The Tax Justice Network has just launched a new monthly podcast – The TaxCast.
In each 15 minute show, TJN will be discussing the latest news relating to tax evasion, tax avoidance and the shadow banking system.
In the inaugural TaxCast the implications of the Vodafone vs India landmark tax case are discussed (by me), TJN compares Bill Gates and Mitt Romney’s attitudes to taxation whilst TJN visits the Occupy camp outside St Paul’s Cathedral in London.
Podcast: Play in new window | Download
Gibraltar Chief Minister, Fabian Picardo, met with UK Leader of the Opposition Ed Miliband in London on Monday. Mr Picardo was accompanied by his Minister for Financial Services Gilbert Licudi.
The meeting, which was held at Mr Miliband’s offices at Westminster, was the first opportunity for the two men to meet since they met at the Labour Party Conference in Liverpool in late September.
Mr Miliband who is the UK Labour Party leader recently made abrasive remarks about the need to close down secretive UK offshore tax-havens.
A Gibraltar Government spokesman said: “Following Mr Miliband’s recent remarks about “Tax Havens”, the Chief Minister and Mr Licudi briefed Mr Miliband on the latest developments in Gibraltar and in particular on the work of the finance centre as a fully compliant EU financial services hub that operates entirely in keeping with EU directives and regulations, fully compliant with OECD rules also and therefore not by any measure a “Tax Haven”.
If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.
The Isle of Man News has a fascinating article asking whether the pressure has been taken off the Isle of Man now on tax matters.
Much of the analysis is wrong because they think the issues are now resolved, and that is far from true but just for the moment I want to highlight another issue, which is the credit implicitly given to the Tax Justice Network for forcing change. As they say:
Over the past five years, our financial services, tax rates and Customs deal have come under intense scrutiny from beyond our shores.
We’ve had the EU question our corporate tax regime, the painful revision of our VAT deal twice in two years, an inquiry commissioned by the Westminster government has run the rule over our ability to withstand financial shocks and the OECD has reviewed our tax transparency and co-operation.
It seems that barely a week went by without another brickbat being lobbed our way by Brussels, London or Washington.
And quite right too. All of then were justified. As they then out it though, discussing the introduction of incredibly limited automatic information exchange under the European Union Savings Tax Directive:
It is notable that even the Tax Justice Network, consistent critics of so-called ‘secrecy jurisdictions’ has acknowledged the work the island has done in this area.
On VAT, the loss of more than £175 million in revenue – about one third of total government income – has caused major problems in balancing the budget. But even here, the UK has indicated it won’t be back for more.
And on zero/10, now finally resolved with the announcement last week by Brussels, criticisms from Europe were dealt with by decisive action: by scrapping ARI, the anti-avoidance measure, that the EU Code Group considered as harmful. The result was to save the corporate tax strategy and the thousands of jobs that depend on it.
Tax justice campaigners argue that offshore centres help to plunder resources and siphon wealth from Third World Countries.
Mr Bell denies the Isle of Man plays any such role. He confirmed that the island is considering extending Tax Information Exchange Agreements to developing nations, a move advocated by the OECD’s Global Forum – so long, he said, as an appropriate model is in place to do so, given that many such countries did not have a properly developed tax system and there were issues of corruption in some regimes.
We’ve been right on everything else. We’re right on this too. And that’s why none of the pressure on tax havens will be going away in 2012. Because that was the issue that always motivated me and the Tax Justice Network.
I’ve just discovered my broadcast on Sky yesterday morning is available on the web, here.
Live from my Downham Market studio! Good job the camera didn’t sweep round the room or it would have landed on the model railway that my sons and I share that I happen to share my work space with.
What the PAC report on HMRC’s management of the tax affairs of large corporations has shown is that tax management has become an ethics free zone. That need not be the case. I argued very strongly for a Code of Conduct for tax a couple or so years ago, and as a result drafted the Tax Justice Network and Association for Accountancy and Business Affairs Code of Conduct on taxation. This is available here.
The actual Code is just two pages long and reads as follows:
A Code of Conduct for Taxation
Objective
This Code of Conduct relates to the payment of taxes due to a State or other appropriate authority designated by it.
