2011 October » Tax Research UK

Memo to President Sarkozy: you can ignore Cameron’s objections to a Financial Transaction Tax

Europe, Transaction Taxes, VAT 14 Responses »

Oct 312011

Much of Europe wants a financial transaction tax (FTT). The reason why is obvious: they need the money.

The UK is adamant it will have no such tax. It says it will harm the City of London. Of course that’s not true: it’s the City of London that harms us, but Cameron ignores that fact and in the process spites the plans for an FTT to be discussed by Nicolas Sarkozy at the G20 later this week.

How can the impasse be broken? Well, let me suggest a simple solution. It’s called VAT.

VAT is, of course, an EU tax. And it is an EU tax with a difference: it can be imposed by majority vote. Unanimity is not required here. And that’s the critical point. Sarkozy can change VAT with dissent from the UK.

The relevance of that simple fact is this: VAT is not charged on financial dealing and it could be. Of course that is not quite what an FTT is expected to be, but the reality is that most financial dealing is about margin trading. So too are many other trades, such as second hand car dealing, and we have worked out ways to apply VAT to such dealings. OK, financial dealing is more complex – but it is also incredibly well tracked. So, it would be quite possible to apply VAT to the margin on bank dealing.

And they could not get round it easily. First, the rate would be low, and so too would be input tax as a result.

Second, relocating can be overcome – it would simply be deemed that settlements through Europe were located in Europe. And then what are called the ‘self supply’ rules would apply – the bank would have to register and charge itself the tax and pay it over.

I’m not saying banks would not try to avoid the charge: they would. But quite a lot could be done to prevent that happening.

I haven’t worked out all the detail. I don’t need to do so. All I need to do is tell Nicolas Sarkozy he has a way of getting what he wants from Cameron. The stick might be enough.

Where the deficit came from

Economics 21 Responses »

Oct 312011

It is often said that government income and expenditure were out of synch before 2008.

And it is also claimed that it is excessive spending before then that caused the current crisis.

Neither claim is supported by data. The following reflects HM Treasury out-turn data to 2009-10 and June 2011 budget data for 2010-11 onwards:

The visual imaging tells the story.

Labour ran surpluses.

And then it ran tiny deficits that related in large part to investment spending.

And then tax revenues collapsed, which had nothing whatsoever to do with excessive spending and had everything to do with banking collapsing.

Supposedly this will correct by 2015. I don’t believe that.

But let’s not for a minute think that Labour mismanaged the economy. The data simply does not suggest it did. Banks did that. And it was banks that created the deficit.

Phantom tax haven business

Secrecy jurisdictions, Tax Havens, Uncategorized Comments Off

Oct 312011

Nick Shaxson, author of Treasure Islands, recorded this very short clip last Friday while in tax haven Luxembourg. It’s a bit of fun – but it does help highlight the contrast between:

real businesses that do real things (ArcelorMittal, whatever you may think of them this is in an industry in Luxembourg that was historically built on local iron ore and steelmaking) and
phantom tax haven businesses (Itunes Europe, 8 Rue Heinrich Heine, a subsidiary of Apple, Inc. that Nick has blogged before.)

Why Plan B had to come from outside academic economics

Uncategorized 21 Responses »

Oct 312011

I wrote about Compass’ Plan B yesterday and will be at a seminar on the subject all this morning. I’m proud to have contributed some of its key ideas, on tax and some other issues and to see The Green New Deal at the core of it.

Others d not share that view. The criticism that has arisen is that of the 100 who signed the letter to the Observer not all were ‘economists’. Some were social scientists, others accountants or in business schools and others, like me have professional and not academic post graduate qualifications.

Those who make such comment utterly miss the point. For a profession that supposedly promotes competition as the cure to all problems economics has been curiously ruthless in eliminating it. It is now almost possible to study anything but mainstream neoliberal economics. It is this economics that has failed us, but if you do not subscribe to it then it is very hard to now get a PhD in economics, let alone a job as an economist at a university. neoliberalism ha squeezed all alternative economic thought out of economics, which is all the poorer for it.

But that, of course is why alternative thinking has had to come from elsewhere.

And that is also why those making this criticism are either disingenuous or unaware of why their criticism actually highlights the problem we are addressing.

Only ethics make markets work

Economics, Ethics 11 Responses »

Oct 302011

The FT has just reported:

In a wide-ranging interview with the FT, Yoshihiko Noda, Japan’s prime minister, has called for clarification about a string of controversial payments made by cameramaker Olympus, saying the furore threatens to tarnish Japan’s reputation as a rules-based market economy.

There are moments when I just quietly despair at the stupidity, gullibility or just downright dishonesty (in the sense of failing to state the truth) of people.

Rule-based economies never, ever work in the end. Only ethics make a market work.

Of course we need them – but the problem with Olympus is not a lack of rules – but the failure to follow them – and that’s a choice based on a lack of willing.

