Tax Research UK

I’m at the start of a pretty frantic round trip to Washington to meet the IMF with the Task Force on Financial Integrity and Economic Development .

The discussion will be highly focussed on what additional statistical data is needed to monitor the world’s illicit financial flows.

I do, of course, want the data that country-by-country reporting could provide on world trade flows and transfer pricing abuse.

But there’s another issue of importance too. A lot of work is going on seeking to track flows out of tax havens / secrecy jurisdictions to make sure they are properly taxed. There is another side to this coin though. We need to know where they come from too. And we don’t, which is why, as the IMF has now noticed, there are potentially $18 trillion dollars in small island states alone that they cannot account for.

One hopes that at long last they’re now open to dialogue on this issue.

Richard Murphy Country-by-country, Secrecy jurisdictions, Tax Havens

The Wealth Bulletin has reported:

Research has found huge discrepancies in the amounts declared by offshore centres

The amount of undeclared money languishing in offshore financial centres has always been difficult to quantify: the very nature of it being undeclared makes it hard to trace. But work by economists at the International Monetary Fund has shed new light on the cash involved, confirming it runs into trillions of dollars.

Gian Maria Milesi-Ferretti, an economist for the IMF in Washington, said statistical information on Luxembourg, one of the largest offshore financial centres in Europe, illustrated the extent of the problem. He said: “Luxembourg is one of the few offshore centres that disclose detailed statistics on assets and liabilities held in the financial sector, which makes it invaluable to understand cross-border money flows.”

The latest available IMF figures show portfolio assets held by foreigners in Luxembourg to be worth $1.5 trillion at the end of 2008. But looking at statistics provided by the Luxembourg Government on portfolio investment liabilities for the country – the mirror image of the asset information held by the IMF – there is a big discrepancy. The investment liabilities in Luxembourg were $2.5 trillion – $1 trillion (€726bn) more than the assets reported.

Milesi-Ferretti said: “This is a huge difference, almost 40%, and is unlikely to be entirely accounted for by the fact that some countries do not report their portfolio investments or their destination to the fund.” China, Taiwan and many of the oil-exporting countries do not participate in the IMF’s survey.

The IMF found a similar discrepancy in the Cayman Islands data, whereby the $2.2 trillion in equity liabilities reported by the country, a British overseas territory, at the end of 2007 – the latest figures available – bears little resemblance to the $750bn of portfolio assets reported to the international organisation.

Taken together, the data for the two offshore centres alone shows at least $2 trillion remains unaccountable for. And the fact that many undeclared funds in offshore accounts are held in cash deposits, not in portfolio investments, means the sum is likely to be much higher.

Switzerland – the biggest offshore financial centre – has only a small discrepancy between what it reports as portfolio liabilities and what it reported to the fund as assets, but the Government admits to having at least $600bn in undeclared accounts.

I admit I can’t resist the temptation to say that some of us have been saying this for a long time. The Tax Justice Network published my research on this in 2005, suggesting there were £11.5 trillion of assets offshore. Time and again this has been attacked by organisations that should have known better and by academics with a right wing axe to grind. But now, like so much else I and others have argued, it is being validated. And the issue itself, once dismissed as inconsequential is now being considered seriously:

Although the IMF is concerned about the undeclared assets held in offshore centres from a tax perspective, it is particularly concerned about how this money affects cross-border financial interaction and contributes to shocks in the global economy such as the recent credit crisis.

Milesi-Ferretti said: “The Cayman Islands were the largest foreign holder of private-label US mortgage-backed securities on the eve of the financial crisis. More information on the ultimate holders of these securities could clearly provide valuable insights on the transmission of the ‘sub-prime shock’ and the financial crisis more generally.”

The IMF believes the sum of the external assets and liabilities of what it calls small international financial centres – which includes all the offshore centres except Switzerland – is $18 trillion.

Well, in that case apologies are in order – as ever, we were too cautious in our estimates.

The figure is higher than those of big investing countries such as France, Germany or Japan and is a multiple of those of other large economies such as China.

