{"id":16457,"date":"2012-07-18T16:21:38","date_gmt":"2012-07-18T15:21:38","guid":{"rendered":"http:\/\/www.taxresearch.org.uk\/Blog\/?p=16457"},"modified":"2012-07-18T16:21:38","modified_gmt":"2012-07-18T15:21:38","slug":"if-others-are-writing-about-me-you-might-as-well-read-it-here","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2012\/07\/18\/if-others-are-writing-about-me-you-might-as-well-read-it-here\/","title":{"rendered":"If others are writing about me you might as well read it here"},"content":{"rendered":"

This blog was published on both Economy Watch<\/a> and Q Finance<\/a> and since it'sa about me I might as well share it here. I was not involved in its preparation:<\/p>\n

\"EU states lose an estimated \u00e2\u201a\u00ac1 trillion in potential revenue every year from tax evasion and avoidance activities. Much of this amount, it turns out, has been squirreled away to offshore\u00a0tax havens<\/a>\u00a0\u2014 known otherwise as \u201ctreasure islands\u201d. Can anything be done to recoup these losses?<\/p>\n

English\u00a0accountant Richard Murphy<\/a>\u00a0is a controversial figure. His pioneering work for\u00a0Tax Research UK<\/a>\u00a0on exposing\u00a0tax avoidance<\/a>\u00a0and evasion made him a target for the barbs of financial elites - who wanted to protect their interests from his sharp scrutiny \u2014 but also led to him being described as a \u201cheroic figure\u2026driven by admirable moral fervour<\/em>\u201d, by the\u00a0Daily Mirror newspaper<\/a>.<\/p>\n

According to Murphy, an estimated \u00e2\u201a\u00ac1 trillion a year was being lost in the EU due to the twin evils of tax evasion and avoidance. Not surprisingly, this figure has been disputed by the corporate world, though the European Commission, in a recent report, used the same figure as Murphy\u2019s in quantifying the EU tax gap \u2014 an implicit acknowledgement of his unique expertise in this area.<\/p>\n

In the meantime, Murphy has been battling hard to expose offshore tax avoidance schemes. His work for the London-based Tax Justice Network for instance has ruffled quite a few feathers. When the organization launched its Financial Secrecy Index in 2011, which gave all tax havens an opacity rating, the head of the Cayman Islands\u2019 Monetary Authority described Murphy as \u201cthe leader of the international tax Taliban<\/em>\u201d.<\/p>\n

Naturally, Murphy was delighted.<\/p>\n

\u201cIf the tax havens are hurting, then what we\u2019re doing is working,\u201d he said.<\/p><\/blockquote>\n

The English accountant\u2019s \u201cmoral\u00a0fervor\u201d can be traced back to his experiences working for KPMG, one of the world\u2019s biggest accountancy firms, during the 1980s.<\/p>\n

\u201cAt that time no one anywhere realized the threat to the world economy that offshore tax havens posed.\u201d\u201cWhat I saw can be summarized simply: Offshore was clearly a world of make-believe. In most cases nothing ever really happens in an offshore company. All its decision-making, all its accounting, all its paper work is really done somewhere else. The pretence was corrosive, for the people involved, for the business, and maybe more widely, as I realized later.\u201d<\/p><\/blockquote>\n

Murphy\u2019s Mission<\/strong><\/p>\n

According to Ronen Palan, a Professor of International Political Economy at the University of Birmingham and co-author of\u00a0Tax Havens: How Globalization Really Works<\/a><\/em>, Murphy\u2019s passion to expose tax evasion may have arisen after getting \u201csick and tired\u201d from \u201cworking for people whose big business is tax avoidance.\u201d<\/p>\n

\u201cMurphy is a very serious accountant, one of the best around and his work should be taken seriously,\u201d said Palan.\u201cHe is well-known, but is his work shunned by the current government who prefer to rely on accountants and lawyers from industry, although they are obviously protecting the interests of the financial elite,\u201d Palan added.<\/p><\/blockquote>\n

Since embarking on his mission, Murphy has produced several influential reports detailing the scale of tax evasion and avoidance and has outlined plans on how to prevent it. Using new data from the World Bank published last year on the size of shadow economies, his recent report,\u00a0Closing the European Tax Gap<\/em>, estimated that the amount lost to tax evasion, which is illegal, was \u00e2\u201a\u00ac860 billion a year.<\/p>\n

