Tax Research UK

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

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

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

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

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

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

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

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

Richard Murphy OECD, TIEAs, Tax Justice Network

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

I made a claim in a comment earlier today that the Foot Report would not have happened without the work of the Tax Justice Network.

I’d also go so far as to say the problems with zero-ten would not have been found without that work. And the Isle of Man would still be subsidised but for what we’ve done.

An idle boast? I don’t think so – look at this list of the reports reviewed by Deloittes in the course of preparing their report:

Appendix 1 – Studies reviewed

‘False profits robbing the poor to keep the rich tax free’, Christian Aid, March 2009

‘Death & Taxes: The true toll of tax dodging’, Christian Aid, May 2009

‘The morning after the night before: The impact of the financial crisis on the developing world’, Christian Aid, November 2008

‘Tax Havens: releasing the hidden billions for poverty eradication’, Oxfam, June 2000

‘The Missing Billions’, Trade Union Congress, February 2008

‘Where on Earth Are You: Major corporations and tax havens’, Tax Justice Network, April 2009

‘The direct tax cost of tax havens to the UK’, Tax Research LLP, Richard Murphy

‘The tax gap series’, The Guardian, February 2009

‘Profit Shifting in the EU: Evidence from Germany’, IFS, Alfon Weichenrieder, April 2006

‘The Impact of Non-Profit Taxes on Foreign Direct Investment: Evidence from German Multinationals’, IFS, Thiess Buettner and Georg Wamser, April 2006

‘Taxes and the size of foreign owned capital stock: which tax rates matter?’, IFS, Michael Devereux & Ben Lockwood, April 2006

‘Capital Structure and International Debt Shifting in Europe’, IFS, Harry Huizinga, Luc Laeven and Gaetan Nicodeme, April 2006

‘Tax Havens and the Financial Crisis’, Oxford University Centre for Business Taxation, Geoffery Loomer and Giorgia Maffini, April 2009

‘Mind the Tax Gap’, Tax Justice Network, 2006

‘Closing the Floodgates: Collecting tax to pay for development’, Tax Justice Network, 2007

‘Tax evasion, tax avoidance and tax expenditure in developing countries: A review of the literature’, Oxford University Centre for Business Taxation, Clemens Fuest and Nadine Riedel, June 2009

‘Economic growth and the role of taxation – theory’, OECD - Gareth D. Myles, Exeter/IFS, 15 July 2009

‘Tax and Economic Growth’, OECD – Asa Johansson, Chrisopher Heady, Jens Arnold, Bert Brys and Laura Vartia, 11 July 2009

‘The Impact of Taxation on the Location of Capital, Firms and Profit: A Survey of Empirical Evidence’, Oxford University Centre for Business Taxation, Michael P Devereux, April 2006

‘The Price of Offshore’, Tax Justice Network, March 2005

‘Magnitudes: dirty money, lost taxes and offshore’, Tax Justice Network, March 2009

That’s 21 papers. Those in red are by TJN or me. That’s seven of them: one third. That in blue basically deals with issues TJN and its partners raised. Papers by close allies or influenced by TJN are in green – that’s five of them. That leaves just 8 others. In other words 12 can be directly related to TJN or its partners, one is the consequence of its work and just eight come from elsewhere.

If as a result of Foot the Crown Dependencies have to tax, be more transparent and automatic information exchange don’t doubt that, whatever else is said, the Tax Justice Network had a major role in that process.

And I’m delighted to have directed much of the research work noted here. I’m well aware that many will be crowing after Foot: I’m not sure why. It is an inadequate report, and Deloittes part I will deal with soon – and I’ll signal now I consider it profoundly unethical – but that report would not have happened but for the Tax Justice Network. We are changing the world for the better. And I’m pleased to have played a part in that – and salute all those others – and most especially John Christensen at TJN and Alex Cobham at Christian Aid who have also played big roles in all this, not forgetting (with apologies to any I miss) Prem Sikka, Nick Shaxson, Markus Meinzer, Matti Kohonen, the whole team in Jersey led by Pat Lucas, Raymond Baker, Tom Cardamone, Jack Blum, Sarah Lewis at TJN USA, the Global Witness Team, the Action Aid team, and many friends in the media and behind the scenes.

It’s easy on occasion to feel the pressure of being under-resourced to take on the task we have of removing the abuse of tax havens / secrecy jurisdictions that imposes such enormous cost on the less well off and outright poor of the world. But we are making progress for them. And I see no harm in saying so.

Richard Murphy Development, Secrecy jurisdictions, Tax Havens, Tax Justice Network

Tax Justice Network: The Foot Report: a setback.

TJN’s initial view of the Foot Report, with some additional comment where an attempt is made to find the positives in the report, here.

Richard Murphy Secrecy jurisdictions, Tax Havens, Tax Justice Network

This letter went out today to the Finance Ministers of G20 countries, signed by nine organisations including the Tax Justice Network. For the pdf version, with logos and signatures, click here.

Wednesday, October 28th 2009

Dear Finance Minister,

In the run-up to the G20 Finance Ministers’ meeting in St Andrews, civil society organisations from around the world are writing with regard to the G20 Heads of States’ commitment at the London Summit in April to ‘develop proposals by end 2009 to make it easier for developing countries to secure the benefits of a new cooperative tax environment.’

In November 2008 at the United Nations’ Financing for Development review conference, the world’s governments agreed that “capital flight, where it occurs, is a major hindrance to the mobilization of domestic resources for development.” A commitment was made to “strengthen national and multilateral efforts to address the various factors that contribute to it.”

