Richard Murphy, Unplugged

Accountants don’t want to work in the Channel Islands

2008-04-21T03:49:00.000-07:00

Accountancy Age has reported that:

Less than a quarter of accountants polled in a survey say they would chose to relocate to the Channel Islands, an indication that the benefits the tax havens offer do not hold sufficient allure for accountants today.

Well, let’s list the harm such a choice could cause:

1) You increase world poverty;
2) You associate with people who don’t comply with the law;
3) Your work in a place which is sinking fast into oblivion;
4) The locals don’t want you there;
5) Everyone knows that tax haven activity is unacceptable now.

Would you want links with any of those on your CV?

Putting the record straight

2008-04-21T02:40:00.000-07:00

Terry le Sueur, Jersey’s finance minister recently assured Jersey’s business community that it’s new zero ten tax system had met with approval by the EU.

There’s one problem with the assurance. It’s wrong. The EC will not have considered this issue as yet; it’s time scale would not allow that to have happened. As a result John Christensen and I had the follwoing letter in the Jersey Evening Post on Saturday:

So you meet the EU code? Says who?

From John Christensen, director and Richard Murphy, senior adviser, Tax Justice Network

WE note Treasury Minister Terry Le Sueur’s claim (reported by Christine Herbert) that the zero-ten tax regime is fully compliant with the EU Code of Conduct for Business Taxation. Since the zero-ten regime has only recently come into effect it cannot, to the best of our knowledge and belief, have been considered by the European Union for compliance purposes as yet.

Remember, the Isle of Man government was only informed in October 2007 that their new regime, which came into effect in 2006, was not compliant. We anticipated that the Isle of Man measures would be rejected by the EU, and for similar though not identical reasons, we likewise anticipate that the Jersey regime will be deemed non-compliant with EU requirements. At this stage it would be unwise to rely too heavily on the Treasury Minister’s assurances.

Published 18/4/2008

Sometime soon these people are going to have to realise that their only option is active compliance. But it certainly hasn’t occurred to them as yet. When it does the game will stop, and the people of Jersey will suffer. Le Sueur will have retired. If one person will not carry the responsibility for this it is him. I admit, that annoys me.

My del.icio.us bookmarks for April 20th

2008-04-20T23:12:00.000-07:00

These are my links for April 20th:

TUC leader slams Brown over 10p rate Money The Observer - With Vince Cable, Brendan Barber is the man most likely to get tax right at the moment

Simon Caulkin: A century on, the MBA still has lessons to learn Business The Observer - The MBA training the wrong people in the wrong ways with the wrong consequences - I wish I’d said that

The terms of debate are changing

2008-04-20T15:01:00.000-07:00

Roy Hattersley wrote in the Observer today that:

It is a rule of progressive politics that necessary and feasible reforms are often postponed because opponents master the details while supporters rely on passionate assertions of principle.

In tax, that’s changing. It’s TJN that is providing the technical detail that is changing the UK and worldwide debate on this issue.

That’s the good news. The bad news is we took a long time coming on the scene. For that alone I apologise.

My del.icio.us bookmarks for April 18th

2008-04-19T01:25:00.000-07:00

These are my links for April 18th:

FT.com / Companies / Financial services - Ex-Refco president guilty of fraud - More evidence of the consequnce of light regulation

FT.com / Companies / IT - Samsung chairman indicted by prosecutor - Samsung looks to be rotten to the core. Unregulated capitalism is.

The Times - Subprime hurts Swiss banking - So much so that it’s moving to Singapore. Is the Swiss myth dying?

Offshore Asset Protection BLOG - Bob Bauman: Treating Americans Like Idiots - Can anyone be taken seriously when they call Carl Levin and Barack Obama ‘far left extremists’?

That 10p tax rate

2008-04-18T06:54:00.000-07:00

When you’ve been blogging for a while you can look back and see if you spotted a trend. So I’ve been to see what I said about the budget in 2007 to see if I saw the 10p tax problem coming.

I did. I said, almost immediately after the budget was published and before I’d had a chance to analyse it in any real depth that:

The redistribution effect? Forget it. There isn’t one, although I suspect those on £20,000 or so might lose - but that’s instinct only at the moment.

And I summarised that post saying:

Let’s be clear. the big issues concerning justice were not tackled. And that’s massively disappointing.

Some more politicians should be reading what I say - some would not be in the mess they are now if they’d raised the issue at the time.

In praise of progressive taxation

2008-04-18T06:53:00.000-07:00

Polly Toynbee wrote in the Guardian today of the Fabian Society’s call:

for a new pressure group to campaign, explain and lobby for a more progressive tax system. There needs to be a counterweight to the right and the Tax Payers’ Alliance, a voice to make the case for fairer taxes, to explain why paying taxes is a social good, to shame avoiders and praise the civilising value of tax money well spent on the things that matter most.

TJN is, of course, already fulfilling the technical part of this brief. But it’s true that we’re not a mass campaigning organisation, and more a research one.

And I wholeheartedly endorse the need for such a campaign.

But as Toynbee says - a first target has to be the Labour party, and the Fabians have to be willing to criticise that party of this is to work. I really hope they will because the issue has to be bigger than the party now: the need for reform is too strong for this to be ducked.

Tax haven Britain, in business, but not for long

2008-04-18T04:51:00.000-07:00

The FT has reported that:

Britain is once again eligible to market itself as a tax haven following recent concessions to “non-dom” residents, according to a firm of advisers.

Grant Thornton’s stance reflects a renewed determination to restore the UK’s image as an attractive place for foreigners to settle, amid fears that its appeal has been permanently dented by the row over the shake-up of the tax regime.

Let’s be clear though: some of us are dedicated to ensuring that the tax haven status is lost. Anyone who choses to invest here on the basis of these concessions is mad because they’re not sustainable.

The trend to abolition of the domicile rule has begun. It will go, the only question is when, not if.

The Delaware LLC - it’s got to go

2008-04-18T04:46:00.000-07:00

One of the big issues at the conference I’ve been at this week has been the role of jurisdictions like Delaware in the USA, where LLCs (Limited Liability Company) can be incorporated for a few hundred dollars at most that provide many of the secrecy features that tax haven jurisdictions provide. If you don’t believe me look at this list from a web site selling these entities:

The Delaware PRIVACY Advantage:

Company ownership need not be disclosed to the State of Delaware.
Company ownership transfers need not be reported to the State of Delaware.
Delaware does not maintain public records of ownership.
Delaware does not maintain a publicly available database of companies’ management.
The reporting and disclosure obligations imposed by the State of Delaware are minimal.

The Delaware ASSET PROTECTION Advantage:

Owners of Delaware LLCs and corporations receive limited liability protection.
Owners’ assets cannot be seized as a result of the LLC or corporate liabilities.
Due to the privacy protection offered by Delaware, it is more difficult for attorneys to track business owners and owners’ assets.

The Delaware TAXATION Advantage:

Delaware imposes no income tax on either LLCs or S corporations.
Delaware imposes income tax on C corporations only to the extent that income is earned in the state of Delaware.
Delaware imposes a low franchise tax for small companies.
Delaware imposes no tax on capital stock or assets.
There is no sales tax in Delaware.
There are no Delaware capital shares or stock transfer taxes.
There is no state inheritance tax on stock held by nonresidents of Delaware.

The Delaware CONVENIENCE & FLEXIBILITY Advantage:

Delaware is one of the least expensive states in which to form an LLC or corporation.
Delaware allows one individual to act as the shareholder, director, and hold all the executive offices.
Delaware LLCs and corporations can be headquartered anywhere in the world.
Aside from a registered agent address, owners are not required to maintain a physical address within the state.
Company records do not need to be physically located in the state of Delaware.
Stock can be transferred instantly and privately, without filing a public notice.
You do not have to be a US citizen to form a regular Delaware C corporation or LLC.
Delaware does not impose a minimum capital investment requirement for LLCs and corporations.
Delaware’s Secretary of State office offers a wealth of information for managing your LLC or corporate standing.
Delaware LLCs and corporations offer generous protection (sometimes called indemnity) from personal liability.
Unlike most other states, Delaware corporations can easily be converted into LLCs and vice versa.
Delaware LLCs and corporations can be formed without coming to Delaware using an online incorporator

This is blatantly abusive. There are some 4 million of these corporations. Admittedly that’s 0.016 per head of population in the USA, whereas the BVI has 33 abusive companies per head of population, suggesting that there is much more likely to be local economic use of the Delaware LLC than anything the BVI has to offer (and this is a critical difference - an abusive structure for use within a state is a domestic issue, one for use outside your state is an international concern) but however it is looked at, the existence of these entities, which can be incorporated from outside the USA, is a massive problem and a legitimate cause for complaint by those whom the USA is rightly targeting with measures such as the Stop Tax Haven Abuse Act.

And for those who complained about the fact that I have not mentioned them before - that’s only because I am a little UK-centric on this site. For those who doubt my commitment to ridding OECD countries of tax haven characteristics, I suggest you look at my commitment to ridding the UK of its domicile rule before being too loud in your condemnation. What is more, that campaign has delivered some (albeit partial) results.

On the same basis I’m more than willing to lend my support to any campaign to get rid of the Delaware LLC and it’s like in other US states. They have to go.

My del.icio.us bookmarks for April 17th

2008-04-18T00:48:00.000-07:00

These are my links for April 17th:

Drugs company moves to cut tax bill Business guardian.co.uk - Good to see that some objective comment on Shire has got into the press. That from the CBI is complete rubbish and the British Chamber of Commerce have said stuff that is just wrong

HSBC in disclosure dispute - Accountancy Age - Let’sbe unambiguous: the idea of ‘off balance sheet accounting’ has to become a part of history

Go for Tobin

2008-04-17T09:49:00.000-07:00

The FT has reported that:

A tax of one-hundredth of a percentage point on global financial transactions could provide hundreds of billions of dollars for developing countries facing the challenges of soaring commodity prices and climate change, the United Nations heard this week.

