Tax Research UK

I admit this is probably not news to those who read this blog, but the Observer reports today:

Barclays bank is playing a lead role in the establishment of a tax haven in Ghana, in a move that could see huge mineral wealth in west Africa vanish into it from poverty-stricken countries’ coffers, the Observer can reveal.

The controversial British lender has for the last four years worked closely with the Ghanian government to start an International Financial Services Centre offering low taxes and minimal financial disclosure.

Development charities fear that the establishment of a fully operating tax haven so close to oil- and mineral-rich countries such as Nigeria, Sierra Leone and Equatorial Guinea will encourage a rapid increase in tax and capital flight.

We have proven time and again that tax havens cost lives. It is beyond doubt that they facilitate corruption, crime and tax evasion thought the secrecy they supply.

And yet here is Barclays trying to develop another one.

Goes Barclays have any moral compass of any sort at all?

And if not, shouldn’t one be imposed upon it?

Richard Murphy Banking, Barclays, Development, Ethics, Tax Havens

Two Early Day Motions now before Parliament:

EDM 1169

WIKILEAK AND BARCLAYS BANK

24.03.2009

Mitchell, Austin

That this House congratulates Wikileak for publishing documents relating to alleged tax avoidance schemes used by Barclays Bank; and urges the Government to place copies of those documents on the HM Treasury website.

and

EDM 1168

BARCLAYS BANK AND TAX AVOIDANCE

24.03.2009

Mitchell, Austin

That this House condemns Barclays Bank for indulging in alleged tax avoidance schemes which may have reduced the Treasury’s tax revenues by over £1 billion; and urges the Government not to provide any loans, guarantees and financial support to Barclays and suspend its deposit-taking licence until it cleans up its affairs and withdraws from manufacturing, marketing, sale and implementation of all tax avoidance schemes.

Richard Murphy Barclays, Ethics, Tax avoidance

I have to say that without the Lib Dem Treasury team the world would be a worse place right now. Yesterday Matthew Oakeshott (a member of the House of Lords) said in that House:

Documents leaked to the Liberal Democrats, which appear to detail systematic tax avoidance on a grand scale by Barclays, were injuncted last week.

The Sunday Times and the Guardian had already made them front-page news and these documents are widely available on the internet from sites such as Twitter, wikileaks.org, docstoc.com and gabbr.com. Yet the Guardian had to remove them from its website and cannot tell its readers where to find them.

Oakeshott could reveal that the leaked documents were available because of the parliamentary privilege of freedom of speech, as guaranteed by the Bill of Rights 1689.

And as a result he could, quite rightly make a fool of the judge who injuncted the Guardian and deliver a boost for honesty, transparency and accountability all at the same time.

This works. As the Guardian notes today:

Two out of three US banks have terminated their involvement in a wide-ranging tax-avoidance scheme operated by Barclays.

The banks had taken loans from Barclays amounting to $11bn (£7.6bn), which they were due to hold for another year. But sources at Bank of America and BB&T confirmed yesterday that transactions under Project Knight have been terminated prematurely and the loans repaid.

Never ever tell me that the glare of publicity does not change corporate behaviour. It most certainly does. Which is exactly why we need country-by-country reporting.

Richard Murphy Banking, Barclays, Country-by-country, Ethics, Tax avoidance

The new report by the Tax Justice Network, mentioned here yesterday was in the Sunday Times today. They noted:

This weekend a new study reveals that Barclays appears to be the UK’s largest user of tax havens. Where on Earth Are You?, a study by the Tax Justice Network, investigated 33 of the biggest companies in Britain to find out how many subsidiaries they have based in tax havens. Barclays topped the list with 315.

Richard Murphy, primary author of the study, said: “I thought the biggest user of tax havens would be someone like BP or Shell, which have operations all over the place. But it isn’t: Barclays has more tax haven subsidiaries than anyone else. This is the first time we have had this information. The Barclays story is going to travel further. I think it is much more explosive than anyone has said.”

I think that true.

I’ll be returning to that theme soon, I hope.