We civil society organisations believe that tax is the most sustainable and key source of development finance. Yet developing countries lose an estimated US$160bn each year in tax revenue as a result of tax evasion by multinational companies . This money, if invested according to current spending patterns, could save the lives of 350,000 children under the age of 5 each year.

While the G20 has made significant progress in breaking tax haven secrecy, the proposed reforms in their current form are unlikely to meet that commitment to truly benefit developing countries. Criteria used by the Organization for Economic Co-operation and Development in order to build its black, grey and white lists are based on bilateral agreements and on by request information exchange models. These remain largely inadequate for developing countries, which will hardly benefit from bilateral agreements and will face huge obstacles to effective use of the by request model of information exchange. If we are to put an end to the era of banking secrecy, as claimed by G20 leaders in London in April, bolder and more comprehensive measures need to be taken urgently.

The OECD Forum on Tax Administration in September considered a number of proposals specifically aimed at developing countries, but none were comprehensive enough to address this problem fully. We are therefore calling on you to:

1. Support a truly multilateral agreement for automatic exchange of information between jurisdictions, including the disclosure of beneficial ownership of assets and trusts. At the very least, a robust review mechanism must be put in place to evaluate the extent to which developing countries have been able to benefit from progress on information exchange.

2. Support an international accounting standard requiring multinational companies to report profits on a country-by-country basis. The OECD is currently investigating this proposal. We urge all G20 members to take an interest in this investigation and to use the St Andrews’ summit to request a formal report from the OECD to the G20.

Both measures aim effectively to combat tax evasion and, therefore, should be incorporated in regional and bilateral investment agreements with developing countries.

It is our belief that these measures would provide developing countries with the information they need to pursue those who evade and avoid tax and would ensure that the G20’s commitment to developing countries is honoured. We urge you to advocate this position both in the G20 negotiations and in public.

Yours sincerely,

Directors of Organisations

Nuria Molina, Eurodad director
Rómulo Torres, Latindadd director
Bernd Nilles, Cidse secretary general
John Christensen, TJN director
Raymond Baker, GFI director
Daleep Mukarji, Christian Aid director
Jeremy Hobbs, Oxfam International director
Ramesh Singh, ActionAid International Chief Executive
Jean Merckaert, PPFJ coordinator

Richard Murphy Country-by-country, Development, G20, Tax Justice Network

Tax Justice Network: A Hitch Hikers Guide to Secrecy Jurisdictions.

TJN’s introduction to the secrecyjurisdictions.com web site

Richard Murphy Secrecy jurisdictions, Tax Justice Network

Tax Justice Network: Jersey Evening Psot - A rotten apple.

Our advertisers remain dedicated to providing world class secrecy to the rich elites of other nations, and in our capacity as the only newspaper in Jersey we will maintain our tradition of ensuring that no-one understands what the offshore banking industry actually does in Saint Helier.

John Christensen hits the spoof trail, really rather well.

Richard Murphy Jersey, Tax Justice Network

Tax Justice Network: U.S. nonprofits, facing withering fire, join tax haven fray.

TJN has needed its own voice in the USA for some time.

Now it has it.

Chaired by legendary tax haven campaigner Jack Blum, TJN USA is up, running and hitting the mediaq hard.

As Jack says, it’s going to be hard:

The bad guys are in there in force, and when I say ‘in force,’ I mean by the hundreds and hundreds of lobbyists,” he said. “For every thing we say or do, there are probably 50 people on the other side brandishing campaign contributions and God knows what else.

Is he right to use the phrase ‘the bad guys’? Yes, he is. Let’s be unambiguous about this. Those who promote secrecy jurisdictions promote criminality. But it won’t stop them fighting. as TJN says:

We have long understood from clashing with authorities in Jersey, the Cayman Islands, London and elsewhere (and something very unpleasant is happening to some brave friends of ours in the giant and dirty tax haven of Luxembourg right now, for example), how ugly this can get, with smears, intimidation, and worse. And those folks in Washington aren’t known for pulling their punches. So it is essential that we get support, and major support, from as wide a base as possible, as fast as possible.

All of which, I can say from personal experience, is true.

Expect fireworks.

Contact TJN-USA’s Executive Director Sarah Lewis, sarah.lewis (at) taxjusticenetworkusa.org, +1 202 550-6504, and see her in action here.

Richard Murphy Tax Justice Network, USA

ABC Radio Australia News:Stories:Pacific tax havens at risk: report.

The international campaign against tax havens has driven three Pacific Island nations’ off-shore finance centres out of business, according to a new report.

The report, by the Pacific Legal Network, warns of serious implications for the remaining centres in Samoa, Vanuatu and the Cook Islands.

Six Pacific nations are on the “Tax Haven Grey List” run by the Organisation for Economic Co-operation and Development (OECD).

The Pacific Legal Network says conditions imposed by the OECD have forced Niue, Nauru and the Marshall Islands to close down their off-shore finance centres.

Kim Ralston, the Pacific Legal Network’s tax haven expert, says Pacific countries must get off the OECD Grey List if they want to keep their finance centres.

“Pacific Island countries really need to undertake a cost-benefit analysis and to determine whether it is worth retaining their offshore financial centres in light of the increased regulation costs,” she said.

She says the countries must also consider whether they are worth keeping “in light of the stigma attached to them and how that might actually affect their economy.”

Isn’t the answer obvious?

Just in case it isn’t Tax Justice Network will shortly be pubishing its comprehensive review of sixty secrecy jurisdictions, including those mentioned.

Richard Murphy Secrecy jurisdictions, Tax Havens, Tax Justice Network