Tax Research UK

Global Financial Integrity (GFI) launched its "G20 Transparency" campaign today, an international grassroots sign-on drive to collect 100,000 signatures on a petition calling for greater transparency in the global financial system.  The petition will be delivered to Canadian Prime Minister Stephen Harper prior to the G20 meeting in Toronto at the end of June.

The campaign kicked off with the debut of www.G20transparency.com, a Web site devoted to the campaign where supporters may read and sign the petition, which will be available in Arabic, Chinese, French, Russian and Spanish.  The Web site will also allow supporters to share the petition with others via peer-to-peer and social networking tools.

The petition states:

Research shows that each year $1 trillion in illicit money flows out of developing countries - roughly ten times the amount of official aid money that is received.  The World Bank and others have cited these estimates repeatedly.  Illicit money flows are facilitated by an opaque financial system comprised of tax havens and secrecy jurisdictions.  Illicit capital outflows greatly exacerbate poverty and lead to the deaths of millions of people.  Illicit financial flows constitute a human rights problem of huge proportions.

The world’s largest economies - the G20 nations - will meet in Toronto on June 26-27, 2010.  They have an unprecedented opportunity to institute changes that will create a transparent global financial system that is open, accountable, fair and beneficial for all.

GFI director Raymond Baker said:

We intend to send a clear and resounding message that the world wants G20 leadership to recognize that human rights and international financial integrity are intimately linked. 

Where poverty is pervasive, civil, political, and economic rights often go unrealized. Today, large outflows of illicit money - many times larger than all development assistance - greatly aggravate poverty and oppression in many developing countries.

Please do sign the petition.

Richard Murphy Development, G20

This letter went out today to the Finance Ministers of G20 countries, signed by nine organisations including the Tax Justice Network. For the pdf version, with logos and signatures, click here.

Wednesday, October 28th 2009

Dear Finance Minister,

In the run-up to the G20 Finance Ministers’ meeting in St Andrews, civil society organisations from around the world are writing with regard to the G20 Heads of States’ commitment at the London Summit in April to ‘develop proposals by end 2009 to make it easier for developing countries to secure the benefits of a new cooperative tax environment.’

In November 2008 at the United Nations’ Financing for Development review conference, the world’s governments agreed that “capital flight, where it occurs, is a major hindrance to the mobilization of domestic resources for development.” A commitment was made to “strengthen national and multilateral efforts to address the various factors that contribute to it.”

We civil society organisations believe that tax is the most sustainable and key source of development finance. Yet developing countries lose an estimated US$160bn each year in tax revenue as a result of tax evasion by multinational companies . This money, if invested according to current spending patterns, could save the lives of 350,000 children under the age of 5 each year.

While the G20 has made significant progress in breaking tax haven secrecy, the proposed reforms in their current form are unlikely to meet that commitment to truly benefit developing countries. Criteria used by the Organization for Economic Co-operation and Development in order to build its black, grey and white lists are based on bilateral agreements and on by request information exchange models. These remain largely inadequate for developing countries, which will hardly benefit from bilateral agreements and will face huge obstacles to effective use of the by request model of information exchange. If we are to put an end to the era of banking secrecy, as claimed by G20 leaders in London in April, bolder and more comprehensive measures need to be taken urgently.

The OECD Forum on Tax Administration in September considered a number of proposals specifically aimed at developing countries, but none were comprehensive enough to address this problem fully. We are therefore calling on you to:

1. Support a truly multilateral agreement for automatic exchange of information between jurisdictions, including the disclosure of beneficial ownership of assets and trusts. At the very least, a robust review mechanism must be put in place to evaluate the extent to which developing countries have been able to benefit from progress on information exchange.

2. Support an international accounting standard requiring multinational companies to report profits on a country-by-country basis. The OECD is currently investigating this proposal. We urge all G20 members to take an interest in this investigation and to use the St Andrews’ summit to request a formal report from the OECD to the G20.

Both measures aim effectively to combat tax evasion and, therefore, should be incorporated in regional and bilateral investment agreements with developing countries.

It is our belief that these measures would provide developing countries with the information they need to pursue those who evade and avoid tax and would ensure that the G20’s commitment to developing countries is honoured. We urge you to advocate this position both in the G20 negotiations and in public.

Yours sincerely,

Directors of Organisations

Nuria Molina, Eurodad director
Rómulo Torres, Latindadd director
Bernd Nilles, Cidse secretary general
John Christensen, TJN director
Raymond Baker, GFI director
Daleep Mukarji, Christian Aid director
Jeremy Hobbs, Oxfam International director
Ramesh Singh, ActionAid International Chief Executive
Jean Merckaert, PPFJ coordinator

Richard Murphy Country-by-country, Development, G20, Tax Justice Network

TJN USA has issued a statement following the G20:

We are heartened by the G-20’s renewed commitment to cleaning up tax havens, building on the progress that it made at the London summit last April. However, we are concerned that the G-20 really needs to do much more to translate this commitment into reform. 

