Information exchange » Tax Research UK

Europe puts Switzerland in its place – and the UK too

Feb 152012

“Encouraged by recent international developments to improve transparency and administrative cooperation” on taxation matters, the European Commission reiterated, on 15 February, that it is “more determined than ever to promote information exchange at the largest scale possible”.

It has accordingly held “very constructive discussions” with Germany and the United Kingdom to make their Rubik agreements compatible with European rules on savings taxation. “We agreed on the need to remove from their scope” all products covered by existing European rules on savings taxation and those that may be covered in the future. “This should enable us to put this problem behind us and concentrate on the intra-EU negotiations” on the taxation of earnings on savings.

So that’s the end of the Swiss deal then.

And we’re on track for real automatic information exchange it seems.

Maybe not overnight. But it seems like some people are really seeking to be courageous on this issue.

Ed Miliband says it’s time to come clean to the UK’s tax havens

Cayman, Guernsey, Information exchange, Isle of Man, Jersey, Secrecy jurisdictions, Tax avoidance, Tax Havens 11 Responses »

Jan 152012

Ed Miliband’s announced a new initiative today that is sure to resonate around the offshore world.

As I understand it he, in essence, has said three things. The first is that the UK should push as hard as possible for the European Union Savings Tax Directive (ESTD) upgrade planned for 2013 to be implemented as soon as possible. Second, in the process he suggested George Osborne had put back the whole process by negotiating the Swiss tax deal over which the EU is now threatening to pursue the UK because it does not comply with the requirements of the existing ESTD, let alone the revised one. And third he said that if for any reason the EU can’t deliver the ESTD on time because Austria and Luxembourg continue to try to block it then the UK should go ahead and demand that its Crown Dependencies and Overseas Territories enter into deals equivalent to those required under the ESTD with any reasonable country that wants one.

Now this is radical stuff. The ESTD is about tax evasion, that’s all. It has no other purpose. So this initiative extends the whole debate about corporate responsibility from the issue of company tax into the whole arena of the tax evasion that some companies – and notably banks – facilitate through their offshore operations, whether knowingly or not.

Second, whilst the ESTD has been in operation since 2005 it has been widely acknowledged – even by the EU itself since 2008 - that there are gaping loopholes in it. The Tax Justice Network view of this is here. The key points are simply though. First, the existing directive only applies to cash deposits – and based on my research of offshore portfolios that’s rarely more than 20% of offshore asset holdings – meaning 80% or more of all income escapes the arrangement and so remains untaxed in most cases in the country where it should be declared for tax purposes whilst, second, the ESTD only applies to income held in an individuals name so that cash and other assets held in companies, trusts and other arrangements also avoids or evades tax as well. Put the two facts together and I estimate well over 90% of all income that should be known about in tax havens like the Channel Islands is not advised to HMRC.

Those are loopholes too big to tolerate at a time when tax revenue is the scarcest commodity in the UK economy.

The big question then is, can Miliband do this? My thinking is yes, he could. First, this is about the international relations of the Crown Dependencies and overseas territories, and we are responsible for them, and as such can legislate them if we wish to do so, and opinion that the House of Commons Justice Committee came to in 2010 when reviewing this issue, basing their opinion on the Kilbrandon report. Second, knowing this the Crown Dependencies have actually done all we have ever asked them to do on such issues. That is exactly why they have adopted the European Union Savings Tax Directive and the EU Code of Conduct on Business Taxation despite their reluctance to do so. In practice they knew they had no choice but do so. Third, if they really want to be awkward we could simply remove the exemption from tax being withheld on payments of interest, royalties, dividends and other sums to these places that are in operation at present and they cease to be tax havens overnight and lose their entire financial services industry at a stroke. Given they publicly say they don’t want tax evaders to use them there is no way on earth they’d risk that, but we could impose it, and they know it.

So Miliband, if he were prime minister, would hold all the cards in his hands, and the Crown Dependencies would have the 2,3 and 4 of spades when hearts are trumps. In other words, this threat isn’t hollow; this threat is for real.

