Tax Research UK

Well, when it’s ruled so by a relevant body.

The EU did that to the UK yesterday. Mark Lee offers a thoughtful analysis here.

So, the UK has made a mistake. And it could cost £20bn – a 10% increase in the deficit – 20% of the cost of the NHS for a year.

To enrich banks.

I think some counter-measure is needed in the public interest. And I know the libertarians will scream and shout. And my answer is that the EU also has a concept of ‘unjust enrichment’. I think that should apply here.

For more than 20 years stamp duty reserve tax has been paid: few objected – and why should they when the charge is eminently reasonable? But HSBC has now. And the UK government has been found to have made an error.

At the very least a time limit for past claims has to be imposed. I really can’t see a significant tax increase to pay tax refunds to banks is going to go down well with any politician right now.

But let’s also go the heart of this: the EU dedication to the free movement of capital is at fault here. Why should there be that right when people do not share it, universally?

Richard Murphy Europe, Tax management

EU Politics News - theParliament.com.

The chair of parliament’s development committee has called for tough action against multinational companies who “seriously harm” poor countries through their use of tax havens.

Eva Joly, a former magistrate who has gained a reputation for campaigning against fraud and corruption, made her comments at a debate in Brussels on Tuesday.

She said tax havens were used as a means of tax evasion but the “real problem” was the funding and resources she says is subsequently denied to often developing countries, such as those in Africa and India.

Eva is an astonishing woman who has now joined the parliament. She has lost none of her fire!

Richard Murphy Development, Europe, Secrecy jurisdictions, Tax Havens

I’m told that speaking to journalists on the condition of anonymity, an EU official said August 21 that the EU and the EU member states plan to contact Swiss authorities to formalize an agreement that would enable the transfer of bank account information of EU citizens suspected of tax fraud and evasion by depositing large amounts of funds in secret bank accounts.

They said:

We do welcome favourably the fact that it was possible [for Switzerland] to assist the United States in [the UBS] case. We expect a similar request from EU member states to Switzerland would not receive different treatment. Any action to seek to improve good governance and transparency in the area of tax affairs is to be welcome.

More progress.

But when will smaller countries, transition states and developing countries get a look in? No one has more to gain from the opening up of Switzerland than they do.

Richard Murphy Banking, Europe, Switzerland, Tax evasion

The EU announced two days ago that:

In the framework of its strategy to combat tax evasion and fraud ( IP/06/697 ), today the European Commission adopted a proposal for a recast of the Regulation on administrative cooperation in the field of valued added tax, extending and reinforcing the legal framework for the exchange of information and cooperation between tax authorities. One of the key elements of the proposal is the creation of a legal base to set up Eurofisc: a common operational structure allowing Member States to take rapid action in the fight against cross border VAT fraud. The Commission today also adopted a report on the functioning of the administrative cooperation.

László Kovács, Commissioner for Taxation and Customs, said: "In the current economic situation it is more important than ever to fight tax fraud efficiently and a fully functioning administrative cooperation between tax administrations is key in that respect. My objective is to ensure that tax authorities have all technical and legal means to take action against European Union wide VAT fraud and to ensure that each tax administration is prepared to protect other Member States’ tax revenue as effectively as their own."

Eurofisc. [ will be]an operational structure where Member States will in practice, fight fraud together. It should allow a very fast exchange of targeted information between all Member States as well as the setting up of common risk and strategic analysis. This will enable Member States to react timely to stop fraud and catch fraudsters, making it more difficult for new fraud schemes to emerge and spread around the Community

The proposal changes the approach of the protection of VAT revenues. In addition to giving Member States tools to cooperate more closely and to exchange information faster, the Recast regulation sets out that Member States are jointly responsible for the protection of VAT revenues in all Member States.

This is great news. It is so obviously the right direction of travel. But if “in the current economic situation it is more important than ever to fight tax fraud efficiently and a fully functioning administrative cooperation between tax administrations is key in that respect” is true of VAT why is it not true for direct taxes such as income tax and corporation tax? And why isn’t the OECD taking this approach across the world instead of promoting Tax Information Exchange Agreements?

