Tax Justice Network: The Curse of the Heritage Foundation.
TJN notes that almost every exemplar of supposed good practice praised by Dan Mitchell of the Centrer for Freedom and Prosperity has gone on to have a major financial crisis - often related to the reforms he singled out as having merit.
Why is that, I wonder?
Could Dan impart a curse?
Or is he just plain wrong?
Sol Picciotto is is an emeritus professor at Lancaster University and, like me, a senior adviser to the Tax Justice Network. He had an article in the FT yesterday in which he said:
Banks employ large teams of highly paid people to devise transactions mainly for the purpose of avoiding tax. These activities seem to be far more profitable than the humdrum business of managing payments and channelling savings towards investment. Why?
The answer shows the close link between tax avoidance and the speculation that has fuelled financial instability for 30 years. There were clearly other causes of the current crisis but the faults of the international tax system were a big contributory factor.
And he, with care and precision then explains why, before noting:
For multinationals and rich investors the point is the same: returns on financial transactions are ultimately taxed at a low or zero rate, making them far more profitable than genuine business endeavours. This distortion of the tax system has greatly fuelled the excess of liquidity channelled into largely speculative financial transactions. The offshore secrecy system has been a main element of the opacity that has undermined corporate and financial regulation.
As he notes:
The remedies lie in fundamental reforms of international fiscal and financial regulatory co-operation, and their co-ordination. International tax co-operation requires a comprehensive, multilateral system for both obtaining and exchanging information for all tax purposes, with proper safeguards for taxpayers. Requiring multinationals to break down their accounting information by each country in which they do business would inject much-needed transparency into the system. Reform should include a shift towards unitary taxation, which most international tax specialists recognise is long overdue. This would be preferable to the Obama administration’s new proposals to tinker with US rules on tax deferral.
Then we might have a better tax system. But this level of systemic reform is required to ensure fairness, progressive taxation, a proper deal for developing countries, the elimination of the abuse tax havens cause and the prevention of the waste of human talent now aimed at tax avoidance.
Offshore Asset Protection BLOG - Bob Bauman: G-20: Hypocrisy at Its Worst.
Amused to note the above says:
The organized hard core nihilists at Tax Justice et al and the college kids who are their dupes oppose free trade and capitalism, claiming these hurt the poor of the world.
When you have to weave double works of fiction ( a) that TJN opposes trade when we don’t - we just argue that tax havens not be allowed to distort it and b) that unfettered trade through tax havens does not harm developing countries when it is so clear that it does) you know the opposition are rattled.
It’s very obvious now that they really know the game is over.
Date: 15 April 2009
Time: 18:00 - 19:30
Where: TUC, Great Russell Street, London WC1B 3LS
A major rally organised by Compass, Tax Justice Network, the Fabian Society and the Other TaxPayers’ Alliance.
While the government focuses its energy on benefit fraud through its ‘We’re Closing In’ campaign, it is the wealthiest and most privileged who cost us the most and exacerbate inequality.
In the run up to the 2009 Budget, we’ll be calling on the Chancellor to use every means at his disposal to close in on tax avoidance and deliver greater tax justice.
Speakers include:
- Richard Murphy of Tax Justice Network UK
- Jon Cruddas MP
- Kate Green of Child Poverty Action Group
- Adam Lent of the TUC
And we’re pleased to announce that Treasury Minister Angela Eagle MP has agreed to come along and listen to our concerns.
This has been an extraordinary afternoon – and one where it has been hard to blog.
Gordon Brown declared the end of the Washington Consensus this afternoon. I’m not sure that’s true – it has many devotees still. But on tax havens we have the following:
Good enough? Let’s put it like this. We have a list (although no one has seen it – it seems to have taken the OECD by surprise). I’m told it’s long and Switzerland is on it.
We have a commitment to ending banking secrecy. I do think they mean it. We have a commitment to information exchange.
We have sanctions. These are vital.
Let’s say what we also have but which is not in there but which is on documents Downing Street has shared with me:
I asked the PM a question about tackling tax avoidance and helping developing countries at his press conference. I am at present convinced there is intention to tackle both.
So what’s the big disappointment? No mention at all of automatic information exchange. Not a hint. But, and I think this important, it’s hard to see how after this the EU cannot commit to the revised EU STD now – and that is the prototype for automatic information exchange of the sort we want.
I am pleased, and I am disappointed. But overall I’m more pleased than disappointed. The tax haven initiative has been dead for eight years. It is not now. It is very alive, it is delivering real change and the environment for more change still has been created.
I and the Tax Justice Network will of course be demanding more, and will be pushing for all that is promised now. But, this is an historic day. Don’t doubt it.
Secrecy jurisdictions, Tax Havens, Tax Justice Network, Tax evasion
I have seen reliable evidence this morning that UK government spokespeople are saying that I have stated that automatic information exchange is not important at the G20, and may not be in future.