Milesi-Ferretti said: “What is even more striking is that this number is likely to be an underestimation given the data problems with offshore financial centres.”

That is an especially timely admission: I am in Washington to discuss this data issue with the IMF later this week. I’,m now looking forward to constructive dialogue, debate and a programme for action.

Richard Murphy Economics, IMF, Secrecy jurisdictions, Tax Havens, Tax Justice Network

On 17 February the editor of Taxation magazine, Mike Truman, wrote an article under the title ‘Lack of Evidence’, the summary of which said:

The claim that poor countries lose $160 billion in tax from ‘transfer mispricing’ has been repeated endlessly. MIKE TRUMAN finds it hard to justify

KEY POINTS

• Two Christian Aid reports claim $160 billion tax lost.
• Raymond Baker’s 7% claim does not relate to TNCs.
• Problems of methodology in Simon Pak’s study.
• Real shortfall is homegrown tax evasion.

Raymond Baker of Global Financial Integrity, Alex Cobham of Christian Aid and I wrote a response, published this week. It is entitled ‘Lack of Will’.

That response is behind a paywall and so is not on public record, even though the critical article is.

There is also apparently an on-line debate going on about the issue – which none of us can read or contribute to as it is also behind a paywall. So much for debate. In the circumstances I think it entirely appropriate to republish our response, below. I leave it to others to work out the ethics of publishing criticism on open pages and denying response and debate a similar airing.

—————————————————-

Lack of will

Transfer pricing abuse is a massive global problem, argue

Richard Murphy , Alex Cobham and Raymond Baker.

Mike Truman, in his comment article ‘Lack of evidence’, Taxation, 17 February 2010, page 6, questioned work we have, in various and different ways, undertaken to estimate the loss arising to developing countries from transfer pricing abuse – or transfer mispricing as we prefer to call it.

We think Mike is saying three things. The first is that Raymond Baker’s work on this issue, published in his 2005 book Capitalism’s Achilles Heel, used an inappropriate interview-based methodology to establish a potential rate of transfer mispricing, which he anyway contends is now out of date.

Second, he challenges Christian Aid’s May 2008 report on transfer mispricing ‘Death and taxes: the true toll of tax dodging’, which suggested that the loss to developing countries from transfer mispricing might be as much as $160 billion a year because that reports relies in part on Baker’s work.

Finally, Mike questions the findings of Christian Aid’s second report on the subject (published in March 2009), ‘False profits: robbing the poor to keep the rich tax free’, which relies on the statistical analysis of world trade data using a methodology developed by Professor Simon Pak of Penn State University.

Based on his analysis, Mike concludes:

· transfer mispricing is not the issue we claim it is;

· country-by-country reporting as proposed as one solution to this problem is not therefore as important as we claim it might be; and KEY POINTS

· Illegal flows out of developing countries could be up to $1 trillion annually.

Despite our high regard for Mike, we have to disagree with him on all counts, although in the space available cannot address all the issues he raises.

Methodology

First let us deal with methodology. Raymond Baker in his book only examined mispricing in arm’s length transactions, i.e. between unrelated entities. Having done so, and based on personal experience, he concluded that while it was highly likely that the rate of mispricing was higher in related party transactions, he would only use the figure his interviews had established to be likely between unrelated entities. Three things should be noted as a result: first this is likely to be a conservative estimate. Second, research based on semi-structured interviews is considered entirely suitable as a basis for research in all social science disciplines, including taxation. Third, while now relatively old research, subsequent work has corroborated the findings .

That subsequent research includes new work published by Global Financial Integrity (GFI), a project Baker now directs. Its study of illicit financial flows, published in 2008, defined illegal flight capital as funds intended to disappear from record in their country of origin, with the earnings on the stock of illegal flight capital outside of a country not normally returning to that country of origin.

