Development » Tax Research UK

This Thursday in Norwich

Development, Tax avoidance, Tax Havens No Responses »

Feb 062012

‘U STOP Poverty – How Many Multinationals are Keeping the Poor, Poor’ on Thursday 9 February, 7.30 pm – 9.00 pm is part of a series of events in the city organised by Christian Aid to inspire and inform those working to relieve poverty, and to begin a process of networking which will lead to ongoing mutual support.

Richard Murphy (pictured), who is an anti-poverty campaigner, tax expert and the author of‘The Courageous State: Rethinking Economics, Society and the Role of Government’, will explore how the current economic situation can be changed so that developing countries no longer lose out in aid from companies avoiding the payment of tax.

Julian Bryant, of Christian Aid, explains: “£101 billion a year could fund the UNs’ Millennium Development Goals several times over, eradicate malaria or make significant differences in relation to solving major issues of poverty in developing countries. Yet, it has been estimated that £101 billion is being denied to developing countries by various multinational corporations that use tax haven secrecy to avoid paying taxes.

“Developing countries are losing more from companies avoiding the payment of tax than they receive in aid. Imagine what a difference it would make to a developing country to actually receive the tax they are due?”

The event is free and open to all with no booking necessary. For more information contact Julian Bryant, Christian Aid on 07940 848829 or email jbryant@christian-aid.org.

Kings Centre (Kings Church), Kings Street, Norwich, NR1 1PH

Outflows, Not Aid, Must Be Curtailed to Fight Poverty

Development, Tax Havens 1 Response »

Jan 122012

The following is by my Task Force on Financial Integrity and Economic Development colleague, Raymond Baker, and is reposted from the Huffington Post:

We learned some devastating news last month. A new study from Global Financial Integrity revealed that despite the onset of the global financial crisis in late 2008, the developing world still suffered nearly $1 trillion in illicit financial outflows in 2009, a number that is almost 10 times larger than the official development assistance they receive each year from Western economies like the United States, United Kingdom and Norway.

These outflows — the proceeds of crime, corruption and tax evasion — bleed developing economies of much-needed tax revenue, exacerbate income inequality, and fuel the underground economy. They undermine the rule of law, entrench corruption, and shrink developing nation economies at a time when they can least-afford it.

Of course, this juxtaposition of foreign aid and illicit outflows naturally raises the question: why should Western powers, which are currently struggling with their own economic problems, continue giving aid to developing economies if so much money is just going to flow back out illicitly? Are we wasting our money? Or worse, are we fueling the problem?

The simple answer is that research does not find any connection between foreign aid investments sent to a particular country and illicit money flowing out of that same economy. Aid money tends to be highly monitored, and it is generally directed toward poverty alleviation and improving social services — efforts which, if anything, would likely curtail illicit outflows, which are driven in part by income inequality. Indeed, a prime example of this non-connection is China, which suffered illicit outflows of $291 billion in 2009 — several times more than any other nation — while only receiving about $1 billion in development assistance.

A more nuanced analysis of the issue reveals that, while officials in developing nations are not innocent in the matter, financial structures created and maintained by Western economic powers are the main factor facilitating the illicit flow of money out of the developing world.

A shadow financial system consisting of tax havens, secrecy jurisdictions and anonymous corporate vehicles makes it easy for corrupt dictators, terrorists, drug traffickers and tax evaders to quietly shepherd their funds out of the developing world and around the planet without notice.

The problem is endemic, with more than 60 tax havens scattered across the globe offering low to no taxes on profits booked in non-functioning entities. Nearly all of these jurisdictions, which include economic powers like the United States and United Kingdom, offer secrecy services enabling entities to form behind trustees and nominees such that no one, including law enforcement, can figure out who are the real owners.

As long as this tax haven secrecy exists, developing economies will continue to hemorrhage vast sums of money. Yet, just as developed Western economies created this opaque financial system, they can dismantle it.

The world’s leading economic powers, like the G20, have the ability to introduce transparency measures banning the use of anonymous shell companies, requiring multinational corporations to account for their sales and profits in every jurisdiction in which they operate, and sharing tax information automatically between countries. Representing 85 percent of the world’s economy, they carry the heft necessary to exert enough pressure on these secrecy jurisdictions to ensure that the world moves towards transparency and away from a system pillaging the pockets of the world’s poorest people.

Certain Western countries have already taken the lead in bringing about much needed transparency on an international level. The 10 government members of the Task Force on Financial Integrity and Economic Development have placed the issue of tax haven secrecy and illicit financial flows on the global agenda. At the same time, Western aid for schools, hospitals, and farm programs has contributed to improving the lives of millions worldwide struggling with the devastations of war, famine, and extreme poverty.