This is, of course, a reference to a Tobin Tax. I wholeheartedly endorse this in the form suggested by Stamp Out Poverty. This would do two things: raise revenue and promote financial stability. That’s a double win. What is more, it can be done by the UK without the consent of the rest of the world being needed.

Gordon Brown should be listening.

The democratic mandate

2008-04-17T09:47:00.000-07:00

You will note I said yesterday that I would not mention the Center for Freedom and Prosperity again for a while, but then I recalled another of Dan Mitchell’s comments during the course of our debate.

I mentioned the term ‘democratic mandate for taxation’ in the debate with Mitchell. He said in response that:

“I have a problem with this democratic mandate argument. We can’t trust democratic governments not to abuse information or to stop it falling into the wrong hands. Hitler had a democratic mandate and Mugabe has a democratic mandate”.

I interjected very strongly at these absurd comments, which are anyway factually inaccurate.

What they do show is that Mitchell is representative of those who oppose democracy through tax reform. To argue that democracies can’t be trusted with tax data because they may be overthrown is of course saying that democracy must be curtailed so it cannot offer taxation choices people might want. That comes to much the same thing at the end of the day because both destroy democratic choice, and the right to impose taxation by legitimate government.

I find the fact that Mitchell is given a platform to argue in this way very worrying.

The offshore world - just a bunch of hired guns for sale

2008-04-16T12:13:00.000-07:00

As if to carry on the theme of the blog below this, I was amused when at Fort Lauderdale to note the composition of the panel who gave an overview of the Cayman Islands.

It was made up of a lawyer called Jane Wareham, very obviously English public school educated and who has been in Cayman since 2005.

Another participant was a barrister, Peter Broadhurst. He’s been in Cayman since 1994. He is Canadian

An accountant, Kenneth Krys, made up the team - he’s been there since 1991. I didn’t actually work out his country of origin. Certainly not Cayman though. Nor the Caribbean from his CV.

Tim Ridley of the Cayman Islands Monetary Authority is as English as they come, and was born and educated in the UK.

I note the Cayman head of PR is a Canadian.

They all talk about Cayman as if they’re part of it, and always have been. They’re not. I am more Irish than they are Caymanian. At least I have the passport but it would be absurd for me to really claim I am Irish. I didn’t do so when I worked there.

If ever you wanted proof that OFCs are external exploitation of the legal space sold by tax havens to provide those states with an income stream, but which is wholly focused on activity really undertaken elsewhere, I think that this panel provided it.

No wonder the locals who clean their cars are annoyed.

Lessons for the tax havens - keep your people happy

2008-04-16T12:12:00.000-07:00

Michael Gillard of Private Eye was also at the conference I attended on tax havens in the USA.

Michael is one of the best respected investigative journalists ion the world. And he is vehemently opposed to offshore. If anything he got a more robust response than I did when taking part in a conference session.

But one thing Michael said, which was incredibly useful, was how important has been the clear disquiet in Jersey regarding tax reform to allow them to continue as a tax haven, and to its new GST in particular. 19,000 people, representing over a third of the adult population of Jersey have signed a petition against this tax.

Michael hit a raw nerve with that one. The BVI admitted there is also a major social problem in BVI with what they identified in public session as white, young lawyers coming into the place, making no attempt to integrate and earning salaries beyond the reach of many local people.

Even Tim Ridley of the Cayman Islands Monetary Authority recognised the special significance of the problems Jersey has faced, and urged all conference participants to be concerned about the people who ‘clean their cars and provide their phones’.

It’s not often said, this blog excepted, but the resentment of many of the local populations who have had offshore financial services centres inflicted upon them, at cost to their own well being, is one of the biggest threats to their long term future.

Tim Ridley and those like him would be well advised to take especial note of the mess Frank Walker has made of Jersey, and the opposition to his actions. It sounds like that opposition have begun a movement that might spread to the BVI and onwards - even to Cayman if its own press is to be believed.

I’m proud to know some in that Jersey opposition.

Mitchell v Murphy

2008-04-16T12:11:00.001-07:00

The Center for Freedom and prosperity have long taunted me and the Tax Justice Network about my refusal to debate with them whilst they refused to disclose the sources of their income.

Then, when an independent party arranged the debate I agreed to participate, this week, and I’ve blogged what I said.

Many people at the conference told me Jack Blum and I won the debate - and that I beat Dan hands down on economics, even if they did not like what we said. It was good to have that said publicly in the concluding session of the conference by Lorna Smith, Director of the BVI International Affairs Secretariat - not an obvious ally of ours.

And as I said in that same session, the havens need to think hard before aligning themselves with the likes of the CF&P. No one outside the Heritage Foundation in the USA and its international spin offs takes them seriously, and they will do themselves a lot of harm if they seek to align with his cause, as at least one appeared to suggest they might. At a time when they need to win friends and influence people, about which I will blog later, the CF&P is the last friend they need, and Dan Mitchell proved it by completely failing to address the issue of their contribution to the global economy at this conference.

And now the debate has happened, the CF&P will depart this blog for some time to come, I suspect.

Have yachts, and yachts

2008-04-16T11:53:00.000-07:00

Outside the hotel in Fort Lauderdale in which the conference I’ve been attending was held there were a considerable number of yachts at their moorings. That’s no great surprise: yachts are a status symbol of wealth and Fort Lauderdale seems determined to flaunt wealth.

Some yachts did stand out from the crowd though. This was one:

This was another

There was a third

I’m told by those with some idea on the things that they might have cost $120 million each.

Guess where all of them were registered? Grand Cayman.

Do you expect US sales tax was paid on them? Those I asked doubted it.

Do you think they are likely to have been paid for out of taxed income? No one thought so.

Of course, they might have been, but that was general opinion.

In one line there was $360 million of yacht. I’m told there were plenty more like it upstream. Some of them were registered in the Marshall Islands though.

All of which makes the TJN estimate of non-financial assets registered offshore of just $2 trillion seem rather modest.

Shire - moving into a world of make believe taxation

2008-04-16T11:50:00.000-07:00

Shire plc is a UK pharmaceutical company. Sitting at about number 50 in the FTSE 100 ranking, it’s a company almost no one will have heard of. Its directors may be pleased about that. Between 2000 and 2006 it lost about £600 million according to its audited accounts when translated to sterling, in my estimate.

Perhaps unsurprisingly it didn’t pay a lot of tax as a result. In fact, in seven years it declared tax liabilities of just £1 million in the UK but did declare tax due of £436 million in other countries although it actually only settled £288 million of it in those years (again, my translations).

And now it is leaving the UK to set up a new corporate headquarters in Jersey, but with its tax residence declared to be in Ireland.

Why, you might ask, would a company that has paid £1 million in 7 years leave now? Well, the answer might be in the 2007 accounts. The company paid tax in the UK in 2007. A little over £25 million (allowing for exchange differences). That’s because in 2007 the company finally came up with some drugs which worked, which helped stem its enormous losses. And of course, some of those drugs were sold to the NHS in the UK and tax was due as a result and licence income on the sale of those drugs, developed no doubt at its real HQ in Basingstoke, also probably became subject to tax here.

That apparently is too much for Shire to bear. Despite the fact that it is keeping the focus of its operations here in the UK it’s now planning to set up a new UK listed, Jersey incorporated, Irish tax resident holding company for the group.

Let’s be clear what this is. It’s pure financial engineering, using two tax havens and the assistance no doubt of a lot of accountants, lawyers, bankers and their associated fees to ensure that whilst the company enjoys all the benefits of being in the UK, will enjoy sales of its products to the NHS, and will licence products made in the UK around the world the income of the latter at least will probably not be taxed here. Tax saving is said to be its objective for the move.

This is corporate social irresponsibility in my opinion because this is Shire failing to pay back to the society that has given it the opportunity to create the drugs from which it will now make its income that tax that is due, again in my opinion, in exchange.

And the cost is real. The UK has to meet its obligations to its citizens, and the more that the corporate world seeks to avoid paying its share through complex financial engineering, the more of the total burden of financing the cost of UK infrastructure (from which companies benefit) will fall on the middle classes in particular. This shift in burden at is why ordinary taxpayers in the UK have seen their bills rise as corporations and the wealthiest (who disproportionately own those corporations) have seen them fall.

In shifting profits in this way Shire sends out a clear signal: it does not consider itself responsible to the society in which it is based but in which, admittedly, only 7% of its sales arise.

What is extraordinary is the cost Shire must be going to to achieve this tax saving. What is extraordinary is the fact that it thinks it can do this despite the blow that this must impose on the morale of tis staff in the UK. And what’s most extraordinary is that it believes that structuring so blatantly through tax haven states is going to be acceptable to society at large.

I’ll tell them. It isn’t. They’ve got that seriously wrong.

Living in a land of make believe

2008-04-15T15:15:00.000-07:00

I am sitting listening to lots of people in the conference I’m attending in Florida saying things that I am staggered by. Why? If you were to believe that what people are saying here the cleanest places in the world are its tax havens.

And a much smaller number of rather well informed people here are reporting that they’re not. Curiously, and to his credit, one of these is a compliance officer from KPMG, Miami. Michael Gillard of Private Eye is another. Jack Blum and John Moscow make up the other brave guys.

Let me give you an example of the nonsense: a member of the FIU (Financial Intelligence Unit) of St Kitts & Nevis, which is responsible for investigating money laundering in that territory spent ages yesterday telling an audience how much help they give to people investigating crime in their territory. You can search the land registry and the maritime registry she said. You pay $5 in a civil case and made much of the fact that this is waived in criminal cases.

