Tax Research UK

FT.com / Global Economy - Tax haven drive will mean greater scrutiny.

The FT notes:

The international drive to prise open tax havens could expose businesses to greater scrutiny as a result of a little-noticed feature of hundreds of new deals aimed at tracking down tax evaders.

Jeffrey Owens, director of the centre for tax policy and administration at the Paris-based Organisation for Economic Co-operation and Development, said the ability to request details about companies was “an important aspect” of the agreements on tax information exchange that have proliferated in recent months.

He said: “I think the world is in the process of changing. It will have a big impact on corporations and high net worth individuals.”

That’s true.

But as the FT notes:

Over the past year, campaign groups have succeeded in persuading the OECD to consider new guidelines on transparency after claiming that transfer pricing abuses allow companies to divert revenues from developing countries to tax havens.

This may have an even bigger impact!

Richard Murphy OECD

Tax offences = money laundering.

As headlines go the above, from the Straits Times in Singapore is pretty good. And spot on.

As it reports:

THE OECD is planning to list tax offences as a form of money laundering, a move that could hit Switzerland hard, Swiss newspaper SonntagsZeitung reported on Sunday.

Without citing its sources, the newspaper said that if tax offences were reclassified in money laundering, lawyers, tax advisors, accountants and bankers who are implicated in such offences could get up to three years in jail.

About time too.  It’s another step the Tax Justice Network have been calling for.

Richard Murphy OECD, Switzerland, Tax evasion

The OECD statement on tax and development I referred to this morning is here.

Stephen Timms’ speech is here.

For those who want to check what I reported.

Richard Murphy OECD

Attiya Waris of Tax Justice Network is addressing the OECD meeting. She says there are seven key words in tax:

1. Transparency
2. Accountability
3. Responsibility
4. True
5. Fair
6. Efficient
7. Effective

She says changes tax is changing. In Kenya indirect tax does not create tax awareness, and it can’t work because it is dependent on literacy. This breaks down the link between state and society.

Direct taxes have to create this. This is done by allocating tax to community level so local choice can be made on how to use revenues. This also means accountability rises and transparency and responsibility with it. This is bottom up change.

Now she says it is time for the OECD to deliver a top down delivery of data. But this will not happen or be useful if the IMF and World Bank undermine direct taxation systems by promoting VAT.

She says the MNC claiming it pays tax is OK – but they can’t substitute for local tax relationships to build accountability. They shouldn’t be claiming they’re good people for paying tax – it is their obligation.

And finally she argues for multilateral information exchange to allow bilateral deals to work. Until developing countries have enough data to make bilateral requests the Tax Information Exchange Agreements programme will be stalled in its effectiveness. This is at the core of information exchange issues, as I’ve argued for some time.

Richard Murphy OECD, TIEAs, Tax Justice Network

Joel Tan-Torres, Commissioner of the Bureau of Internal Revenue in the Philippines has offered reasons why it is so hard for developing countries to collect tax. He says:

1. Too few staff
2. Staff too lowly paid so high turnover
3. Poor IT
4. Slow speed of enforcing action through the legal system.
5. Problem of special interest tax provisions
6. The aggressiveness of the tax industry in promoting avoidance bordering on evasion. Tax evasion is at least 0.03% of GDP in the Philippines – which seems surprisingly low to me, but then so is the tax yield.

In many ways this sounds like the UK but let’s have no doubt. In terms of scale everything is worse.

What he needs he says is information. Internally generated sources are not enough in the current world. He appears to be asking for automatic information exchange, but without being specific. What he does say is that expertise will need to be developed to make this work.

Volume issues regarding information will need technology support – but it’s clear, it’s our job to do this. This has to be a key component in the development agenda.

Richard Murphy Development, OECD

The OECD is to set up a ‘task force’ to implement a coherent approach to tax and development issues, engaging developing countries and other key stakeholders including NGOs and business.

Membership is apparently to be of between 15 and 20 people.

The task force will convene in the next six weeks as an informal group representative of all stakeholders to develop clear and effective mechanisms for implementation and to avoid duplication. The informal task force will begin by mapping out existing international efforts relating to tax and development.

I welcome this. It’s a step in he right direction. But of course genuine openness in membership and a commitment to developing real change for the benefit of developing countries will be the true bench mark of progress. That’s one to be monitored.