Richard Murphy Banking, Barclays, Ethics, Secrecy jurisdictions, Tax Havens, Tax avoidance

A good letter in the Guardian today from one of my co-authors of this report:

Given that the "gagged" Barclays documents are now widely available, the bank’s continuing attempts to ban publication are laughable and their arguments for non-disclosure indefensible (Judge upholds bank’s attempt to gag Guardian, 20 March). Having read the seven documents, I am astonished at the scale of human and financial resource dedicated to conjuring profits from a systematic abuse of loopholes between different tax regimes. This is where global businesses plunder national treasuries. Legal it may be; responsible it certainly is not.

As co-author of a report on responsible corporate tax policies and practice, I have promoted "active tax responsibility", a concept that includes being "true to the spirit of the law and avoiding exploitation of loopholes". Alistair Darling proposes to include this in a new code for banking standards. But this will only be effective through a wholesale change in attitudes towards accountability and transparency in boardrooms. Now, if ever, is the time for principles and values to be counted above the pursuit of value at any cost.

Barclays are clearly not alone in this unprincipled activity. The Barclays documents prove that the combination of human intellect and greed is a powerful driver of economically irresponsible behaviours. This is not something laws alone can address: it requires business leaders to ask themselves whether they would feel comfortable if the hidden aspects of their business decisions were open to public scrutiny. If the answer is no then principles should overrule profits. In the longer term, the trusted and responsible corporation is the one where employees, customers and investors will choose to spend their time and money.
Geoff Lye
Vice-chairman, SustainAbility Ltd

Geoff and I are of an age where Barclays was automatically a dirty word top all those of good conscience.

It looks like it’s trying to regain that status.

Richard Murphy Barclays, Economics, Ethics, Tax avoidance

The Tax Justice Network has published a report with the above title. It is available here.

This publication details the findings of research into where 97 major European companies have their tax haven subsidiaries and compares this with the findings of the US report on this issue published last December.

The most important finding is by far the simplest: tax havens are an integral part of the business system. 99% of all European companies surveyed had a tax haven subsidiary. Most had many.

They are also a cancer that is helping destroy it from within, as John Kay suggested in the Financial Times this morning.

This is important: the effort to both expose the use of tax havens and to limit their use is driven by a desire to increase the well being of the people of the world. But that motive is not linked to anti-market sentiment. It is linked to a desire that we have efficient markets that work as well as possible to deliver maximum well-being for all participants, wherever they are, and that we can prove it. That is not possible when tax havens are part of the system, as I have argued elsewhere.

This survey has shown just how far we are from understanding how our markets work, how money flows, and why businesses are structured as they are. We cannot deliver optimal results in that case.

The case for reform of accounting so we know who is where, and of tax havens so that the massive market imperfections they create are eliminated is compelling.

I hope the G20 are up to tackling the issue.

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Secrecy jurisdictions are places that intentionally create regulation for the primary benefit and use of those not resident in their geographical domain that is designed to undermine the legislation or regulation of another jurisdiction and that, in addition, create a deliberate, legally backed veil of secrecy that ensures that those from outside the jurisdiction making use of its regulation cannot be identified to be doing so.

For more information see http://www.taxjustice.net/cms/upload/pdf/Country-by-country_reporting_-_080322.pdf

NB: New report version posted 27-4-09 changes some of the conclusions in the text due to clarifications in the Dutch source data

Richard Murphy Accounting, Banking, Barclays, Country-by-country, Economics, IASB, Secrecy jurisdictions, Tax Havens

As the Guardian has noted this morning:

The Guardian today lost a high court challenge to lift an emergency gagging order imposed on the publication of Barclays bank documents alleged to detail huge tax avoidance schemes.

I’m not surprised. It is a repeat of the stupidity of the British judiciary when faced with issues of substance of importance to their chums in the hierarchy of society. It also makes a mockery of the law. As the Guardian also notes:

There are two aspects of the decision to ban publication of these documents which look decidedly odd. The first is to do with freedom of expression and the law of confidence. … There is something almost comic about a high court sitting in camera in the Strand ordering a blanket of confidentiality over something which, even as they secretly ruminate about secrecy, is being discussed around the world.