Scope
This Code applies to:
- Governments and their agencies in their role as tax legislators, assessors and collectors;
- Taxpayers, whether individuals, corporate bodies or otherwise;
- Tax agents, whether they are undertaking tax planning or assisting with tax compliance.
Application
It is intended that this Code be voluntarily adopted by States and should be used to guide the conduct of taxpayers and their agents who choose to comply with it whether or not they reside in a State which has adopted the Code.
The Code
The Code is divided under six sections, each of which includes three statements of principle.
1. Government
a. The intention of legislation is clear and a General Anti-Avoidance Principle (‘Gantip’) is in use;
b. No incentives are offered to encourage the artificial relocation of international or interstate transactions;
c. Full support is given to other countries and taxation authorities to assist the collection of tax due to them.
2. Accounting
a. Transparent recording of the structure of all taxable entities is available on public record;
b. The accounts of all material entities are available on public record;
c. Taxable transactions are recorded where their economic benefit can be best determined to arise.
3. Planning
a. Tax planning seeks to comply with the spirit as well as the letter of the law;
b. Tax planning seeks to reflect the economic substance of the transactions undertaken;
c. No steps are put into a transaction solely or mainly to secure a tax advantage.
4. Reporting
a. Tax planning will be consistently disclosed to all tax authorities affected by it;
b. Data on a transaction will be consistently reported to all tax authorities affected by it;
c. Taxation reporting will reflect the whole economic substance and not just the form of transactions.
5. Management
a. Taxpayers shall not suffer discrimination for reason of their race, ethnicity, nationality, national origin, gender, sexual orientation, disability, legal structure or taxation residence; and nor shall discrimination occur for reason of income, age, marital or family status unless social policy shall suggest it appropriate.
b. All parties shall act in good faith at all times with regard to the management of taxation liabilities;
c. Taxpayers will settle all obligations due by them at the time they are due for payment.
6. Accountability
a. Governments shall publish budgets setting out their expenditure plans in advance of them being incurred, and they shall require parliamentary approval;
b. Governments shall account on a regular and timely basis for the taxation revenues it has raised:
c. Governments shall account for the expenditure of funds under its command on a regular and timely basis.
Enforcement
States seeking to comply with the Code will voluntarily submit themselves to annual appraisal of their Conduct. These appraisals will in turn be reviewed by a committee of independent experts appointed by participating States. Differences of opinion will be resolved by binding arbitration.
Any taxpayer or agent wishing to comply with the Code may do so. A State should presume that a person professing compliance with the Code has done so when dealing with any tax return they submit. In consequence the administrative burdens imposed upon that person should be reduced. In the event of evidence of non-compliance being found any consequential penalty imposed should be doubled.
I believe that this is the right direction of travel for tax management: those agreeing to not abuse the tax code should get a lighter touch regime from HMRC. Those not signing up should expect the consequences. And we’d need to know who is who.
But note too, I’m not offering a light touch to government: legislation needs improving and so does government accountability to meet the standards set by this Code. Getting this relationship right is a two way street. What’s more it’s a long street and there’s some way to travel down it. I just wish the willingness to make the changes existed, not least on the side of government.
Just noticed this on Facebook…
Me and John Christensen together.
Enough to cause considerable distress in Jersey!
From the EU Observer:
“EU member states Cyprus and the UK have been named by the World Bank as two of the world’s leading destinations for money launderers. The Washington-based body in a new report noted that out of 150 high-level corruption cases exposed in recent years, the UK and UK overseas territories Bermuda, the British Virgin Islands, the Cayman Islands, the Isle of Man and Jersey hosted 172 companies used in criminal schemes.”
This is taken from the World Bank’s recent in-depth Puppet Mastersreport, and these numbers appear to be taken from Table B3 on p121. To be clear, it seems that by “UK” the report means the UK and its dependencies. The biggest single jurisdiction, in terms of corporate vehicles employed, was the United States. The table, which involves just a snapshot of the real picture, is below. Click to enlarge; click here for the full report which will serve as a useful reference for us for the future.
Martin responded to Saint-Aman’s comments about transfer pricing – in which he suggests that the OECD’s approach to transfer pricing is wrongly criticised – and John defends TJN’s Financial Secrecy Index from accusations that it was rigged to ensure that countries we wanted on top of the list “be on top of the list”.
