TIEA » Tax Research UK

Swiss have signed a DTA with the UK

OECD, Switzerland, TIEA Comments Off

Sep 072009

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.

Cayman: a lopsided economy will always crash

Cayman, TIEA 17 Responses »

Sep 032009

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.

The OECD – another organisation that has to face reality

OECD, Secrecy jurisdictions, Tax Havens, TIEA Comments Off

Sep 012009

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.

You look one way and I’ll look the other

OECD, Switzerland, TIEA 9 Responses »

Aug 262009

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?

Economic Transparency: A Request to the G20

Country-by-country, Development, TIEA 1 Response »

Aug 262009

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 communiqu?©s, 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.

If we can cooperate on information exchange for VAT why not on direct taxes?

Europe, OECD, TIEA, VAT Comments Off

Aug 202009

The EU announced two days ago that:

In the framework of its strategy to combat tax evasion and fraud ( IP/06/697 ), today the European Commission adopted a proposal for a recast of the Regulation on administrative cooperation in the field of valued added tax, extending and reinforcing the legal framework for the exchange of information and cooperation between tax authorities. One of the key elements of the proposal is the creation of a legal base to set up Eurofisc: a common operational structure allowing Member States to take rapid action in the fight against cross border VAT fraud. The Commission today also adopted a report on the functioning of the administrative cooperation.

L?°szl?? Kov?°cs, Commissioner for Taxation and Customs, said: "In the current economic situation it is more important than ever to fight tax fraud efficiently and a fully functioning administrative cooperation between tax administrations is key in that respect. My objective is to ensure that tax authorities have all technical and legal means to take action against European Union wide VAT fraud and to ensure that each tax administration is prepared to protect other Member States’ tax revenue as effectively as their own."

Eurofisc. [ will be]an operational structure where Member States will in practice, fight fraud together. It should allow a very fast exchange of targeted information between all Member States as well as the setting up of common risk and strategic analysis. This will enable Member States to react timely to stop fraud and catch fraudsters, making it more difficult for new fraud schemes to emerge and spread around the Community

The proposal changes the approach of the protection of VAT revenues. In addition to giving Member States tools to cooperate more closely and to exchange information faster, the Recast regulation sets out that Member States are jointly responsible for the protection of VAT revenues in all Member States.

This is great news. It is so obviously the right direction of travel. But if “in the current economic situation it is more important than ever to fight tax fraud efficiently and a fully functioning administrative cooperation between tax administrations is key in that respect” is true of VAT why is it not true for direct taxes such as income tax and corporation tax? And why isn’t the OECD taking this approach across the world instead of promoting Tax Information Exchange Agreements?

The EU is, as has often been the case, three steps ahead of the OECD here. I just hope the OECD catches up very, very soon. They need to.

Where is the OECD going?

OECD, TIEA 1 Response »

Aug 142009

I continue to be intrigued at the reaction to my blog on the OECD conference scheduled for 1-2 September that I posted yesterday. This reaction reached the Wall Street Journal this morning, a heavily reduced version of what they said being:

The Organization for Economic Cooperation and Development is proposing to greatly strengthen an informal tax-information body as a way to crack down on tax cheating internationally

At a Sept. 1 session in Los Cabos, Mexico, the OECD will press to turn the Global Forum on tax-information sharing, a loose grouping of 84 nations, into a formal international institution with a permanent staff of examiners.

"We hope to put in place a restructured Global Forum," said Pascal Saint-Amans, who heads the OECD’s international tax-cooperation division. The forum would use "a peer-review process to put peer pressure [on countries] to increase transparency and [promote] the full exchange of information for tax purposes," he said.

Under the OECD plan, Global Forum examiners would review a country’s compliance with its tax-information-sharing agreements and issue a report, which would be discussed in sessions with other forum members. The idea is to pressure recalcitrant governments to be more forthcoming.