The report recognised a number of mechanisms that that can be used for this purpose, of which transfer mispricing was just one. As it noted, since this activity is illicit, available data with which to assess its scale is oft en incomplete or inaccurate: the work accepted that risk, as do all other studies in this area. That said, GFI used several methodologies and databases to estimate both the legal and illegal components of flight capital, including the Hot Money, Dooley, and World Bank residual methods, IMF Direction of Trade Statistics, and the International Price Profiling System. All are widely used, recognised and considered by those bodies that have given their name to some of them as the best available methodologies.

Based on this work, GFI estimated that illicit financial flows out of developing countries are some $850 billion to $1 trillion a year. We believe this estimate is conservative. It does not, for example, include transfer mispricing within the same invoice, which cannot be picked up in mispricing models based on IMF Direction of Trade Statistics.

Such mispricing is entirely possible within multinational corporations which do not need to rely on reinvoicing. Nor does it provide any estimate of the loss due to transfer mispricing on services or intangibles, which are perhaps more open to abuse given the difficulty in identifying comparables to establish an accurate arm’s length price.

The IMF Direction of Trade Statistics on which the estimate of transfer mispricing is primarily based measures the difference in exports out of one country and imports into another country for all pairs of reporting countries. After subtracting the cost of freight and insurance, the only way to get a difference in export and import prices (other than mis-entering the data which might itself be indicative of mispricing) is to reinvoice, for example through tax haven locations. It is this reinvoicing that the GFI data records meaning that mispricing within the same invoices would have to be added to these figures to get a more accurate analysis of total mispricing.

Transfer pricing abuse

The GFI report in 2008 estimated that at least half of all illicit financial flows out of developing countries involved transfer mispricing. In February 2010 a further GFI report, ‘The implied tax revenue loss from trade mispricing’ sought to quantify the tax loss arising from these illicit flows and concluded that the average tax revenue loss in developing countries was between US$98 billion and US$106 billion annually over the years 2002 to 2006. This figure represents an average loss of about 4.4% of the entire developing worlds’ total tax revenue.

The methodology used is one some commentators will challenge: it assumes that the identified flows of transfer mispriced funds would have been taxed at the marginal corporate tax rate of the location they fl owed from. This ‘tax gap’ methodology, developed by Richard Murphy, has been challenged by some as misleading since its opponents argue that it ignores the availability of reliefs and allowances that might have reduced the effective tax rate below the nominal tax rate.

We do not agree for two reasons. First, if those reliefs had been available in respect of these profits, it would have been rational to have used them. We assume we are dealing with rational entities. They were not used, so presumably they were not available, meaning that tax would have been paid.

Second, to assume that the allowances and reliefs that multinational corporations enjoy in developing (or other) countries are independent of their considerable economic power in such places when negotiating inward investment, or are even independent of other illicit financial flows such as those resulting from bribery, is untenable. Numerous reports, including some by the authors of this article, for Christian Aid, Global Witness and others attest to this fact. As such we suggest that the methodology records a potentially recoverable loss, and that is its purpose.

Bilateral trade

Simon Pak’s approach to this issue is different from Raymond Baker’s. Christian Aid notes the OECD estimate that at least 60% of world trade now takes place within multinational corporations rather than between arm’s length bodies. For the years 2005-2007, Simon Pak analyses data on all bilateral trade on commodities with the US and European Union to determine the extent of losses arising on this intra-group trade. The US and EU provided the data for this purpose.

The data is the most granulated available: so detailed that HMRC would not provide it directly for the UK because identification of individual trades was possible in too many cases. 83.7 million EU trades were analysed by Pak in 2007, for example. Only data where price estimates per unit supplied could be calculated was used. By definition services are excluded, and given that the majority of transfer mispricing is now likely to be in this area this will result in any estimate we offer significantly underestimating total losses from this activity.

An important assumption in the price filter analysis method Pak uses on the resulting data is that the estimated inter-quartile price range per unit of product traded is an arm’s length price range. This assumption is suggested by some to be arbitrary. However, the assumption is considered reasonable as the US Internal Revenue Service transfer pricing regulation, Internal Revenue Code 482, specifies that an inter-quartile range is an acceptable arm’s length transaction range. We believe that provides credibility to the approach used but we accept that the point is debatable, but then everything in statistical analysis is. This does not invalidate statistical analysis as the basis of much, if not most, academic tax analysis and in turn a great deal of tax policy worldwide.