But having made this claim, she was then asked if the company registry was open to investigation - and then admitted that no, it never was open for review, and was not organised to facilitate searches. And what is more - if a ship or land was owned by a corporation then no meaningful data could be extracted from the land and maritime registers either.

I kid you not: these people live in a land of make believe where they suggest all is cream and honey. The fact is otherwise, it is not.

Inheritance tax is essential

2008-04-15T15:13:00.000-07:00

Reuters has reported that:

A group of Labour MPs and academics has challenged Gordon Brown to get tough on inheritance tax (IHT), calling it a vital tool to reduce social inequalities.

Quite right.

Why Cayman must know it’s facilitating tax evasion

2008-04-14T20:38:00.000-07:00

John Moscow, a US attorney with Baker Hostetler made an interesting point in the debate here in Florida this morning.

If all the offshore bank accounts reported by all US citizens on their tax returns were in Cayman that would still mean that only 2% of all bank accounts held by US citizens in the Cayman Islands were being declared for tax in the USA.

That means that every bank in Cayman that maintains an account for a US citizen must know there is a at least a 98% chance it is being used for tax evasion. And yet they don’t file suspicious transaction reports.

Interestingly, in the previous session, Tim Ridley, chair of the Cayman Islands Monetary Authority, responsible for money laundering on the island had said in his opinion there was no moral issue in taxation.

The evidence suggests that is right Mr Ridley, at least when it comes to Cayman.

Misinformation from the Center for Freedom and Prosperity

2008-04-14T20:34:00.000-07:00

I’m amused to note that on Friday the Center for Freedom and Prosperity issued a press release saying:

The Center for Freedom and Prosperity Foundation, joined by 31 of the country’s most influential free-market groups, has sent a letter urging the World Bank “to stand on the side of tax competition and fiscal sovereignty and not for bigger and more intrusive governments.”

They added:

The Coalition for Tax Competition is sending a strong message to the World Bank explaining why tax competition is important and why the Bank should reject the anti-free market agenda advocated by ideological groups like the Tax Justice Network and statist bureaucracies such as the OECD

I find this amusing because this morning I debated this with Dan Mitchell of the CF&P and it was me, not Dan, who argued for free markets without the distortions that tax havens introduce.

Let’s be clear: although Dan claims to be an economist he did not even try to engage with the issues of economic theory that I raised that show that tax havens as currently structured behind a wall of secrecy must undermine the effective operation of world markets. He did not even recognise that I had raised the point. He did however suggest that people should use tax havens to undermine their ‘large state’ governments. Not once do I recall him condemning tax evasion, and nor did he respond to the fact that it was pointed out that any US citizen who uses a tax haven to reduce their tax bill by depositing their funds offshore is breaking US law.

Why did he do that? Simply because he did not, as I said in the debate, address the issue we were asked to debate. Not once. What he actually did was promote a libertarian attitude and he promoted flat taxes, including its strict territorial basis which would mean that anyone who could relocate an income stream to a tax haven would not pay tax on it - which is, of course something labour could never do. His reason for opposing information exchange is based on the same agenda - if governments have information they can create fiscal policy and progressive taxation.

What Mitchell was actually promoting had nothing to do with tax haven reform, which was an issue with which he could not even engage. What he was promoting was a view of the world where there is very little government indeed; where the state does not do anything but law enforcement, defence and the protection of property rights, and those who suffer as a result can simply go to the wall.

As Jack Blum put it, this simply ignored the social contract which underpins any civilised society.

TJN supports the social contract, civilised society, and the operation of effective, fair markets which are taxed appropriately. So, I think it’s fair to say, do the OECD and so do the World Bank, although that is not to say I’ll always agree with them about how to achieve the objectives for the poorest, in particular , and the countries in which many of them live. But we all reject is a world in which the rich get richer and the rest can go the wall. That’s why we’ll agree to oppose what Mitchell was promoting.

Despite that I know there’s an extreme who buy his argument (and let’s be honest, many who work in the offshore finance industry have chosen to work outside the mainstream and so might be considered in an extreme, and so he definitely had support in the room) but amongst the electorates of the world his argument is never going to win.

And what he can’t understand is that the governments who support the OECD have a democratic mandate to maintain the structure he is opposing, and that mandate is repeatedly renewed. That’s because people support it.

In which case I suggest, as Jack and I did this morning, that those governments with that democratic mandate must now seize the opportunity of the current credit crunch to reform the current unstructured world of offshore. That means it must be made transparent or these problems will recur, and recur, as they have because the FATF and others did not learn the lessons from the Asian credit crisis and the Long Term Capital Management crisis of the 1990s.

I firmly believe that this reform will happen now. The prospects for radical reform of the offshore world, making it open and accountable to the point that tax havens have little role left to play are better now than at any time, ever. We have to grab that opportunity.

In saying that I acknowledge that it’s undeniable that in the early part of this decade the Center for Freedom and Prosperity inflicted real blows on the OECD in the early skirmishes relating to this issue. But there is now no prospect that they will win this argument. One reason why is that TJN is in the debate, and it wasn’t then. And having heard Dan Mitchell debate today my confidence is increased. They might have won a skirmish, but they have no chance of winning this argument now; none at all. In fact I’ve never been more convinced than today that this debate is not just winnable, but winnable soon. Tax haven reform will be on the agenda much earlier than most in the room I addressed this morning realise. And I, for one, am looking forward to that.

Do OFCs contribute to the health of the glocal economy?

2008-04-14T20:29:00.000-07:00

As some readers of this blog might know I’m in Fort Lauderdale, Florida to debate the above issue, primarily with Dan Mitchell of the Center for Freedom and Prosperity. This is what I said (near enough) in response to Dan:

Good morning. It’s great to be here. Many thanks to David for organising this debate.

It’s just such a shame it has started so badly. It’s hard to believe that Dan and I are debating the same motion. I’d remind you what we’re talking about. The motion says “OFCs (or tax havens as I’d rather call them) - are they healthy for the global economy?”

Dan has completely failed to address that issue. He’s only talked about micro issues and not the global economy. So if you’ll let me I’ll address that economic issue, and I do so not just as a chartered accountant and tax expert, but as a trained economist.

And as an economist I’ll tell you that the real problem with what Dan has said is that it makes no sense in economic theory, and it does not accord with economic reality.

But let’s get some basics on the table. Markets are good things. They’re the best mechanism we’ve got for supplying the majority of the needs and at least some of the wants of most people.

It’s also a fact that government is good thing. The evidence is unambiguous. We seem quite unable to live without it, anywhere and at any time. That means we need a mechanism to pay for it. That’s called tax.

Of course, how much government involvement and how much market participation is needed to create a good economy is open to debate. This is not that debate. The point that is indisputable is that we need both government and effective markets to create a well functioning economy.

But government and markets are very different. Market theory does not apply to governments. The reason is obvious. Market theory and practice requires that participants can and do fail, and go out of existence. But we know that when government fails in this way the consequences are painfully apparent, and catastrophic for the state and people involved.

That’s why we tolerate the existence of what is the perpetual monopoly of government. It’s the best option we have, and we all recognise it. But let’s be clear: monopolies pose problems and have to be controlled. That’s why we have created a system to do that in the case of government. That process is called democracy. It is not called competition. It’s very definitely not called tax competition.

Despite which let’s also be realistic: it’s obvious that governments do compete to attract capital. I know that. But to pretend that the major economies compete in this way because of the existence of pin-prick states called tax havens is to live in a world of make believe. It’s like saying that KPMG and Pricewaterhouse compete because of the existence of small town accountants, and what’s more that it’s the small town accountants who set the Big 4’s prices. That’s just not true.

Nor is it true that tax rates have fallen over the last twenty or thirty years except for the very rich. They have benefited from cuts, but ask absolutely any middle class person anywhere about tax right now and they’ll tell you they’re paying disproportionately more, and they’re right. That’s because the scale of government activity has not reduced. Far from it. Partly because of the demand from business for better quality public services, in the OECD as a whole in the last decade the tax to GDP ratio went up in a significant majority of countries and overall by 1.3%. That was the democratic choice people made. So, if tax havens are meant to reduce tax rates for all, and limit the scope of government universally then there’s just one thing to say based on this evidence. They’re dismal failures. And if this is the criteria for their successful contribution to a healthy global economy that Dan is using I could stop now and my case would be proven.

But the issue is more complex than that. The reality is that economic theory provides the clearest evidence that tax havens must harm the health of the global economy. You see even the most basic understanding of neo-classical market economics says that three things are needed to ensure an optimal outcome results from the operation of a market. Those things are equal access to capital, equal access to markets and the availability of perfect information to ensure the optimal allocation of economic resources to efficient activity.

And the fact is that tax havens deliberately set out to subvert all three of these requirements. They do this by exploiting the one, so called, competitive advantage they have. That advantage is not low tax rates. Indeed, the tax rates for many ordinary people who live in tax havens are not that low when compared to middle classes elsewhere and some tax havens, such as Jersey, have very robust laws to make sure that their residents cannot take advantage of the tax haven services they provide, or that are supplied by their near neighbours such as Guernsey. Jersey’s general anti-avoidance provision designed to tackle what they see as such abuse is, I’d suggest, a model of its type.

So low tax rates are not the thing that provides tax havens with their supposed competitive advantage. It’s the secrecy that they provide that gives that advantage. It’s secrecy and the fact that only some, highly selected groups of people are legally allowed to hide behind that secrecy veil to claim that they locate their activities in tax havens that gives them their advantage.

Note I say that people claim to locate their activities in tax havens. They don’t actually, of course. An absence of any economic substance is the reality of these places. I’m always amused by a friend of mine who advises a Cayman registered hedge fund. The rule is, he says simple. The advice he provides goes to London, where it’s used. It’s just the bill that goes to Cayman. That’s the tax haven world, in a nutshell.

