Tax Research UK

Tax-Haven Crackdown ‘Big Success’ as OECD Begins Review Process - Bloomberg.com.

As Bloomberg notes:

Cracking down on tax havens has been “one of the big success stories” of the Group of 20’s efforts in the financial crisis, the OECD said, as the Group shifts from naming-and-shaming to ensuring compliance with tax standards.

The Paris-based Organization for Economic Cooperation and Development said 195 tax-information exchange agreements were signed last year as countries faced fresh scrutiny from the G- 20, up from 23 in 2008. Nineteen countries that had been branded as not sufficiently meeting international standards were removed from that category on the OECD’s so-called gray list.

Well, if big is relative and better then the nothing the OECD achieved from 2002 to 2008 then this is correct.

But it’s a very, very long way from a major success.

As I’ve noted time and again the Tax Information Exchange Agreements the OECD promotes can only be useful if there is also automatic information exchange  to provide the ’smoking gun’ proof that a person is undoubtedly the beneficial ownership of a financial structure in another jurisdiction. Without that the number of requests under TIEAs will be miniscule - hundreds maybe a year - and that has not deterrent effect.

Second, saying that signing 12 such agreements is enough to establish international acceptability is ludicrous. There are more than 12 countries in the G20 for a start, 27 are in the EU, there are over 230 tax jurisdictions in the world (some say slightly more). Why 12?

The goal has to be comprehensive coverage of Tax Information Exchange Agreements which can only eventually be achieved on a multilateral basis and full automatic information exchange  on the beneficial ownership (for now) of all offshore structures (where offshore simply means ownership is one jurisdiction but the transaction is recorded in another) with in the long term income and other data all exchanged as well.

Then we beat tax fraud for good.

And other fraud.

And money laundering.

And a great deal of crime.

And corporate corruption.

And bribery.

And why would anyone be opposed to that?

The OECD needs to be brave: it’s horizons are too limited. Now is the time for it to break out and go for real reform.

Richard Murphy TIEA, TIEAs

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

Gordon Brown said at the G20:

We have agreed that there will be an end to tax havens that do not transfer information upon request. The banking secrecy of the past must come to an end.

It could have been the quote of the year.

But a few hours later we learned this was based on the OECD black, grey and white lists, all revolving around the useless Tax Information Exchange Agreements. And the wheels fell off the bus, like so much else about Gordon Brown’s year.

Richard Murphy Secrecy jurisdictions, TIEA, Tax Havens

I have been looking at the Tax Information Exchange Agreements (TIEAs) that have, in the main, been signed as a result of g20 pressure arising in April this year.

There were 180 of these by 10 November, the cut off for my work. I think there’s one more now.

I have plotted them all. In doing so some interesting trends emerge. Take this table, for example. It shows the TIEAs signed by OECD non-compliant grey and black list states with each other.

I am well aware that this table is small: click on it and the whole thing comes up in a separate window.

I stress: the data relates to all TIEAs signed to 10 November 2009.

What the table shows is that 24 TIEAs are between grey list states (I know the total says 48 – but it does, of course, count each agreement twice). The implication is clear: these ‘non-compliant’ secrecy jurisdictions listed by the OECD in April 2009 have been seeking to become ‘internationally compliant’ by signing TIEAs with each other. Remember when noting this that signing just twelve TIEAs makes a place internationally compliant. No information has ever to be exchanged: having the TIEA is enough.

I predicted this would happen as soon as I heard of this requirement. It was too obvious that this would be what they would do.

If I expand the sample to the jurisdictions covered by the Financial Secrecy Index published by the Tax Justice Network then 66 of the 180 TIEAs are between secrecy jurisdictions (expanded image is here):

Note that in some cases – like Andorra, Anguilla, Liechtenstein, Monaco and more like them the rate of TIEA with other secrecy jurisdictions is very high indeed. As is very clear: these places are seeking to run a  closed shop where they are ‘compliant’ but will never have obligation to ever exchange any information because you can be sure none will be requested.

