Tax Research UK

CS sees withholding tax on Germans’ accounts-paper | Reuters .

Reuters report that:

The chief of Credit Suisse’s  private bank is proposing a withholding tax on bank accounts held by Germans in Switzerland to help ease strained ties with Berlin, a newspaper reported on Monday.

I have already discussed the absurdity of this idea but the Swiss are clearly still hanging on to it.

But what’s really funny is the justification for it:

Such a withholding tax could mean outflows in the short term but would not greatly harm his bank’s fortunes, Walter Berchtold told Germany’s Handelsblatt.

“Long-term I’m very optimistic, because our business doesn’t rely on untaxed funds,” he said.

Well that must make it the only bank in Switzerland that doesn’t since even Swiss officials seem happy to accept that half all money in the place is illicit.

It really is time the Swiss accepted that those facilitating fraud don’t set agendas and that the whole Swiss economy is structured for just that purpose.

Richard Murphy Banking, Switzerland, Tax evasion

RSM Tenon calls for doc amnesty extension - Accountancy Age.

A couple of months ago HM  Revenue & Customs announced a tax amnesty especially for doctors.

Now Accountancy Age notes:

Richard Murphy Tax evasion

The most astonishing document has been published by a body called Swiss Banking, who appear to represent the collective body of bankers in that country. Dated in December 2009 it’s only just come to my attention.

What is astonishing about it is the extraordinary arrogance of their proposals which will, they think, let them keep Swiss banking secrecy intact. To do so they are proposing a withholding tax in Switzerland on interest income, dividends, payments from funds, on capital gains and wealth. The object they say is:

to ensure that the assets deposited by foreign-domiciled clients with Swiss banks are compliant with the income tax laws of their relevant tax domicile. At the same time the purpose is to protect the privacy of these clients.

Switzerland offers to collect the flat rate tax on income paid on balances of foreign domiciled clients for countries that wish to avail themselves of the service. This tax is deducted by the paying agent (the bank) and credited to the tax authorities of the client’s tax domicile.

In return, Switzerland demands undiscriminated access to the financial markets of these countries under prevailing national law.

This needs some serious unpacking.

First: let’s be quite clear about the taxes that are proposed. They are flat taxes, about which the Swiss banks are eulogistic in their praise. Most of the rest of the world is not so enthusiastic, of course. The reality is that flat taxes are deeply regressive, and highly avoidable, as my own work on them has shown. As they say:

The model is generally also open to parties with progressive rates of tax, but on condition that a uniform rate is applied. A progressive taxation system would be technically virtually impossible to implement.

Second, let’s be clear that the Swiss determine the rate according to this model. They say it would coincide with the EU withholding rate – which will be 35% soon – but there’s no guarantee of that.

Third, they demand that:

The payment of the flat rate tax by the client is definitive, meaning that the client’s assets held with a bank in Switzerland have then been definitively assessed. The client no longer needs to declare the assets concerned in his/her/its annual tax return. The client receives (on request) an annual tax statement from the paying agent showing the tax amounts deducted.

There are massive further technical problems inherent in the proposals – which are naive on these technical issues to a degree that is quite extraordinary, but let’s stop at this point and realise what the Swiss bankers are demanding. It is this:

1. That the Swiss be allowed to set the prevailing current flat tax rate on all sorts of investment income for any state that enters into an arrangement of the proposed sort with Switzerland.
2. That progressive taxation on investment income be banned in those partner states as a consequence because they would be unenforceable. That would be because Switzerland could always undermine higher rates and there would be no penalty on anyone making use of Swiss banks rather than local banks and as such local banking would collapse if there were to be higher rate or progressive taxes in any state entering into such a deal with Switzerland.
3. That any state entering into such an agreement with Switzerland must forego its own right to set its own tax rates henceforth – not least because Switzerland wants to apply this tax rate to some forms of company and other entities as well.
4. That any state entering into such an agreement forego its right to demand tax returns that are full, complete and accurate from its residents.
5. That any state entering into such a deal forego the right to ask its taxpaying population about why they have funds in Switzerland – and whether the capital transferred there should have been taxable in the home jurisdiction or not – so foregoing all prospect of ever making investigation of tax evasion.

I have to assume that those proposing this arrangement are aware of what it means. It would be patronising to thin otherwise. But in that case there are three things to say.

First, it’s hard to take their technical competence seriously. They clearly do not understand the complexity of the issues they are addressing – which the EU has been tackling for many years with regard to the European Union Savings Tax Directive and which the Swiss seem to just brush aside.