The U.S. is lobbying for the measure, but it is far from clear that many developing nations, and especially tax havens, would back a more powerful role for the Global Forum.

"For the Global Forum to maintain a strong leadership role," the OECD draft said, "it is critical that jurisdictions which refuse to make progress toward full transparency and effective exchange of information would not be in a position to block the work." The OECD report suggests that such countries could be thrown out of the Global Forum. That could be a strong deterrent if the U.S. and countries in Europe reduce legal ties with such outliers.

Richard Murphy, director of Tax Research LLP, a consulting firm outside London, said a more muscular Global Forum could become "an embryonic world tax authority." But OECD officials said their goals are more modest, and the Global Forum wouldn’t try to make tax rates consistent globally or take up other issues of tax reform.

Even a souped-up Global Forum would have a difficult time in making a difference. Under tax-sharing agreements, authorities from one country must make very detailed requests before the tax authorities in another nation are obligated to turn over information.

The standard is so high, argues Mr. Murphy, that the authorities in the home government would probably have enough information to prosecute a tax cheat even without the help of the other jurisdiction. He says that basic information on financial accounts ought to be automatically shared among nations.

But Mr. Saint-Amans, the OECD official, said tax-sharing agreements will help investigators who otherwise wouldn’t be able to follow a trail overseas.

The OECD effort builds on an April initiative by leaders of the Group of 20 industrialized and developing nations. At the G-20 meeting in London, the OECD published a blacklist of countries that didn’t meet international standards on sharing tax information, and singled out Costa Rica, Malaysia, Philippines and Uruguay. Since then those four countries, as well as several others, have made progress, by signing agreements to share tax information.

I have a high regard for Pascal Saint-Amans, but the fact is (and tax officials from a wide range of countries have confirmed this to me) that Tax Information Exchange Agreements will not work without a smoking gun. This week’s agreement between the UK and Liechtenstein proves that; an additional agreement with Liechtenstein, over and above the TIEA was required to create real action.

That’s not to say TIEAs cannot work: it’ just that they won’t if nothing more is done. And this is the point I was making to the WSJ. With Automatic Information Exchange (AIE) TIEAs can work really well. Without – well, I think there’s a real risk that the effort put into signing thousands of them will cost more than the tax they will recover. And that does not appeal to me.

So, as I explained to the WSJ, what the OECD needs to do now is think big and issue a route map. The September conference is clearly noise to suggest something is happening pre the G20. That’s what happens, but I want this to be constructive noise.

We do need better international tax regulation. Not of rates: I guess that’s a complete red herring by Pascal. He should know I wouldn’t ask for such a thing. But there’s lots of evidence that the OECD needs to overhaul a lot of mechanisms that are now out of date:

Transfer pricing rules – which need radical overhaul and a rethink
The interaction of tax and accounting – country-by-country reporting is part of that
Whether unitary apportionment has a role
International taxpayer identification has been on the OECD agenda for decades and has appeared to get nowhere
Automatic Information Exchange (AIE)
Assisting developing nations by knowledge transfer
And then, maybe, making information exchange work.

There’s plenty to do. But the OECD is putting all its focus on promoting a not very good agreement developed in the dark ages of information exchange prospects way back in 2002, with far too much input from secrecy jurisdictions at the time, and is even now giving us no clue as to how the actual processes can work given the impossible hurdles Tax Information Exchange Agreements place in the path of effective information exchange.

All of which means this new Global Tax Forum will be overseeing very, very little data exchange in my opinion. After all, if the US and Cayman exchange maybe 80 bits of data a year under a Tax Information Exchange Agreement how much do you think will flow between Belgium and San Marino – who now have one?

That’s my point: the OECD is seeking to do good work, has done good work, could do more good work – but it needs to make clear what its strategy is, where it thinks it is going and how it plans to get there to create the confidence that is needed that all this investment of effort will yield results. And right now it’s not delivering those messages: it’s not even clear it has them worked out. That’s what’s needed. When that happens expect me to be singing its praises. I won’t be alone.

