Tax Research UK

The European Commission today has adopted a Communication identifying actions that EU Member States should take to promote "good governance" in the tax area (i.e. more transparency, exchange of information and fair tax competition). The Communication identifies how good governance could be improved within the EU. It also lists the tools the EU and its Member States have at their disposal to ensure that good governance principles are applied at international level. Finally, it calls on Member States to adopt an approach that is more coherent with good governance principles in their bilateral relations with third countries and in international fora. The Communication builds on the existing EU policy on good governance and the recent G20 conclusions concerning uncooperative tax jurisdictions.

László Kovács, Commissioner for Taxation and Customs, said: ”EU Member States cannot afford to act alone when designing policies to prevent their tax revenues disappearing to tax havens or non cooperative jurisdictions If they do not cooperate with each other, including in international fora, their actions to protect their revenues will not produce effective results’

Improve good governance within the EU

Improving good governance within the EU would reinforce the argument for other jurisdictions to take similar steps.

The Commission therefore calls on the Member States of the Union to adopt as soon as possible its recent proposals to:

• Ensure effective administrative cooperation in the assessment of taxes which would, in particular, prohibit Member States in future from invoking bank secrecy laws as a justification for not assisting the tax authorities of other Member States (IP/09/201);
• Ensure administrative cooperation in the recovery of tax claims;
• Improve the functioning of the Savings Tax Directive (IP/08/1697). There is a need to extend the scope of the Directive to intermediate tax-exempted structures (trust, foundations…) and to income equivalent to interest obtained through investments in some innovative financial products.

The Commission also calls on Member States to continue the work to eliminate harmful business tax measures under the Code of Conduct for Business Taxation.

Promote good governance in the relations with third countries

The European Commission proposes to improve the particular tools that the European Community and EU Member States may have at their disposal to promote good governance internationally:

• it identifies ways to ensure better coherence between EU policies in general, so that EU partners would commit to good governance principles. This includes enhancing good governance principles in relevant EU-level agreements with third countries as well as through development cooperation incentives;
• it calls on the EU Member States to adopt a coordinated and coherent approach in the promotion of good governance principles towards third countries, including, where appropriate, coordinated action against jurisdictions that refuse to apply good governance principles.

Some of the concrete actions proposed are:

• To invite the Council to give the appropriate political priority to the mandate given to the Commission to include good governance principles in relevant EU agreements with third countries.;
• To discuss with Member States possible counter-measures towards non cooperative jurisdictions in the tax area (the OECD Secretariat has suggested a list of measures. These will need to be examined together with the Member States);
• To promote more cooperation with third countries in the framework of the Savings Tax Directive;
• To conclude specific agreements in the tax area containing, if appropriate, provisions on transparency and exchange of information for tax purposes at EU level to accelerate the process of implementing commitments to greater transparency and exchange of information made by certain jurisdictions;
• To consider a reallocation of funds towards developing countries that are implementing satisfactorily their commitments; and, conversely, considering a cancellation of funds earmarked for those countries that did not implement their commitments;
• More coherence between Member States’ own bilateral tax policies towards third countries and the principles of good governance in the tax area.

Background

With the financial crisis, the need for national governments to safeguard their tax revenues is more acute than ever.

The need to promote international tax cooperation and common standards has now become a regular item on the agenda of discussions, both within the EU and in international fora. Most recently, the G20 Leaders agreed at their summit in London (April 2, 2009), "to take action against non-cooperative jurisdictions, including tax havens".

—————-

All I can add to the above is “hear, hear”. There is much in here which is incredibly good news.

Richard Murphy EU STD, Ethics, Europe, Tax management

It is reported that:

All EU Member States should agree to exchange full information on interest earned on saving accounts by July 2014, says MEPs in a report adopted on Friday (25m April). Members also called for an end to tax havens.

In approving by 351 votes in favour, 27 against and 20 abstentions, the report by Benoit HAMON (PES, FR), the EP called for the end of the withholding tax option for certain Member States and asked the Council to take action to put an end to so-called tax havens. The aim of the draft legislation under consideration is to improve action against tax fraud.

Under current EU legislation, Belgium, Austria and Luxembourg benefit from a transitional period during which they are not required to automatically exchange information on tax matters and can instead apply a withholding tax to savings accounts of non-residents as an alternative. The approved report calls for an end of this transitional period at the latest by July 2014.

Moreover, Members agreed to call on the Community to "take appropriate action" to improve transparency of so-called tax havens. This would mean, for jurisdictions large and small, including the Monaco, Andorra and Liechtenstein, Switzerland and the US, agreeing to apply the OECD standards in the field of transparency and exchange of information on tax matters.

According to the rapporteur, tax fraud in the European Union amounts to more than EUR 200 billion a year, which represents more than 2% of its GDP.

As is usual with taxation issues, Parliament’s views are advisory rather than binding and the final decision is for the Council, acting unanimously.

Excellent news.

The vote was so clear: the message is emphatic, the withholding option has to go.

