Tax Research UK

Tax cheats like Jaswant Raykanda cost us 15 times more than benefit fraudsters - Investigations .

The Mirror states the obvious: tax cheats cost maybe a billion a year. Tax cheats cost many, many times more.

They have got the ratio wrong: it’s much more than 15 times more - and I’ll be publishing more on that soon I hope.

But this begs the question - why the costly emphasis on benefits when tax evaders are getting away with vastly more? This is mismanagement.

Richard Murphy HMRC, Tax evasion

FT.com / Comment / Editorial - Secrets and tax.

The FT has an editorial under the above title today. As they say:

The ability to keep secrets is an essential part of private banking. But sadly for the bankers of Switzerland and other tax havens, it is an ability they are losing. Stung perhaps by pressure on public budgets, governments are using ever cruder methods to pierce the veil of customer confidentiality. In recent years, the British have leaned on the Channel Islands, while the US has forced open the ledgers of Switzerland’s UBS by threatening it with commercial retaliation. But the Germans have come up with the most direct approach: purchasing stolen bank recordsfrom employees.

As the n ote:

The Swiss are outraged, and have accused the Germans of fencing stolen goods.

It is easy to see why the Swiss are alarmed. Germany is in effect establishing a market in bank data. Berlin may not be commissioning acts of larceny, but the “Merkel put” is a standing inducement for bank staff to breach their contracts. This is a potent threat to the private banking model. Even the possibility of leaks is damaging. If you were a German tax evader, you would not want to wait around to test the loyalty of the staff at your offshore bank.

So what’s the FT’s opinion on this:

It is surely legitimate to offer inducements for informers to testify. And it is in the public interest for tax cheats to be identified and forced to pay their dues.

Merkel’s put is a highly effective mechanism for achieving this. The Germans have raked in about €200m so far from LGT’s clients for their €4.6m, some of which they recouped by onward sales of data to other states. The Swiss are right to be worried.

The FT has this completely right: Switzerland is, by offering bank secrecy knowing that it will be sued to facilitate tax evasion, promoting crime. There is no other explanation for its actions. It is the Swiss and the Swiss alone who are wrong in the German - Swiss dispute on this issue. Germany is tackling crime, Switzerland actively facilitating it to the point that its actions might reasonably be considered criminal. Of course it is legitimate in that case to buy data to stop crime.

In the broader context it’s also about stopping economic warfare by Switzerland, and we’ve always paid informers to do that.

There’s just one issue I’ll argue with the FT on. They says:

Tax evasion is seen as morally ambiguous partly because it does not cause a big harm to a single individual but a small harm to many. Non-compliance is sufficiently widespread that people feel “it is all right because everybody does it”

I disagree. Undermining the rule of law is a big harm to all - especially when tax evasion does in the process deny the essential resources society needs to ensure a decent standard of living for all, as will increasingly be the case over the combing years. This is an enormous issue, and we should treat it as such.

Richard Murphy Economics, Ethics, Switzerland, Tax evasion

Germany leaning towards purchase of stolen bank data - swissinfo.

Selling deatils of Swiss bank accounts looks like becoming a regular pastime in the Alps

The Swiss are angry at the Germans but the Germans are the aggrieved party

What sort of mentality is it that the Swiss have that lets them get so annoyed at the discovery of the crime they facilitate?

Richard Murphy Switzerland, Tax evasion

Sometimes it’s worth mentioning what I’ve been reading. I always intend to do this more than I do. It’s not I don’t read – I just run out of time to mention it.

A recent read has been Londongrad: From Russia With Cash by Mark Hollingsworth and Stewart Lansley, published by Fourth Estate, 2009

The book is topical and touches themes addressed here often. It is no coincidence that the return of the era of ever deepening recessions has coincided with the emergence of a domestic and global mega-rich class, a group with minimal national ties who move their multi-billion fortunes around the globe in search of the best short-term returns. As the book argues, there is perhaps no more dramatic example of this breed and the ‘exuberant` behaviour of the world’s newly enriched than the Russian oligarchs who built vast personal fortunes out of the ashes of Soviet communism, not by creating new wealth from scratch, but by seizing a good deal of Russia’s historic wealth that had been built up over decades.