It is much harder to\u00a0quantify tax avoidance<\/a>, which is legal but unethical. But Murphy is reasonably confident in proposing a conservative figure of \u00e2\u201a\u00ac150 billion a year in the EU. This means that evasion and avoidance together cost the EU around \u00e2\u201a\u00ac1 trillion a year, which could cover the cost of 105.8 percent of total health-care spending in EU countries.<\/p>\n

The tax lost to the EU\u2019s shadow economies is 17.6 percent of total government spending, Murphy argues in the report. Only in two cases \u2014 Luxembourg and Austria \u2014 is the tax lost less than 10 percent of revenues, he noted; and even in efficient countries, such as Germany, almost one euro in six is lost to tax evasion.<\/p>\n

Based on Murphy\u2019s figures,\u00a0tackling tax evasion<\/a>\u00a0could clear the budget deficits of 16 EU states:<\/p>\n

\u201cThe findings add a new policy agenda to public debate on the world\u2019s financial crisis. For example, Italy loses \u00e2\u201a\u00ac183 billion to tax evasion a year, which is the most in Europe. Its current debt of \u00e2\u201a\u00ac1.9 trillion represents just over 10 years tax of tax evasion. If more had been done to tackle rampant tax evasion, Europe would not be facing a crisis today.\u201d<\/p><\/blockquote>\n

Treasure Islands<\/strong><\/p>\n

Much of the money is hidden away from the taxman\u2019s gaze in international tax havens. The Tax Justice Network argues that there is at least US$11.5 trillion held in tax havens, which equates to around US$255 billion in unpaid tax per year.<\/p>\n

What\u2019s more Murphy\u2019s estimates are nowhere near outrageous. In fact, the European Commission\u2019s recent report suggested even higher figures. According to the EC, US$20 trillion was hidden in just the\u00a0Cayman Islands, Switzerland, Singapore, Hong Kong and Jersey<\/a>\u00a0alone.<\/p>\n

Today, a third of the world\u2019s GDP is being channeled through tax havens and more than half of the money passed around the globe each day moves through these accounts. There are about 3 million global corporations with no identifiable owner and the Organization for Economic Cooperation and Development (OECD) estimates that 60 percent of world trade consists of transfers within multinationals, who pass profits to anonymous subsidiaries in tax-free jurisdictions.<\/p>\n

The Cayman Islands, a British overseas territory in the Caribbean Sea, is the world\u2019s worst offender. It is the only place in the world with more businesses than people \u2014 55,000 citizens compared to around 60,000 registered businesses and trusts \u2014 and as of June 2011, there were 250 banks registered there that had assets of US$1.78 trillion, including 40 of the world\u2019s biggest 50 banks. This makes the cluster of three small islands the world\u2019s fourth largest financial sector.<\/p>\n

Of course,\u00a0banks registered in the Caymans<\/a>\u00a0are not at all interested in the tropical climate. In exchange for a name on a plaque, these banks get to be based in a country that guarantees to charge them no tax and will not disclose any information about their accounts.<\/p>\n

\u201cTax avoidance has gone on for 80 years but offshore rates of avoidance have risen\u00a0phenomenally since capital market liberalization in 1980,\u201d said Murphy. \u201cIt became possible to move your money around the world in a way that made it much easier to hide it from view.\u201d<\/p><\/blockquote>\n

Murphy\u2019s \u201cLaw\u201d<\/strong><\/p>\n

Nevertheless,\u00a0Murphy<\/a>\u00a0still believes that tax havens can be beaten using three simple measures, shattering their secrecy for good in the process.<\/p>\n

\u201cFirst, all tax havens must put details of the ownership of all companies and trusts located there, and the accounts of those organizations, on public record.Second, all multinational companies must publish accounts that reveal their use of tax havens.<\/p>\n

Last, all tax havens should be required to exchange information each year on the income recorded within them belonging to the citizens of other countries with the places where those people really live.<\/p>\n

If we introduced these measures, those committing tax crimes would no longer have places to hide the proceeds of their crimes. Nothing could make a bigger contribution to solving the world\u2019s financial crisis,\u201d he said.<\/p><\/blockquote>\n

