Missed this when it came out in the FT. It’s an invaluable source of data on wealth and property distribution.
Not reproduced here for copyright reasons, but it’s fascinating.
Note also how the Dublin property market is crashing: no wonder they’re desperate to steal more tax revenues form elsewhere. It won’t work though: no real job swill follow and the companies that arrive will do so on just one condition: they don’t pay tax.
As the International Herald Tribune has reported:
Under pressure from Germany, the European Union on Wednesday agreed to consider a new clampdown on tax havens, despite the opposition of one country, Luxembourg, which said it saw no reason to change the existing law.
It noted:
Luxembourg, which has a developed an important financial center and which defends banking secrecy, underlined its opposition.
Luxembourg’s treasury minister, Luc Frieden, said he saw no loopholes in the current rules. Any changes “would certainly need a lot of time,” he added.
It might just as well said:
Luxembourg makes a living from stealing other EU member’s taxes and therefore does not want the EUSD tightened
It would have been more honest, and the open admission of what Luxembourg is: a supplier of corruption services.
At yesterday’s ECOFIN meeting the EU increased its commitment to tax cooperation to tackle tax evasion. It said:
TAX ISSUES IN AGREEMENTS WITH THIRD COUNTRIES - Council conclusions
The Council adopted the following conclusions:
“The Council:
1. CONSIDERS that recent events involving tax fraud and evasion have proven the need to tackle this throughout the world and to reinforce efforts to combat cross-border tax fraud and evasion in the area of taxation.
2. UNDERLINES the importance of implementing, on as broad a geographical basis as
possible, the principles of good governance in the tax area, i.e. the principles of transparency, exchange of information and fair tax competition, as subscribed to by Member States at Community level. Good governance in the tax area is not only an essential means for combating cross-border tax fraud and evasion, but can strengthen the fight against money laundering, corruption, and the financing of terrorism.3. RECOGNISES the need to include in relevant agreements to be concluded with third countries by the Community and its Member States, without prejudice to their respective competences, a specific provision on good governance in the tax area, and considers the following text to be appropriate in this respect:
4. “With a view to strengthening and developing economic activities while taking into account the need to develop an appropriate regulatory framework, the Parties recognize and commit themselves to implement the principles of good governance in the tax area as subscribed to by Member States at Community level. To that effect, without prejudice to Community and Member States’ competences, the Parties will improve international cooperation in the tax area, facilitate the collection of legitimate tax revenues, and develop measures for the effective implementation of the above mentioned principles.”
5. STRESSES its attachment to the furtherance of good governance in the tax area with respect to ongoing and future negotiations.
6. Within the framework of the applicable Treaty provisions, the Commission will inform and consult, whichever is appropriate, the relevant Council bodies, with due diligence and timely, on any question relating to the specific provision on good governance in the tax area which may arise in the process of the negotiations of the international agreements referred to above.”
This is immensely important. The right signals are bing put out to those countries who assist tax evasion.
Of course: the same message has to be quite firmly given to those countries within the EU that do the same thing. I’d suggest Luxembourg as the start point, followed by Cyprus. And the UK has to embrace this. It has the greatest responsibility of all to act on tax haven abuse.
Don’t get me wrong: I don’t think the end is nigh for EU related tax havens as yet. I do think the writing is on the wall.
These are my links for May 14th:
The EU issued the following press release tonight:
TAXATION OF SAVINGS - Council conclusions
The Council took note of an informal interim assessment by the Commission of the functioning of directive 2003/48/EC on the taxation of savings income. It held an exchange of views. It adopted the following conclusions:
“The Council calls on the Commission to submit the report pursuant to Article 18 of the Directive on the taxation of savings income in the form of interest payments by 30 September 2008 at the latest, to be followed by specific proposals based on the report. Member States are asked to provide the Commission with the necessary statistical and other data.”
Article 18 of the directive requires the Commission to report every three years on the directive’s implementation and, where appropriate, to propose any amendments that prove necessary in order to ensure effective taxation of savings income and remove distortions of competition.
At its meeting on 4 March, the Council asked the Commission to accelerate preparation of its first three-year report, and as an interim step, the Commission agreed to present an informal assessment.
The savings tax directive requires member states to exchange information on interest paid in one member state to individual savers resident in another member state, so as to allow the interest to be taxed in the member state of tax residence.