Londongrad tells the story of the wealthiest London-based oligarchs and how they manipulated the chaos of the Yeltsin years to engineer one of the most blatant transfers of national wealth in recent times.

There is a good deal of detail on how their newly acquired wealth was, as the book describes, ‘secreted abroad in a labyrinth of offshore accounts in an array of tax havens in the world’s most secretive tax havens. Stashed away it has been almost impossible to trace.’ This was, of course, one of the appeals of the book to me, but so was the fact that it was London that proved the final destination for much of this money.

As the authors explain, successive British governments along with the City turned a blind eye to the provenance of the wealth while bending the rules on tax, visas and corporate governance to ensure the money came here rather than elsewhere. In turn, the avalanche of money acted like an economic shock on the British economy. It made many individual Britons – playing the role of the ‘financial bag-carriers of the world` - rich themselves, while also creating destabilising grey markets and contributing to the mass flow of international money into the City that fuelled the bubble that preceded the inevitable crash.

This book provides a real life case study of the rise of the world’s multi-billionaires, Britain’s remarkable compliance in Russia’s capital flight and of the impact of the transfer on London where most of it landed. It mixes analysis with the narrative of a thriller – the twist being that it relates to real people.

Richard Murphy Domicile, Tax avoidance, Tax evasion

From the Financial Task Force blog:

"A new GFI report due out later this week, The Implied Tax Revenue Loss of Trade Mispricing, finds that developing countries are losing as much as $100 billion a year to just one form of tax evasion: trade mispricing.

‘Furthermore, the report’s $100 billion figure is likely understated, as it only reflects tax revenue lost through trade mispricing occurring through re-invoicing. The report also only measures tax revenue lost on illicit money coming out of developing countries, it does not take into account money that is being held abroad.’"

Something to watch for. More details on magnitudes and measurements here.

Hat tip to TJN.

But now I know where the OECD is coming from on this issue.

Richard Murphy Tax evasion

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

Swiss Banker Blows Whistle on Tax Evasion - NYTimes.com.

Ruedi Elmer continues his brave and lonely work. As he says:

Offshore tax evasion is the biggest theft among societies and neighbor states in this world.

I’m glad to see he is Jack Blum working for him as his lawyer. There’s no better man to have.

I’m also delighted that Jack is a leader of Tax Justice Network USA.

Richard Murphy Switzerland, Tax Justice Network, Tax evasion

As the Times notes:

Barristers and vets are expected to be the next professionals to come in for scrutiny after HM Revenue & Customs targeted doctors last week.

GPs and consultants, as well as dentists, who have failed to declare additional sources of income are being given the opportunity to come forward in return for a 90% discount on the usual penalties, under the Revenue’s latest “amnesty”, launched on Monday.

According to HMRC the total direct tax gap in the UK is just £25 billion a year. Of this tax evasion is not specified but at maximum it is claimed – assuming all inaccurate self assessment tax returns are evasion and not errors – to not exceed £14.4 billion.

That’s a big number – but is just 5.3% at most of all direct tax to be collected this year.

And that’s utterly implausible. As HMRC admit (page 11) the average VAT gap over the last 7 years as been 13.7% of the gross sum that should have been collected.

VAT is charged on sales. If 13.7% of sales do not have VAT on them that’s the top line that’s not being declared. And it’s very unlikely in that case that anything below the top line will be declared for tax if the tip line is not i.e. the direct tax loss on PAYE on wages self employed profits and corporation tax on profits is also likely to have a tax gap of at least 13.7% of the gross sum due. Actually, it’s likely to be higher still since small business is not liable to VAT – a fact allowed for in the VAT calculation and therefore the rate of loss amongst small unregistered businesses is likely to be even higher still.

So the overall direct tax loss is likely to be at least 13.7% of gross expected revenue – or about £42 billion. The loss on indirect tax would come in at more than £25 billion. Allow for some loss in ‘other revenues’ as well and the tax loss to evasion is in my estimate not less than £70 billion a year.

No wonder tackling the endemic crisis of tax evasion – even amongst the leading professions  - is so important.

But in that case why won’t HM Revenue & Customs admit the scale of the problem they’re tackling?