Richard Murphy EU STD, Secrecy jurisdictions, Tax Havens, Tax evasion

Curious that Michael Foot seems to have utterly missed the economic tsunami heading in the direction of the British tax havens in the form of the revised EU Savings Tax Directive.

Under the revised STD, which is expected to receive Commission approval very soon, all offshore trusts and companies created for tax planning purposes in these locations simply be ‘looked through’ for the purposes of the STD and tax be withheld on the basis of the identity and residence of the beneficial owner or controller, or tax data will be exchanged on that basis.

This is going to put these places in a very different position from all other tax havens. Of course that is very welcome – they will be cleaner than most. But it is also bound to have economic impact.

Michael Foot seems not to have noticed.

Why is that?

Richard Murphy EU STD, Secrecy jurisdictions, Tax Havens

Tax Justice Network: Swiss banker to EU: we knew we were tricking you.

Swiss banker quoted in German newspaper Sonntag:

We said that the witholding tax was a measure against tax evasion. That was, of course, a lie, because the arrangements can be structured so that the tax never has to be paid. When we negotiated with the EU on the Savings Tax Directive, we knew it had no teeth.

What is encouraging is these people’s candour right now. It’s going to make it much easier to get the next round of EU STD reform through. 

That one will hve teeth.

Richard Murphy EU STD, Switzerland, Tax evasion

Swiss government stands up to OECD over tax and outlines its policy. - swissinfo.

The Swiss are being beligerent:

“Switzerland will no longer accept lists drawn up by the OECD,” Merz told a news conference after a special cabinet meeting called to respond to the growing pressure on the Swiss financial centre.

So what? The sanctions will work anyway.

This is even more absurd:

The cabinet reiterated that Switzerland has no intention of seeking the suspension of a bilateral treaty with the European Union on a withholding tax on assets of EU citizens held in Switzerland.

Merz ruled out an automatic exchange of information between Brussels and non- EU member Switzerland.

However, Switzerland is willing to discuss reforms, in particular a reduction of the savings tax rate, he said.

My emphasis added, but note that as ever Switzerland wants to refuse information exchange and explicitly help tax evaders at the same time. 

They really are in no position to negotiate. Have they already forgotten that UBS is an admitted i nternational tax fraudster? Or that a SWiss private banker has admitted half the money will leave the country if secrecy goes? 

Get real guys: the game is over and you’ve been rumbled. 

More than that - the new EU STD is on its way.

Richard Murphy Corruption, EU STD, Switzerland

Europe gets tough on offshore bonds - 9 April 2009.

The amendments I’ve been helping promote to the EU Savings Tax directive are winning support and are going ahead.

The loopholes are closing as a result - and ignore all the financial services whinging here - this change is essential to prevent the abuse that happens now and would continue into the fuiture without real change.

Richard Murphy EU STD

I’m blogging from the House of Commons where I am speaking at a meeting organised by PCS and War on Want on tax justice.

I’ve just been challenged by Michael Meacher MP to outline a plan of what I would do if I was Gordon Brown between now and the G20, next Wednesday. My response was this:

1. The UK should admit that the Crown Dependencies and Overseas Territories are ours – as the current crisis in The Turks & Caicos have proven in the last week, and that we can therefore reform them;
2. Publish the terms of reference for the Foot Commission into UK tax havens so we know that reform is going to happen;
3. Announce that the forthcoming banking code will compulsorily ban banks from undertaking structured tax avoidance;
4. Announce that this ban will be extended to all UK companies through a general anti-avoidance provision being enacted in the UK;
5. Support the call for country by country reporting which will make all companies go on record about their use of tax havens;
6. Announce an end to HMRC redundancies so the resources are available to deal with automatic information exchange which we so badly need;
7. Announce unconditional support for the amended EU Savings Tax Directive which would shatter the use of offshore structures in many places – and that we will impose this on our own tax havens, as we can.

All of that is possible.

None require international support.

All would offer clear indication of leadership that would set an example to all at the G20, and all those watching it.

Richard Murphy Development, EU STD, Economics, G20, Secrecy jurisdictions, Tax Havens, Tax avoidance

The new EU Savings Tax directive is due for approval in April.

But now Reuters say:

The European Union’s rules on taxing deposits held outside a home state must be redrawn after moves by Luxembourg and other countries to apply global rules on tackling tax evasion, the Grand Duchy said on Tuesday.

Luxembourg Treasury and Budget Minister Luc Frieden said the country’s decision to adopt OECD rules for exchanging information with other countries on tax cases should be used by all EU states.

The EU executive’s plan for revising the bloc’s rules on savings tax and exchange of information between member states go further than the OECD standards adopted last week by Luxembourg.

"If that is the worldwide standard and if all the countries agree to that, then I think it would be strange if the EU member states that are part of the G20 say something different," Frieden told the Reuters Fund Summit.

"We agreed together with Swizterland, Singapore, Hong Kong and others to change to an exchange of information on demand but that must then be the standard applicable everywhere," Frieden said.

What does this mean? Simply that Luxembourg wants to offer one or two of the useless Tax Information Exchange Agreements and scarp the EU STD.

Let me remind them of that word sanctions.

It may be time to impose them.