For a transitional period, Belgium, Luxembourg and Austria may instead impose a withholding tax on interest paid to individual savers resident in other member states. The tax rate is 15% for the first three years of the transitional period, 20% for the subsequent three years and 35% thereafter. The three member states must transfer 75% of the tax revenue to the member state of tax residence, retaining 25% to cover their own administrative costs.
The directive covers the taxation of savings income in the form of interest payments, including income from deposit accounts, government securities and corporate bonds, as well as collective undertakings that invest more than 40% of their assets in debt securities (more than 25% as from 2011). The directive has been applied since 1 July 2005.
Savings tax measures that are equivalent to these of the directive are also applied in Andorra, Liechtenstein, Monaco, San Marino and Switzerland under specific agreements concluded with the EU. The same measures are also applied in ten dependent and associated territories of the Netherlands and the United Kingdom (Guernsey, Jersey, the Isle of Man and seven Caribbean territories) under specific agreements concluded with each of the member states.
The Council will examine in greater detail the functioning of the directive once it has received the Commission’s full report.
I call it that a serious opportunity for progress.
Today is a big day for the EU Savings Tax Directive. I discussion paper on its reform is being discussed.
The paper is welcome. But it does not go far enough to tackle the weaknesses in the current arrangements. The key issues it raises are:
1. Whether the scope of the EU STD should be extended from natural people (real human beings) to include legal persons (companies, trusts and foundations) that those real people won and which can be used by them to escape the obligations of the EU STD.
2. Changing the definition of a paying agent so that some recipients of taxable income become paying agents in their own right to avoid some of the current problems of not being able to identify the beneficiaries of income paid. These might include discretionary trusts and some legal entities such as limited liability partnerships which are ‘tax transparent’. The paying agent is the person who has to actually operate the EU STD and decide whether to withhold tax or not.3. Whether the scope of the income covered by the EU STD should be extended to include interest wrapped up into other products e.g. UCITS, pension products and life assurance. It’s worth noting that:
a. dividends and capital gains are specifically excluded from consideration, noting that these are best dealt with by ‘information exchange’.
b. The possibility of a ’substance over form’ test is suggested to determine what might and might not be covered: a move towards a targeted anti-avoidance principle.
This is fine, but some of the conclusions are weak. In particular it is assumed that the operation of the paying agent arrangement imposes a considerable burden upon the paying agent. Since these paying agents are banks or their representatives there is at present no evidence that this is causing them undue economic hardship: other things may be.
There is also some considerable doubt expressed about how the EU STD may be extended to legal entities within the EU, but some apparent belief that this would be easier to do with regard to entities beyond the EU (presumably therefore those in tax havens such as the Channel Islands which are covered by the EU STD but which are not EU members). There is considerable risk in this: the concept of the level playing field is important, and the need to prevent market distortion is noted throughout the document. To create an obligation on non-EU locations covered by the STD not imposed on EU members would be dangerous and might induce the withdrawal of these locations from the scheme altogether. That would not be beneficial.
What worries me is the tone of the document. It assumes that:
1. Since the onus of proof is on the paying agent they have reason to resist change;
2. A source of income is excluded unless included;
3. A tax transparent entity is not taxable as a paying agent until made so.
On (2) and (3) there are welcome signs that a) on (2) a substance over form test could be used, and a committee might be established to monitor innovation to ensure that market developments are tackled and b) on (3) there is again the idea that the list need not be fixed and will be kept under review.
If this is the case then I think we should welcome these approaches, whilst encouraging open and automatic exchange of information on capital gains and dividends and then look at the paying agent problem as the focus for attention. Here I suggest:
1. To make the EU STD work the logic has to change. By 2011 withholding rates will be 35%. The risk of major market distortion arising is considerable unless this applies to all entities through which an individual might manage their affairs. This means that the current logic of information exchange by default in most countries has to be changed to withholding by default, and that this should apply to legal entities (companies, trusts, foundations and tax transparent vehicles) that can be shown to have a link with an EU resident unless:
a. The recipient can be proven by way of supply of taxpayer information to reside in the state in which payment arises;
b. The person / identity provides taxpayer sufficient information in a required form to ensure that effective information exchange takes place;
c. The person / entity proves that they have no reasonable likelihood of connection with an EU resident person. There’s an obvious weakness here of who will certify this, and that may need to be the bank into which the funds will be deposited who has a duty to know their client rather than the fund holder themselves.