Lost tax revenue on capital flows as a result of trade mispricing is then calculated on a country-by-country basis by multiplying the capital flow by corporate marginal tax rate for each country in question: this approach accords with that used by Baker/GFI, noted above and acceptable for the same reasons.

Losses underestimated

This approach is reflected in the second Christian Aid report noted above, but not the first. As that second report notes, the approach seeks to use Pak’s methodology to estimate how many imports to the EU and US from non-EU countries are underpriced, and how many exports from the EU and US are overpriced to facilitate illicit capital transfer from non-EU countries. In doing so it is likely to underestimate the losses, partly because services are not considered and partly since the techniques used will underestimate mispricing because over and under pricing is aggregated by the methodology. There is also the risk that averagely priced transactions may be mispriced. This possibility is not detected.

In contrast, it is accepted (and noted in the relevant report) that there is an opposite risk with regard to products with highly volatile prices, e.g. oil. There, averaging over an annual period,

as the method does, might produce errors. Across the whole spectrum of trade this is assumed to be a counter-balancing error, but it does also explicitly recognise that the issue raised by Mike Truman in his article is a matter of concern, but not one considered likely to be material.

The result of the work is an estimate of lost tax revenue from all non-EU countries to the EU and the US between 2005 and 2007 of £190.8 billion or about £63.6 billion a year ($127 billion a year at 2007 exchange rates). Given that this implied lost revenue is based on EU and US trade, and assuming that trade between developing countries and the rest of the world is characterised by a similar level of mispricing, Christian Aid extrapolated this figure to find it consistent with their earlier estimate of $160 billion globally.

All of the estimates reviewed fall in the range $100 billion to $160 billion a year. As yet unpublished research by Richard Murphy for the World Bank undertaken in 2009 shows it is plausible for transfer mispricing of this scale to take place within multinational corporations.

Consistent estimates

Our point now is to suggest that we are presenting broadly consistent estimates within a range. We are not claiming spurious accuracy. As other studies have shown, e.g. that of Clemens & Fuest for the Department for International Development in June 2009, no one outside the small circle of NGO researchers noted here has even sought to do this work. Many have sought to criticise it. We accept it is open to improvement. We also accept, as should any researcher, that the flaws in available data make the results offered estimates. We would however stress, that if the data is fl awed it is likely to be because of trade mispricing, not its absence.

We would also add that the direction of this flow should be noted: overall additional funds arrive in the EU and USA. They may be taxed there, usually at lower rates than would have been paid in developing countries. Many will come through locations such as Switzerland and Hong Kong and in case study after case study we have seen this to be true. This lets us immediately dismiss the main thrust of Bill Dodwell’s assessment of our work as implausible: we do not know of tax authorities which take transfer pricing cases to argue down their revenues. This is what would be required if Dodwell’s assessment assertion was to be correct.

That said, Christian Aid does also show a transfer of capital from the US and Japan to Europe. Given the use made by corporations from both locations of European holding companies to act as worldwide sales agents, nothing surprises us about this. Indeed, work by Martin Sullivan for Tax Notes in the US has long documented this trend, noting in 2004 that American companies were able to shift $149 billion of profits to 18 tax haven countries in 2002, up 68% from $88 billion in 1999. This strongly suggests that this direction of flow is correct, the strength of the transfer pricing regimes of those countries notwithstanding.

All this being noted, the important thing is to ask what does potential transfer mispricing of this scale from developing countries imply? First, the losses are, even if the lower end of the estimate range is considered, more than twice the sum required to pay for the United Nation’s Millennium Development Goals.

