2011 July » Tax Research UK

Section 201 of the Stop Tax Haven Abuse Act – Country-by-Country Reporting

Jul 132011

The following is from Senator Car Levin’s statement issued in Section 201 of the Stop Tax Haven Abuse Act that he introduced to the US Senate yesterday. I reproduce it in full as I think it worth it.

Section 201 – Country-By-Country Reporting

Section 201 of the bill would tackle the problem of offshore secrecy that currently surrounds most multinational corporations by requiring them to provide basic information on a country-by-country basis to the investing public and government authorities.

Many multinationals today are complex businesses with sprawling operations that cross multiple international boundaries. In many cases, no one outside of the corporations themselves knows much about what a particular corporation is doing on a per country basis or how its country-specific activities fit into the corporation’s overall performance, planning, and operations.

The lack of country-specific information deprives investors of key data to analyze a multinational’s financial health, exposure to individual countries’ problems, and worldwide operations. There is also a lack of information to evaluate tax revenues on a country-specific basis to combat tax evasion, financial fraud, and corruption by government officials.

The lack of country-specific information also impedes efficient tax administration, leaving tax authorities unable to effectively analyze transfer pricing arrangements, foreign tax credits, business arrangements that attempt to play one country off another to avoid taxation, and illicit tactics to move profits to tax havens.

The bill would assist investors and tax administrators by requiring corporations that are registered with the Securities and Exchange Commission to provide basic information concerning their operations on a country-by-country basis. This basic information would be the approximate number of their employees per country, total amount of sales and purchases involving related and third parties, total amount of financing arrangements with related and third parties; and the total amount of tax obligations and actual tax payments made on a per country basis. This information would have to be furnished to the SEC as part of the corporation’s existing SEC filings.

The bill requires disclosure of basic data that most multinational corporations would already have. The data wouldn’t be burdensome to collect; it’s just information that isn’t routinely released by many multinationals. It’s time to end the secrecy that now enables too many multinationals to run circles around tax administrators.

In the case of the United States, the value of country-by-country data becomes apparent after reading a recent article by Professor Kimberly Clausing who estimated that, in 2008 alone, “the income shifting of multinational firms reduced U.S. government corporate tax revenue by about $90 billion,” which was “approximately 30 percent of corporate tax revenues.” Think about that. Incoming shifting – in which multinationals use various tactics to shift income to tax havens to escape U.S. taxes – is responsible for $90 billion in unpaid taxes in a single year. Over ten years, that translates into $900 billion – nearly a trillion dollars. It is unacceptable to allow that magnitude of nonpayment of corporate taxes to continue year after year in light of the mounting deficits facing this country.

IRS data shows that the overall share of federal taxes paid by U.S. corporations has fallen dramatically, from 32% in 1952, to about 9% in 2009, the last year in which data is available. A 2008 report by the Government Accountability Office found that, over an eight-year period, about 1.2 million U.S. controlled corporations, or 67% of the corporate tax returns filed, paid no federal corporate income tax at all, despite total gross receipts of $2.1 trillion. At the same time corporations are dodging payment of U.S. taxes, corporate misconduct is continuing to drain the U.S. treasury of billions upon billions of taxpayer dollars to combat mortgage fraud, oil spills, bank bailouts, and more.

Corporate nonpayment of tax involves a host of issues, but transfer pricing and offshore tax dodging by multinationals is a big part of the problem. Section 201 of the bill would take the necessary first step to stop multinational corporations from continuing to dodge payment of U.S. taxes through offshore trickery by requiring them to disclose basic corporate data on a country-by-country basis.

I created the concept of country-by-country reporting in 2003. It’s come a long way. Now it needs to be law.

First Full Country-By-Country Reporting Standard Proposed in U.S.

Country-by-country, USA Comments Off

Jul 132011

Yesterday U.S. Senator Carl Levin introduced the Stop Tax Haven Abuse Act (STHAA). The bill proposes solutions to loopholes and vulnerabilities in American policy that allow corporations to escape taxes. Tax evasion currently costs American taxpayers over $100 billion each year.

Introducing the bill, Senator Levin said:

The bottom line is that each of us has a legal and civil obligation to pay taxes, and most Americans fulfill that obligation. It is time to force the tax scofflaws, the tax dodgers, and the tax cheats to do the same, and end their misuse of offshore tax havens.

