I have suggested that if we are to reform offshore we have to start at home, and have detailed a programme of reform that many governments would have to undertake. I have also suggested a programme of reform for secrecy jurisdictions. The next target for reform on my agenda of necessary change to transform the offshore world is in the international arena.
In this arena there are several essential reforms. The most important from my perspective is the introduction of country-by-country reporting — about which I have written so much I just link to my summary on the subject, here. One of the many advantages of country-by-country reporting is that it will shatter the secrecy space which the published consolidated group account of multinational corporations represent. In that secrecy space all manner of intra-group transactions can be lost from view. This opacity has to be broken at the same time as that of secrecy jurisdictions themselves if we are to really know all we must know about the operation of multinational corporations and are to hold them to account for what they do.
Second, there must be international agreement on making tax evasion a predicate offence. This means tax evasion would automatically be considered an offence that in turn gave rise to the right to prosecute for the offence of money laundering. It seems so obvious that an act of illegality involving theft of a government’s property should be a predicate offence that it is hard to see how anyone can object to this — but object they do.
Third, we quite clearly have to solve the mess surrounding the taxation of international transactions. The arm’s length pricing model for transfer pricing promoted by the OECD might have worked in the 1930s when it was first adopted but it is hopelessly out of date now. It must be replaced by a more appropriate mechanism for resolving how tax revenues might be allocated to jurisdictions. Of the alternatives available formulary apportionment is by far the most appropriate. I explain it at page 33, here. It is not without faults, but it so happens that it produces, with much less effort ,the outcome most countries seek to achieve when negotiating transfer prices — which is a fair proportion of profit allocation based on the real underlying economic factors that drive income generation — usually being where your customers are, where your people are and where your assets are.
Fourth, we must reform the way in which international regulation works. Both the IMF and OECD monitor offshore and so far the outcomes have been profoundly disappointing. The time has now come to stop asking if a jurisdictions has the right pieces of paper in place so it might regulate (which is all that has really been tested by these authorities to date) and instead to ask whether the secrecy jurisdiction has actually regulated transactions — to which a blind eye has been turned to date. This would radically transform the assessment of offshore compliance and force real change on it, of which there has been far too little.
Finally, sanctions should be adopted for states that will not comply with reasonable requirements. These should focus on tax based penalties — and most especially the right to withhold tax on all payments into a jurisdiction that does not comply with regulations — and on all payments into a jurisdiction that helps another breach internationally required regulation. When there is a weapon in the armoury cooperation is more likely.
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Fully agree with your agenda … particularly the fourth and fifth items. Off shore jurisdiction oompliance with international regulation must be open and transparent to all.
A couple of points Richard:-
1) Could you name and shame a few jurisdictions that object to making tax evasion a predicate offence? I would be interested to know who they are.
2) You say that the IMF & OECD monitoring of offshore jurisdictions has been “profoundly disappointing”. In effect, you saying that despite meeting the internationally agreed standards this is still not enough for you. Well, the USA meet the standards yet Wachovia bank laundered US$370bn of Mexican drug money in a five year period. Not one suspicious activity reported was filed during that time. And the fine for Wachovia is? A paltry US$160m. I would respectfully suggest that there are many of the top jurisdictions in the world who are not applying internationally agreed standards and you should not necessarily be solely targeting offshore jurisdictions.
3) What in your opinion is the percentage of suspicious activity reports made offshore that relate to tax evasion? Just wondered if you had researched what is actually happening in this respect.
4) Your target is often trusts, companies and foundations. What would you think of a jurisdiction that does not regulate firms that manage those entities?
I was not aware of the unitary apportionment method until now but having reviewed your explanation of it, it would seem potentially much more open than the present system of ‘arm’s length’ pricing.
More importantly – it would be simple to administer. I fear that it is the inability of governments to monitor corporate transfer pricing that encourages the bare-faced abuse we see at the moment.
The problem as ever, is finding people in the political sphere with some basic tax accounting and financial reporting knowledge who can understand the issues.
Perhaps we need a chartered accountants for tax justice group?
@Alex
Alex
I always thought the Institute of Chartered Accountants in England and Wales should be just that
But it isn’t
And that’s to its eternal shame
You are of course welcome to join Tax Justice Network instead
@JohnBuckles
My target is al jurisdictions, not just offshore
The rest of our questions are, as usual, deliberate time wasters
The answers are to be found elsewhere. It is not my job to use Google for you
Organised crime drains at least 40 billion a year from the UK economy and the Serious Organised Crime Agency (Soca, the UK’s discredited version of the FBI) has had little success in catching these criminals despite Soca’s activities costing the UK taxpayer 1.3 billion GBP.
The police approach to this crisis has been unco-ordinated and inadequate and few of the UK`s 6,000 gangs are brought to justice, allowing Britain’s wealthiest and most dangerous criminals to operate with impunity with at least 80 criminal organisations holding assets worth in excess of 10 million GBP and another 500 criminals holding at least 1 million GBP.
If unco-ordinated and inadequate regulation allows multinational corporations, trusts and foundations to use a variety of tricks to dodge taxes in secretive offshore jurisdictions, can criminals also launder their proceeds and avoid paying tax in the same places?
And if a self-appointed offshore “government” can allow Fund managers to obtain pensioner’s bank transfers by deception what other revenue raising trickery are the “government” prepared to tolerate?
Do not expect the Institute of Chartered Accountants England and Wales (ICAEW) to be drawn into the regulatory scrutiny of “commerce” based in “offshore” secrecy jurisdictions.
The ICAEW are aware that many companies will “go native” within a short time of establishing themselves “offshore” and from then on exploit any subterfuge the so-called “government” and self-styled “regulators” will sanction, which to mere mortals based “onshore” appear reprehensible.
The ICAEW do not want to know.
The Isle of Man, Guernsey and Jersey are not part of the United Kingdom or members of the European Union and although their status as “Crown Dependencies” is obscure, the British (tax payer funded) armed forces are obliged to come to their aid if they were to be invaded.
This and other benefits-in-kind provides these self-appointed “governments” with a win-win situation as they sit having their cakes and eating them.
Regardless of cost there is a global obligation to enforce all laws and regulations and if anarchic, offshore tax havens consider themselves exempt from enacting those relating to tax fraud, theft and other dishonest practices then they should be outlawed and vilified by the international community.
Tomorrow would not be too soon.