In addition, Murphy has many other solutions to the dual problems of tax avoidance and tax evasion. Tax avoidance, for instance, could be tackled, he says, using a general \u201canti-avoidance principle<\/a><\/em>\u201d, which would allow tax authorities to investigate taxpayers who add artificial clauses into a transaction to avoid tax.<\/p>\n

\u201cIt\u2019s very important as it puts the burden of proof onto the taxpayer. It\u2019s designed to stop the\u00a0kind of Channel Islands scheme which the multi-millionaire British comedian Jimmy Carr used to reduce his tax liabilities,\u201d Murphy opined.<\/p><\/blockquote>\n

However, in order for tax authorities to do their job successfully, they need to be properly funded, Murphy says. Sadly though, a culture of cuts across Europe has been diminishing the taxmen\u2019s powers. In the UK, for example, 44,000 of the HMRC\u2019s (Her Majesty\u2019s Revenue & Customs) 55,000 staff went on strike in June this year to protest against plans to cut 10,000 posts by 2014-2015.<\/p>\n

\u201cThe UK\u2019s senior tax officials\u2019 union estimates a yield of \u00a310 for every \u00a31 spent, which means that cuts are a false economy,\u201d said Murphy. \u201cTax authorities raise money and spend modest sums to do so.\u201d<\/p><\/blockquote>\n

Additionally, Murphy said that the HMRC cost just over \u00a33.9 billion to run in 2010\u00e2\u20ac\u009011, whereas tax receipts were at \u00a3447 billion. According to his own estimates, the UK\u2019s tax gap is \u00a395 billion, but even using the official HMRC figure of \u00a335 billion, the yield on further expenditure would be high.<\/p>\n

In the UK, which is one of the EU\u2019s most tax-compliant countries, tax evasion by small businesses remains a big problem. The HMRC estimates that 46 percent of all small businesses in the UK under-declare their tax in the UK, while the pandemic is even worse in other EU countries, such as Italy and Greece.<\/p>\n

Murphy suggests that all businesses with turnovers of less than \u00e2\u201a\u00ac1 million a year should be required to submit a breakdown of their sales turnover with their accounts. They should disclose their top ten customers by value, plus the total of other sales. If those exceeded 70 percent of sales then no further analysis would be needed. Otherwise, monthly or weekly sales revenues would also need disclosure. The openness would make it far easier for tax officers to keep tabs on businesses.<\/p>\n

Additionally, Murphy favors introducing a measure that has already proven to work in tackling tax evasion in Italy. The idea is to seek the \u201csmoking gun\u201d of tax evasion in government-maintained databases that indicate which citizens are more likely to be wealthy. This information can be correlated with tax return data to locate anomalies in lifestyles.<\/p>\n

Back in June, this year, the tactic produced spectacular results in Cortina d\u2019Ampezzo, a winter playground for the rich and famous in the Italian Dolomites. Tax officials traced the owners of 133 Lamborghinis, Ferraris, SUVs and other expensive luxury cars that they found parked in the snow\u00e2\u20ac\u0090lined streets.<\/p>\n

According to the\u00a0Daily Telegraph newspaper<\/a>: \u201cThey found that 42 of the owners \u2014 nearly a third \u2014 had declared incomes of less than \u00e2\u201a\u00ac22,000 a year. A further 16 claimed to be earning less than \u00e2\u201a\u00ac50,000 a year. The investigation highlights a nationwide problem of Italians cheating the tax man by hugely under\u00e2\u20ac\u0090declaring their incomes, or declaring no income at all.\u201d<\/p><\/blockquote>\n

But the political will to introduce these, and other measures, is not yet present in many European countries, claims Professor Palan:<\/p>\n

\u201cWhen I first started investigating tax avoidance I thought there was a simple explanation. The rich, large business elite benefited from it and through lobbying they got the politicians on their side. Of course, many politicians are already from the financial elite\u2026I began to question that simple assumption [of course]; but, since the financial crisis, I\u2019ve seen such enormous sums of money spent by the financial industry to deflect attention from tax havens that I have slowly and cautiously returned to my original assumptions!\u201d<\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"

This blog was published on both Economy Watch and Q Finance and since it’sa about me I might as well share it here. I was
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