So how is the secrecy that characterises this world used?

Well, first of all it’s used to ensure that those who can use these places, legally or illegally, have access to capital at lower rates than those who do not have that access. This lower cost of capital results from the fact that those who can hide behind the veil of tax haven secrecy accumulate their capital faster because it’s in a tax free environment.

Second this limited access to tax haven secrecy is used to deny access to markets on an equal footing. Of course this happens in the tax havens themselves: in most such places tax haven operations are ring fenced from the local economy for fear they will undermine local markets and tax revenues. The irony should not be lost on you.

More importantly though, given the inevitable and appropriate nationally based measures to tackle tax avoidance and evasion that countries must implement if they are to fulfil their democratic mandate, most ordinary people and almost all small and medium sized businesses in the world cannot use the offshore structures to access the markets that the wealthy, law breakers and multinational businesses can access at lower cost using tax haven facilities. This does put the ordinary person, the law abiding person and small business at a deliberately constructed competitive disadvantage.

Third, the secrecy that allows this to happen also undermines all the principles of open access to information that are essential to ensure that the effective decision making resulting in optimal allocation of resources in market economies takes place.

The result is obvious. Tax havens set out to undermine effective markets, and that’s the goal they succeed in achieving. In saying that I make clear that tax havens don’t extend liberty, as some would claim, they’re actually designed to grant monopoly rights to a privileged few, and that is exactly what they do.

Those few are the wealthiest of the world, the largest businesses of the world and the lawbreakers of the world. Those groups exploit that monopoly advantage as all monopolists do, to close down effective competition. The result is simple. The richest get wealthier at the expense of the middle class and the poor who have to pay the taxes to provide the services multinational business demands. Multinational business meanwhile squeeze out medium and small nationally based business that have an unfair higher cost structure than their larger rivals. The poorest nations of the world that do not have the resources to challenge the hemorrhage of illegal and mispriced money from their shores subsidise the tax take of the richest nations of the world. Throughout all this democracy is undermined, as is the rule of law.

And you might also note that tax havens were used to create most of the securitised debt that has resulted in our current global credit crunch. That’s some contribution to a healthy economy.

The economics of this then are simple, and unambiguous. Tax havens must, and do, harm economic well being for all but the minority who can use them because they do wrongly allocate economic resources and inappropriately allocate the reward of economic activity.

But it’s more than economics. If you believe monopoly is harmful and law breaking is wrong, if you believe in small enterprise and the need to foster it, if you believe in national pride and the state you live in, if you believe in democracy, and if you believe that markets can best meet our needs then you can’t believe that tax havens deliver a benefit for the world economy as a whole.

That’s the motion we were asked to discuss. I think the answer is unambiguous, tax havens harm the world economy and as such I oppose the motion.

I will comment later on what they had to say, and what Jack Blum, who joined me on my side of the debate had to say.

Wanted: a green ‘new deal’

2008-04-13T02:49:00.000-07:00

This the economic solution we need.

Caroline Lucas MEP hits the nail on the head when she calls for a ‘Green New Deal‘

Disclosure: I work with Caroline’s adviser, Colin Hines.

My del.icio.us bookmarks for April 12th

2008-04-12T22:42:00.000-07:00

These are my links for April 12th:

Offshore Asset Protection BLOG - Bob Bauman: The Great Debate: Tax Havens — Good or Bad - Ray Baker is described as ‘anti-capitalist’. The big difference between Ray Baker and Dan Mitchell is this: Ray has a lifetime’s experience of business: Mitchell has a PhD in economics and no experience of business. Who is capitalist?

My del.icio.us bookmarks for April 11th

2008-04-12T00:20:00.000-07:00

These are my links for April 11th:

Which Is the Bigger Challenge: Tax Havens or High Taxes? - WSJ.com - Dan Mitchell v Ray Baker. It’s clear who won. Ray’s a star.

Caribbean Net News: Paying taxes is a ‘legal’ obligation, not a ‘moral’ one, says Cayman Islands regulator - Well he would say that, woildn’t he?

The ACCA - an organisation worth quitting

2008-04-11T06:54:00.000-07:00

A few weeks back I wrote a blog about comments made by Chas Roy-Chowdhury, head of taxation at Britain’s Association of Chartered Certified Accountants that I found quite unacceptable. In doing so I noted the following:

I am a member of the ACCA’s research committee, in which context I meet Chas Roy-Chowdhury. I am not a member of the ACCA.

So troubling did I find Roy-Chowdhury’s comments that I wrote to the ACCA asking if they reflected its policy and saying that if they did that I would have to consider my future position on the ACCA research committee.

I have now had a response, accepting my resignation (although I had not actually offered it, as such). The conclusion is obvious: Roy-Chowdhury’s comments do reflect ACCA policy.

I have to say I am saddened by this. He himself has often told me he thinks I am an extreme left winger. All that proves, I have told him, is just how right-wing he is, for the comments I make and many of the suggestions I propose are reflected in the policies of all three of the UK’s main political parties on occasion. Those he proposes on behalf of the ACCA could be proposed by a political party in the UK that was seriously expecting to enjoy a democratic mandate. In that sense he occupies the same space as the Taxpayer’s Alliance.

Is this really where one of the UK’s main professional bodies should be? It’s very worrying if it is, because it puts itself far outside the spectrum of reasoned debate on viable taxation policies that professional people should engage with if that is the case.

I’m disappointed by having had my resignation accepted. I’m much more disappointed by the action of the ACCA in failing to curtail the clear exploitation of its status by one of its employees for the advancement of his own political opinions.

The debate with Dan Mitchell

2008-04-11T06:42:00.000-07:00

For those who are interested - a reminder that my long awaited debate with Dan Mitchell of the Center for Freedom and Prosperity takes place on Monday in Fort Lauderdale.

Organised by Offshore Alert, this should be interesting, although I’m not expecting a receptive audience.

If you want to watch, it’s covered live on Monday from the Offshore Alert web site.

Iceland - tax reform has not prevented an economic crisis

2008-04-11T03:46:00.000-07:00

The American Right likes to claim that Iceland has seen an economic miracle, partly as a result of tax reform.

The FT reported this yesterday:

Iceland has the highest interest rates in Europe after the central bank raised rates by 50 basis points to a record 15.5 per cent yesterday as it strove to restore confidence in its struggling currency and quench fears of a banking crisis.

Some miracle.

And some indication that abandoning fiscal policy really is a very bad idea indeed.

The Corner House and Campaign Against Arms Trade WIN BAE-Saudi corruuption judicial review

2008-04-11T03:44:00.000-07:00

The follwoing press release was issued yesterday:

Thursday 10 April 2008This morning at 10 o’clock, the UK High Court ruled that the Director of the Serious Fraud Office (SFO) acted unlawfully when he stopped acorruption investigation into BAE Systems’ arms deals with Saudi Arabia.

The judgment was handed down in response to a judicial review brought by Campaign Against Arms Trade (CAAT) and The Corner House.

The judges described the SFO Director’s subsequent termination of the investigation on 14th December 2006 as a ’successful attempt by a foreigngovernment to pervert the course of justice in the United Kingdom’.

They were scathing about the arguments given in court for ending the investigation:

‘It is obvious . . . that the decision to halt the investigation suited the objectives of the executive. Stopping the investigation avoided uncomfortable consequences, both commercial and diplomatic.’

Both groups would like to thank all those who have supported us throughout the past 16 months in bringing this court case. It wouldn’t have beenpossible without you!

As we said in our statement read out at the press conference: ‘This is not just CAAT’s and Corner House’s case. It is yours too. It belongs toeveryone who is troubled by corruption, by the arms trade, and by the misuse of national security arguments to protect the powerful’.

This is fantastic news for all involved.

But most of all it’s fantastic news for the fight against corruption.

Corruption is a pernicious evil. It takes courage to tackle it. This judgement says the UK must have that courage.

Off blance sheet reporting irretrievably broken

2008-04-10T12:31:00.000-07:00

Dennis Howlett has done a great job writing on the above issue.

So good, I just recommend you go over to his place and read it.

If ever there was a measure of the crisis in accounting, this is it.

My del.icio.us bookmarks for April 9th

2008-04-09T18:20:00.000-07:00

These are my links for April 9th:

People: Sebastian Coe hits out at â??thuggishâ?? boys in blue News The First Post - Off theme - but for once Seb Coe is right. He doesn’t come to the obvious conclusion though - which is that the Beijing games have to be boycotted

re: The Auditors: Imagine…The Lawyers Go First - Thought provoking stuff

State of the nation AccMan - A valuable summary of the accountancy blogging scene in the UK

So there

2008-04-09T01:19:00.000-07:00

I loved this, written by Francine McKenna on her great blog:

The views on this blog are mine alone (because it’s all about me), and not the views of any of the various plain vanilla white guys that I have worked for over the years. I expressly abdicate responsibility for any liability of any kind or nature with respect to any act or omission based wholly or in part in reliance on anything contained on this blog or in any audit reports I have ever written. Just like my heroes, the Big 4 partners.

All photo illustration is intended to confuse, confound and flabbergast you, while occasionally also encouraging a chuckle or a knowing smirk.

Comments are welcome, encouraged and most often, posted lickety-split. Unless, of course, they make me feel sad. Then they are deleted.

Because it’s my blog.

So there.

I know just how she feels!

EU commissioner calls for an end to Austrian banking secrecy

2008-04-09T01:18:00.001-07:00

The Wiener Zeitung has reported:

EU Taxation and Customs Union Commissioner Laszlo Kovacs has called for an end to Austrian banking secrecy.

Kovacs said that putting an end to it would be especially important for combating tax-evasion and other criminal activities.

I don’t agree with Kovacs on everything: on this he is spot on.