In order to do so, the STHAA would provide the IRS, SEC, and law enforcement with new resources for detecting illicit financial activity, remove loopholes that allow misleading activity, and increase penalties on those abusing the financial system.

The bill, which requires annual country-by-country reporting “on employees, sales, financing, tax obligations, and tax payments” by all corporations registered with the SEC, marks the first time a full country-by-country reporting standard—one of the Task Force’s major priorities—has been introduced in the United States . Requiring greater transparency from multinationals will help prevent tax evasion, transfer pricing, and other illicit international transfers of money. Country-by-country reporting has been identified by the Task Force as a priority in improving corporate accountability and preventing illicit capital flight.

Global Financial Integrity director Raymond Baker commented on the addition, stating:

For investors, the more information available about a company’s business practices and balance sheets, the better. This reporting requirement would also help anti-corruption and economic development efforts in developing countries by creating more transparency and accountability in the business dealings between multinational companies and governments.

Access to increased information is a boon to the private sector as well as the government, allowing investors to better evaluate the financial health of firms.

The bill is cosponsored by Senators Bill Nelson, Sanders, Shaheen, and Whitehouse, and is supported by a wide range of advocacy and business groups, including Global Financial Integrity, Tax Justice Network, Citizens for Tax Justice, Global Witness, the FACT Coalition, and Business for Shared Prosperity, among others.

Links:

Press Releases:

NB: Reposted from the blog of the Task Force on Financial Integrity and Economic Development of which Tax Research LLP is a member, with permission

We’re entering a very dangerous period: make no mistake about it

Economics, Uncategorized, USA 9 Responses »

Jul 132011

The FT headline (in an email) Martin’s Wolf’s article today using these words:

These are dangerous times. The US and eurozone may be on the verge of making among the biggest financial mistakes in world history, writes Martin Wolf.

He’s right. As the New York Times reports:

From the White House and Congress to financial centers, pessimism spread on Tuesday about the prospects of a debt-limit deal between President Obama and Republicans, prompting the Senate Republican leader to propose a “last-choice option” that piqued the administration’s interest but angered conservatives in his own party.

The leader, Senator Mitch McConnell of Kentucky, said a bipartisan budget-cutting deal is probably out of reach, making it unlikely that Republicans would approve an increase in the government’s debt limit by Aug. 2.

The result of that failure would be that the US would default on its debt – the biggest in the world. There would also be a massive internal economic crisis. Old age pensioners would not, for example, get their pensions.

And what’s the argument about? Well, how to deal with the deficit (if that it it needs to be tackled). The Republicans are refusing point blank to consider the possibility that a shortfall in income should be made good by more taxes.

Then consider what Wolf has to say on this (apologies to FT for a long quote, but this is extremely serious stuff):

The astonishing feature of the federal fiscal position is that revenues are forecast to be a mere 14.4 per cent of GDP in 2011, far below their postwar average of close to 18 per cent. Individual income tax is forecast to be a mere 6.3 per cent of GDP in 2011. This non-American cannot understand what the fuss is about: in 1988, at the end of Ronald Reagan’s term, receipts were 18.2 per cent of GDP. Tax revenue has to rise substantially if the deficit is to close.

It is not that tackling the US fiscal position is urgent. At a time of private sector deleveraging, it is helpful. The US is able to borrow on easy terms, with yields on 10-year bonds close to 3 per cent, as the few non-hysterics predicted. The fiscal challenge is long term, not immediate. A decision not to allow the government to borrow to finance the programmes Congress has already mandated would be insane. As the fiscal expert, Bruce Bartlett, has argued, the law requiring Congressional approval of extra debt might even be unconstitutional.

Yet, astonishingly, many of the Republicans opposed to raising the US debt ceiling do not merely wish to curb federal spending: they enthusiastically desire a default. Either they have no idea how profound would be the shock to their country’s economy and society of a repudiation of debt legally contracted by their state, or they fall into the category of utopian revolutionaries, heedless of all consequences.

In other words, first of all there’s no crisis. But then noting the crisis has been precipitated by a demand for lower tax he notes there is simply no tax crisis either: taxes are at a low point and yet still the Republicans demand no more taxes.

The largest state on earth is being pushed towards economic melt down by fanatics: fanatics who will preserve the right of the rich to keep their income and make the rest suffer come what may.