The second matter is whether or not the widest possible public scrutiny of the tax avoidance schemes of a major bank should – now, of all times – be prevented by court order.

As they continue:

While the judge agreed the Guardian’s tax coverage was important he seemed to think there was no merit in allowing a wider public to read the detailed documents in which Barclays employees discussed how they planned to structure these schemes and how they would argue their legitimacy with the taxman. It is better, in his view, that banks, tax advisers and lawyers should be allowed to have private conversations with Her Majesty’s Revenue & Customs without any kind of wider scrutiny. This ignores widespread concerns – articulated by the Barclays whistleblower among others – that it is precisely the private nature of these conversations that has allowed banks and corporations to get away with such rampant tax avoidance over so many years.

But this is the key point

This is not an arcane dispute between a newspaper and a bank over marginal tax- dodging at the fringes. If Barclays were to be forced to follow RBS into abandoning its tax avoidance adventures, many hundreds of millions would be removed from its annual profits and leave the bank. Shareholders and government need to know what is going on. And the public should be allowed a glimpse into the cosy world of secret negotiations between bankers, lawyers and tax inspectors over who can get away with what. It is a worrying day when a judge thinks he knows better.

This whole Barclays scam is, to put it quite unsubtly, a fraud on the public in the sense that it relies upon a  deception (albeit legitimate, assisted here by the Courts) to secure a financial advantage for Barclays executives at cost to the taxpayer and Barclays shareholders.

The Court thought Barclays’ human rights would be abused by publication. My question is simple: what about the rights of the rest of us?

Barclays is abusing us all. That has to stop.

Tax havens facilitate that abuse. That also has to stop.

Both have to happen now.

Richard Murphy Banking, Barclays, Corruption, Ethics, Secrecy jurisdictions, Tax Havens, Tax avoidance

This letter was in the Guardian today:

The charged rhetoric described in your article (Obama vows to close loopholes after public anger, 14 March) overlooks decades of cooperation that have made the Cayman Islands a critical partner of regulators worldwide in maintaining the integrity and stability of global financial markets. The narrow focus on my firm’s corporate headquarters, Ugland House, and the numerous businesses registered there, ignores the role that the Cayman Islands and many other offshore financial centres play in directing private capital flows from private investors worldwide into economically productive means, often in Europe and the US, but also in numerous developing countries. This source of capital is critically important as governments worldwide scramble to inject liquidity into the financial system.

Unfortunately this story gets lost in heated political speeches and blanket accusations of bank secrecy that paint all offshore centres with the same brush without regard for differences in regulatory, legal and political regimes, as well as their level integration into the global economy. One might almost think that politicians, and publications like yours, are searching for a scapegoat for the economic crisis - which of course arose onshore.

Charles Jennings

Joint managing partner, Maples and Calder, Grand Cayman, Cayman Islands

This is complete misinformation.

The tax news in the UK is currently dominated by the Barclays Bank story. Barclays is the biggest UK user of the Cayman Islands. It is the biggest user of offshore companies in the UK. These associations are not coincidental.

Barclays needed the tax free, regulation light, flexible legal structure of Cayman to undertake its tax abuse. Cayman deliberately structures its laws, under the guidance of firms like Maples and Calder to facilitate that abuse.

The reality is that the current world economic crisis, created by banks, did not start onshore or offshore. Those banks located their transactions wherever it suited their purpose, and in the case of Barclays we know that at least 30% of its subsidiary companies are offshore to ensure that it could locate transactions at cost to society at large.

The second reality is that, as the Barclays documentation shows, nothing really happens offshore. All that places like Cayman do is to provide a ‘legal space’ which they claim is not in the Cayman Islands, because they consider the transactions undertaken are offshore to their, but which is not anywhere else, where regulation is lax or non-existent. That is the ‘secrecy space’ that a secrecy jurisdiction creates. Secrecy jurisdictions are places that intentionally create regulation for the primary benefit and use of those not resident in their geographical domain that is designed to undermine the legislation or regulation of another jurisdiction and that, in addition, create a deliberate, legally backed veil of secrecy that ensures that those from outside the jurisdiction making use of its regulation cannot be identified to be doing so.