My del.icio.us bookmarks for April 8th

2008-04-08T17:40:00.000-07:00

These are my links for April 8th:

SMEs baulk against Â£3.1bn in green costs - Accountancy Age - Going green is too expensive say SMEs. What price the planet, I ask?

Tesco sues critic of its expansion in Thailand for Â£16.4m damages Business The Guardian - Tesco is in litigious mood

Tesco takes on The Guardian - oh good AccMan - And Dennis Howlett on Tescos - which is a very interesting take

Accountancy Age blog: Tescos-Guardian - Alex Hawkes’ assessment of the situation

ITPro: News: HSBC loses disc with 370,000 details - I think it’s important to note that one of the things I quite often say is proved by this: human error is as commonplace in the private as the public sector. They’re eqaully inefficient because people work in both. Only bigots ignore the point

FT.com / World - IMF to shed staff and sell gold - The IMF was set up to be the world’s banker of last resort. We need one of those right now. So why do this?

Cayman telling the truth?

2008-04-08T05:47:00.000-07:00

There’s an interesting article in Cayman NetNews entitled Everybody’s Business: Telling the truth about tax havens. In it the author says:

Let’s do it. Let’s tell the truth. It can’t hurt us any more than the rubbish our representatives have been peddling all these years.

Our current politicians can’t do it, because they don’t understand the truth of how tax havens work. Our bureaucrats and spin doctors can’t do it, for the same reason. Our Offshore professionals can’t do it, because they don’t understand how to go about influencing public opinion.

Is there nobody out there who can do what’s needed and will volunteer to take on the job?

Here’s what the job involves - in two short and truthful sentences.

First, tell the world who our Offshore industry’s clients are. Next, tell the world what they do.

I suspect there is a lot of truth in what the author says.

But there’s a very good reason why the truth will not be told: secrecy is the hallmark of a tax haven, Cayman included. No one there is going to break that.

And that’s the truth.

Which means Cayman is, and will remain a problem.

Tax Justice Focus - The Doha Edition

2008-04-08T04:11:00.000-07:00

The first quarter 2008 edition of Tax Justice Focus published by the Tax Justice Network is a special edition focusing on the preparations for the United Nations meeting on Finance for Development in Doha, Qatar, from November 29-December 2, 2008. TJN’s press release on this says:

In the editorial, The Road to Doha, we look at six emerging trends which all favour the tax justice agenda, and argue that the next few years present the best opportunity in decades of rolling back the ideology in favour of tax havens, corruption, and abusive tax practices. Powerful vested interests will fiercely resist change, so it is urgent that civil society groups in rich and poor countries now start to get properly involved.

The U.N. Tax Committee has asked PROF. MICHAEL J. MCINTYRE to work up a draft U.N. Code of Conduct to set minimum standards for countries to co-operate on measures to combat capital flight, international tax evasion and abusive tax avoidance. In our lead article Coming Soon - a Code of Conduct on Tax Evasion? Professor McIntyre discusses the historical, political and technical issues.

In their article Capital Flight from Sub-Saharan Africa on page five, L??ONCE NDIKUMANA and JAMES BOYCE at the University of Massachusets, Amherst, describe their new research into the scale of capital flight from 40 countries in Africa. They find the accumulated stock of capital flight, including interest earnings, to be nearly three times the size of these countries’ external debt. Africa is consequently a net creditor to the world - but the assets are in private hands, while the external debts are borne by the governments, and through them the African people.

DAVID SPENCER, a New York-based attorney and a senior adviser to TJN, in his article From Monterrey to Doha: an Overview examines the importance of the 2002 International Conference on Financing for Development in Monterrey, Mexico, and the preparations for the follow-up conference in Doha this year. He outlines a series of far-reaching recommendations for the future.

In the following feature article entitled Waking the Slumbering Giants, ALEX WILKS explores why so many non-governmental organisations have been slow to engage with the tax justice agenda, and explains why this is now starting to change.

Taxation reform is now fundamental to solving the problems of the developing world, and to ending their dependency on aid. This UN conference could make big progress on this issue. That’s why I’d urge you to read this edition of Tax Justice Focus.

India makes another strike for source based taxation

2008-04-08T04:07:00.000-07:00

India is doing a great job for the developing and intermediate states of the world right now with regard to taxation.

In the Vodafone case that it is taking it is arguing that capital gains arise in the place where an asset is actually located, and not in the tax haven that a multinational corporation wants to record ownership of it.

Now it is taking on Microsoft. According to the Economic Times of India:

India has asked US software giant Microsoft to pay 175 million dollars in back taxes and interest for revenue earned from licensing its software here.

An Indian tax authority ruled Wednesday that Microsoft’s India subsidiary Gracemac Corporation should have paid tax on the 560 million dollars it showed as revenue for the six financial years up to March 31, 2004.

The dispute revolves around whether the amount qualifies as royalties or sales.

The amount should have been taxed as royalties, the Commissioner of Income Tax ruled in New Delhi, citing language in the end-user license agreement shipped with the company’s software.

India taxes royalties at 15 percent, but the tax appeals body appeared to be levying a similar amount in penalties and interest charges.

Microsoft’s India subsidiary did not pay taxes on the income, citing a double tax-avoidance treaty between India and the United States and noting that an overseas subsidiary paid tax in the US on profits from the software sales.

I warmly welcome this move. Microsoft has, as is well known, sought to shift all its profits outside the USA to Ireland - including those arising from India. This is unethical. It’s also quite contrary to the spirit of tax compliance. This means that tax is not being paid where he economic transactions giving rise to profit occur. India is seeking to change that and to claim profit earned from its economy is taxable in that same economy.

This is source taxation. It is what the developing world needs. To stop aid dependency it is absolutely essential.

And as someone from the World Wildlife Fund said at a conference I was at yesterday - if all the multinational companies in Mozambique paid tax at 20% on their profits in that country they would have no need for aid. But those companies don’t pay that tax.

India is trying to change this. Keep going, I say.

FTSE 100 at 6000 - is this madness?

2008-04-08T04:05:00.000-07:00

As I write this the FTSE 100 is floating at about 6000.

Why is that? Throughout 2006 and 2007 the market averaged 6162 in my calculation - based on FTSE stats. During most of that period most people believed ‘we’d never had it so good’. And now we know that was not true. We know our banks are in crisis. We know there is a consumer down turn. We know there will be low or nil growth in real terms. We know that unemployment is likely to rise. We know that the financial sector is going to shed people and they, supposedly, have been driving our economy.
But the FTSE remains almost unaffected. Is that rational? No, of course it isn’t.

There are three explanations:

1) The index is wrong (this is plausible - it is regularly revised to only include winners, so giving a false impression of what is really happening);

2) Institutional investors remain committed to stock markets because this is what they’ve always done and most young people in the City (those sub 40) know nothing else - which says nothing has been learned about herd effects as yet, despite the damage they have already caused;

3) We’ve set up an unsustainable savings structure for pensions and other purposes which means money has to be placed solely in derivative financial products (and even shares are that) and that there is no way funds can actually be used to invest in real economic activity - meaning financial markets are unrelated to that reality.

I suspect all three explanations are right, in part.

I have pulled everything I have in pensions and the like out of the stock markets. Like banks and housing, there’s only one way they can go now. And sometime soon a FTSE 100 index at 6000 is going to appear as mad a reflection of economic reality as banks offering 125% mortgages.

Tescos sues the Guardian

2008-04-07T00:55:00.000-07:00

The Telegraph (amongst others) has reported that:

Tesco is to take legal action against the Guardian newspaper and its editor Alan Rusbridger after a series of articles that claimed it avoided paying ??1bn in tax by using an offshore structure for property joint ventures.

The claim is, according to Reuters, for libel and malicious falsehood.Tescos said:

We feel driven to take this action because we cannot allow Tesco’s reputation to be so seriously attacked with such wilful disregard for the truth.

Tescos have said that:

the Guardian knowingly misled its readers in a series of articles and a podcast published on Feb. 27 and Feb. 28 by wrongly alleging that Tesco had contrived a tax avoidance structure.

The Guardian has said:

Tesco’s actions amounted to bullying and were clearly designed to silence public debate on the important issue of taxation.

They continued:

This looks like a deliberate tactic by Britain’s largest retailer to shut down perfectly legitimate inquiries into their methods of tax avoidance. At the same time that two Tesco directors are reported to have lobbied the government in private on matters of taxation, the company is now seeking to chill public debate on the same issues. The articles were in the context of a series of articles on taxation issues in a globalised world. They clearly raised serious matters of public interest in relation to tax avoidance and tax management. We have never claimed Tesco behaved illegally. These are matters of considerable political importance at present, debated by all parties.

Guardian journalists put a series of questions to Tesco over a period of nearly four months. At no point during the pre-publication correspondence would Tesco even admit the offshore structures, still less give the explanation they advanced post-publication. We offered meetings to discuss the allegations; this offer was rejected. We included Tesco’s explanation in the articles and have subsequently offered the company the opportunity of a full and prominent right of reply.

Instead of frankly explaining their position and/or engaging in a public dialogue Tesco has taken the extraordinary step of suing for libel in a clear attempt to close down the debate and discourage others from looking too closely.

I can only admit surprise at Tescos action: I remain of the opinion that they did avoid corporation tax as well as stamp duty in structuring the transactions as they did, for the reasons that I gave here. And since they have said:

every company seeks to operate as tax-efficiently as possible, to do so is our duty to shareholders and customers alike

Tescos is now in the position of suing someone who has said that they have done what Tescos says it has a duty to do. That’s going to make this a very strange libel case.

Disclosure: I am an occasional paid correspondent for the Guardian. As I noted here, I have not seen the Guardian’s papers relating to this case.