400,000 people in Luxembourg are not going to bring down reform of the world’s financial architecture for their own ill-gotten gain.

But it does remind us that corrupt people are everywhere. And yes – I am saying in this case the the politicians of Luxemburg are corrupt. I am saying they are running a secrecy jurisdiction. I am saying they are letting heir banks handle what they know to be stolen property – because that is what tax evaded money is.

Richard Murphy Corruption, EU STD, Secrecy jurisdictions, Tax Havens

Don’t hold your breath but people are talking about getting the revised EU Savings Tax Directive through the Commission in April and in operation by 2012.

This would have as much impact on many tax havens as anything the G20 can do. Especially as serious consideration is being given to some of the amendments I helped draft.

I won’t hold my breath.

I might pray.

Richard Murphy EU STD, Europe

TUC research published today shows that tax avoidance by wealthy UK residents through tax havens cost UK tax payers at least £4 billion a year, as well as providing the first ever analysis of the role of individual tax havens in tax lost to the UK. This shows that most of the loss to tax havens is caused by Jersey, Switzerland, the Isle of Man and Guernsey.

I am the author of this research. It was based on data published in Hansard in February in a parliamentary answer to Austin Mitchell MP.

The logic behind the work is relatively straightforward. Under the EU’s Savings Tax Directive UK residents who held off-shore bank accounts in tax havens could either declare all their interest to HMRC or opt to instead have 15 per cent tax withheld from the interest payments by the tax haven where they held their account during the period under review. Three-quarters (75 per cent) of the tax deducted was then paid to the UK government, with the rest being retained by the government of the tax haven, making the effective UK tax rate on such off-shore accounts 11.25 per cent rather than the 40 per cent that would be paid if the money was held in the UK in the period the research covers.

This gave rise to the following data on receipts after converting all currencies at official HMRC rates for the periods in question:

For these purposes Austria, Belgium and Luxembourg are tax havens because they refuse to exchange data with the UK under the EU STD.

The payments made have been grossed up on this ratio to estimate the gross income not being declared. In three years this comes to more than £1 billion.

The tax lost has then been calculated, which would be 28.75% of the gross income because it is almost certain that anyone opting for tax withholding will not be declaring their income in the UK. If that was their intention they would have opted for information exchange. This tax lost increases from £58 million in 2005/06 (the year tax withholding started, and was a nine-month period for UK reporting purposes) to £109 million in 2006/07, leaping to £151 million in 2007/08.

The figures show that over the last three years the total tax lost was £319 million on a total income from such accounts for their holders of £1.1 billion. Most money was lost over the period reviewed through accounts in Jersey (£94 million), Switzerland (£72 million), the Isle of Man (£68 million) and Guernsey (£47 million).

But these figures are a serious underestimate of the total tax lost through tax havens for two main reasons. First only relatively small account holders put their funds in their own names in these places. I estimate based on data published by Jersey Finance and other sources that more than five times the amount held in individual’s names will be held in trusts or companies for the benefit of wealthy individuals. These trusts and companies are not covered by the EU Savings Tax Directive and as such can be used to avoid UK tax with little risk of detection. Secondly evidence published by Merrill Lynch in the World Wealth Report suggests that only 18% of people’s portfolios held offshore are likely to be in cash. I would add, these losses do not relate to non-domiciled people.

Extrapolating the above data, and going for lower ratios, and assuming the annual loss is £150 million in the above table, the likely loss to the UK Exchequer from this is at least £4 billion.

As TUC General Secretary Brendan Barber said:

The mechanisms of tax avoidance are always hard to understand, but this is a very simple story. If the super-rich held their money and assets in the UK they would contribute at least £4 billion pounds extra. This would be enough for the government to meet its target to halve child poverty by 2010, and would mean that instead of being squirreled away in tax havens it was being spent in the real economy here helping us fight recession. With the tax take falling because of the recession, there can be no better time to get tough with the super-rich, so many of whom did so much to throw the world into recession.

We welcome the Prime Minister’s call for the G20 to get tough on tax havens. This is an important demand of the unions, development and faith groups organising the Put People First march for jobs, justice and climate on March 28^th in the run up to the London G20 summit. But the UK government can do much more.

It should back plans to reform the EU Savings Tax Directive to enhance information exchange between tax havens and the UK and other member states. It could also require that all the many tax havens it controls cancel the tax withholding option they now offer that provides this continuing opportunity for tax abuse. And we could require that they place the accounts - and even trusts - that are registered in their domains on public record so everyone can see what is going on in each tax haven.

Tough stuff? maybe. But what’s more important? Children in poverty or those evading tax in these places? It’s not a tough decision, is it?

And finally, before anybody points this out, these estimates include the impact of the domicile rule, they exclude places  like Singapore and Dubai, they exclude all tax avoidance and they exclude all corporate tax activity.

Take these into account and this data is completely reconcilable with the estimate I’ve previously published of a minimum total cost of tax havens to the UK each year of at least £18.5 billion.

Richard Murphy EU STD, Guernsey, Isle of Man, Jersey, TUC, Tax Havens, Tax evasion