Of course, the end goal is a world in which official development assistance is obsolete — a world without poor countries and rich countries, a world that consists entirely of developed economies. Until that day, foreign aid remains an essential tool in the battle against poverty.

Task Force to the G20

Corruption, Country-by-country, Development, Information exchange, Secrecy jurisdictions, Task Force on Financial Integrity and Economic Developm, Tax avoidance Comments Off

Oct 172011

The Task Force on Financial Integrity & Economic Development (of which Tax Research UK is a committee member) released the following communiqué following its 2011 annual conference, held this year in Paris, France on October 6-7, 2011:

This past week, the Task Force on Financial Integrity and Economic Development (Task Force) concluded its annual two-day conference in Paris, France, building upon its success in recent years establishing an awareness and understanding of the problem of illicit financial flows and the importance of increasing transparency in the global financial system.

The Task Force further developed its five recommendations for achieving greater transparency in the global financial system—beneficial ownership disclosure, automatic tax information exchange, trade mispricing curtailment, country-by-country reporting by multinational corporations, and better anti-money-laundering laws, into a working plan for the G20—taking into account obstacles and logistics of implementation.

Specifically, the Task Force recommends the following next steps for the G20, when it meets next month:

Support ongoing efforts to improve domestic resource mobilization for tax collection and empower anti-corruption efforts through greater transparency and accountability of Multinational Corporations (MNCs) in the Extractive Industries. Specifically, (1) support full implementation of the Cardin-Lugar provisions (Section 1504) of the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2011 as well as similar legislation that is currently moving through the European Union, and encourage G20 member countries to adopt similar provisions for country-by-country reporting by MNCs in the extractive industries; (2) explore mechanisms and standards to increase transparency on MNCs contributions to governments beyond the extractives; and, (3) encourage members to commit to the Convention on Mutual Administrative Assistance in Tax Matters.
Urge the Financial Action Task Force (FATF) to include (1) establishment of tax evasion as a predicate offense for money laundering, and (2) improvement of the peer review process for member countries in the 40+9 Recommendations as a result of the Review of the Standards currently underway.
Strengthen anti-bribery provisions by implementing and enforcing laws criminalizing foreign bribery and prohibiting off-the-books accounts in accordance with the OECD Convention Against Bribery of Foreign Public Officials and UN Convention Against Corruption (UNCAC), and regularly reporting on the enforcement of these laws.
Call upon member countries to establish national registers of companies, trusts, and other legal entities with information on accounts, beneficial owners, nominee intermediaries, managers, trustees, and settlers. This information should be made available to any tax authority.

Every year, developing countries lose approximately $1.3 trillion in illicit financial outflows—the proceeds of crime, corruption, tax evasion, and trade mispricing. This loss of capital outpaces current levels of foreign aid by a ratio of 10 to 1. Curtailing these outflows is crucial to nurturing a stable and robust economic recovery in global markets, stamping out political corruption and crime, and fostering good governance in emerging economies.

The Task Force on Financial Integrity and Economic Development is a unique global coalition of civil society organizations and more than 50 governments working together to address inequalities in the financial system that penalize billions of people.

Uganda moves to tackle extractive industries corruption

Corruption, Country-by-country, Development 2 Responses »

Oct 122011

The BBC reports:

Uganda’s parliament has voted to suspend all new deals in the oil sector following claims that government ministers took multi-million dollar bribes.

MP Gerald Karuhanga said in parliament on Monday that UK-based Tullow Oil paid bribes to influence decisions.

Tullow said it rejected the “outrageous and wholly defamatory” allegations.

The vote is a big blow to President Yoweri Museveni, who has been in power since 1986, analysts say.

The BBC’s Joshua Mmali in the capital, Kampala, says it means the government will not be able to sign new oil deals until a petroleum law is enacted.

During a heated parliamentary debate on Monday, Mr Karuhanga tabled documents alleging that Tullow Oil bribed Prime Minister Amama Mbabazi, Foreign Minister Sam Kutesa and former Energy Minister Hilary Onek.

This is great news! Corruption of this sort has to be tackled: those involved have to be named and oil revenues have to be made accountable, most especially through country-by-country reporting.

Uganda has taken a step in the right direction.