The rate of 66 out of 180 may not sound worrying, but it is. 67 of the remaining agreements are with Nordic states. Now I’m not chastising those Nordic states, but when 28 of all agreements are with the Faroe Island, Greenland and Iceland the standard is obviously wrong. Such agreements cannot be material to the setting of an international standard but right now they are 15.5% of all agreements.

So what’s left after insider dealing between secrecy jurisdictions and the Nordic states is excluded? Spain has just two agreements, Italy none, Canada 1, Germany 6, France a good (in this context) 11. But surely it is absurd that we aren’t measuring compliance in  terms of the recipients of information and not the suppliers? Why is it Spain gets 2 and is told that secrecy jurisdictions need sign no more as they are compliant? That  has to be wrong.

And so too are the absentees from the list very notable: India, China, Japan, Brazil, most of Africa, almost all developing countries. When will they get a deal from states that are willingly, knowingly and very deliberately abusing this new standard to sign deals with each other so that the people who need information to enforce their tax laws will not receive it?

The OECD standard for TIEAs is not good enough. It needs urgent reform. And very soon.

Richard Murphy OECD, TIEA, Tax justice

A protocol signed Wednesday by the United States and Switzerland amending the U.S.-Swiss Tax Treaty falls short of ensuring effective information-exchange between the U.S. and Swiss financial institutions, said Global Financial Integrity (GFI) Thursday.

“The protocol signed Wednesday is an improvement on the existing US-Swiss Income Tax Treaty,” said GFI director Raymond Baker.  “It establishes a stronger framework for and commitment to cooperation in mutual tax assistance matters, but there is still a ways to go before we have something in place that will enable the U.S. to effectively pursue tax evaders that hide assets in Switzerland.”

The amendment contains new language which stipulates that Switzerland may no longer rely on national laws to refuse a request for information.  Thus, under the new protocol Switzerland may not reference its own bank secrecy laws to deny a request for information.  GFI applauds this laudable win for U.S. negotiators and recommends that this new language be a standard part of all future treaty negotiations with other countries.  GFI also recommends this provision be included within the current OECD model, on which the majority of international Tax Information Exchange Agreements are modeled.

But, GFI notes, the new agreement maintains the paradigm of information-on-request, as opposed to adopting an automatic exchange framework. Also, requests for information under the new agreement are required to be highly specific which can be an impediment in investigating tax evasion and fraud cases.

“Automatic exchange of information is the only practical way to ensure that countries are provided all relevant information with respect to their own citizen taxpayers who have accounts abroad,”  said Mr. Baker.  “Under the protocol signed yesterday, a request for information basically must include the name, rank, and serial number of suspected tax evaders, when in fact the end-game of many tax investigations is to discover the identity of tax evaders.”

The amended tax treaty will now go to the Senate Foreign Relations Committee for consideration, after which the Senate must approve it by a 2/3 vote before it may enter into force.

“The U.S.-Swiss agreement is a step forward,” said Mr. Baker.  “But the protocol that will go to Congress for consideration falls far short of what is needed to improve U.S. access to information with respect to citizens with accounts in Switzerland.”

Richard Murphy Switzerland, TIEA, USA

HMRC have announced:

A Protocol delivering comprehensive exchange of information up to OECD and international tax standards between Switzerland and the UK, which covers UK taxes of all kinds, was signed in London today by The Financial Secretary to the Treasury, the Right Honourable Stephen Timms MP and the Swiss Ambassador to the UK, His Excellency Alexis P Lautenberg.

Useful.

Decades too late of course.

And I remain quite unconvinced that OECD standards are good enough. Only Automatic Information Exchange will provide the smoking gun to eliminate abuse in Switzerland – and we are a long way from it.