And what would we win by doing it? Well, I suggest it could be £2.4 billion a year. That’s best on my 2009 estimates, here and taking just the part relating to the Crown Dependencies into account.

That’s why I applaud this move: it’s a straightforward attempt to tackle tax evasion. That’s exactly what government should be doing now. And it’s a low cost attempt to do so as well. It works by shattering secrecy. After that’s done the pressure on those with these accounts to disclose will be very high indeed – and so the measure is virtually self-policing.

Of course the Crown Dependencies will protest – but if they do so then they’ll be coming out on the side of tax evaders. Is that what they really want to do?

And if their reply is those tax evaders will just move their funds? Then, I suggest, we have to look at regulating the banks involved a lot more aggressively because in that case they will be willingly assisting tax evasion. That’s the next step. But for now let’s note that a politician has taken a courageous line on this issue.

Isle of Man – doing well in theory

Information exchange, Isle of Man, Secrecy jurisdictions, Tax Havens 8 Responses »

Nov 072011

As Manx Radio reports:

The Isle of Man has been named as one of only eight countries around the world following best practice in exchanging tax information with other nations.

The recognition has come in a report on tax transparency from the Organisation for Economic Cooperation and Development, the global body overseeing standards of economic governance.

The study, delivered to the G20 yesterday (Friday), named the Isle of Man among a handful of jurisdictions with all elements of effective information exchange in place. The list also includes France, Italy, Japan and Norway.

It comes in the wake of another review by the Financial Stability Board for G20, which praised the Island for its international cooperation in tax affairs.

The report referred to is here. But there’s a problem for the Isle of Man. There’s no doubt it did well in this test on ability to information exchange. But as I’ve already noted in comments on this blog, it doing so is a bit like the student who got A* in the GCSE in making love but has yet to have a partner. Geting a good mark in theory and actually getting on with the reality are sometimes two very different things. The Isle of Man has to actually deliver now, and I’m not holding my breath.

The G20 on information exchange

G20, Information exchange 5 Responses »

Nov 042011

The G20 communique is weak.

This is the best bit as far as I’m concerned:

We underline the importance of comprehensive tax information exchange and encourage work in the Global Forum to define the means to improve it.

But since they’re asking the OECD to do this and they are not committed to automatic information exchange which is the only way in which such exchange can be comprehensive I have little hope.

The evidence that so called tax information exchange agreements with tax havens don’t work is mounting

Information exchange, OECD, Tax Havens 23 Responses »

Oct 272011

At the April 2009 G20 summit in london the big news was the supposed end of tax havens. I know: I was there.

And it hasn’t happened. The OECD used the mandate it had been given and in the mot extraordinary act of accommodation and even promotion of tax haven abuse deemed that any tax haven that had signed 12 so called tax information exchange agreements was ‘internationally compliant and need take no further steps to sign further deals. The fact that the San Marino – Andorra style deals that have proliferated since then count, and were clearly intended to count, show just how biased in favour of promoiting tax haven secrecy the OECD is )(and if not, how utterly incompetent it it).

The flaws in these deals are explained here.

The fact that offshore lawyers know they don’t work and exploit that was recently highlighted here.

And now there’s clear evidence that first of all the number of requests countries can make as a result of those flaws are minuscule (because basically, if you do not know they answer to the question you’re raising it’s almost impossible to ask the question). As has been reported of the Netherlands:

THE HAGUE, 27/10/11 – The Netherland seldom seeks fiscal information from countries known as tax havens, it emerges from research by Het Financieele Dagblad newspaper.

In recent years, the Netherlands has taken a lot of trouble to conclude treaties for the exchange of information with tax havens such as Jersey, Guernsey, the Isle of Man, the Cayman islands and Liechtenstein. The aim is to track down both individuals and companies that use constructions ot evade tax. A total of 28 treaties have been made, of which 18 have come into effect. The others await signature.

In total, the Netherlands only made 22 requests for fiscal information between 1 June 2008 and 1 June 2011. Over half (13) were made to Jersey. Requests were also made now and then to Guernsey. But the tax service has only once requested information from the Isle of Man, with which there has been a tax information agreement (TIEA) since as long ago as 1 January 2007.