Memo to the Extractive Industries: tell us what you’re doing in secrecy jurisdictions

Accounting, Country-by-country, Development, Economics, Uncategorized 3 Responses »

Sep 202011

As the Guardian reports this morning:

More than a third of the subsidiaries owned by major energy and mining companies including Shell, BP and Glencore are based in “secrecy jurisdictions” where company accounts are not publicly available, according to a report.

The study by Publish What You Pay Norway, which campaigns for transparent accounting among oil, gas and mining giants, claims that populations in resource-rich countries are losing out because they are unable to extract financial information from businesses operating on their soil or off their seaboards.

“Extractive industry giants’ corporate ownership structures, their use of secrecy jurisdictions and the lack of meaningful information they impart is a major reason why stakeholders in resource-rich nations often meet a wall of silence when asking questions,” says the report. “This makes it very difficult to hold their politicians and the companies that extract oil, gas and minerals to account.”

The report defines “secrecy jurisdiction” as a location where companies are incorporated but accounts and beneficial ownership details are not publicly available. The definition of a secrecy jurisdiction was based primarily on three sources: a list of offshore financial centres published by the International Monetary Fund; a list drawn up by the US tax collection body; and a secrecy index by the non-governmental organisation the Tax Justice Network. The report stressed that there was nothing in the companies’ behaviour that suggested that they evaded tax illegally.

Under those definitions, secrecy jurisdictions include the US state of Delaware, the Netherlands, Belgium and Ireland – as well as Bermuda and the Cayman Islands. According to the report, 10 of the largest extractive industry companies had 2,087 subsidiaries in secrecy jurisdictions. The 10 included Shell, BP and Glencore.

The report’s author, Nick Mathiason, said: “Extractive industry majors organise their ownership structure to ensure their revenues and profits are kept as far away from the source of their mines and fields and in a way that makes it all but impossible for citizens to get a true appreciation of the assets.”A spokesman for Shell said the company paid $15.4bn in corporate taxes last year and is a founder of a transparency drive for energy and mining majors.

The full report is available here. And yes, in the interests of full disclosure I should note I advised on its production.

What are the key issues the report highlights? First of all that when so much of the activity of these companies is hidden from view the need for country-by-country reporting is proven or it is impossible to hold them to account for what they do where, which is the basis of corporate transparency, corporate responsibility and accountability as well as the stewardship concept that directors of suc companies are duty bound to uphold.

Second, the project featured Bolivian and Ecuadorian journalists and campaigners who set out to get key financial and operational question to test whether country-by-country reporting is needed. They found they could not secure any material data on the operations of the companies surveyed in their own countries. The need for international cooperation to ensure companies are held to account locally has been proven.

Thirdly, a legacy resource from the project is the creation of a Web-based database which maps every subsidiary and its incorporation location owned by

ConocoPhillips

ExxonMobil

Royal Dutch Shell

Anglo American

Barrick Gold Corp

BHP Billiton

Glencore and

Rio Tinto

This will be available soon to academics, campaigners, journalists and other interested parties – although what it documents is in effect a series of questions – all of which start with “What do you do in this place and in this company?”

Lastly, it shows the extraordinary extent to which multinational corporations are willing to embrace complexity to avoid tax. Never doubt they like complexity when it suits them. Arguments to the contrary are simply spurious.

My congratulations to Nick Mathiason for undertaking this project and to Publish What You Pay Norway for funding it.

PWC: a fox in the hen house on transfer pricing and developing countries

Development, PWC, Transfer Pricing, Uncategorized 20 Responses »

Aug 012011

The Tax Justice Network has just published a blog on a new EU report on transfer pricing and developing countries.

As they point out, from the outset the report is covered in warning signs about its likely failure to be impartial since the title page carries the following logo:

Why the problem? TJN explains in depth, and I warmly recommend their blog. But I’ll add these issues:

a) PWC are emphatically opposed to country-by-country reporting which has greatest prospect of providing developing countries with the risk assessment data they need to determine which transfer pricing cases to pick. You can’t promote good transfer pricing practice and oppose the availability of data to make it possible.

b) PWC act for the corporates doing much of the abuse.

c) PWC are found in all the world’s major tax havens – where much of the ill gotten gains of abuse are likely to be stashed.

To put it another way – PWC are completely conflicted on this issue meaning anything they write lacks any objective credibility. And given that this issue is so big that’s a disaster when the resources dedicated to this issue are so limited.

Insight: Microsoft use of low-tax havens drives down tax bill

Development, Ethics, Tax avoidance, Tax Havens 4 Responses »

Jul 282011

Great article from Reuters on this issue, here.

I admit I contributed.