KPMG - pointing the finger of blame in the wrong direction

2008-04-06T23:06:00.000-07:00

KPMG’s UK senior partner has, according to Accountancy Age:

called for ‘kitemark’ standard for audit reports, arguing that, with hindsight, accounts can turn out to be ’spectacularly wrong’.

John Griffith-Jones has apparently called for a ‘new approach and new contract’ with society. He is reported as saying:

I am making the case for the acknowledgement of reality. I believe the ‘kitemark’ that the profession and society should agree to work towards could be summarised in the vernacular as ‘these accounts are about right unless the management have deliberately conspired to falsify them.

He has a problem though. Candidly, many of us think this is pointing the finger in the wrong direction. We think (and society thinks) that the Big 4 in particular play a role in mis-stating those accounts, especially when it comes to things like tax in which they deliberately sell services that manipulate the outcomes of transactions in a way that abuse society at large.

I think John Griffith-Jones is right to call for a new contract with society. I’d urge him to sign his firm up, globally, to a Code of Conduct of the sort the Tax Justice Network has proposed. Then we’d be making progress. This requires firms like his own (and all its numerous tax haven parts) to agree that:

- Taxable transactions are recorded where their economic benefit can be best determined to arise;
- Tax planning seeks to comply with the spirit as well as the letter of the law;
- Tax planning seeks to reflect the economic substance of the transactions undertaken;
- No steps are put into a transaction solely or mainly to secure a tax advantage;
- Tax planning will be consistently disclosed to all tax authorities affected by it;
- Data on a transaction will be consistently reported to all tax authorities affected by it;
- Taxation reporting will reflect the whole economic substance and not just the form of transactions.

If KPMG can do that then we’ll believe ‘these accounts are about right unless the management have deliberately conspired to falsify them’. Until KPMG can sign up to such a Code how can we know they did not have a part in mis-stating the results?

My del.icio.us bookmarks for April 6th

2008-04-06T22:56:00.000-07:00

These are my links for April 6th:

Credit crunch sparks fair value revolt - Accountancy Age - I believe in international reporting standards. But is the IFRS fair value model now shown to be fundamentally flawed? I think it is - precisely because it creates a market feed-back loop that is highly destructive in a down side economy

Labour donor Lord Sainsbury avoids Â£27m capital gains tax - Telegraph - When the tail wags the dog things always go wrong

Tax Justice Network: Country by Country reporting: briefing paper - Good discussion - worth reading

Tax Justice Network: The Precarious State of Public Finances - Public finances are under coordinated attack - and need to be defended if democracy is to survive

Finance bill adds to tax complexity, says ACCA - Financial Director - Chas Roy-Choudhury of the ACCA does like talking to the right wing, anti-tax web sites. Is that what a representative of a profesiional body should really be doing with his time? Look at tax-news.com to see what I mean

My del.icio.us bookmarks for April 5th

2008-04-05T22:29:00.000-07:00

These are my links for April 5th:

The Norway Post : - We must stop stealing from the worldâ??s poor - Norway flies the flag for tax justice

LexisNexis, missing the point

2008-04-03T23:53:00.000-07:00

LexisNexis makes its money form selling tax legislation, and let’s be honest - publications on tax avoidance.

It’s holding a conference on 15 May in London entitled, according to an email I have received from them:

Can tax avoidance ever truly be viewed as acceptable?

A brochure is available here.

There is a problem though. No one from civil society is speaking at the conference to give the alternative view to all the tax planners who are going to be present. Why is that? Is it that this conference is really about how to avoid being accused of avoidance? It has that feel to it.

What I’d have liked on the new tax return

2008-04-02T23:22:00.000-07:00

HM Revenue & Customs have sent out a book to all tax advisers detailing the first major changes in the design of the UK tax return for ten years.

There’s one change I would have really liked. I’d have loved to have seen boxes added that would have required the identity of the five biggest customers of each self employed person submitting a tax return to have been disclosed unless the customer in question comprised less than 5% of the total turnover for the year. I’d have added the same box to corporate tax returns as well.

Why? Because nothing I can think of would weed out information on those who are in disguised employment than this would have done. This abuse needs to be stopped. That’s one reason.

There’s another reason as well. Most tax fraud is in the top line on small business accounts. Requiring more detailed disclosure on this information would help identify where this might be happening.

And please don’t say this would be an additional burden on business. Knowing who your top five customers are is vital business information. Any business would benefit by knowing this if it does not already.

Country-by-country reporting

2008-04-02T12:54:00.000-07:00

At the core of what the Tax Justice Network campaigns for is greater transparency. With regard to multinational corporations this could be achieved by country-by-country reporting. A new Tax Justice Network briefing paper explains how, and why this is so important.

Space havens

2008-03-31T22:33:00.000-07:00

News has leaked that as a consequence of Germany’s plans to block tax haven abuse a consortium of international firms is, quite literally, launching an alternative. It’s the space haven.

The consortium, known apparently by the name KPWDY, is planning to set up a tax haven on a satellite orbiting the earth. As they are reported to have said:

This creates opportunities for tax planning that are out of this world.

And, they stress, it’s wholly legal as well, and they think entirely beyond challenge.

Apparently the standard tax haven structure of a trust owning a company which in turn will operate a bank account that will settle the debit card bills run up by the settlor of the whole arrangement will all be available from the satellite facility - and not a single human will have to play a single part in supplying the service.

All the facilities that one would usually expect of a tax haven administrator will be undertaken automatically by the computers on board the satellite. These will always act in accordance with the instructions given to them by the trust settlor who will, as is now common place on earth, have full reservation of powers with regard to the whole structure being that human interference of a real trustee is quite unnecessary since they have no role in the arrangement other than loan of their name. In that case the space satellite option will use incorporated nominees, all of whom will have signed complete non-disclosure agreements requiring that they never make enquiry as to the identity of the entities for whom they act. It’s considered invincible.

To add to the appeal of the arrangement it is thought that a complete bank will also be hosted on the satellite with all transactions being run, again, by the settlor.

The only question apparently left to resolve is whether companies and trusts set up in space will be able to transact here on earth. But it’s not likely to be an issue of much concern to all involved, not so long as the debit card bills continue to be paid and a margin is earned all round. If that’s done then it’s reported that stellar profits are expected.

PWC’s statistics

2008-03-31T01:06:00.000-07:00

All blog owners like to look at their visitor statistics every now and again. the one who denies this is a liar.

I noticed something curious when I did so recently. It seems that the four most popular articles on this blog are (in order):

Yet more misinformation from PWC

PWC’s Total Tax Oversight

PWC’s Total Tax - the fundamental accounting flaw

Biased misinformation - The PWC Total Tax Contribution 2007

What does that say?

My del.icio.us bookmarks for March 28th

2008-03-29T00:24:00.000-07:00

These are my links for March 28th:

Offshore Financial Centers: Myth And Reality - Forbes.com - This lot is a work of fiction

FT.com / In depth - Four-year low for M & A - Excellent news for real business. These things have not been proven to add value to anyone bar the advisers

Seumas Milne: Religion is now a potential ally of radical social change Comment is free The Guardian - I am convinced this is true

Nicholas Bate: Five Potential Productivity Fallacies - Off topic, but good. Hat tip to Dennis Howlett

It’s good to have friends

2008-03-28T09:56:00.000-07:00

I’m sometimes amazed at some of the accusations that have been levelled against me for for simply asking that people pay the right amount of tax, at the right time in the right place. The accusation by Nichola Ross Martin of AccountingWEB that I was an extremist was one of the more absurd, and does perhaps say a great deal about the current state of the accountancy profession, and how out of touch with its social responsibility it is.

It’s therefore cheering on occasion to find some people believe in what I and those I work with are doing. This is an encouraging example:

Early Day Motion
EDM 1251

TUC REPORT ON THE UK TAX GAP
20.03.2008

Hopkins, Kelvin

That this House welcomes the TUC Report, The Missing Billions - The UK Tax Gap; congratulates its author Richard Murphy, Director of Tax Research LLP, on a brilliant analysis of how tax losses to the Treasury and thus to the public purse amount to £33 billion each year; notes that this figure comprises £13 billion from tax avoidance by individuals, £12 billion from tax avoidance by the 700 largest corporations and £8 billion from tax planning by individuals earning more than £100,000 per annum; believes that this vast lost revenue should be collected in future years and used, among other things, to raise the state pension, increase child benefit and pay for free long-term care; and strongly supports the report’s conclusion that action can be taken to address the problem and that what is required to achieve this is the necessary political will.

Cayman’s top police suspended - and London sends an anti corruption team to investigate

2008-03-28T09:54:00.000-07:00

Cayman NetNews has reported that:

The Governor of the Cayman Islands, His Excellency Stuart Jack, CVO, today (Thursday, 27 March) announced that he has put three senior police officers on required leave to facilitate enquiries into allegations against officers of the Royal Cayman Islands Police Service (RCIPS).

Police Commissioner Stuart Kernohan, Deputy Commissioner Rudolph Dixon and Detective Chief Superintendent John Jones were put on required leave with immediate effect to enable an investigating team from the Metropolitan Police Service led by DCS Martin Bridger to proceed with their enquiries.

As Cayman NetNews rightly says, there must be a presumption of innocence at this stage. It’s interesting to note the follwoing though:

In a separate statement, Senior Investigating Officer Martin Bridger said that much of his 30 year career as a detective has been spent dealing with issues of integrity within the police services. This included working in the Anti-Corruption Unit of London’s Metropolitan Police Service, Northern Ireland’s Police Ombudsman Office and advising other UK and European police services on how to meet the challenges offered by breaches of integrity and wrongdoing.

I think the nature of the allegations are clear.