I’m just not confident it’s going to do that in September.

Is the US looking for Automatic Information Exchange?

TIEA, USA 2 Responses »

Aug 122009

In May the USA said it wanted significant tax reform:

The Qualified Intermediary ("QI") program seeks to ensure that appropriate U.S. withholding is imposed on foreign persons. The proposed rules would require foreign financial institutions to withhold and report on foreign income and accounts of U.S. and foreign persons. Foreign financial institutions would be required to enter into agreements with the IRS to share
information about their U.S. customers. Currently, the IRS has the burden to show that an account holder of a QI is a U.S. person if the account holder attests to being a non-U.S. person.

The President’s plan would require QIs to identify all account holders that are U.S. persons and file IRS Form 1099 with respect to payments to U.S. account holders, including income from foreign sources. Any withholding agent making a payment to a nonqualified intermediary would be required to withhold 30 percent. Withholding agents paying gross proceeds from the sale of any security to a non-qualified intermediary not located in an income tax treaty jurisdiction
would be required to withhold 20 percent. To get a refund of the amount withheld, account holders would be required to disclose their identities and demonstrate compliance with U.S. tax laws.

Now that looks to me like something close to Automatic Information Exchange.

If so, why not roll it out? After all, once people have systems in place for the US the extra cost for the rest of the world is marginal.

How about it, OECD?

Liechtenstein shows its true colours – and they’re not pretty

Liechtenstein, TIEA Comments Off

Aug 122009

Associated press were one of the many agencies I spoke to yesterday (some of whom have given no credit for the data supplied – such is life). The have a story that in one incarnation is here:

Liechtenstein’s agreement to help Britain recover taxes on wealth hidden away in the tiny Alpine principality by U.K. taxpayers is only the latest sign that traditional tax havens are yielding to governments hungry for extra revenue during the economic crisis.

"The agreement signed today is a very significant development," said Jeffrey Owens, tax policy director at the Organization for Economic Cooperation and Development. "It shows that the days of bank secrecy as a shield behind which evaders can hide is rapidly disappearing," Owens said.

Yet some experts see a flaw in most of the deals signed so far."The standard of proof that the inquiring country has to reach before it can submit an information request to a tax haven is so high, that they basically have to know all the information about which they’re asking," said Richard Murphy, director of British-based policy consultants Tax Research LLP.

"It is almost impossible for tax inspectors to create an audit trail connecting me to that bank account, unless I’ve been stupid or they strike very lucky," said Murphy.

He did – rather odd though that the simplified language used to explain how these things work – in which I played the role of abusive taxpayer – got into the article. But as they went on to note, I added:

Still, the accord between Liechtenstein and Britain breaks new ground.

Not so fast says Liechtenstein in response:

"The agreement is specific to the British tax system and can’t be used as a blueprint, but it could show the way for future accords of this kind," said Max Hohenberg, spokesman for the Liechtenstein government.

Well, I anticipated that:

Murphy, who campaigns for greater tax transparency, isn’t convinced the Liechtenstein deal is enough. "We are making progress, but we’re a long way from seeing a solution yet," he said. “Revenue services in several countries are already wising up to the fact that without some sort of active disclosure on the part of tax havens ‚Äî such as by automatically reporting the real owners of accounts and companies to their governments ‚Äî investigations will fail at the first hurdle. They know that behind the PR schmoozing there is a problem with this process."

He said some way has to be found to make available "smoking gun" evidence tying an individual to an offshore account.

But as the article notes:

Getting tax havens to agree to actively give up the names of their foreign clients is a step too far, even for Liechtenstein.

"At no point will we automatically provide information to other countries," said Hohenberg. "We’re trying to reach agreements that will block any moves toward automatic disclosure."

So, as I said, we still have a long way to go.

And Liechtenstein still has a lot to learn about coming in from the cold.

But they will learn it, eventually. They won’t have any choice.