Richard Murphy HMRC, Tax evasion

15/01/2010 Spain scrambling to forge accord on savings tax.

Europolitics reports:

Spanish Finance Minister Elena Salgado is having a series of meetings with her EU counterparts to try to hammer out an accord on a revision of the Savings Tax Directive ahead of a Council meeting, on 19 January. EU finance ministers will convene in Brussels to make up ground lost in December 2009, when Austria and Luxembourg put their foot down over the automatic sharing of savers’ bank account information.

Changes to Directive 2003/48/EC were proposed in November 2008 to close loopholes for interest paid via tax-exempt trusts and charities, as well as to include interest payments on life insurance and other complex financial products. The revision is being negotiated alongside anti-fraud agreements with Switzerland, Liechtenstein, Andorra, San Marino and Monaco, as well as two directives on administrative cooperation (COM(2009)29) and tax recovery (COM(2009)28).

Moves to combat tax evasion have intensified since last April’s G20 meeting in London, when the Organisation for Economic Cooperation and Development (OECD) published a black list of tax havens, naming and shaming the five non-EU tax centres – alongside Austria, Luxembourg and Belgium – for not following through on promises to sign tax information exchange agreements with at least 12 other countries (the internationally agreed standard).

Austria and Luxembourg – as well as Belgium - have a temporary opt-out under EU savings tax rules, which came into force in 2005, allowing them to continue applying a withholding tax to non-residents’ interest payments, rather than swapping bank account data with other countries. But if Liechtenstein and the other four non-EU states agree to exchange information on request – which is part and parcel of the new anti-fraud agreements – it will trigger the end of the EU’s transitional period. It means Austria, Belgium and Luxembourg will have to switch to automatic data sharing with other EU member states, while Switzerland and the rest of the non-EU jurisdictions will not. Luxembourg is furiously opposed to mandatory data-sharing if foreign tax shelters are not subject to similar rules, while France is pushing to tighten up standards across the board.

Luxembourg’s behaviour annoys me intensely. There is only one reason for the European Union Savings Tax Directive: it is designed to stop tax evasion.

In that case it seems to me that Luxembourg is supporting tax evasion.

And that makes me very angry.

Richard Murphy EU STD, Luxembourg, Tax evasion

Swiss private banks want clearer legislation over bank secrecy. - swissinfo.

Switzerland has got itself off the so called OECD grey list of tax haven states by committing to more than 12 new or revised Tax Information Exchange Agreements and Double Tax Agreements including the latest for of the OECD standard information exchange clause which gets round bank secrecy.

And now the backlash has begun amongst Swiss private bankers. it’s reported that:

The Swiss Private Bankers Association (SPBA) on Thursday asked the government to look more carefully at the details of renegotiated double taxation agreements. Parliament was also urged to draw up a legal framework to allow concessions without breaking banking secrecy laws.

Speaking at the SPBA annual media presentation in Bern on Thursday, Anne-Marie de Weck, president of the Geneva Private Bankers Association, said it was time to defuse the legal minefield before more controversies erupted.

“We strongly believe parliament should adopt a strong legal framework to clarify the application of these [measures to align Switzerland with international tax demands] and clear up the uncertainty,” she told swissinfo.ch.

Such measures include the renegotiation of 12 double taxation treaties in the last 10 months with another 18 in the pipeline. The SPBA welcomed the decision to amend the treaties but questioned why a clause on exchanging tax information, demanded by the Organisation for Economic Co-operation and Development (OECD), had been included in agreements with some non-member countries.

It’s been included for good reason: the world knows banking secrecy facilitates crime. That is not by chance. That is its purpose.

The Swiss can say what they like, but if they renege on these deals they should expect substantial economic sanctions to be imposed on them as a nation state. And the only reason for their suffering will be to assist criminals from elsewhere.

They may decide to do that. But they would be very unwise to do so. The world has had enough of such crime and will no longer tolerate it even if Swiss bankers will.

Remember it is only a year or so ago that Swiss bankers admitted that maybe half of all cash in Swiss banks was illicit. They really do not have a  leg to stand on.

Richard Murphy Switzerland, TIEA, Tax evasion