In other words, we believe that reducing (but not eliminating) transfer pricing abuse could eradicate extreme poverty and hunger, achieve universal primary education, promote gender equality and empower women, reduce child mortality, improve maternal health, combat HIV/AIDS, malaria and other diseases, ensure environmental sustainability and help develop a global partnership for development. If that is the case, the argument for inaction has to be very strong indeed.

Any action does, however, have to recognise the reality of taxation in developing countries. It is essential to bring the poor into the tax base, as it is likely to result in stronger engagement in political processes, and strengthen accountability between state and citizen.

However, in the short term, income taxation will have limited revenue impact given the weak economic base. Taxing a small elite of individuals, civil servants, major corporations, international trade and natural resources when present is likely to have a much greater revenue impact. To be effective the largest available flows must be taxed.

Stricter tax reporting

We suggest three things to ensure that these flows are taxed as effectively as possible. The first is that, and here we agree with Mike, significant technical support to tax authorities in developing countries is needed – as well as cash to ensure their best staff are not continually poached by the biggest firms of accountants.

Second, we argue for country-by-country reporting by multinational corporations. Mike is entirely wrong to say this cannot help. HMRC now publicly concede that country-by-country reporting by multinational corporations would increase tax yield in the UK. We do not however argue it is the solution to transfer mispricing: it is not. What it does is provide the data that can show whether pursuing a case is likely to be worthwhile. When resources are scarce, as they are in developing countries, this is vital. The tiny experience of transfer pricing litigation in Africa to date suggests that the simple absence of data on differing profit rates by location within multinational groups – data we think was deliberately withheld by those multinational corporations to assist their cases – is a major inhibitor to any chance of success on this issue. Country-by-country reporting would help provide this data.

Country-by-country reporting does much more: it is now seen as a key component in effectively tackling corruption in the extractive industries, for example. It is, therefore, a key component in tackling the very issue Mike says is an impediment to progress. It also provides enormous value to shareholders concerning the timing and location of tax liabilities that their company faces. To dismiss country-by-country reporting because it cannot solve transfer mispricing by itself is absurd.

Lastly we promote massive increases in the range and scope of information exchange agreements available to developing countries so they can secure the data they need to address issues on transfer mispricing, which also impacts revenues from royalties, sales taxes, export levies and more besides. Developing countries are almost entirely excluded from the tax treaty network. They start with a massive asymmetric information disadvantage as a consequence, which makes their current task almost insurmountable. This economic externality has to be removed if they are to have any chance of building successful states.

In these circumstances to suggest the problems faced are the result of home-grown tax evasion misses the largest part of the picture. Nothing but abuse by those unscrupulous businesses can explain the data differences we have consistently found. We can argue about the scale of the abuse but not its existence. Even then, suppose we had overstated the scale of this issue twofold and only half the problem could be effectively tackled using the mechanisms we promote. That would still eradicate extreme poverty and hunger, achieve universal primary education, reduce child mortality and improve maternal health while leaving some over to tackle AIDS and other major diseases.

Can anyone give a good reason why the tax profession would not want to do that when all the evidence suggests that tax compliance by multinational corporations – where tax compliance means seeking to pay the right amount of tax (but no more) in the right place at the right time, where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes – could achieve these aims?

We don’t know of any.

Richard Murphy Country-by-country, Development, Secrecy jurisdictions, Tax Havens, Transfer Pricing, Transparency

At the core of my work is a concern about poverty. Some of that is in the UK, some in developing countries.

I and others have argued that the combination of opportunities that banks and secrecy jurisdictions provide promotes capital flight out of developing countries and into western economies – flight that we have argued might amount to $1 trillion a year.

Now the official Norwegian aid agency – Norad – has produced a new publication that examines the literature (including some by me) on this subject. I strongly recommend the resulting work, which is available here. As the preface says:

Systematic studies of the banking sector’s involvement in facilitating capital flight from developing countries are limited. This paper was commissioned by Norad’s Anti‐Corruption Project (ANKOR) for the purpose of summarising key lessons from the existing literature and to identifying knowledge gaps. It focuses on capital flight from Africa and how much needed public finances are hidden abroad. The study is a desk study, based on a review of library and online literature databases and reports and documentation from national and international organisations.