While the G-20 communiqué states (para. 15) that its “commitment to fight non-cooperative jurisdictions has produced impressive results,” in our view, it relies excessively on the OECD’s Global Forum on Transparency and Exchange of Information. That program, while helpful, has so far been limited to requiring tax havens to agree to provide information “upon-request.”  As experience has shown, this approach is costly, time-consuming, and a very poor deterrent.

We would like to see the G-20 apply more fundamental solutions.  As discussed in our September 5, 2009 letter to the G-20’s Working Group Two, these include:

  Automatic information exchange;
  Stricter reporting requirements for the ultimate beneficial owners of trusts and corporate accounts;
  Country-by-country financial reporting, to curb the massive global corporate transfer pricing abuses
that are occurring through havens;
  Stricter codes of conduct for the “global haven industry” – the banks, law firms, and accounting firms that profit handsomely by actively enabling their clients to evade taxes

We welcome the fact (para. 42) that the G-20 recognizes the importance of dealing with illicit financial flows of all kinds from developing countries. The global haven industry provides the platform for all these flows. 

It is important to emphasize just how large and profitable this industry is – even in these hard times. By our estimates, at least $11 to $15 trillion of private assets are sitting offshore, invested by way of tax havens, and paying little or no tax back home. 

The recent UBS case in the U.S. demonstrated that wealthy countries are being victimized by the use of offshore havens.  But the victims of this under-regulated system also include developing countries, which account for more than half of all untaxed offshore assets – almost all of which have been invested in First World banks and stock markets. This costs developing countries at least $100 billion of lost tax revenue per year. 

James S. Henry, Board Member of Tax Justice Network, commented:  

“Unfortunately, so far, the G-20’s bold rhetoric on the tax haven issue –  “ending bank secrecy” (4/09) and “fighting non-cooperative jurisdictions” (9/09) – hasn’t been matched by its actions. Especially at a time when we are asking developing countries to spend tens of billions a year to reduce their CO2 emissions and mitigate the impact of global warming, we should be seeing much stronger leadership on this issue. So long as the global haven industry is permitted to continue business as usual, the G-20’s business with respect to tax havens will remain unfinished.”

Richard Murphy G20

G-20 Near Deal on Economy - WSJ.com.

According to the Wall Street Journal:

The summit is also gearing up to announce a tough approach to dealing with tax havens, according to a draft of the communiqué the group will present Friday

These things can change.

I hope not.

Richard Murphy G20, Secrecy jurisdictions, Tax Havens

G20 to slap sanctions on tax havens from March 2010 | Business News | Reuters .

Finance ministers and central bankers from the Group of 20 on Saturday gave tax havens until March 2010 to cooperate on tax evasion or face sanctions.

Officials from the world’s 20 biggest developed and emerging economies asked the Financial Stability Board of G20 central bankers, regulators and finance ministry officials to report on criteria and compliance by November 2009.

The G20 stood “ready to use countermeasures against tax havens from March 2010,” they said in a statement.

Better than nothing.

But no real progress on key issues like Automatic Information Exchange.

Overall outlook: worrying.

Richard Murphy G20, Tax Havens

This was announced by G8 Finance Ministers today:

The Lecce Framework: Common Principles and Standards for Propriety, Integrity and Transparency

We are in the middle of the worst crisis since the Great Depression. The breadth and intensity of the prolonged downturn have revealed the importance of strengthening our commitment to standards of propriety, integrity and transparency. Excessive risk taking and the violation of these basic principles contributed to undermine international economic and financial stability. This occurred both in areas that relied on self regulation and market discipline and in fields with formal rules and oversight, revealing flaws in the functioning of markets.

For the market economy to generate sustained prosperity, fundamental norms of propriety, integrity and transparency in economic interactions must be respected. The magnitude and reach of the crisis has demonstrated the need for urgent action in this regard. Reform efforts must address these flaws in international economic and financial systems with resolve. This will require promoting appropriate levels of transparency, strengthening regulatory and supervisory systems, better protecting investors, and strengthening business ethics.

Today, we, the G8 Finance Ministers, discussed the need for a set of common principles and standards for propriety, integrity and transparency regarding the conduct of international business and finance. We have agreed on the objectives of a strategy, "the Lecce Framework", to create a comprehensive framework, building on existing initiatives, to identify and fill regulatory gaps and foster the broad international consensus needed for rapid implementation.