Richard Murphy OECD, Switzerland, TIEA

The Guardian’s editorial this morning picks up the Cayman theme. Normally I won’t reproduce whole stories for copyright reasons, but since I gave them this exclusive I trust they’ll forgive me:

Gustav, Ivan, Paloma: the Cayman Islands have withstood many a hurricane. Now, however, it faces the perfect storm: Hurricane Lehman. This one has been brewing since September last year, when America’s Lehman Brothers went belly-up and brought the global banking crisis to its climax. The Cayman Islands relies for income on financial services and tourism, so it has suffered terribly ever since. And now the country, home to trillions of dollars of assets held by hedge funds and multinational businesses, has run out of cash.

A budget black hole means that civil servants are no longer getting all their pay and the government is considering imposing new taxes on islanders. First, though, it is trying to raise emergency funds from banks. To do so, the British overseas territory needs to gain permission from their ultimate masters at Westminster. And there lies the rub. Writing to the Cayman government’s leader last week, Chris Bryant declined the request, and pointed out that the islands’ entire business model was bust. That is a sound judgment: the US and other economies remain weak, hedge funds and the rest of the financial services industry are still getting over the worst market crisis in decades, and secretive tax havens such as the Caymans are under pressure from the OECD and the G20 group of rich countries to become more transparent. The same diagnosis surely applies to Jersey, Guernsey and the Isle of Man. As Mr Bryant says: “It would be unwise … to expect that the Cayman Islands’ prosperity can presume on an offshore tax haven status.”

The palpable relish in that sentence is surely no accident. For those like The Guardian who want a more open and fairer tax system, this is a moment rich with possibilities. Not only is pressure building on the G20 leaders to tackle tax dodgers, but the world’s boltholes for the rich are finally learning that tax avoidance does not pay. As more British dependencies have to call on ministers for assistance, Westminster can demand they clean their act up.

Let ministers start with the Caymans. As a condition for acceding to another loan, they can demand that the islands’ government institutes automatic exchange of tax information with all countries, rich and poor alike. They can also request that no taxes are introduced that hit the Caymans’ poor while letting off the wealthy. The Cayman government should not tax money sent home by relatively hard-up immigrants, for example. Finally, Westminster needs to work with the Caymans on making its economy less reliant on passing cruise ships and fly-by-night financiers. As the UK government also knows, a lopsided economy will always eventually crash.

I’m delighted to see they have picked up themes from this blog.

And that they have realised this is an issue for Jersey, Guernsey and the Isle of Man as well.

Is this a tipping point? I genuinely don’t know. But I do hope so.

Richard Murphy Cayman, TIEA

Angel Gurria, boss of the OECD had an article in the Guardian yesterday:

A quiet revolution is under way in international governance. Building on more than a decade of work at the OECD, governments are finally getting to grips with one of the biggest threats to fair and effective public financing.

It seems almost unbelievable, but the era of banking secrecy for tax purposes will soon be over. In tomorrow’s world, there will be no more havens in which to hide funds from the taxman.

Who is he trying to kid? This is just nonsense.

As I’ve just noted: Jersey is using the farcical system the OECD has introduced where 12 utterly meaningless TIEAs indicate compliance with international standards to claim it is the leading the world in good standards. TIEAs don’t work for reasons I explain here. The OECD also has a very odd view of international where apparently agreement between 82 states is sufficient to prevent illicit flows even though there are 223 jurisdictions in the world – so providing ample opportunity for tax abuse to survive.

The reality is secrecy jurisdictions are still widespread. There is only one way to tackle it – which is Automatic Information Exchange. And the OECD is refusing to embrace it for its own political reasons.

The OECD needs to smell the coffee. What it’s doing this week is not going to end tax haven abuse: far from it. But an end to that abuse is possible as I and others have demonstrated.

So in the meantime Gurria’s article feels horribly like that announcement by George W Bush on an aircraft carrier that the mission in Iraq had been accomplished – both horribly premature and horribly wrong. I suspect the causes are also common to both: they lack an understanding of what is happening on the ground and have no strategic vision as to what to do about it.