The material reviewed does not provide the information necessary to draw firm conclusions as to what constitutes ‘best practice’ in providing donor support for better regulation of banks and financial institutions in Africa. The term ‘best practice’ itself is unclear and depends much on the environment within which finance institutions work. The review shows that banks should not be disregarded as passive players when analysing capital flight. Banks play an active role in facilitating capital flight from Africa. However, to improve the regulation of the banking and finance sectors, there is a need for more detailed knowledge on how banks actually operate as facilitators and the mechanisms applied.

This may be a technical paper, but this sort of study takes matters forward in a real way that helps to alleviate poverty. I warmly applaud Norway’s initiative in publishing it.

Richard Murphy Banking, Development, Secrecy jurisdictions, Tax Havens

UK party-funding scrutiny doesn’t work | Prem Sikka | Comment is free | guardian.co.uk .

Strong analysis from Prem Sikka.

Well worth reading.

Richard Murphy Conservatives, Secrecy jurisdictions, Tax Havens

The Guardian notes:

The offshore entities involved in the ownership of Leeds have emerged in various episodes since 2005. The company which took over the majority ownership of the club from the former regime led by the chairman, Gerald Krasner, was the Forward Sports Fund, then registered in the Cayman Islands, and administered from Switzerland. Bates, himself resident in Monaco, said in May last year that he does not own shares in that company.

The Companies House documents name the entities which now hold the Leeds shares and suggest they have a story to tell, with £2.2m being invested in the club by them in June 2008. More than 70% of the shares are still owned by FSF, whose address is given as 60 Rue du Rhone in Geneva, the office of Château Fiduciare, the company which administers the fund. FSF was formed and registered in the Cayman Islands from January 2005, but on 31 March last year, was struck off the register.

Peter Boatman, of Château Fiduciaire, who was named last May as a director of FSF, confirmed this week that he has passed the League’s fit and proper person test, which applies to directors and 30% shareholders of clubs. Asked where FSF is now registered since it was in the Cayman Islands, Boatman replied: "I am not allowed to say."

Asked who the shareholders actually are, Boatman replied: "It is not necessary for you to have that information."

There is another story in here that is really important.

It’s not just we don’t know who FSF is and who owns it. we don’t even know where it is to ask! This is because of the problem of redomiciliation. This is explained here in detail, and summarised as follows:

Redomiciliation is an unfamiliar concept to most people, including many who work in finance. It describes a procedure which allows a company incorporated in one jurisdiction (A) to move its place of incorporation to another jurisdiction (B) after which it is then registered under the laws of that second location (B) whereas it was previously registered in and subject to the regulation of the first jurisdiction (A).

This process is a little like a person, who is a citizen of one country, foregoing their right to that citizenship and acquiring instead the citizenship of another place. They were previously a citizen and subject to the international protection of one place; after the change they are a citizen of another place.

Just as the number of people changing their citizenship is small, it is likely that the number of companies redomiciling is also small – but data on this is hard to secure and therefore difficult to confirm.

The nub of the issue is simple: not only do we now know nothing about FSF – we don’t even know where it is and therefore who to ask about it. We can’t even prove it is a real company as a result. It may, or may not be.

In that case was the Tax Justice Network right to raise this as a key issue in financial secrecy? You bet we were.

Richard Murphy Secrecy jurisdictions

Embarrassment of riches | Editorial | Comment is free | guardian.co.uk .

I don’t think I can or need to comment further on the problems of the Conservative party: the Guardian deals with the issue very well here.

But do remember this: it’s the opacity of offshore that created this problem.

And the question is, can democracy survive if offshore does?

Richard Murphy Conservatives, Secrecy jurisdictions, Tax Havens

As the Guardian notes:

Politicians from the three main parties and football supporters’ groups have united in calling for the Football League to make public who owns its clubs after the league approved as "fit and proper" the offshore owners of Leeds United while keeping their identity private.