The treaty with Liechtenstein, a country which experts say still shelters quite some Dutch ‘black savers’, came into effect on 1 December 2010. The Dutch tax service has made three requests to it in six months’ time.

Of the requests made, the finance ministry can only say that seven replies have been received from Jersey and three from Guernsey. No information is being released about the content and quality of the replies.

So first of all it’s nigh on impossible to use these deals which is why so few request are made.

And when you do make a request you don’t always get a reply.

And this is what the tax havens use to claim they’re transparent.

They and the OECD who partner them in this abuse should hang their heads in shame at the tax abuse they continue to unleash on the world as a result.

We can crack tax havens open now

Information exchange, Secrecy jurisdictions, Tax evasion 1 Response »

Oct 202011

A couple of days ago I highlighted a report from Cayman about a meeting of offshore lawyers where it seemed there was widespread agreement that the system of tax information exchange agreements that the OECD, UK government and tax haven authorities say delivers secrecy in the murky world of secrecy jurisdictions really does not such thing.

The Telegraph has picked this issue up today, reporting:

A recent meeting between trust experts from Guernsey, the UK, Cayman Islands, Switzerland and the Bahamas, made clear that while the controversial Tax Information Exchange Agreement or “TIEA” appeared “fearsome”, there were still ways that professionals could protect beneficiary confidentiality because of the hoops tax authorities needed to go through to extract information.

The meeting, reported by the Cayman News Service, debated the issue of confidentiality and whether trust clients’ privacy could continue at a time when governments appeared to be focusing more and more disclosure.

And they note me saying:

Tax expert and campaigner for an end to the TIEA [arrangement], Richard Murphy, said that this proved the futility of the TIEA. It is … the difficulty in indentifying suspects due to the complex nature of trusts, that has long been the reason why the TIEA should go in favour of an automatic exchange of information on demand, he argued.

“TIEAs don’t work. Everyone knows it. As things stand, client funds can be moved out of a jurisdiction before an enquiry can develop, thwarting it before it really gets underway,” Murphy said.

“In order to make a successful TIEA request you need to correctly identify the individual, which is made virtually impossible by a combination of legal entities and professional services designed to ensure he or she remains anonymous. There is, for example, no public documentation relating to trusts”, he added.

“It is exceptionally difficult to link bank accounts operated by a company in turn controlled by a trust with a particular taxpayer in another jurisdiction who may or may not be settler and or beneficiary of that arrangement.”

Instead, he suggested a process by which offshore providers must notify UK tax authorities once a year of the interest UK taxpayers have in their financial structures.

“This would be enough to provide the ‘smoking gun’ and allow the tax authorities to carry out their investigations,” he said.

I have explained a simple and effective alternative tax information exchange arrangement, here. As I say in that report:

Countries do not need to know the precise details of interest, profits, gains or other income accruing to offshore structures created by, owned by, or which benefit people resident within their jurisdictions to enable them to make an effective enquiry under a tax information exchange agreement. They simply need to know:

1. That such a structure exists (a bank account qualifying by itself as a structure for this purpose);

2. What each component (trust, company, or foundation) is called;

3. Who manages it;

4. Where it banks;

5. Who in their jurisdiction benefits from it.

If this data were available it is likely that almost every country in the world could and would substantially increase the number of tax information exchange requests that they might make using the proposed network of Tax Information Exchange Agreements. What is therefore required is that this information, which the regulatory authorities of every single jurisdiction subject to IMF /FATF regulation must have available to it, be automatically exchanged with the jurisdictions in which the beneficiaries of those structures are located; that location to be identified by both the place of main residence of a beneficiary and by the country which issues them with their passport (with those places issue passports of dubious repute to be specifically blacklisted for anti-money-laundering identification purposes).

If this data were to be automatically exchanged then no further information on income need be exchanged, at least in the early stages of any information exchange process. That is because sufficient data to firstly disincentive use of such arrangements and secondly to allow information exchange requests to be made would exist. Pragmatically, that is most of what is desired of the automatic information exchange process. This does, however, have the benefit of massively reducing the risks inherent in automatic data exchange by removing entirely from that process, at least in its initial stages, any reference to specific income details.