Make no mistake that they are serious.

Make no mistake that they are fanatics as well.

Make no mistake that they are indifferent to the outcome: they don’t care about the suffering this will cause. They are ideologues devoid of empathy, driven by greed, motivated by hatred for those poorer than themselves and so contemptuous of government they will destroy their state rather than pay for it.

This is extremely dangerous indeed. This is not just economic meltdown we’re facing: this is a crisis for the world of epic proportions. This is a crisis for sanity, for decency, for morality, for ethics, for the poor, for democracy, for stability, for the hopes and aspirations of billions – all of them to be sacrificed for the madness of the far right. The likes of Murdoch who has of course done much to promote this madness.

We’re entering a very dangerous period. Make no mistake about it.

The Cowardly State: government, Cameron style

Conservatives, Courageous State, Uncategorized 2 Responses »

Jul 132011

As I’ve mentioned here, more than once and not for the last time, I’m currently writing a book called The Courageous State.

The core contention is that neoliberalism has incapacitated our politicians by telling them that all they do is suboptimal compared to anything the market can achieve because it has the insights that they lack. As a result we have seen the political right work to undermine the whole process of government to the point that it has been incapacitated by a lack of self confidence in its capacity to deliver what is really needed by society.

When I started writing, just a few weeks ago, I had no idea that David Cameron would prove quite so convincingly in such a short space of time just how much we are suffering rule by the exact opposite of what I desire: what he is delivering is the Cowardly State.

Less than two weeks ago he did, against all logic, against all popular opinion and in defiance of all democratic logic allow one of his ministers to say that he was ‘minded’ to let Murdoch take over BSkyB. His reasoning was very obvious: if the market wanted to deliver the deal then the market mist be right and everyone else must be wrong. So the market must get what the market wanted. That’s what politicians in the Cowardly State, who have suspended their judgement in the belief that money is always right, do.

But he was wrong, of course. The market had been corrupted as it is, unfortunately, too often. The market was loaded in favour of the person who had undertaken the corruption in this case. And the result was that the market was set to deliver a result that sound judgement – sound political judgement – should have clearly indicated to be wrong.

Time and again we see this with Cameron: he argues for the market and yet what’s very clear is that there is so much that the market can’t deliver (as it won’t on health, social care, schools and so much more, including pensions). It does some things really well – I never want a return to BR catering – but just because it’s great doesn’t mean it needs to be universal or that it’s always right. After all, as is very, very clear one of the things it’s really bad at is making up its mind and one of the things it’s really good at is short termism.

That’s Cameron all over.

And he’s a disaster as a result.

We’ve had enough of his Cowardly State. It really is time for a Courageous State lead by courageous politicians who are up to making decisions, who know what the state is for and who as a result can deliver the strong foundations on which a vibrant private sector can be built.

I’ll be writing about it all day today.

The book should be out in September.

Stephen Timms MP – one of the unsung heroes of country-by-country reporting

Country-by-country, Labour, Uncategorized 1 Response »

Jul 132011

It was good to see Stephen Timms MP in the House of Commons last evening at the launch of the PCS tax haven report.

Stephen had a question to ask on country-by-country reporting and its progress – and it gave me an opportunity to say publicly how grateful I was for the support Stephen had given to country-by-country reporting whilst he held office in the last government.

Without his support the OECD would not have taken this issue on.

Without his support the political realisation that the International Accounting Standards Board are intent on blocking the demands of society for corporate accountability would have taken longer to be understood by politicians throughout Europe.

He did a great job for country-by-country reporting and I’m delighted to acknowledge it.

It was also good to see hgim looking so well. Stepehn was, after all, the MP that a constituent tried to murder by stabbing him in the stomach about a year ago. It’s good to see he’s made a strong recovery.

Sen Carl Levin demands universal country-by-country reporting in new US anti-tax haven bill

Country-by-country, Task Force on Financial Integrity 3 Responses »

Jul 122011

Senator Carl Levin introduced the “Stop Tax Haven Abuse Act” today in the US Senate, taking aim at offshore tax haven abuses which costs the US approximately $100 billion in lost tax revenue per year.