The sports minister, Gerry Sutcliffe, said: "Fans of any football club have a right to know who the owners are. We want to see greater supporter representation in the running of football clubs and far greater accountability. The League should insist on clubs making public to their supporters who owns them."

He was joined by the Conservative shadow sports minister, Hugh Robertson, who argued: "As with Parliament and many other areas of public life, transparency is going to be an increasing requirement and expectation. That includes publicly identifying the owners of football clubs. Football should reform its governance, to include greater supporter representation on the board of clubs."

That call was echoed by the Liberal Democrat MP for Harrogate, Phil Willis, who has long criticised the anonymity of Leeds’ ownership, routed via companies in offshore tax havens. "At the very least, supporters of a club have a right to know who owns it. As an act of faith and goodwill, I hope the Leeds United board now publish the documentation they have presented to the Football League so that all sense of mystery can be removed."

The Premier League does now require its clubs to publish the names of all shareholders with stakes of 10% or more, but the Football League does not. Instead, clubs must tell the League’s chairman, Lord Mawhinney, and three other senior executives, who the ultimate owners are, but the information is not made public.

I applaud all three parties for their observations, but think its time they went much further.

It is very obvious that we now need the following on public record with regard to all and every company, trust, partnership, LLP, charity and other entity created under law in the UK, and with regard to all business and trading names used in the UK so that anyone anywhere can be sure with whom they are trading:

1. The names of the real human beings (not nominees) who are the ultimate beneficial owners of more than 5% of the entity (related parties to be aggregated to come to the figure) and if there are none the names of those who established the trusts that created that situation and those who have benefited in any form from those trusts in the last ten years unless that was charitable;
2. The full names and addresses of all directors, partners, settlors, trustees, enforcers (yes, trusts have them), and other statutory officials who mange these entities;
3. The full accounts (not abbreviated) of all accounts that enjoy limited liability;
4. The address where each of these persons is resident – nominee addresses not allowed.

And we need a competent legal authority to pursue this.

It’s a sad fact that in the UK Companies House is just not interested in doing so.

Then we’ll have transparency. And it’s very obvious we need it.

Richard Murphy Accounting, Secrecy jurisdictions, Tax Havens

I mentioned the questions I proposed to ask Prof Jim Hines at his lunchtime meeting today in a blog post this morning.

I was amused to find he had read them in advance of the meeting.

He noted I’d said:

I’m not expecting adequate answers.

I’m sorry to report I did not get them. And this was despite the fact that he reported he’s read my blog and therefore had prior notification of what I might ask.

On transparency he said transparency was, of course, a good thing. It seems cl;ear he thinks we now have: he spoke warmly of recent new information exchange agreements as if he thinks the solve the problems on this issue. That’s extraordinarily naive. And when challenged on the subject of automatic information exchange he offered that standard response of the right wing economist: I couldn’t recommend it until we had data on whether it worked. What a wonderful argument that is: we can’t make change for lack of data and w won’t get data until we make change and so we can’t change the current and rather convenient status quo. Let’s be clear about this: this is not an argument for evidence bad policy, it is an argument for lack of evidence based obstruction.

On banking he was as lame. Private sector banks he says are our salvation. State owned banks – and he was categoric that state owned banks are a bad thing – hinder markets he said. So we need tax havens to promote private sector banks. He failed to note that it was privately owned banks that failed: those places that had state owned banks are doing much better than those with private sector banks right now. Evidence clearly could not get in the way of dogma

The same was true on my third question. he had created a theory, he said. The evidence supported it. Therefore it was right he said. But I had a theory, I am quite sure the evidence would support it, and yet I am wrong he said. He didn’t address the more nuanced points at all.

This was typical of his whole approach. For example, John Christensen referred him to the report of a Norwegian commission, staffed by academics, which argued the exact opposite of what Prof Hines said. He dismissed the report. He said it was not objective, he said. He is objective, he said. That’s not an argument. That’s an assertion – and quite candidly a false one as well. Of course he’s not objective. But to say that the Norwegian team did not use data rigorously or appropriately is a serious charge – and one I am sure is unfounded.

