The FT has noted today that India is introducing tough new laws on tax haven abusers as a reaction to the HSBC scandal.
In a sense this is odd. For a long time the story in India was its refusal to engage with the fact that this data existed and to even formally request a copy.
Now, years after that was the story people are angry. It's not dissimilar to the pattern here, where a few of us have been writing about HSBC and its problems for seven years or so.
But it makes a point. It's not change that matters, per se. Change of perception on HSBC, tax havens and tax abuse has been happening amongst a few for a long time. What appears to be different now is the pace of change. This is increasing, rapidly.
That's the good news.
The task now is to focus this anger. So far the attention remains on a relatively small number of people who abuse tax havens when the big issue is the domestic tax gap. It's certainly true that there has been serious offshore abuse, but domestic abuse is in my estimate at least ten times greater. It's also widespread. Take this graph from the IRS reproduced by the Tax Justice Network in the last few days based ion 2011 work on under-reported types of income:
When there is no information exchange on a domestic data source the rate of non-compliance in the US is as high as 56%.
That's where our tax gap is.
We're gaining momentum on the issue of tackling tax abuse, but until the cancer in our own economy is tackled we're just dealing with peripheral symptoms. We need the same rate of change on this issue as we do on tax haven abuse.
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I worry that much of the inactivity on ‘Third World’ Swiss accounts was an unwillingness by ministers and senior civil servants to take on the tax evasion that they themselves were using…
…And that the present flurry of activity against Switzerland marks a disconnection between ministers and their favoured servants, who have moved upmarket into specially-created shell companies in the Caribbean, and the moderately wealthy citizens with bank accounts in the traditional evasions of Geneva.
The people who matter are no longer hiding money in Switzerland.
That unduly-cynical view is harder to dismiss than I would like, and I would remind you that the effective owners of HMRC are an expensive and exclusive travel agency for sending money on a Caribbean holiday.
Don’t you think you would make.ypur case stronger if you provided some analysis of the TYPE of transaction in each category rather than just the degree of reporting. For example the last column could well be mainly cash-in-hand. Certainly grossing up from the 56% misreported suggests this is a small part of the economy.
I was quoting the IRS
I’ve been thinking recently also that the (quietly dropped) proposal in the UK to remove the requirement to prove ‘intent’ to make criminal prosecutions of alleged tax evaders much easier is more relevant than ever in the HSBC context. According to TJN, India’s law reform means they’re now tougher on alleged tax evaders than the UK. In other areas of criminal law claiming ignorance is not a defence, yet alleged evaders seem to have that available to protect themselves…
I think the significance of that dropped proposal went below many radars.
You are right
It did
If all you’re doing is quoting another report and not supplying an opinion of your own, hen what exactly is you point?
I think the IRS is a pretty reliable source and is saying that there is a massive tax evasion problem
They should know
But what are you trying to say we should do? How would you propose to extrapolate the table to the UK?
The tax gap (meaning both avoidance and evasion) is greater where there is no information. But this doesn’t include the economy that holds interest – paying bank accounts. So it looks like the tax gap is greatest in the grey economy, a large.part of a very small part of the economy. So where do you go from there? Is your point simply to put up an IRS graph and say “look, some people don’t pay there taxes”? With respect, we all know that.
With respect, most people do not acknowledge the scale of the issue
That was my point
As a junior accountant in training I am relatively new to this world, at least in comparison to Richard and many of the posters on this brilliant forum.
It makes absolute logical sense to me that before trying to run a marathon we first learn to walk. By that I mean sort out the problems we have at home and get those in order before we get carried away with tackling issues abroad.
Though personally, I can’t see any real hunger for that from any of the political parties.
Today I stumbled across this. Is this a sign of things to come?
http://www.legalbusiness.co.uk/index.php/lb-blog-view/3635-aggressive-financial-engineering-baker-mckenzie-sued-for-11-7m-by-company-seeking-to-avoid-tax-in-mexico
I think the description of Baker McKenzie looks apt