They are linking this comment to Tax Justice Network and it has certainly gone to NGOs.
This is about as far removed from the truth as it is possible to be.
It is essential that we move to automatic information exchange of information earned by the residents of one country from financial institutions located in another country. This is the only way, as the EU knows and has proven to really tackle tax evasion.
It is also essential, as the EU is now proposing that legal entities and trusts be looked through for this purpose so that the ‘warm bodies’ – the real human beings who control these entities be taxable on the benefit of the ownership of such structures if they are used to avoid or evade tax in their place of residence.
There’s another advantage – almost all corruption leads to tax evasion at the end of the day. If governments are the agency responsible for exchanging this data (and they would be) then they would be in possession of much better information to fulfil Mutual Legal Assistance requests to tackle corruption and criminality.
So, whatever HMG says I and the Tax Justice Network are completely committed to automatic information exchange because in the end nothing else will do.
We won’t get it today. I know that. But that does not in any way alter our commitment to having it, or the fact that it is essential.
OECD, Secrecy jurisdictions, Tax Havens, Tax Justice Network, Tax evasion
The Guernsey Press is reporting the usual gibberish from local spokespeople:
Guernsey is ready to confront those who label it a tax haven, according to the Guernsey International Business Association.
Vice-chairman Paul Meader said he was tired of seeing the island being mentioned alongside harmful jurisdictions after UK politicians and the Tax Justice Network suggested it could be included on a new blacklist before the G20 economic summit.
‘If the UK wants to investigate offshore centres, then we say bring it on.
‘We see it as a great opportunity to differentiate between those that are not playing by the rules and international standards and those, like us, that are,’ he said.
Mr Meader demanded respect for the island’s system, which he said met international standards that many larger centres did not.
‘We are tired of getting lumped in with everyone else when we are demonstrably in the first tier of financial centres,’ he said.
I can we presume that some people are taken in by these acts of bravado. They are fools if they are.
As a matter of fact, I am absolutely sure that Guernsey will be on any new list of tax havens to be issued by the G20, whether on 2 April or soon thereafter. It is quite impossible to imagine that that list, rumoured to have at least 40 states on at at present, could exclude a place like Guernsey. Mr Meader is therefore setting himself up for a bruising.
But he is also showing how enormously out of touch he is. It is absolutely irrelevant how compliant Guernsey has been with current international regulatory requirements. Those regulations have very clearly failed the world. They are going to be scrapped. Tests of substance, not of box ticking, will replace them. Guernsey faces a real risk of failing those tests of substance.
Guernsey is a secrecy jurisdiction. It does not comply with international expectations on placing data on public record. It has not shown serious commitment to information exchange. It applies the withholding tax option under the EU savings tax directive. These are consistent indications of its lack of willing to play a proper role in a well regulated world financial system.
Mr Meader should listen to what we are saying rather than abuse us. I think he is heading for a train crash, both at the G 20 and subsequently when the UK reviews its own secrecy jurisdictions. Does he really seriously think that Gordon Brown can imagine ‘ outlawing tax havens’ and that Guernsey will not be affected?
If he does he is in for a rude awakening.
The Tax Justice Network has published an action programme to strengthen international financial and fiscal regulatory cooperation.
It is targeted at the G20.
Little of it can be or would be referred to in any G20 communiqué. But it is a work programme for those who will pursue this issue when the heads of states have gone home.
I recommend a read.
I mentioned Global Financial Integrity a blog or two back. They are based in Washington DC partner the Tax Justice Network on out ‘Mapping the Faultlines’ project funded by the Ford Foundation which looks at secrecy jurisdictions the world over.
They also partner us in the Task Force for Financial Integrity and Economic Development. This is backed by the governments of Norway, Germany, France and other states.
We have a new publication out there, summarising our objectives. It has the same title as this blog and is available here.
The summary says:
We may be at a rare moment when the interests of rich and poor countries are synonymous.
At the heart of the current worldwide economic crisis is a lack of transparency in the global financial system. This is the end product of a half century of creating and expanding a shadow financial structure comprising tax havens, secrecy jurisdictions, disguised corporations, anonymous trust accounts, and fake foundations. Also included in this system are trade mispricing mechanisms, money laundering techniques, and gaps left in western laws that facilitate the movement of corrupt, criminal, and commercially tax evading money across borders. Some estimates suggest that as much as half of global trade and capital
movements pass through this shadow financial system.The consequences of this murky structure and the money it moves are now clear:
• In developed countries, credit has dried up in large part due to the difficulty of appraising the quality of assets held by financial institutions that operate partially or wholly within this opaque system. This includes almost all major U.S. and European banks.
• In developing countries, an estimated $1 trillion a year of illicitly generated money is shifted abroad through this system, constituting the most damaging economic condition hurting the poor, undermining poverty alleviation and delaying sustainable growth.