As Lynnley Browning, who has just shifted to Reuters from the NYT noted:

Things were rosy in the giant software company’s just-ended fiscal fourth quarter, which produced record sales of nearly $17.4 billion, a 30 percent increase in after-tax profit, and a 35 percent gain in earnings per share.

But for the Internal Revenue Service and foreign tax authorities, things weren’t so rosy. Microsoft reported only $445 million in taxes in the U.S. and other foreign countries, just 7 percent of its $6.32 billion in pre-tax profit.

No wonder the US is in a mess.

No wonder the world is.

And until companies like Microsoft pay tax it will be.

So much for BillGates’ philanthropy: it’s easy to be generous when you don’t pay much tax on your source of wealth.

As Browning noted:

Critics such as Richard Murphy of Tax Research LLP, an anti-poverty and tax research firm based in Britain, argue the U.S. system allows companies to park profits in places where the tax obligation largely disappears. He called Microsoft “a giant tax-planning exercise.”

It sure looks that way to me.

Stand Gates along side Bono, I say.

Prime Minster’s call for greater financial transparency ‘very welcome’ says Christian Aid

Country-by-country, Development 4 Responses »

Jul 192011

Christian Aid issued the following press relase within the last hour:

Christian Aid today welcomed Prime Minister David Cameron’s backing for legislation that will force companies to reveal the taxes and fees paid to governments in every country where they operate.

Speaking in Lagos, the Prime Minister said the EU should follow the example of the US, which has introduced a new law to force mining and oil companies to be transparent about their payments to the regimes where they are extracting wealth.

Christian Aid believes that measures taken by companies trading internationally to conceal their profits and shift them off-shore where little or no tax is payable deprives developing countries of at least $160bn in lost tax revenues each year.

Dr David McNair, Christian Aid’s Senior Economic Justice Adviser, said: ‘The Prime Minister’s call is very welcome. It follows other remarks he has made during his trip highlighting the importance of effective tax systems as a means of enabling developing countries to achieve economic independence.

‘The amount at present lost to developing countries through tax dodging by companies trading across borders is one and a half times the amount rich countries contribute in aid every year.

‘Requiring companies to reveal what they pay with regard to each project they undertake is one step towards curtailing such widespread tax abuse, and will help prevent the bribing of politicians to secure contracts.

‘But EU legislation needs to go further. In order to ensure companies are paying the right amount of tax, we need more information on how the taxes they do pay relate to the profits they make.

‘The money lost to poorer countries through tax dodging could make a significant difference to services such as health and education in the countries affected.’

Christian Aid also welcomed the Prime Minister’s call for greater economic integration between African countries, and increased investment in infrastructure as other essentials towards greater economic self-reliance.

Likewise, the Prime Minister’s restatement of his government’s pledge to increase the aid budget substantially was warmly welcomed given the continuing needs of developing countries.

I welcome the Prime Minister’s comments. I welcome Christian Aid’s comments.

The time for country-by-country reporting has come.

Cameron marches in African solidarity with Diamond’s Barclays gravy train of oppression

Conservatives, Development, Ethics 15 Responses »

Jul 182011

As his grip on power in the UK slips, undermined by his own remarkable lack of judgement, David Cameron his gone off to South Africa for a couple of days to support the Bob Diamond / Barclays Bank gravy train.

As the Guardian notes:

He will praise his generation for marching against African debt and for holding concerts to raise funds for aid to the continent.

No mention of apartheid I note, or Barclays and the Tories role in supporting it. What a strange oversight. There is this though:

But in article in the South African Business Day he will call for a change of approach. “They have never once had a march or a concert to call for what will in the long term save far more lives and do far more good – an African free trade area,” he writes.

This is utterly untrue. In a continent where collecting direct taxes is nigh on impossible – because people don’t earn enough and the infrastructure is not in place – tariffs are essential if revenue is to be raised. But Cameron wants them abolished. The cost to health care, education and well-being will be enormous. Jeffery Owens at the OECD reckoned during a conversation with me a couple of years ago it would be 30% or more of all African tax. That will deliver untold misery.

More than that – Cameron knows (or he should know) o country has developed without the benefit of tariff barriers. It’s how infant industries develop. But off goes Cameron to demand the creation of the Washington Consensus’ dream in Africa – a continent left open to Western exploitation without tax being paid in any local country.

Sickening.

But so typically Cameron.

Has the man any wisdom at all?

Let alone the most basic of human emotions – empathy. But for an accident of birth he might face the poverty that is reality for so many Africans, and he seems utterly unable to understand that. Instead he goes to support one of the most notorious companies involved in the oppression of this continent – Barclays Bank.