The EU is, as has often been the case, three steps ahead of the OECD here. I just hope the OECD catches up very, very soon. They need to.

Richard Murphy Europe, OECD, TIEA, VAT

KPMG has reported that dividends paid by a Finnish company to a Luxembourg tax exempt fund cannot have tax deducted from them in Finland if a payment within Finland would not have had that tax deducted.

The decision is predictable but the response should be just as predictable. All EU countries should deduct tax at source on dividend payments with credit only be allowed for offset against tax due in the recipient state.

Richard Murphy Corporation Tax, Europe

FT.com / Brussels - UK wins EU bank concession.

The UK has secured a promise from its European Union partners that EU supervisors will not be given the power to force national governments into recapitalising banks with taxpayers’ money.

The promise, contained in a statement after an EU finance ministers’ meeting in Luxembourg on Tuesday, eased British concerns about whether an overhaul of EU financial supervision might restrict national fiscal sovereignty.

A majority of EU countries support tougher pan-European  rules to avert future financial turmoil and are willing to give EU supervisors the power to impose binding decisions on governments in situations where two or more national supervisors cannot agree on how to treat a bank in difficulty.

But a small group of EU states, led by the UK, opposed such an expansion of EU-wide supervisory powers, saying it would undermine the principle that taxation is a matter for national governments, not the EU.

I find this extraordinary.

The governments that won in the EU elections (and many ruling parties did do well) were those that tackled their finance industry. They got popular support for doing so. Labour will not tackle finance. It’s at the core of its weakness. It did badly.

And anyone with any sense knows finance and tax are global. Finance has to be regulated globally. That way you bring the banks to account. And you expose the secrecy spaces they use, like tax havens. They have to be brought into the regualtory reginme: something the UK still seems to be deliberately resisting, at cost to the world at large.

But what I find most annoying is the argument about tax sovereignty. We long ago conceded that on VAT. And the reality is that tax yield is based on the combination of tax base and tax rate. You can control one of those two at any time, but not both at once.

If we cooperated on tax base protection then we could have sovereignty on rates. That makes sense. Bet foregoing most rax sovereignty whilst pretending we can do the impossible on rates and base at the same time is just folly: it cannot produce sustainable outcomes that ensures the UK can impose the taxes it wants. And of course our finance industry wants that outcome - and Labour delivers, as will the Tories.

Who pays - you do, I do, everyone in the UK does as more and more of the tax burden shifts away from business and capital and onto ordinary people.

Labour has to re-learn tax. It really doesn’t understand it right now.

Richard Murphy Economics, Europe, Tax Havens, Tax management

Another Tax Justice victory in the Euro elections: Tax Justice Network co-founder Sven Giegold has been elected for the Greens in Germany.

Richard Murphy Europe

Another story mentioned here recently has moved on to the national press.

The Observer has noted that:

Sir David Tweedie, chairman of the International Accounting Standards Board (IASB), is to be grilled on Tuesday by European finance ministers and senior EU commissioners.

The development comes as speculation mounts that the IASB will be reformed as a result of the financial crisis. It could even lose its powers to set international accounting standards.

As it notes:

A growing body of opinion is unhappy with the IASB. It approved accounting principles that allowed financial institutions to book profits from unrealised assets.

And there’s a twist:

There are also concerns among European power brokers, particularly within France and Germany, that the IASB is an "interconnected old boy’s network". A third of its board had worked for KPMG or firms that KPMG later acquired.

Tweedie is, of course, one of those.

I’ve said it before, and I’ll say it again: chums can’t regulate chums. When they do it ends in tears. A lot have flown since 2007, and the International Accounting Standards Board has been responsible directly and indirectly for quite a lot of them.

Richard Murphy Accounting, Ethics, Europe, IASB

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".

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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

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