The Lecce Framework recognizes that there is a wide range of instruments, both existing and under development, which have a common thread related to propriety, integrity and transparency and classifies them into five categories: corporate governance, market integrity, financial regulation and supervision, tax cooperation, and transparency of macroeconomic policy and data. Specific issues covered include, inter alia, executive compensation, regulation of systemically important institutions, credit rating agencies, accounting standards, the cross-border exchange of information, bribery, tax havens, non-cooperative jurisdictions, money laundering and the financing of terrorism, and the quality and dissemination o f economic and financial data. International institutions and fora have already developed a significant body of work addressing a number of important issues in these areas, but, in many cases, the initiatives suffer from insufficient country participation and/or commitment.

Today, we agreed to create a coherent framework which builds on work done by the IMF, World Bank, OECD, FSB, FATF, and other international organizations, to strengthen the global market system. To ensure effectiveness, we will make every effort to pursue maximum country participation and swift and resolute implementation. We are committed to working with our international partners to make progress with the Lecce Framework, with a view to reaching out to broader fora, including the G20 and beyond.

I’m committed to the principles.

Is this the right way forward? I don’t know. I’m not sure the G8 is the place to start anymore. I’d like to see what we have work, or be effectively applied. So I’d like automatic information exchange, which everyone knows massively increases compliance as a starter. And I’d like country-by-country reporting. And I have to be candid: I think they can deliver more than tinkering with the existing structures, as I noted here recently.

So a useful commitment, but to the wrong delivery mechanism, I fear.

Richard Murphy Development, G20, OECD, Secrecy jurisdictions, Tax Havens, Tax avoidance, Tax evasion

It has been reported that:

Finance Minister Hans-Rudolf Merz says there is no rush to negotiate a double taxation agreement with Germany in the wake of Switzerland relaxing its banking secrecy.

In an interview with the NZZ am Sonntag newspaper, Merz said: "I am in no hurry."

Switzerland has, of course, said it will adopt international standards for tax transparency and cooperation in 12 new treaties it has been called on to sign by the end of the year.

But rumour has treated me that at least one Caribbean island is seeking to sign twelve such agreements exclusively with locations like the Faroe Islands and Greenland so that they have no impact at all.

It is slightly galling to have to say so soon after the event that I was right to suggest it was absurd to suggest that 12 such treaties indicated international compliance, but that I have to do. It very clearly does not. It could never have done so.

After all, 12 was suggested to be appropriate at the G20.

There was no requirement the G8 be included in the 12.

There are 27 states in Europe.

There are 200 odd jurisdictions in the world.

Where the heck did 12 come from? It was always an opportunity for the abusers to claim compliance when the truth was very obviously otherwise.

And so it is proving to be.

Merz repeated Switzerland was working urgently to secure the agreements.

In the case of the negotiations with the United States, Merz remained cautious about whether the Swiss would get a US lawsuit against the UBS banking group dropped in return for a treaty.

"I don’t know if the deal succeeds," he said. But he added that US finance minster Tim Geithner had understood the US had also to make concessions.

The US Internal Revenue Service is seeking to force UBS to reveal the identities of 52,000 Americans suspected of using accounts at the bank to hide about $14.8 billion (SFr16 billion) of assets and evade US taxes

Richard Murphy G20, OECD, Switzerland, Tax management

British Virgin Islands signs tax treaties - Forbes.com.

The British Virgin Islands is closer to getting off an international “gray list” of global tax havens.

The Caribbean territory said Monday it has signed tax information exchange agreements with the Nordic group of countries at Iceland’s Embassy in Denmark.

Another deal with Greenland and the Faroe Islands goes to prove how absurd the OECD was in saying 12 Tax Information Exchange Agreements meant a place was internationally compliant. 

There are mkore than 20 states in the G20.

There are 27 in the EU.

200 odd in the world.

Why 12?

It is completely illogical.

One example: as yet Italy and Spain have not a single Tax Information Exchange Agreement between them.

Richard Murphy G20, OECD

TJN has two very important blogs on Cayman out today.

One is about their attempt to get off the OECD grey-list.

The other refers to their internal panic about being on it.

Both well worth reading.

Richard Murphy Cayman, G20, OECD

Africa’s missing billions | The Argument.

For Africa, the era of banking secrecy is far from over argues Khadija Sharife writing in Foreign Policy.

As she notes:

The G-20’s London summit, which saw British Prime Minister Gordon Brown boldly declare, “The era of banking secrecy is over,” was a good start. But G-20 leaders, focused on tax evasion in their countries, failed to notice that the developing world loses an estimated $385 billion to tax abuse annually. They failed to call for country-by-country reporting or mandatory automatic exchanges of information about where corporate profits are going. Nor were there any calls to recover and return the estimated $11.5 trillion currently stashed in tax havens dotting the globe. Instead, the G-20 countries proposed bilateral tax arrangements related to “suspected” tax evasion, and this, on “request” only. Good luck getting complicit African governments to turn on their multinational partners.

Precisely.

Richard Murphy Country-by-country, Development, G20, Tax Havens, Tax evasion