Maples and Calder cannot deny responsibility for this. They are key players in the provision of the secrecy services that have undermined the credibility of the world’s financial system. We are not scapegoating them: we are charging them with financial abuse.

They cannot avoid the charge by saying they are well regulated. We all know that the regulation with which they complied was inappropriate. Ticking boxes on a piece of paper which gave rise to no meaningful control is not good regulation. It is a sham. And that is precisely what the Cayman Islands’ financial services sector is, and that is that precise definition of the service it supplies.

Barclays was a willing customer.

They and Maples and Calder provide the evidence for closing down secrecy jurisdictions.

Richard Murphy Banking, Barclays, Cayman, Secrecy jurisdictions, Tax Havens

I’ve been discussing how to tackle Barclays Bank’s tax abuse. I’ve suggested we need a change in the way we interpret tax law. This would create a purposive approach to the interpretation of tax law.  If this were done then a key component in any system promoting tax compliance should be a General Anti-Avoidance Principle as a central component part of taxation law.

It is stressed that a principle and not a rule should be used: a rule pre-supposes a legal interpretation of statute; a principle an equitable construction.

The idea behind a General Anti-Avoidance Principle is simple: if a step is added to a transaction with the sole or principal aim of securing a tax advantage (which is defined as a saving in tax) then that step in the transaction is ignored for tax purposes. In other words, it tackles pre-meditated attempts to subvert the intention of the tax system and is consistent with the management approach towards the regulation of taxation proposed here. Barclays has, of course, undertaken very heavily pre-meditated tax avoidance activity with almost every step in the transactions undertaken being there solely for the purpose of saving tax.

I suggest that once enacted  a General Anti-Avoidance Principle (now generally called a “GAntiP”)[1] would be applied to all tax decisions taken thereafter. This is not a case where transitional arrangements would apply.

There is another advantage: a GAntiP allows a government to pass purposive legislation. This is legislation that states the intention of the law that is being created and devolves responsibility for the detailed rules that actually make it work to the status of regulations. This offers a number of advantages:

1. Few politicians fully understand the details of the laws that they are asked to pass; it is much more likely that they will understand and be able to discuss purposive taxation law;
2. The purpose of law will be clearer: taxpayers will have greater chance of understanding and complying with the law;
3. The detail of regulation can be devolved to those with appropriate expertise;
4. Appeal arrangements are needed to ensure that those who claim that regulation does not accord with the purposive legislation can be heard, and can have the claimed conflict ruled upon. This is a necessary judicial over-ride for the administrative function of the State which is almost always responsible for the detail of tax legislation;
5. Where a government intends to use legislation or regulation in a way that was not anticipated it will be obvious, and appeals should succeed. There will, therefore be greater obligation on governments to disclosure their intent as to how they propose to use the legislation available to them and to not subsequently change it, which should increase certainty for taxpayers.

The result will be simpler, and better, law.

In combination a Gantip, purposive legislation, equitable interpretation of the law, and a clear framework of the responsibilities of all parties that a Code of Conduct implies, provides the following benefits:

1. Clarity as to the purpose of the law;

2. The opportunity to adopt a management based approach to taxation, overcoming the almost insurmountable difficulties in determining the difference between tax evasion, avoidance and compliance;

3. An enhanced prospect of practical compliance with legislation designed to achieve that purpose;

4. A fairer method for appraising culpability when errors occur;

5. The chance for a taxpayer to object to inappropriate regulation through use of the Court system;

6. Greater certainty within any tax system.

It is these benefits that our proposed Code of Conduct is intended to promote.

As usefully, such a programme would stop the likes of Barclays undertaking their repugnant activities, and that is essential. .