Richard Murphy OECD, Secrecy jurisdictions, TIEA, Tax Havens

Switzerland has signed its second double taxation agreement, with Luxembourg. - swissinfo.

Switzerland on Tuesday signed a revised double taxation agreement with Luxembourg, easing the restrictions on the exchange of tax information between the two countries.

It is the second of 12 such agreements Switzerland needs to sign in order to be removed from the “grey list” of tax havens established in April by the Organisation of Economic Co-operation and Development (OECD).

Wow, Switzerland and Luxembourg counts for the OECD

What next? The BVI and San Marino?

Richard Murphy OECD, Switzerland, TIEA

The Task Force on Financial Integrity and Economic Development promotes greater transparency in the global financial system, as a key measure required to alleviate poverty and maximize growth in developing countries.

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 national laws that facilitate movement of the proceeds of bribery and theft, criminal activity, and commercial tax evasion across borders.

The consequences of this murky structure and the money it moves are now clear:

• In developed countries, credit collapsed 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.

• In developing countries, an estimated US$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, delaying sustainable growth, and weakening democracy and the rule of law.

The Task Force on Financial Integrity and Economic Development urges the G20 to focus on substantially improving transparency in the global financial system. Thus far in communiqués, discussions, and commentaries, greater emphasis has been given to strengthening regulation within the existing structure. While regulatory improvements are clearly needed, we believe that such steps alone are incomplete. If “the era of bank secrecy is over,” then more effective progress toward this goal can be accomplished by significantly curtailing the shadow financial system.

Accordingly, we ask that the G20 give careful consideration to the following steps:

• Beneficial Ownership Agree that the beneficial ownership, control, and accounts of companies, trusts, and foundations must be readily available on public records, and set a date for achievement of this goal.

• Automatic Exchange of Information Agree that automatic exchange of tax information is the end toward which tax information exchange agreements should be directed, and set a date for achievement of this goal.

• Trade Pricing Agree that pricing of imports and exports of goods and services by all trading parties should conform to considerably strengthened transfer pricing guidelines, and set a date for achievement of this goal.

• Country-by-Country Reporting Agree that multinational corporations and financial institutions should report sales, profits, and taxes paid in all jurisdictions where they are established or active, and set a date for achievement of this goal.

• Anti-Money Laundering Agree that predicate offenses for money laundering charges should be harmonized at the most restrictive level and codified, and set a date for achievement of this goal.

These measures will accelerate the movement toward economic transparency in the global financial system, benefiting both developing and developed countries.

The Task Force on Financial Integrity and Economic Development

Raymond W. Baker                                                 Tom Cardamone
Director                                                                  Managing Director

The Task Force on Financial Integrity and Economic Development is a consortium of governments, NGOs and foundations. The Task Force is guided by a Coordinating Committee which consists of the following entities: Global Financial Integrity, Christian Aid, Global Witness, Tax Justice Network, Transparency International and the  Secretariat of the Leading Group on Innovative Financing for Development with Government members from Algeria, Bangladesh, Belgium, Benin, Brazil, Burkina Faso, Cambodia, Cameroon, Cape Verde, Central African Republic, Chile, Congo, Cote d’Ivoire, Cyprus, Djibouti, Ethiopia, Finland, France, Gabon, Germany, Great Britain, Guatemala, Guinea, Haiti, India, Italy, Japan, Jordan, Lebanon, Liberia, Luxembourg, Madagascar, Mali, Mauritania, Mauritius, Mexico, Morocco, Mozambique, Namibia, Nicaragua, Niger, Nigeria, Poland, Sao Tome and Principe, Saudi Arabia, Senegal, Sierra Leone, South Africa, South Korea, Spain, Togo, and Uruguay. The Task Force’s Partnership Panel comprising governments and foundations includes the Governments of Norway, Germany, Denmark, France, Spain, Chile, the Ministry of Foreign Affairs of the Netherlands, and the Ford Foundation.

Richard Murphy Country-by-country, Development, TIEA