The point I make is important: with this simple form of disclosure first of all tax information exchange agreements make sense because the smoking gun needed to make them work exists. Second, this form of exchange is simple because income data is not exchanged. Third, simple disclosure of the existence of an arrangement will in most cases be enough to ensure its disclosure to domestic tax authorities, which is, after all, the aim. Perfection is not possible in any scheme, but a high degree of compliance is.

We have effective non-compliance now, deliberately promoted by the offshore finance industry. It is that abuse we have to shatter. What I propose could do that, simply, effectively and at low costs since all the required data should be available already. Now, why would anyone but an offshore lawyer, banker or accountant object? If they do they must be doing something criminal. And in that case we should be ignoring them. So it’s time for action, now.

Offshore lawyers admit that tax haven claims of transparency are bunkum – as some of us have argued for a long time

Cayman, Information exchange, Jersey, Lawyers, Secrecy jurisdictions, Tax avoidance, Tax evasion, Tax Havens, Tax Justice Network, Uncategorized 7 Responses »

Oct 182011

Cayman News Service has blown the lid on one of the biggest lies of recent years about tax havens / secrecy jurisdiction. It’s been claimed since 2009 that tax information exchange agreements – promoted by the Organisation for Economic Cooperation and Development as the way to tackle tax haven abuse – mean that tax havens are now ‘open and transparent places’. Those most inclined to say so are minsters of the UK and the representatives of the offshore finance industry in places like Jersey.

But as Cayman News Service reports from a conference on the issue of confidentiality, obviously so secret that they omitted to mention where it was held:

A panel of trust experts from Cayman, Guernsey, the UK, Switzerland and the Bahamas examined whether the right to privacy for trust clients could continue in light of the push by international bodies to live under regimes of disclosure during an industry conference last week where the issue of confidentiality was the top talking point for delegates. Despite the tax information agreements signed by offshore centres in recent years however, there were still ways that trust professionals could protect beneficiaries and confidentiality because of the hoops tax authorities needed to go through to extract information, the conference heard.

The central paradox for trustees, according to Shan Warnock-Smith QC, was how to reconcile the principles of confidentiality and disclosure, which were both expected to be observed by trust professionals. Warnock-Smith QC mediated a panel at Mourant Ozannes first conference of its kind last week where she described the issue as a balancing exercise.

Panelist Robert Shepherd from MourantOzannes in Guernsey said onshore governments’ requirement for money had resulted in the UK tax collectors beefing up their staff recruiting 2,200 more tax inspectors. He said that the onshore governments have tried two ways to get at funds – by getting offshore institutions to disclose more and alternatively by circumventing offshore jurisdictions by getting investors onshore to tell them what they know. Tax Information Exchange Agreements (TIEAs) had been created by onshore governments to try and force offshore institutions to provide more information which would then bring in more money for them, Shepherd believed.

On the face of them TIEAs appeared “fearsome” with one tax authority forcing another to disclose information on foreign nationals, Shepherd noted, but actually there was a good deal that trust professionals could do to protect beneficiaries and honour obligations of confidentiality, citing a number of hoops that tax authorities needed to go through to extract information. For example, the onshore authority must initially identify the tax payer in question about whom they require the information and equally they must have exhausted all local powers to gain information first.

As I and the Tax Justice Network have argued many times, this does in effect mean that the prospect of making a enquiry from a trust is in most cases non-existent – as these lawyers well know. This was confirmed at the meeting:

Julien Martel, from Butterfield in the Bahamas said that the issue about TIEAs was a “storm in a tea cup”and the issue did not come up frequently in conversation. He went on to say that the issue of confidentiality in the light of increasing burden of disclosure was actually a global issue and not just a question for international financial centres, which were in fact better positioned to deal with the conflict because of their flexibility.

Flexibility should be read in its true light here – it’s a weasel word, often meaning the ability of these places to move client funds out of a jurisdiction before an enquiry can develop, thwarting it before it really gets under way. And the reality is:

Confidentiality was an issue for clients but it was not stopping business, he added.