All he could really say is, time and again, that the data supports his view. Curiously a man advising the European Commission was sitting beside me. He said he came with an open mind. But, like me, he knows this data. It is just not good enough to support the claims he made.

And his examples were economically flawed too. For example, he claimed secrecy jurisdictions are essential to ensure investment takes place. Without their tax arrangements then some investments could not occur. My answer is simple: if tax abuse is needed to ensure an investment is viable it’s a misallocation of resources to do it.

And I’ll guarantee he has real problems really separating FDI and portfolio flows through tax havens.

And so it went on, and on.

Two quotes from him to conclude:

“If they [tax havens][ get in the y of free functioning markets I’m against them”

Which somewhat shoots all his other arguments down in flames.

And:

“Intuitively the message message of economics are hard to swallow even though they’re true”

Depends whether there’s any substance to your argument or not Jim, that’s what I say. Not one of the questioners was with him today.Which may say quite a lot.

Richard Murphy Economics, Secrecy jurisdictions, Tax Havens

Policy Exchange, the key Tory think tank, has a meeting at 12.30 today under the title “Offshore Financial Centres: Help or Hindrance?”. The timing is staggering. I thought they’d know the answer right now. But the wade on, none the less, saying:

Prominent US economist Professor James R. Hines Jr is the Richard A. Musgrave Collegiate Professor of Economics and the L. Hart Wright Collegiate Professor of Law at the University of Michigan. He recently published a research report commissioned by the Society of Trust and Estate Practitioners highlighting the importance of offshore financial centres, and their contribution to the investment, employment, and the efficient functioning of markets and government policies in other countries.

He has written that:

“Offshore financial centres play a key role in the international financial system, improving the availability of credit and encouraging competition in domestic banking systems. The result is a boost in investment in the major economies, which ultimately support job creation and growth.

The evidence indicates that offshore centres contribute to financial development and stability in neighbouring countries, encouraging investment, employment and other aspects of business development. They have salutary effects on tax competition, promote good government, and enhance economic growth elsewhere in the world.”

I’m attending. I hope to put at least three questions to Prof Hines. The first is:

Offshore financial centres, or secrecy jurisdictions as I prefer to call them, reduce opacity. Anyone who researches this issue knows, and the research of the Tax Justice Network has proven, that it is difficult or nigh on impossible to secure any information on an entity trading from a secrecy jurisdiction. Efficient markets apparently require free flow of information to ensure the efficient allocation of resources. In that case how can it be that creating opacity improves the efficient functioning of markets?

My second question might be:

Domestic banking is, in all major markets and for all practical purposes, closed to new market entrants. There is clear evidence that in very many ways it is oligopolistic and that monopoly pricing occurs, particularly with regard to consumers and small and medium size enterprises. If offshore financial centres enhance domestic banking profits isn’t that because that helps them disguise their monopolistic behaviour, undertaken at cost to society as a whole?

A third might be:

There is clear evidence that the most successful offshore financial centres / secrecy jurisdictions exist close to and under the protection of major states. The UK does, of course, play a major role in this activity. You argue that they contribute to financial development and stability in neighbouring countries, encouraging investment, employment and other aspects of business development but haven’t you actually got the whole causality of this relationship wrong? Isn’t it true that they actually exist to undermine the strong regulation, effective taxation systems and rule of law that create all those outcomes you observe and as such they do not promote the activities you observe but hinder them by encouraging free riding or the system, tax evasion, by undermining the rule of law, attacking the fundamental tenets of democratic government and the right of a government to deliver its electoral mandate without interference whilst diverting profit from productive to unproductive activity because it is artificially declared in tax havens and cannot therefore be remitted for productive use on the places in which it is really earned?

There are, of course, plenty of other possible questions. These will do for now.

I’m not expecting adequate answers.

Richard Murphy Conservatives, Economics, Secrecy jurisdictions, Tax Havens