2. Funds then not positively opted out in this way will be subject to withholding. If the beneficial owner of the funds cannot then be allocated to a state withholding will take place and apportionment should be on the ratio of national ownership of identified deposits within the state in which payment arose, with the retaining state keeping 25%, as now.
This first of all does not prejudice the havens, who are prejudiced now (to some degree). Second, it ensures that if 35% is likely to be deducted at source from all entities the incentive to opt into the tax declaration system will be high. Third, the burden on the paying agent is massively reduced. They need only to know they have been supplied in good faith with taxpayer identification data to ensure that they can pay gross. It would be reasonable to assume that methods for cost effective positive checking of this data should be capable of being established (and I think that is a reasonable expectation) so that once this has been done the burden on the paying agent is limited.
This then creates what the EU wants: a level playing field and reduced obligation on paying agents plus a massive disincentive to evade with a considerable incentive to comply. There is no market distortion outside the EU: payments will still be made gross there so long as certifiable evidence of identity is secured - and that is a legal obligation already imposed on banks.
I urge the EU therefore to be bold: change is possible here and the potential gains are enormous. Tax evasion has to be stopped.
CDC plc had a letter in the Independent this morning. They said:
Sir: Few will doubt the sincerity of Christian Aid’s motives in drawing attention to child poverty in developing countries (”Tax evasion ‘costs lives of 5.6m children’ “, 12 May) but the charity misrepresents some basic facts about CDC, the UK development finance institution.
It is true that CDC does not pay tax in the UK on its profits, but this has nothing to do with tax havens. It is because the company is exempt from paying corporation tax under UK law. The 400 promising companies the UK has invested in through CDC do pay millions of dollars in taxes to their local governments.
Richard Laing
Chief Executive, CDC Group Plc,
London SW1
This is disingenuous. The Christian Aid report talks in particular about the role of tax havens in harming development. Its criticism of CDC focused on the fact that it uses 78 tax haven subsidiaries to make sure that its investments do not give rise to tax charges.
Please answer that one Richard Laing.
Because I will go further: the list of principal subsidiaries in your 2007 accounts suggests tax planning is at the forefront of your thinking, and that the planning involved does result in less tax being paid in developing countries than might be expected by their governments. This is exactly what Christian Aid is criticising in their report. It is extraordinary that a company owned by DfID engages in this sort of behaviour.
Please justify that as well.
Forbes has reported that:
A federal judge in Southern Florida today unsealed an indictment charging two foreign bankers, one a former private banker for UBS AG, with defrauding the U.S. by helping billionaire Orange County, Calf., real estate developer Igor M. Olenicoff evade U.S. taxes on $200 million hidden in Swiss and Liechtenstein bank accounts.
The charge is that:
in 2001, Birkenfeld’s employer entered into a Qualified Intermediary agreement with the U.S. That agreement required UBS to identify any customers who received U.S. source income that was reportable to the Internal Revenue Service and to report that income. As part of the process, UBS agreed to have customers fill out IRS form W-8BEN, which requires foreign beneficial owners of bank accounts to be identified—a departure from historical Swiss bank secrecy laws.
But Birkenfeld and Staggl, the indictment alleges, defrauded the IRS by falsifying Swiss bank documents and W-8BENs, and by setting up “nominee entities” to hide the true ownership of assets. Staggl, according to the indictment, was the owner of New Haven Trust Company Ltd., a Liechtenstein trustee of accounts used to hide Olenicoff’s ownership of assets.
I do not know if this is true, of course. Clearly someone does or the matter would not have got this far.
What I can say is this: I warmly welcome this approach. It is absolutely essential that those who supply corruption services are prosecuted. They commit economic crimes, even when they work for the largest banks and accountants and lawyers and must carry the responsibility for doing so. And so should their employers do so.
Only then will we bring these organisations to account for the activities they undertake in tax havens.
On which point, by the way, I still note that not one Big 4 firm has yet justified the existence of its Liechtenstein firm. I’m not surprised. There can be no ethical justification for being there.
Christian Aid have, unbeknownst to me until this morning, put a video of part of my talk at the launch of Christian Aid week on their web site.
And before the Right howl in protest: note I say tax is a great thing when spent in the right way in the right place. That is an important caveat.