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The OECD does not have all the answers
27 October 2011
Responding to Pascal Saint-Amans’s comments in an exclusive interview with International Tax Review, Martin Hearson, policy adviser at ActionAid, argues that the OECD does not have all the answers in the formulation of international tax standards.
In an interview with International Tax Review, Pascal Saint-Amans suggests that the OECD’s approach to transfer pricing is “disputed and sometimes contested by people who don’t really get it right”. We welcome the appointment of Pascal, who has always made an effort to reach out to civil society organisations, to the OECD’s top position at a time when tax and development is rising up the global agenda. But his comments somewhat mischaracterise an important debate.
Development NGOs such as ActionAid have invested a lot of time in engaging with tax officials from developing countries. We understand that building transfer pricing capacity is the immediate priority, especially in Africa; we also appreciate that many countries will prefer to do this on the basis of the OECD guidelines, because they are currently the pre-eminent international standards. But we also know that we are not the only ones to question the guidelines’ long-term suitability for developing countries.
First, it is important to recognise that transfer pricing, the arm’s length principle and the OECD guidelines are three different things. The OECD standards propose several ways to determine the arm’s length price (ALP), and represent one approach to transfer pricing. But the OECD does not have a monopoly on transfer pricing or the ALP – just ask the Brazilians.
It is perfectly possible to believe in transfer pricing, and indeed in the ALP, but to think that the OECD guidelines may need to be adapted to the resource-constrained context of an African revenue authority. This is one of the issues with which the UN Committee of Experts is grappling in the drafting of its practical manual on transfer pricing. I have heard strong support for this perspective from many African quarters, along with an insistence that the adoption of transfer pricing standards is a matter of national tax policy, to be made by each state itself.
Second, it is not the OECD’s role to reconcile the interests of OECD members and of developing countries. The existence of two model tax conventions – maintained separately by the UN and OECD – is an acknowledgement that these interests do not always coincide. The OECD’s report on attribution of profits to permanent establishments is frequently singled out by African revenue officials as an example of a step too far away from the taxing rights of source countries, and has been rejected in the recent update of the UN model convention for precisely this reason. My impression is that many also question whether, in the longer term, a similar balancing might not be necessary with regards to transfer pricing standards.
As should already be clear, the characterisation of the transfer pricing debate as between those who favour OECD standards and those who advocate formulary apportionment overlooks much of the current discussion. But Pascal’s advice to developing countries to “be cautious about the white man” who advocates formulary apportionment is also wide of the mark. I recently attended a meeting at the OECD on transfer pricing capacity building, at which only one person brought up the topic of formulary apportionment. It was not a white man, or indeed an NGO participant, but a woman from an African tax authority.
There is much important work to do on tax and development, and I consider the OECD secretariat an important partner which is already doing a lot of good work. For NGOs, however, the long-term objective is for developing countries to participate, on an equal footing, in the formulation of international tax standards. The first step towards this is to admit that the OECD does not have all the answers.
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OECD should step aside and let UN tackle tax havens
31 October 2011
In response to Pascal Saint-Amans’s comments in an exclusive interview with International Tax Review, John Christensen, director of the Tax Justice Network, defends the Financial Secrecy Index and argues that the OECD is unsuitable to lead global attempts to tackle offshore secrecy.
The OECD’s Pascal Saint-Amans cannot go unchallenged when he asserts, in aninterview with International Tax Review, that the Tax Justice Network created its 2011 Financial Secrecy Index (FSI) “with a mathematical formula to get countries they want on top of the list to be on top of the list”. If Saint-Amans has evidence to support this extraordinary attack on the integrity of the FSI he should provide it; if not he should withdraw his comment and apologise to those concerned, myself included since I was responsible for the overall direction of research for the 2011 FSI.
The FSI is based on 15 indicators which were applied in exactly the same way to all 73 countries assessed in the 2011 FSI. Readers wanting to explore the background to these indicators can access our explanatory notes.: They can judge for themselves whether these indicators are biased towards unspecified countries we want “to be on top of the list”.
Readers can also judge for themselves whether the mathematical formula we used in 2011 is biased towards one country or another. When we evaluated the results of the 2009 index we were told that the formula used that year did not put sufficient emphasis on the secrecy score arising from our assessment of the 15 indicators. This had the outcome of elevating larger offshore financial centres higher up the ranking relative to the more secretive jurisdictions.