Second, the staggering implicit assault on the tax sovereignty of other states within these proposals is breathtakingly naive and politically brazen at the same time.

Third, it is astonishing that in all this the obvious intention is to dismiss the issue of banking secrecy as a simple one of non-taxation of income arising in Switzerland. The key issue of how the funds get there in the first place is completely swept aside – it is demanded that states ignore this issue.

I have said time and again that secrecy jurisdictions are profoundly political constructs. This is inherent in my definition of them, which is:

Secrecy jurisdictions are places that intentionally create regulation for the primary benefit and use of those not resident in their geographical domain. That regulation is designed to undermine the legislation or regulation of another jurisdiction. To facilitate its use secrecy jurisdictions also create a deliberate, legally backed veil of secrecy that ensures that those from outside the jurisdiction making use of its regulation cannot be identified to be doing so.

This is an almost perfect example of that definition being seen in practice.

We could just dismiss it. The reality is though that these people are serious: they really think this should be done.

That’s why they’re a threat to democracy itself. When bankers use the abusive legislation of a state they have captured to seek to undermine the right of people in other states to set their own tax rates, determine their own fortunes and determine their own criminal justice systems we can more readily appreciate the scale of their assault on society as whole, which is why we have to fight back.

And don’t think these are fringe organisations. The members of the organisation promoting this include UBS, Credit Suisse, Barclays, HSBC, Lloyds and RBS.

Be worried. Be very worried.  These people really do want to rule the world – and that’s no joke.

Richard Murphy Banking, Corruption, Ethics, Switzerland, Tax evasion

I just noticed I had a letter in the London Evening Standard yesterday. It said:

Chris Blackhurst is right that public attitudes towards tax avoidance have changed, but the Government could be doing much more.

The UK has £28 billion of unpaid tax debt. I estimate tax avoidance (legal but unacceptable abuse of tax law) to run at £25 billion a year and tax evasion (fraudulent law-breaking) at £70 billion. Tackling these issues could close the fiscal deficit.

The first step is for Revenue and Customs to recruit significant numbers of new staff, reversing recent job cuts, to address the tax evasion problem, which would also  save millions in benefit costs. Tax debt must be
tackled aggressively. UK law needs a general anti-avoidance provision that stops tax abuse before it starts; and we need to take on offshore tax havens by demanding full information from them on all income received by UK
passport-holders in those places, while abolishing the domicile rule.

If the Chancellor announced this programme next week, he’d have the country behind him.

Richard Murphy

Director

Tax Research LLP.

John Christensen covered the original story here.

I genuinely think Blackhurst is right.

People are fed up with abuse.

Richard Murphy Tax avoidance, Tax evasion

I’ve written a new report under the above title on behalf of PCS – the union that represents more than 80% of HM Revenue & Customs’ staff.

As the executive summary says:

The UK has been in recession, and may well be in recession again soon. Through no fault of its own, the income of our government has collapsed whilst its obligations have increased. A gap between government income and expenditure of up to £175 billion a year has emerged as a result. This though is not a spending crisis: this is an income crisis.

This report argues that the scale of that income crisis is being increased as a result of policies being pursued by HMRC. Those policies were created before the onset of recession. They have two aims. The first is to cut over time the number of staff engaged by HMRC by 25,000 – 17,000 have already left. The second policy is to close many of the local tax offices from which HMRC used to undertake its work in local communities. Over 200 offices have either closed already, are about to close, or are under threat of closure. It is fair to say that all offices are under scrutiny. When the programme is complete some people in the UK will live more than 50 miles from their nearest tax office, making it impossible for many of them to turn to this natural source of help and advice when seeking to fulfil their obligation to pay tax. In addition, HMRC are about to press ahead with the closure or severe reduction of its drop-in enquiry centre facility, which has previously provided a local and immediate tax advice service for both members of the public and tax professionals.

As this report also notes, too many people do not pay the tax due by them in the UK. HMRC have estimated the ‘tax gap’ in the UK – the difference between the tax they think is owed and the tax they actually assess – to be about £40 billion a year. We argue that this dramatically underestimates the total tax gap, particularly with regard to tax evasion.

To data previously published by the TUC which estimated total UK tax avoidance at £25 billion we now add an estimate of £70 billion for tax evaded within the UK. We can provide detailed and precise workings for this sum and also outline why the estimates of this sum produced by HMRC and the National Fraud Authority inevitably understate this figure.

When the total outstanding debts now owing to HMRC are added to these two sums, which when last estimated was £28 billion, we suggest the total tax gap in the UK is now likely to exceed £120 billion.

