will be attending the FATF meetings next week.

Click here (PDF) to download a full copy of the Task Force’s recommendations to the FATF.