My del.icio.us bookmarks for March 27th

2008-03-28T09:53:00.000-07:00

These are my links for March 27th:

FT.com / In depth - Report links KPMG to fraud at New Century - Another hole for KPMG to dig themselves out of

My del.icio.us bookmarks for March 26th

2008-03-27T00:05:00.000-07:00

These are my links for March 26th:

FT.com / Columnists / John Kay - More regulation will not prevent next crisis - Amazing - the banker’s apologists are still arguing that there’s no place for regulation in the face of their abuse

FT.com Willem Buiterâ��s Maverecon Moral hazard, here we come! - Bera Stearn bail out just replicates all the problems that gave rise to it

3i turns its back on investment in start-ups Business The Guardian - Looks like we’re back to the days when venture capital was called Slater Walker.

Accountants urge non-doms to splash out - Accountancy Age - It’s very hard to credit that people are this stupid. But apparently they are.

Fund group moves base from UK to Dublin - Accountancy Age - I trained with Gareth Pearce, Chairman of Smith & Williamson. I recall him being a bit of a lefty in those days. Times change. People change. Not always for the better.

Fears over stamp duty crackdown - Accountancy Age - What’s the fear? Only that people might have to pay the tax that the law asks of them. What is so frightening about that?

More signals that the days of deregulation are over

2008-03-26T09:57:00.000-07:00

Der Spiegel has reported that:

The head of Germany’s leading Deutsche Bank, Josef Ackermann, said the world financial crisis currently unfolding would need strong and organized government intervention to stop further bleeding in financial institutions. Simple market corrections, he said, won’t do the trick. “I no longer believe in the market’s self-healing power,” he told an audience in Frankfurt on Monday. “Making liquidity available isn’t the cure-all.”

Coming on the same day as Martin Wolf has said the same thing I believe it’s safe to say that the neo-liberal model is dead.

But there are those who persist with the other view. This is John Kay in the FT today:

The notion that future banking crises can be averted by better regulation demonstrates unrealistic expectations of what regulation might achieve. ..

Perhaps there was once a golden age when the authority and wisdom of central bankers were so great that such regulation was possible and effective, although the recurrence of bank crises suggests otherwise. Today the financial services industry is the most powerful political lobby in the country and public trust in and respect for regulation are low. All regulators feel buffeted by threats of legal action; there is no easier way to win applause from business audiences than by denouncing red tape.

But in financial services, the demand today is for more regulation. That call should be resisted. The state cannot ensure the stability of the financial system and a serious attempt to do so would involve intervention on an unacceptable scale. But to acknowledge responsibility for financial stability is to assume a costly liability for failure to achieve it. That is what has happened.

The dinosaurs aren’t going to die without a struggle it seems, but the argument Kay presents is absurd. What’s he’s saying is that finance must be allowed to do what it will and the state should pick up the pieces when it goes wrong. That, of course, is exactly why it must be either regulated, and reformed until that can be done. It’s the latter that Kay ignores as a possibility, and he’s wrong to do so. No one is going to give banks licence to carry on in the future as they have to date.

Deregulation has ended: now we begin to rein back in

2008-03-26T09:55:00.000-07:00

Martin Wolf said this in the FT today:

Remember Friday March 14 2008: it was the day the dream of global free- market capitalism died. For three decades we have moved towards market-driven financial systems. By its decision to rescue Bear Stearns, the Federal Reserve, the institution responsible for monetary policy in the US, chief protagonist of free-market capitalism, declared this era over. It showed in deeds its agreement with the remark by Joseph Ackermann, chief executive of Deutsche Bank, that “I no longer believe in the market’s self-healing power”. Deregulation has reached its limits.

He’s right. Now we’re reining in. And offshore secrecy has to be very high on the list of abuses that has to stop. That’s for the same reasons that Wolf argues this:

The lobbies of Wall Street will, it is true, resist onerous regulation of capital requirements or liquidity, after this crisis is over. They may succeed. But, intellectually, their position is now untenable. Systemically important institutions must pay for any official protection they receive. Their ability to enjoy the upside on the risks they run, while shifting parts of the downside on to society at large, must be restricted. This is not just a matter of simple justice (although it is that, too). It is also a matter of efficiency. An unregulated, but subsidised, casino will not allocate resources well. Moreover, that subsidisation does not now apply only to shareholders, but to all creditors. Its effect is to make the costs of funds unreasonably cheap. These grossly misaligned incentives must be tackled.

The world is not the same. Some of us are pleased.

CIOT supports small business tax reform

2008-03-26T09:53:00.000-07:00

The Chartered Institute of Tax issued the following press release today:

The Chartered Institute of Taxation (CIOT) welcomes the second Early Day Motion (EDM) on income shifting that has been tabled in the House of Commons. When the first EDM was tabled the CIOT said that it had long been of the view that fundamental reform to the structure of small business taxation was necessary if small businesses were to be able to plan their tax affairs with any degree of certainty.

The second EDM says: “That this House… calls on HM Treasury and other affected departments to use the additional year that they have allowed themselves for consultation on this issue to undertake a thorough review of more appropriate means of providing smaller enterprises with a suitable legal entity designed for use in the 21st century, and not the 19th century as the limited company was, that will simultaneously reduce the taxation, accounting and regulatory burdens on smaller enterprises, so freeing them to generate wealth and employment in the UK economy, whilst ensuring that they can with minimum effort comply with the taxation and other requirements imposed upon them by law in a way that minimises risk of tax avoidance, creates a level playing field in which all in the sector can compete fairly and ensures that the right person is taxed on the reward they have earned at the right time and in ways which do not create artificial and inappropriate incentives to recategorise employment as self-employment, and the reward for labour effort expended as investment income.”

Rob Ellerby, CIOT President, says: “The MPs who tabled this motion are right to say that by extending the process for another year, the Government has given itself a great opportunity to think through the issue more fundamentally with a view to coming to a better answer.”

The EDM, tabled by David Drew MP, is based upon Tax Research’s submission on this issue to HM Revenue & Customs. I welcome CIOT’s endorsement of this approach.

Wisconsin leading the way

2008-03-26T02:33:00.000-07:00

It’s not something I think I’ve said before, but Wisconsin is leading the way on tax reform right now. According to the Milwaukee Journal Sentinel (not one of my regular reads):

Democratic state senators today said large, multi-state corporations pay little or no corporate income taxes in Wisconsin, so they adopted a budget-repair bill that would end what they call tax-code “loopholes.”

The budget-balancing bill the Democrats pushed through the Senate, on a 18-14 vote, would tax the profits of parent companies, instead of the current system of taxing the profits of their subsidiaries. The change, called “combined reporting,” would cost businesses $130.5 million by mid-2009, according to the Legislative Fiscal Bureau.

Senate Democrats said giant companies like McDonald’s, Wal-Mart, Microsoft and General Electric are big enough to set up subsidiaries that allow them to pay little or no corporate income taxes in Wisconsin. Small and medium-sized Wisconsin companies can’t afford those tax-avoidance deals, so they have no choice but to pay the 7.9% corporate tax, said Democratic Sen. John Lehman of Racine.

Senate Majority Leader Russ Decker (D-Weston) said Wal-Mart made more than $850 million on its Wisconsin businesses from 2000 to 2003, but paid only $3 million in corporate taxes.

“It’s time to pick a side:Wisconsin families and businesses, or Wal-Mart,” Decker said.

Decker asked the right question and gave the right answer. Unitary taxation, here we come. It’s the way to reclaim the local from the global abuse of those assaulting society.

My del.icio.us bookmarks for March 25th

2008-03-26T01:03:00.000-07:00

These are my links for March 25th:

Brown’s Â£20bn business boost plan flawed says NAO - Accountancy Age - That’s because admin is not causing the burden that it’s blamed for by those who can’t make money

What are the wealthy to do?

2008-03-25T16:11:00.001-07:00

According to Wealth Briefing:

A shortage of top-class client relationship managers in the world’s wealth management industry threatens to undermine its efforts to keep up with demand, according to a survey by PriceWaterhouseCoopers, the accountants and consultants.

No wonder Gordon Brown wants to teach entrepreneurship in the UK’s primary schools.

The ACCA should be ashamed to be associated with these comments

2008-03-25T08:11:00.000-07:00

The Christian Science Monitor is not my usual read, but I am also well aware that it is noted for good quality reporting. That’s the case in a report published today on the widening probe into tax haven abuse in Europe, which I would recommend to anyone looking for a good summary of the situation.

What really drew the report to my attention though were the comments of Chas Roy-Chowdhury, head of taxation at Britain’s Association of Chartered Certified Accountants, who is reported as saying:

What needs to be made clear is that there is nothing illegal about holding bank accounts in Liechtenstein and wanting secrecy as long as you pay the right amount of tax in your own jurisdiction.

That is, of course technically true. But to offer such a comment is also a way of denying the fact that this is not the way these things almost invariably work. The secrecy is designed to make sure that those with these account do not have to declare them because no-one knows about them. That’s why people place funds in places like Liechtenstein, and not because it offers any real financial advantage. I do not believe Chas Roy-Chowdhury does not know that and as such I think his comment is deliberate obfuscation.

I might have lived with that though if he had not gone on to make further comment:

He says part of the objection is that smaller jurisdictions can afford attractive, low tax rates that result in “capital flight” from bigger countries. “Governments should open themselves up to the wind of global competition and accept that they need to run efficiently to keep tax rates low.”