It is very obvious that the UK cannot afford this tax gap. It is equally obvious that if investment were made in additional resources for HMRC then this tax gap could and would be substantially reduced.

In arguing this we make the following points:

Recommendation 1: The basis for estimating tax avoidance should be revised to use a definition widely recognised in society and which correctly reflects areas of continuing policy concern as well as those abuses making use solely of artificial arrangements.

Recommendation 2: HM Revenue & Customs should be required to prepare estimates of evasion of direct taxes on a “top down” basis, as they do for indirect taxes.

Recommendation 3: H M Revenue & Customs should recognise that their existing bottom up methodology for calculating the tax gap for direct taxes will inevitably seriously under-estimate the size of that estimate.

Recommendation 4: HM Revenue & Customs should recommence publication of the many statistics on taxation produced by the former Inland Revenue which have ceased to be available since its demise, the lack of which make objective appraisal of the performance of the tax system hard to achieve.

Recommendation 5: HM Revenue & Customs should engage more staff to tackle tax avoidance and tax evasion.

Recommendation 6: HM Revenue & Customs must on occasion select cases for investigation without consideration of potential tax yield, and make clear that this happens to protect revenues from those on lower levels of earnings.

Recommendation 7: More staff should be engaged to scrutinise tax repayments before they take place.

Recommendation 8: More staff should be engaged to recover tax debt owing, and limits on sums to be pursued for collection should be lowered considerably.

Recommendation 9: The local office closure programme being pursued by HM Revenue & Customs should not just be stopped, it should be reversed. Tax must be seen to be collected in the community.

It is our firm believe that adopting these policies would highlight the true extent of the UK Tax Gap, provide the data needed to appraise progress in tackling it, and be cost effective methods of achieving that goal for al the reasons this report outlines.

I’ll be featuring more of what I say in this report over the next day or so.

The key issue is a simple one though: why, at a time when we need every penny of tax revenue we can get are HM Revenue & Customs doing everything possible to increase inefficiency in the tax system.

And remember – it’s not just me or PCS who are saying this. So too are the Treasury Select Committee. And I’d just point out that it’s not just PCS who are affiliated to the Tax Justice Network, so too are the Revenue & Customs’ group of the First Division Association of senior civil servants.

The Treasury select committee said, for example this week:

[HMRC’s Chief Executive] further that there was “lots of evidence” to show that HMRC’s anti-avoidance strategy was working. This is though not reflected in the Annual Report which records that it is too early to give an assessment of HMRC’s efforts to increase tax and National Insurance contributions actually received relative to the amounts that should be received.

And to reflect what I wrote on the lack of data and transparency from HMRC they also wrote:

As we have also previously noted, there is a similar lack of transparency in HMRC’s Annual Report on tax avoidance. In all, the Annual Report records no milestones against three out of the four [key] performance indicators .

Two reports happening to be in agreement does not say we’re both right. But I’ll venture on this occasion that we are.

Richard Murphy HMRC, TUC, Tax avoidance, Tax evasion, Tax management

Global Financial Integrity has released the following video along with a letter from GFI Director Raymond Baker. The video encourages individuals to combat one of the oft-neglected causes of poverty, illicit financial flows, by urging the G20 to create financial transparency. It’s one of the best videos of its type I’ve ever seen.

The letter says:

Dear Supporter,

For over half a century – western aid organizations have admirably worked to alleviate poverty in developing countries. Despite these efforts, over 3 billion people-or half the world-live on less than $2.50 per day. Indeed, more people live in poverty today than at any other time in human history.

That’s because for every 1 dollar in foreign aid sent to developing economies, 10 dollars is flowing out illicitly. In fact illicit financial flows from developing economies total $1 trillion every year-10 times the amount of foreign aid received.

But there is hope! We can curtail the devastating effects of dirty money by urging the G20 to create financial transparency in the international banking system.

Today, Global Financial Integrity released a video urging people to do just that. The video, titled “Who Suffers?” explains this problem and urges people to take action by signing the petition to the G20 at www.G20Transparency.com. Please join us in our fight by forwarding this video to your friends and family.

Best Wishes,

Raymond Baker
Global Financial Integrity

Please do support this campaign.

Disclosure: Global Financial Integrity and Tax Research LLP are both members of the Task Force on Financial Integrity and Economic Development

Richard Murphy Corruption, Development, Secrecy jurisdictions, Tax Havens, Tax evasion

Switzerland has lost out on the lucrative tax evasion market by giving up banking secrecy too quickly, a writer says. - swissinfo.