The Task Force on Financial Integrity and Economic Development urges the G-20 to focus on substantially improving transparency in the global financial system. Thus far in discussions and commentaries, greater emphasis has been given to strengthening regulation within the existing structure. While some regulatory
improvements are certainly needed, we believe this emphasis is misguided. Far greater benefit can arise by significantly curtailing the shadow financial system that is clearly at the root of the economic crisis all nations are facing.
Our recommendations focus on five issues:
Priority 1: Curtailing Trade Mispricing
Priority 2: Country-by-Country Reporting
Priority 3: Confirmation of Beneficial Ownership
Priority 4: Automatic Exchange of Tax Information
Priority 5: Harmonization of Predicate Offenses
I’ll feature each of them over the next few days.
Accounting, Tax Havens, Tax Justice Network, Transfer Pricing
The Guardian has concluded its Tax Gap series. In a closing editorial it said:
Denis Healey had his own definition of tax avoidance. It differed from outright evasion, he said, in only one respect: “the thickness of a prison wall”.
Professionals do not call it avoidance; they prefer tidy names such as “tax-efficient supply chain management”.
Yet Mr Healey’s observation remains in essence true. Whatever one’s choice of euphemism for the now near-epidemic engineering of minimal taxes, there is no mistaking the harm. In rich countries, the poor and the middle classes shoulder more of the burden of paying for essential services. In poor countries, governments are weakened. In an era in which strong, wise government is needed to contain market panic, tax avoidance just looks out of place. This is a truth to which politicians have belatedly tumbled. Barack Obama has railed against tax havens, while even Labour has commissioned (yet another) Treasury review into their use. At last, the tide appears to be turning. The public is not in a mood to look indulgently on ever more artificial ways of avoiding dues which the rest of us can’t duck.
I, unsurprisingly concur.
Perhaps equally unsurprisingly (given I was consulted on the issue) I concur with what the Guardian thinks might be done to tackle the issue:
Here are some things Messrs Brown and Darling need to consider: a General Anti-Avoidance Rule; country-by-country reporting; the removal of secrecy from all British-controlled tax havens, replaced with the requirement for offshore companies to publish accounts and beneficial ownerships; harmonisation of the corporation tax regime within the EU (this does not mean identical tax rates, but a common basis for assessing taxes); the employment of many more tax inspectors; the penalisation - if not prosecution - of big business tax avoiders plus the blacklisting from government contracts of accountancy firms that sell artificial tax avoidance schemes; amending the Companies Acts to require companies to publish (a) the actual annual payments of corporation tax to HMRC (b) the details of avoidance schemes they have disclosed to HMRC (c) a full list of subsidiaries appended to the annual report, regardless of length; amending of land registration law to require the disclosure of the beneficial owner of land and property; and the public listing in advance of pending tax tribunal cases.
Will Hutton addressed the issues like this:
Over the years I have had many heated arguments with “tax planners”. Always it gets to the same core point: the state has no right to have my cash. Big Government is a moral bad and, worse, will necessarily squander my money on ill-conceived projects creating welfare dependency - for that is what governments do. I can spend my money better than it can. I am the buccaneering libertarian fighting an important moral battle in avoiding tax.
It is this ideology, generated and fanned by American neoconservatives, that the tax avoider tells him or herself as they purchase or devise the latest scheme.
It is first cousin to the ideology that justified financial liberalisation: Big Government had no place telling financial institutions how to organise and regulate their affairs, because markets of private financiers will always tend to deliver efficient results.
Much of the “deregulated” business of the structured investment departments of our big banks - the epicentre of the credit crunch - was driven by tax avoidance, justified by an appeal to the same set of ideas.
The economic wreckage is now all around us. [And] it is only because of the derided state that we have even the semblance of a functioning financial system. We now know that capitalism without the state is inoperable.
[T]he scale of tax avoidance could be radically reduced. What is required is the will. Neoconservatism has collapsed. The western financial system is bust. The need for the state, and for international collaboration, is now evident to all. President Obama is keen to act. If we cannot slay tax avoidance now, we never will.
On the same theme the Guardian editorial concluded:
Where there is complexity and secrecy, we need transparency. For all the laudable aims of the corporate social responsibility movement, it has been ineffective at pushing businesses to pay their way. A fair tax system may need new means of enforcement, but the principle is an old one. It was outlined centuries ago by Adam Smith, who called on “subjects [to] … contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state”.
Perhaps the last word should go (as it did in the paper) to my Tax Justice Network colleague John Christensen:
“There are a significant minority of companies who agree that paying tax is a key part of corporate responsibility, if not the core corporate responsibility to society,” Christensen says. “Tax is where CSR begins.”
It is. That’s the argument, in a nutshell.
And it’s why, as we have, perforce, to build a new style of capitalism attitudes to tax will be transformed.
CSR, Corporation Tax, Tax Havens, Tax Justice Network, Tax avoidance