None of which undermines the need for massively enhanced transparency – especially country-by-country reporting – which may have revealed what was going on here.

Time for Plan B

Economics 25 Responses »

Oct 302011

This letter was in today’s Observer:

It is now clear that plan A isn’t working. Wave after wave of economic figures from HM Treasury, national and international economic institutions such as the OECD, the IFS and the IMF have all concluded that the British economy is faltering. The UK jobless total is now at its highest for more than 17 years, while growth has all but stalled.

We urge the government to adopt emergency and commonsense measures for a Plan B that can quickly save jobs and create new ones. A recovery plan could include reversing cuts to protect jobs in the public sector, directing quantitative easing to a green new deal to create thousands of new jobs, increasing benefits to put money into the pockets of those on lower and middle incomes and thus increase aggregate demand.

This could in part be paid for by the introduction of a financial transactions tax. The government could do far more to create the space for new and innovative industries and companies to flourish. One idea is a British investment bank, to leverage and back investment in low-carbon sectors such as housing, transport and renewable energy.

Doing nothing is not an option. We therefore call on the government to put the national interest first and hold an emergency budget that would instigate a Plan B for jobs, fairness and sustainability to rapidly get the economy moving again.

Dr Ha-Joon Chang, Faculty of Economics, University of Cambridge; Prof Sir Tony Atkinson, Nuffield College, Oxford; Howard Reed, Landman Economics; Chris Edwards, senior fellow, economics, University of East Anglia and 96 other economists, including me.

I’m delighted to have helped draft the Plan B in question. I had a big role in drafting the tax section but other ideas I have been heavily engaged in developing including the Green New Deal, the Tax Gap, Green Quantitative Easing to pay off PFI and to fund a national investment bank and pensions reform to provide ongoing capital for investment in the UK economy all feature prominently in Plan B, so I offer my thanks to Compass for including these ideas in the report.

The full report is available here and the summary here.

Absent with leave

Blogging 4 Responses »

Oct 282011

It’s been a gruelling few weeks.

I’m absent with my sons today.

Sometimes one just needs to go and play but since people often ask if I’m silent for more than a couple of hours – that’s why!

Resignation

Richard Murphy 26 Responses »

Oct 272011

I resigned from the electoral register of the Church of England this morning.

It’s hardly a big deal for them.

But it was the only way I could find to register a personal protest at the failure of St Paul’s.

The evidence that so called tax information exchange agreements with tax havens don’t work is mounting

Information exchange, OECD, Tax Havens 23 Responses »

Oct 272011

At the April 2009 G20 summit in london the big news was the supposed end of tax havens. I know: I was there.

And it hasn’t happened. The OECD used the mandate it had been given and in the mot extraordinary act of accommodation and even promotion of tax haven abuse deemed that any tax haven that had signed 12 so called tax information exchange agreements was ‘internationally compliant and need take no further steps to sign further deals. The fact that the San Marino – Andorra style deals that have proliferated since then count, and were clearly intended to count, show just how biased in favour of promoiting tax haven secrecy the OECD is )(and if not, how utterly incompetent it it).

The flaws in these deals are explained here.

The fact that offshore lawyers know they don’t work and exploit that was recently highlighted here.

And now there’s clear evidence that first of all the number of requests countries can make as a result of those flaws are minuscule (because basically, if you do not know they answer to the question you’re raising it’s almost impossible to ask the question). As has been reported of the Netherlands:

THE HAGUE, 27/10/11 – The Netherland seldom seeks fiscal information from countries known as tax havens, it emerges from research by Het Financieele Dagblad newspaper.

In recent years, the Netherlands has taken a lot of trouble to conclude treaties for the exchange of information with tax havens such as Jersey, Guernsey, the Isle of Man, the Cayman islands and Liechtenstein. The aim is to track down both individuals and companies that use constructions ot evade tax. A total of 28 treaties have been made, of which 18 have come into effect. The others await signature.

In total, the Netherlands only made 22 requests for fiscal information between 1 June 2008 and 1 June 2011. Over half (13) were made to Jersey. Requests were also made now and then to Guernsey. But the tax service has only once requested information from the Isle of Man, with which there has been a tax information agreement (TIEA) since as long ago as 1 January 2007.

The treaty with Liechtenstein, a country which experts say still shelters quite some Dutch ‘black savers’, came into effect on 1 December 2010. The Dutch tax service has made three requests to it in six months’ time.

Of the requests made, the finance ministry can only say that seven replies have been received from Jersey and three from Guernsey. No information is being released about the content and quality of the replies.

So first of all it’s nigh on impossible to use these deals which is why so few request are made.

And when you do make a request you don’t always get a reply.

And this is what the tax havens use to claim they’re transparent.

They and the OECD who partner them in this abuse should hang their heads in shame at the tax abuse they continue to unleash on the world as a result.