The bill contains an array of provisions which would permanently close offshore tax loopholes, raise revenue, and increase transparency and accountability for multinational businesses. The bill is cosponsored by Senators Bill Nelson, Sanders, Shaheen, and Whitehouse, and is supported by business leaders and public interest groups including Tax Research LLP partner in the Task Force on Financial Integrity and Economic Development, Global Financial Integrity.

“Passage of the Stop Tax Haven Abuse Act would be a game changer,” said Global Financial Integrity (GFI) director, Raymond Baker. “It would close offshore tax loopholes, remove incentives to send money and jobs overseas, level the playing field between small businesses and multinational corporations, and strengthen law enforcement and tax collection capacities.”

The bill also contains a provision (§201) to require annual country-by-country reporting by SEC-registered corporations related to their employees, sales, purchases, sales, financing arrangements, and taxes. This provision is similar to §1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 which requires all U.S. and foreign companies registered with the United States Securities and Exchange Commission to publicly report how much they pay governments for access to their oil, gas and minerals.

“The country-by-country reporting provision adds a layer of pro-investment, best practices accountability to this bill,” said Mr. Baker. “For investors, the more information available about a company’s business practices and balance sheets, the better. This reporting requirement would also help anti-corruption and economic development efforts in developing countries by creating more transparency and accountability in the business dealings between multinational companies and governments.”

Murdoch: when it comes to taxes, instead of rendering unto Caesar, Murdoch has Caesar rendering unto him

Tax avoidance 2 Responses »

Jul 122011

Yesterday we published a blog entitled “Murdoch: when it comes to taxes, instead of rendering unto Caesar, Murdoch has Caesar rendering unto him.”

It was based on some reporting, done in good faith, by David Cay Johnston, one of the U.S.’ top tax reporters and a Pulitzer prize winner. It was published by Reuters.

We now understand that the original story was wrong, so we have withdrawn the blog. As we understand it, this is his first retraction in a 45-year career.

The blatant untruth at the core of Conservative corporation tax policy

Conservatives, Corporation Tax, Tax avoidance, TUC 14 Responses »

Jul 122011

David Gauke MP, the Tory Exchequer Secretary, and a man for whom I have little regard (a feeling which I know is reciprocated) was speaking at the Oxford Centre for Business Taxation yesterday and said:

We are prioritising reform of Corporation Tax because it is the most growth impeding tax there is.

In contrast there are those who insist we increase Corporation tax and reduce the deficit on the backs of business.

As if “business” was an entity separate from society, distinct from employees, and irrelevant to growth.

The argument is made – I heard it last week from the trade unions in Northern Ireland – that cutting corporation tax favours the wealthy over the rest of society.

But of course the economics doesn’t stack up.

We all know that higher business taxes feed through to a combination of prices, dividends, pensions, profits…and for an open economy like the UK, wages in particular.

Higher taxes on profits reduce the return to investment, leading to lower levels of investment. And a lower level of investment undermines productivity which ultimately feeds through to lower wages.

Ever increasing tax rates would simply serve to make the UK’s business environment internationally uncompetitive….to the detriment of our private sector, and to the detriment of our wider society, rich and poor alike.

Cutting Corporation Tax encourages investment. As the Chancellor said last year, reducing the headline rate signals that we are committed to creating a competitive environment for business.

There’s no other way to describe this but complete and utter nonsense. Unless of course you call it a lie – with a gratuitous insult for my work (he likes delivering them) for unions in Northern Ireland thrown in.

The explanation is very simple. It’s that right now the world’s corporations are sitting on an absolute mountain of cash. Martin Wolf notes it often in the FT. The FT recently noted it in a video cast. Paul Krugman did too the other day.

The reality is that there is not one iota of evidence that a) investment is being impeded by a shortage of cash as a result of tax paid by corporations b) changing tax rates will in any way encourage more investment when companies are already refusing to do it and are lending their cash to governments instead (how else do you think the deficits are funded?)

But despite this Gauke carries on saying that tax cuts are the way to encourage investment. Which is flagrantly not true, as the evidence shows.

So why does he promote tax cuts then? Because they make the rich richer. Precisely as the unions in Northern OIreland say. It’s the only obvious explanation there is. And it’s at the core of his government’s philosophy.