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[1] See Freedman, J 2004. “Defining Taxpayer Responsibility: In Support of a General Anti-Avoidance Principle” available in British Tax Review 332 http://denning.law.ox.ac.uk/tax/BTR_version_inaugural_lecture.pdf accessed 21.12.06

Richard Murphy Accounting, Barclays, Code of Conduct, Ethics, Regulation, Tax avoidance, Tax management

I have suggested there is much we can do to tackle the abuse that Barclays is perpetrating.

One thing we can do is promote a Code of Conduct for Taxation in the UK. This would not be the weak customer service agreement that HM Revenue & Customs are currently proposing under pressure from the professions through the Chartered Institute of Tax which will then be used as the basis for claiming compensation from them and which serves no identifiable public purpose. It should instead be a robust Code demanding significant standards of achievement from all parties.

I have drafted such a Code for the Tax Justice Network and for the Association for Accountancy and Business Affairs in 2007. This is available here. The actual Code is just two pages long and reads as follows:

A Code of Conduct for Taxation

Objective

This Code of Conduct relates to the payment of taxes due to a State or other appropriate authority designated by it.

Scope

This Code applies to:

1. Governments and their agencies in their role as tax legislators, assessors and collectors;
2. Taxpayers, whether individuals, corporate bodies or otherwise;
3. Tax agents, whether they are undertaking tax planning or assisting with tax compliance.

Application

It is intended that this Code be voluntarily adopted by States and should be used to guide the conduct of taxpayers and their agents who choose to comply with it whether or not they reside in a State which has adopted the Code.

The Code

The Code is divided under six sections, each of which includes three statements of principle.

1. Government

a. The intention of legislation is clear and a General Anti-Avoidance Principle (‘Gantip’) is in use;

b. No incentives are offered to encourage the artificial relocation of international or interstate transactions;

c. Full support is given to other countries and taxation authorities to assist the collection of tax due to them.

2. Accounting

a. Transparent recording of the structure of all taxable entities is available on public record;

b. The accounts of all material entities are available on public record;

c. Taxable transactions are recorded where their economic benefit can be best determined to arise.

3. Planning

a. Tax planning seeks to comply with the spirit as well as the letter of the law;

b. Tax planning seeks to reflect the economic substance of the transactions undertaken;

c. No steps are put into a transaction solely or mainly to secure a tax advantage.

4. Reporting

a. Tax planning will be consistently disclosed to all tax authorities affected by it;

b. Data on a transaction will be consistently reported to all tax authorities affected by it;

c. Taxation reporting will reflect the whole economic substance and not just the form of transactions.

5. Management

a. Taxpayers shall not suffer discrimination for reason of their race, ethnicity, nationality, national origin, gender, sexual orientation, disability, legal structure or taxation residence; and nor shall discrimination occur for reason of income, age, marital or family status unless social policy shall suggest it appropriate.

b. All parties shall act in good faith at all times with regard to the management of taxation liabilities;

c. Taxpayers will settle all obligations due by them at the time they are due for payment.

6. Accountability

a. Governments shall publish budgets setting out their expenditure plans in advance of them being incurred, and they shall require parliamentary approval;

b. Governments shall account on a regular and timely basis for the taxation revenues it has raised:

c. Governments shall account for the expenditure of funds under its command on a regular and timely basis.

Enforcement

States seeking to comply with the Code will voluntarily submit themselves to annual appraisal of their Conduct. These appraisals will in turn be reviewed by a committee of independent experts appointed by participating States. Differences of opinion will be resolved by binding arbitration.

Any taxpayer or agent wishing to comply with the Code may do so. A State should presume that a person professing compliance with the Code has done so when dealing with any tax return they submit. In consequence the administrative burdens imposed upon that person should be reduced. In the event of evidence of non-compliance being found any consequential penalty imposed should be doubled.

You will notice that this Code is as tough on government as it is on taxpayers: we need to demand an improvement in standards all round.

But I suspect that Barclays have failed all of sections 2, 3 and 4. They should have suffered penalty as a result. That is the intention of this Code. It meant to separate the sheep from the wolves and then punish the wolves.

I’m happy to be a sheep on this occasion.

Richard Murphy Accounting, Barclays, Code of Conduct, Regulation, Tax Havens, Tax management