But this comment was also telling:

Alan Milgate, from Rawlinson & Hunter in Cayman said that in certain cases trustees wanted to disclose specific information to beneficiaries and that it was the duty of the trustee to try and establish the costs and benefits for disclosing the information. Some beneficiaries were better able to process information than others, he said, and added that deciding how much information to give out to beneficiaries was sometimes a difficult exercise, because not giving information bred suspicion. Effort needed to be put into explaining and planning the structure of a trust up front, he said.

As this reveals, these lawyers don’t even tell their clients what they’re really up to. Which is really convenient when the client’s money is under the lawyer’s control, and fuelling the bafflement I have always had about why anyone would trust an offshore lawyer with their money.

But perhaps most telling was this, which blows apartt the bunkum put out by the OECD, states like Jersey and Cayman and ministers like David Gauke in the UK who constantly claim that tax avoidance in tax havens is under control because of the existence of tax information exchange agreements:

Ziva Robertson from Withers said that there was a big difference between the political will to be seen to be creating TIEAs and the actual economic effect of their implementation.

To put it another way they don’t work. It doesn’t take a lawyer to work that out. And why don’t they work? Because:

She also said the situation could sometimes be exacerbated by instances of privacy laws which explicitly prevented a trustee from providing the beneficiary with information. Trusts were becoming increasingly complex and often spanned a number of jurisdictions, with confidentiality meaning different things in different jurisdictions and meaning different things in times of war and in times of peace, she observed

In other words, the pinstripe brigade of offshore lawyers, accountants and bankers make sure that there is a self perpetuating income stream for themselves at expense to their clients and the governments of the world. At least they’re honest enough to admit it. Which is why I’ve taken the liberty of quoting at length.

The argument is over: tax information exchange agreements don’t work. Everyone knows it. The time for automatic information exchange has arrived.

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.

The OECD peer review process – praise where it is due

Information exchange, Jersey, OECD, Tax avoidance, Tax evasion, Uncategorized Comments Off

Jul 112011

I, like many in the tax justice arena, was very dubious when the OECD set up the Global Forum on Transparency and Exchange of Information for Tax Purposes to undertake peer reviews of the operation of tax information exchange by participating states in the aftermath of the financial crisis and the rush to sign tax information exchange agreements (TIEAs).

TIEAs are deeply flawed and the OECD designed and promoted them.

The OECD was also remarkably cagey about this whole process: civil society was excluded from most involvement, far too many tax havens appeared to get positions of influence over it, the nature of the peer review process was not clear and there was some real doubt about whether the process might be a bit of a whitewashing exercise.

However, I was one of several speakers at the Tax Justice Network conference last week to comment that although reservations about process remain (and they do, and remain valid) the outcome of the review processes to date suggests that this is no whitewash.

The case of Jersey is an example. The fist phase report was critical of issues in Jersey’s access to data that we in civil society would have found hard to identify. Although it was noted that the deficiencies in the accounting requiremnts for many orgasiations in the island had not as yet given rise to any practical difficulties in exchanging data the review still demanded that they be remedied. That was welcome, of course.

That however was stage one, and the easy part. Having the right pieces of paper in place has been something that we’ve always said that a secrecy jurisdiction should be able to do without much problem – after all their legislatures are captured in very many case by the local financial services industry to ensure they meet its needs, and this was just another one of those needs. But, stage 2 was something else. We’ve always said that the test of these places would come when a review of actual activity was undertaken.

The OECD have delivered on this. They’ve revealed, in unambigupus terms, how little information exchange Jersey has actually done And they’ve also not avoided the fact that a perceived failure has occurred and they have levelled criticsm at Jersey for the fact that this has happended and have demanded reform.

This shatters Jersey’s reputation. Firstly it is not transparent when tiny amounts of data are made available. Second it is shown to be non-cooperative (as the UK has already officially labeled it).

And I have to say that I did not think the OECD would do such things.

So I say that although reservations still exist about this process and tax information exchange agreements themselves remain fundamentally flawed and in need of replacement with automatic information exchange the actual peer review proicess itself seems to be delivering, so credit is given where credit is due, and I offer it on this occasion, as I know others in TJN do as well.