Gauke like me believes there is tax incidence - corporation tax is paid by someone else than a company at the end of the day. He however hides behind the convenient claims of the Oxford Centre for Business Taxation that the charge falls on labour (an argument contrived on the basis of exceptionally dubious and bluntly biased analysis that only looked at the consequence of corporation tax increases and not decreases – which is what Gauke is delivering). The reality is as I say – that tax cuts deliver wealth to shareholders and no one else. Not once, not ever, has a manager turned round and said “we’ve had a corporate tax cut – have a pay rise”. Nor, candidly, have they ever turned round and said “we’ve had a tax cut – let’s invest more” – indeed the evidence is that higher taxes encourage investment and lower ones don’t.

And that blows his whole policy apart.

Which is not surprising as his whole policy is about increasing the wealth gap in the UK and nothing else.

There is no hope of accountability and transparency in public services without massive reform of corporate regulation in the UK

Accounting, Conservatives, Country-by-country, CSR, Tax Havens, Uncategorized 6 Responses »

Jul 122011

As the GMB reported yesterday:

Almost half of Southern Cross care homes are owned by companies based outside the UK, including hundreds registered in tax havens, according to a union dossier.

The GMB said 199 homes are registered in the Cayman islands, 43 in Guernsey, 41 in Gibraltar, 39 in Jersey, four in the British Virgin islands and one in the Isle of Man.

The union said it had established the names of 80 landlords who own 615 of the 750 homes but was still trying to find out details of the other owners.

National officer Justin Bowden said: “Southern Cross may be on its last legs but for Southern Cross’s 31,000 residents and 43,000 staff, this looks like a case of ‘out of the frying pan, into the fire’.

“These 80 landlords are a rag-bag bunch whose number includes overseas interests, tax dodgers and in some cases ‘identity still unknown’. Many themselves are in financial difficulties.

“All this spells months more uncertainty and worry for residents and staff. Where is Government in this care scandal? The ears of the 31,000 elderly and vulnerable residents and 43,000 staff must be ringing from the deafening silence from Downing Street.

Cameron says he is in favour of transparency, accountability and obligation in public services. This, though, is the reality: we get offshore companies, completely opaque, accountable to no one, with no financial information available on public record, ending up as the landlords and operators of care homes for the elderly in this country.

It’s sickening.

It’s wrong.

It’s as opaque as it is possible to be.

It lacks all forms of accountability.

There is no protection to those who need it within such a system.

Cameron wants to devolve responsibility from the state to the corporate entity. But as my research has shown, 20% of all companies in the United Kingdom disappear each year without question being asked. That is a complete failure of corporate responsibility.

In addition I’ve shown that the government does not ask almost one third of companies to submit tax returns each year. That’s the behaviour of a cowardly state.

Of those 1.8 million companies that are asked to submit tax returns, 600,000 do not submit them and they are not pursued for any penalty for not doing so. That is the behaviour of companies who know they can ride roughshod over the government: a cowardly government; a government that is not willing to enforce regulation to ensure transparency, accountability and the obligation to pay tax.

And Cameron presides over a government that is responsible for more tax havens in this world than any other, and he’s doing nothing about it.

To argue that the functions of state should be passed to corporations when regulation of corporations is so weak, and is known to be so weak, is the act of a man who is both a coward and a fool. Cameron knows that if he does what he proposes accountability, transparency and responsibility will all go by the wayside. But he says otherwise. That’s grossly dishonest.

If there is to be any further devolvement of any responsibility of any sort from the state in this country to the private sector then the rules by which the private sector operates have to be enforced and enhanced.

Companies must be made to account.

Their directors must be held accountable if they do not.

Tax havens must be shattered open and the information within them brought into the public domain.

Full accounts of every corporate entity must be on public record.

Country by country reporting must be the norm.

Corporate social responsibility reporting should not be an optional extra: it should be a requirement of all companies of any size.

Tax avoidance, and the transfer of profits generated from state funded activity to tax havens outside the UK should be banned.

Personal liability for those persons who act in breach of trust, who have committed fraud, who have deliberately assisted their companies to evade tax, and who’ve misrepresented accounting information should be rigourously enforced.

Then, and only then can the public sector be satisfied that the private sector can undertake the tasks that they may wish to transfer to it.

Until then, any transfer of services to the private sector involves unknown and very obviously significant, and dangerous, risks for the users of the services in question and that is wholly unacceptable and an act of gross irresponsibility on the part of any politician.

Which is why Cameron’s Big Society must be stopped, now.