This year we rectified this by adjusting the mathematical formula used for combining the secrecy scores with the scale weightings to emphasise secrecy over scale. Readers can access the detailed methodology on the FSI website. Saint-Amans implies that we have an unrevealed agenda for getting countries we “want on top of the list to be on top of the list”. I would ask him to expand on the political agenda he accuses us of pursuing. From our perspective, we designed the index in 2007 precisely to overcome the deficiencies of the OECD’s 2000 list which omitted many of the world’s largest secrecy jurisdictions, including OECD member states like Austria, Luxembourg, Switzerland, UK and USA.
Not surprisingly the 2000 OECD list was widely condemned. To compound their earlier error, in 2009 the OECD published a black/grey/white list of secrecy jurisdictions based only on their hopelessly inadequate tax information exchange agreement (TIEA) criteria. Mere commitment to cooperate was sufficient to secure removal from the black list, and simply signing up to 12 TIEAs on the OECD ‘upon request’ model was sufficient to secure a white listing. Hey presto, almost every secrecy jurisdiction is now white listed and the OECD claims victory in the battle against tax havenry.
Sadly, the OECD claims are greatly exaggerated. The effectiveness of the TIEAs cannot be assessed since the OECD has not published data on how much information is actually being exchanged. Where information does exist, it appears that very little data is being exchanged under the TIEA process. Worse, despite the claims made by Saint-Amans, banking secrecy remains operationally intact. Do not take my word for it; take this from the horse’s mouth:
“The Swiss Bankers Association (SBA) welcomes the finalisation of the tax agreement between Switzerland and the United Kingdom. Overall, the agreement is comparable to the one concluded with Germany. Firstly, the bilateral treaty gives clients of banks in Switzerland who are taxable in the United Kingdom a path to tax compliance while maintaining their financial privacy.”
Financial privacy in this context is banking code for secrecy.
Time and again, the OECD has demonstrated its unsuitability to lead global attempts to tackle offshore secrecy. It is a rich countries’ club whose members feature prominently on the 2011 FSI ranking. The policy prescriptions it promotes are either ineffective (. the ‘upon request’ TIEAs), or impossibly complex and unsuited to the needs of non-OECD countries ( the ‘arms-length’ approach to transfer pricing).
The OECD is not the appropriate organisation to carry forward global attempts to tackle offshore secrecy. Lacking both legitimacy and political will, it should stand aside and allow a suitably politically upgraded UN Committee of Experts on International Cooperation on Tax Matters to take over responsibility for carrying forward the vital agenda of ending tax havenry.
A Bloomberg editorial today says:
Switzerland’s bank secrecy laws and anonymous numbered accounts have a long and shameful history: They have been used to help criminals conceal illicit gains, to deny Holocaust survivors their stolen inheritances and to help the world’s wealthy hide taxable income.
So it’s a welcome sign that 11 firms may be on the verge of agreeing to pay billions of dollars in penalties and reveal the names of Americans who used Swiss bank accounts to evade U.S. taxes, according to a Bloomberg News article yesterday.
As they note:
U.S. prosecutors held out the threat of criminal indictments, which is tantamount to a death sentence for a bank.
And the add, importantly:
Finance Minister Eveline Widmer-Schlumpf said that the country wants to reach an agreement with the U.S. so that Switzerland isn’t confronted “with the same issue time and again.” If that’s the case, Switzerland shouldn’t assume the U.S. will accept deals like those reached earlier this year with the U.K. and Germany, allowing the identities of customers with untaxed assets to remain secret.
There’s good reason for that: as they say:
Unfortunately, Switzerland has cooperated only grudgingly in meeting international banking standards, agreeing to do so in 2009 under threat of sanctions and being named as a tax haven by the Organization for Economic Cooperation and Development. Even so, the country this month was ranked at the top of a financial secrecy index developed by the London-based Tax Justice Network.
Switzerland should do itself a favor and abandon the financial opacity that has made it the world’s No. 1 destination for offshore wealth. It has no place in a globalized world where money can be electronically whisked from one place to another, except as a cloak for financial wrongdoing.
This is one of the biggest financial news networks iin the world and it is arguing the UK is wrong, Switzerland is wrong and the Tax Justice Network is right to take its position.
Times are changing, at least a bit.
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