The warped logic of the private banking industry is revealed in this piece, from SwissInfo:

Switzerland should be doing more to fight its corner in the battle for a piece of the shifting but highly lucrative tax evasion market, an expert tells swissinfo.ch.

With the market now worth an estimated $13.7 trillion (SFr13 trillion), Swiss financial journalist Myret Zaki asks in her new book, Banking Secrecy is Dead, Long Live Tax Evasion (Le secret bancaire est mort, vive l’évasion fiscale), who is really benefitting most from tax evasion.
Her conclusion: British jurisdictions, where trusts are thriving. These secretive organisations are, in Zaki’s words, the “princely tools” of tax avoidance.

The non-governmental organisation Tax Justice Network valued the tax evasion market at $11.5 trillion in 2005, and at its current worth it comes in just under the United States’ Gross Domestic Product.

Activity in the Swiss financial centre is marginal by comparison. In 2008 it managed around SFr2.2 trillion in cross-border private assets, around half of which would have been undeclared.

Zaki argues that Switzerland should resist moralistic anti-banking secrecy arguments put forward by neighbouring countries and demand equal treatment. It should not give up too much, too quickly in the face of international pressure, she says.

Odd to find data I helped prepare being used as an argument for the supply of more tax evasion, but let’s leave that aside and note the important issues. First, an acknowledgement that half of all Swiss banking funds are illicit. Second, a candid acknowledgement that banks know this and want to profit from it.

This is the madness of libertarian economics. We won’t resolve the issue until banking, and more besides, is radically reformed.

Richard Murphy Switzerland, Tax evasion

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

Reuters have reported:

A U.S. client of London-based HSBC pleaded guilty to conspiracy in connection with assets stashed abroad to evade taxes, part of a widening crackdown on foreign banks and their customers.

The plea is the first among the U.S. government’s recent tax prosecutions that involves a major bank other than Swiss banking giant UBS AG.

HSBC was not named in the court documents, which referred to "one of the largest international banks in the world" … "headquartered in England." But a person familiar with the matter identified the bank as HSBC.

Andrew Silva, of Sterling, Virginia, a doctor, pleaded guilty in U.S. District Court for the Eastern District of Virginia to conspiracy to defraud the U.S. government by hiding about $250,000 in an account at a Swiss unit of HSBC.

The court filings listed the defendant’s banker as an unindicted co-conspirator. HSBC declined to comment.

Silva was notified in August of 2009 that the bank would stop holding his account. He then attempted to send the money back through the mail in increments of less than $10,000 to evade reporting rules, according to the court documents.

I’ve read those court documents. Reuters are report to report that they say:

Court documents said a Zurich attorney and the Swiss banker warned Silva he could not use wire transfers to get his money out of Switzerland, for fear of leaving a paper trail. He was to deal only in cash and was given individually wrapped "bricks" to send the money back in chunks of $100 bills.

One such brick supplied by HSBC (if this widely believed report is true) had $100,000 in it in new, sequentially numbered dollar bills.

Now there is no way on earth a bank would have done this but to assist money laundering.

And if HSBC did this in Switzerland then its worth noting that the head of the HSBC private bank in that country is this man:

That’s the Rev Stephen Green of the Church of England, also Chair of HSBC, formerly CEO of HSBC and also the current chair of the British Bankers’ Association.

This money laundering will, if the HSBC connection is confirmed, have taken place on his watch. He can’t claim it’s not his responsibility. It’s the board’s job to ensure controls are in place to stop this sort of thing happening – in 2009. But it did happen – that’s beyond doubt. And if it was in HSBC he was there.

Will he resign if the HSBC connection is confirmed? Will he be indicted? Will he be extradited?

If not, why not? Surely if the HSBC connection is true there are charges for him to answer? I do not pre-judge guilt, but isn’t it right and proper that bankers, paid millions for their oversight, are held accountable for the money laundering their banks facilitate? Doesn’t that mean he should, if his bank was involved, have his day in court?

And if not, why not?

Richard Murphy Banking, Switzerland, Tax evasion

Luxembourg summit to discuss future of bank secrecy | Reuters .

Reuters notes:

High-level talks in Luxembourg on Sunday will assess whether there is a future for what remains of bank secrecy in Europe in the face of international pressure, but offshore centers are struggling to find common ground.

Unsurprising: defending structures only designed to facilitate crime is always hard.

Bank secrecy will tumble, I promise you.

Richard Murphy Secrecy jurisdictions, Tax evasion