Richard Murphy Development, OECD, Tax management

The OECD has acknowledged this morning that losses to transfer mispricing and because of he failure of information exchange exceed $100 billion.

I’m sure it is more. The basis of calculation seems narrow.

But it’s a useful statement.

Richard Murphy OECD, Tax evasion

After more than 30 years the OECD held its first joint meeting of its development and tax committees yesterday. And as Jeffrey Owens, head of tax at the OECD has acknowledged this morning in discussions I’m attending, that was the result of civil society pressure.

Key things learned so far. They have said:

We have a common understanding of the central role taxation plays in development and poverty reduction:  a strong tax system is the heart of a country’s financial independence, its revenues are the lifeblood of the state.

This is a vital statement: this issue is much, much broader than a simple issue of corporate accountability, or information exchange, or simple technical assistance. This is about effective state building.

This is as important:

We also agree taxation is more than just about revenue mobilisation. The way in which revenues are collected and spent defines the symbiotic relationship between the state and its citizens, strengthening the former and making it more accountable to the latter.

A good start.

Richard Murphy Development, OECD, Tax management

I’m in Brussels talking about automatic information exchange today (and country-by-country reporting tomorrow).

It’s interesting to hear someone (I don’t think I can or should name him) close to the OECD Global Forum review group on information exchange saying that they are well aware that places like Monaco are taking the Mickey when seeking to appear internationally compliant with OECD standards by signing almost all their Tax Information Exchange Agreements with other tax havens.

And they say these places will fail the review process.

I hope they’re top of the pile for that reason.

Richard Murphy OECD, TIEAs

I have been looking at the Tax Information Exchange Agreements (TIEAs) that have, in the main, been signed as a result of g20 pressure arising in April this year.

There were 180 of these by 10 November, the cut off for my work. I think there’s one more now.

I have plotted them all. In doing so some interesting trends emerge. Take this table, for example. It shows the TIEAs signed by OECD non-compliant grey and black list states with each other.

I am well aware that this table is small: click on it and the whole thing comes up in a separate window.

I stress: the data relates to all TIEAs signed to 10 November 2009.

What the table shows is that 24 TIEAs are between grey list states (I know the total says 48 – but it does, of course, count each agreement twice). The implication is clear: these ‘non-compliant’ secrecy jurisdictions listed by the OECD in April 2009 have been seeking to become ‘internationally compliant’ by signing TIEAs with each other. Remember when noting this that signing just twelve TIEAs makes a place internationally compliant. No information has ever to be exchanged: having the TIEA is enough.

I predicted this would happen as soon as I heard of this requirement. It was too obvious that this would be what they would do.

If I expand the sample to the jurisdictions covered by the Financial Secrecy Index published by the Tax Justice Network then 66 of the 180 TIEAs are between secrecy jurisdictions (expanded image is here):

Note that in some cases – like Andorra, Anguilla, Liechtenstein, Monaco and more like them the rate of TIEA with other secrecy jurisdictions is very high indeed. As is very clear: these places are seeking to run a  closed shop where they are ‘compliant’ but will never have obligation to ever exchange any information because you can be sure none will be requested.

The rate of 66 out of 180 may not sound worrying, but it is. 67 of the remaining agreements are with Nordic states. Now I’m not chastising those Nordic states, but when 28 of all agreements are with the Faroe Island, Greenland and Iceland the standard is obviously wrong. Such agreements cannot be material to the setting of an international standard but right now they are 15.5% of all agreements.

So what’s left after insider dealing between secrecy jurisdictions and the Nordic states is excluded? Spain has just two agreements, Italy none, Canada 1, Germany 6, France a good (in this context) 11. But surely it is absurd that we aren’t measuring compliance in  terms of the recipients of information and not the suppliers? Why is it Spain gets 2 and is told that secrecy jurisdictions need sign no more as they are compliant? That  has to be wrong.

And so too are the absentees from the list very notable: India, China, Japan, Brazil, most of Africa, almost all developing countries. When will they get a deal from states that are willingly, knowingly and very deliberately abusing this new standard to sign deals with each other so that the people who need information to enforce their tax laws will not receive it?

The OECD standard for TIEAs is not good enough. It needs urgent reform. And very soon.

Richard Murphy OECD, TIEA, Tax justice