I am, to be candid, shocked that the ACCA let’s him say such things, for these reasons:

a) This is blatantly political propaganda of a type which no professional body should promote if it is to retain that status;

b) Capital flight, as he should know, is usually illegal and has massive cost on society, especially in the developing countries of the world where the ACCA seeks to recruit much of its membership. By commenting as he does he either endorses the economic instability that tax havens create in the developing world in particular or he shows that he does not understand what capital flight is. Either way the ACCA should be worried that such a man is making comment on their behalf.

c) He should know, but clearly does not, that the ‘low tax rates’ to which he refers cannot be afforded by the smaller jurisdictions to which he refers. For example, a Liechtenstein foundation might be tax free for a non-resident person but is most certainly not for a Liechtenstein resident person. As such he should know that the model he is promoting is not sustainable, or transferable to large jurisdictions unless he is promoting the abolition of taxes on all companies and investment income. If he is then the ACCA has moved onto very dangerous political ground and must justify why it has done so.

d) By discussing tax competition in this way he should realise that he is promoting an assault on democracy itself. It is through the ballot box that tax rates should be set, not through the actions of parasitical principalities. That is the point others in the article make, that the debate is not on tax rates but on secrecy, a point that seems to have escaped him in his desire to promote his political agenda.

e) By diverting attention to this political agenda he seeks to divert attention from the fact that this whole issue is actually a debate about crime, and so long as there is tax there will be tax evasion if there is secrecy that allows it to persist undetected or undetectable. He should have resoundingly condemned tax evasion but did instead seek to apologise for it.

All this says to me that the ACCA has moved far from the mainstream, which might best be represented by this FT editorial comment which Chas Roy-Chowdhury appears to have been unable to endorse:

Helping evasion is distinct from legitimate tax competition. Monaco or Bermuda or Switzerland are fully entitled to set low rates of personal and business tax to attract wealthy individuals and companies to their jurisdiction. What is not acceptable is helping those who live elsewhere to evade the taxes that they owe.

It’s another sad day for the profession.

Disclosure: I am a member of the ACCA’s research committee, in which context I meet Chas Roy-Chowdhury. I am not a member of the ACCA.

Provident Financial: blatantly exploitative

2008-03-25T06:37:00.000-07:00

I noted this advert in the Christian Science Monitor today, aimed at the UK market:

I’ve long hated all Provident Financial stands for in terms of exploitation of the poorest in our community. And here they are, continuing to do so, profiting from the credit squeeze and abusing those must vulnerable to its impact.

It’s a sickening indictment of our financial services industry that this company survives, and a failure of a Labour government that has let it do so when options for change have been presented to it, by me amongst others.

My del.icio.us bookmarks for March 24th

2008-03-25T00:35:00.001-07:00

These are my links for March 24th:

FT.com / World - UK colleges snub short business degrees - Quite right too. These aren’t degrees. This is not the purpose of an education.

Completely untrue

2008-03-24T11:05:00.000-07:00

A partner with Baker & McKenzie Switzerland, who are, I believe, the biggest firm of lawyers in the world has sought to attack Germany’s attempt to break banking secrecy, according to Dow Jones online financial news who say:

Philip Marcovici, a partner in the Zurich office of law firm Baker & McKenzie, said: “This is not an issue involving just Germany and the other offshore centres in Europe. It is a global trend towards greater transparency in the tax affairs of the rich.

“This involves offshore centres across the world such as Singapore, Hong Kong and even Latin American money residing in offshore accounts in the US.”

Marcovici said all parties involved in the dispute should come together to negotiate the issues. “Germany needs to realise that part of the culture of secrecy in offshore centres like Switzerland is to do with historical factors like the second world war that it was responsible for.

“Equally, the banks need to realise that the days of banking secrecy are numbered as globalisation increases the need for transparency.”

Marcovici should get his facts right. The banking secrecy laws in Switzerland pre-date the Nazis and have nothing to do with their influence. That’s just seeking to find excuses for delaying what he recognises is inevitable. He should instead be seeking to reduce the number of days that we have to banking secrecy. That way he might win some credibility. Speaking as he did he wins none.

Tax havens in Florida

2008-03-24T09:21:00.000-07:00

A reminder, for those who want to learn more about tax havens, of the following:

6th OffshoreAlert
Financial Due Diligence Conference
‘The Unexpurgated Offshore’
Sunday - Tuesday, April 13 - 15, 2008, Fort Lauderdale, Florida USA

I’ll be there but from a look at the speaker list am expecting to be a little outnumbered by those with whom I share little common ground.

Hedge fund desparation

2008-03-24T04:08:00.000-07:00

The FT has noted that:

Carrington Capital Management, a $1bn hedge fund specialising in mortgages, is trying to persuade its investors to lend it up to $200m to replace bank loans, in the latest sign of concern about banks pulling credit lines to hedge funds.

Carrington, part-owned by New Century, the failed US subprime lender, has offered investors an 18 per cent interest rate on new preferred shares it plans to issue.

18%? Is anyone that mad?

The cost of hedge funds

2008-03-24T04:07:00.000-07:00

The FT has reported that:

Commodities prices have been falling across the board as hedge funds cut their exposure to one of the most popular asset classes so far this year, suggesting that recent record prices have been buoyed by speculative flows.

Yet more evidence that the real world, real trade and real people are harmed by secretive, offshore hedge funds.

My del.icio.us bookmarks for March 23rd

2008-03-24T00:14:00.000-07:00

These are my links for March 23rd:

Fall in tax payments sends warning to Darling - Times Online - In a downside the governmemt has to break the rules - so let’s stop pretending things are as they were in 2005

Leader: Timid Brown must catch up with reality Comment is free The Observer - Keeping fingers crossed for a soft landing is questionable policy; as ideology, it is bankrupt.

William Keegan: After excess comes fear - and then socialism, at least for the bankers Business The Observer - T The game is up. It is not the end of capitalism; but a particular form of financial capitalism is going outside and may be some time.

Simon Caulkin: Capitalism’s too important to be left to capitalists Business The Observer - If bad rules got us into this mess, better ones - which go with rather than against the grain of humanity, community and the physical realities of the planet - can get us out again.

Will Hutton: If the City won’t put its house in order, politicians must Comment is free The Observer - Today’s lack of political criticism cannot last much longer - there is too much popular and even business demand for change. For the party capable of breaking the deadlock, the payback will be huge.

Outside View: The end of capitalism as we know it? - Business Comment, Business - Independent.co.uk - Yes, is the answer

FT.com / Home UK / UK - Case for investment bonds for higher-rate taxpayers - Th article disguises the real issue - that the 5% withdrawals are not taxable - so are not deemed remittances by the non-doms seeking to have less than Â£2,000 of offshore income. Close the loophole, now!

Micheal Meacher speaking on Tax Justice in the Budget debate

2008-03-23T16:37:00.000-07:00

Michael Meacher MP spoke on tax justice in the budget debate. It’s one of the fullest speeches on the subject in the House of Commons, so I reproduce it in full:

Mr. Meacher: There was one rather odd omission from the Budget. It contained next to nothing about dealing with tax avoidance. That is quite surprising given the difficult state of the public finances-to which the hon. Gentleman rightly drew attention-the Chancellor’s obvious need to close the gap, and the current international campaign led by Germany to tackle the scandal head-on, which I consider very important.

As we know, the hole in public revenues amounts to some £40 billion. That is a large amount, and it is increasing. The Treasury forecasts that the figure will be £7 billion higher than was suggested in the October pre-Budget report. The Chancellor had every incentive to claw back tax avoided and evaded to help balance the books without raising taxes for the rest of the population.

A recent pamphlet produced by the Trades Union Congress and written by the tax accountancy expert Richard Murphy found that tax avoidance and tax planning-by which I mean fabricating plans artificially in order to pay little or no tax, a device employed by very rich individuals-now account for about £13 billion a year, while the same device employed by companies in rather different ways accounts for a further £12 billion a year. There is obviously plenty of scope for much tougher anti-avoidance measures that would benefit everyone else. If such persons can be made to pay their due and proper taxes, others will need to pay less. Moreover, Inland Revenue statistics show that those who are paid more than £100,000 a year, who constitute less than 1 per cent. of the population, now receive £8 billion in tax reliefs and allowances.

Another important factor that could well have propelled the Chancellor towards a Budget assault on tax avoidance, which I think is long overdue, is that the international atmosphere is much more conducive to tougher action that it has been for decades. Germany, as we have read, believes that it is losing nearly £25 billion a year in tax evasion by rich Germans holding anonymous trusts in Monaco and Andorra, in addition to others who, rather curiously, were outed by a whistleblower as having secreted huge sums of money in another tax haven, namely Liechtenstein. Germany is now demanding cross-national action to force countries with banking secrecy to share information. That is a favourable climate for the UK to participate and take the lead.

Since there is considerable evidence that super-rich British people also use these and other tax havens-notably the Cayman Islands-for the same purpose, a crackdown on those avoiding their tax responsibilities could produce big benefits for the UK Treasury and, my goodness, there has never been a time when the UK Treasury needed big benefits as it does now.

Why was that not done in the Budget? I suspect the reason is the stranglehold exerted by the City on the Government-particularly on the Prime Minister, I have to say-who have been persuaded that the financial enclave of the City of London is central to the economic interests of the UK as a whole. I submit that of course it has an important role, which I would not downplay for a moment, but the idea that it is central to the UK economy is quite another proposition.

By bending over backwards to encourage hedge funds and private equity firms through the most egregious tax liberality-I refer to the absurdly low 18 per cent. basic tax rate on income from the carry, or share, of the gains on these massive deals, which is less than half the income tax rate payable by top earners-and as a result of other measures, the Government have in effect turned the UK, or more specifically the City of London, into a gigantic tax haven for the internationally mobile business élite. The problem is that, by sucking talent and capital from other parts of the economy, the remarkable successes over the past 10 years, which I am the first to praise, have been bought at a very high price-I would say too high a price.

As the credit crunch is now exposing, City profits on invisibles cannot and never could compensate for the steady, continuing decline of Britain as a manufacturing nation-and that is the basis of wealth for all industrial countries. The volatility and excesses of the finance sector are outweighed by the 1 million jobs lost in manufacturing over the past decade, the stagnant industrial output, the £7 billion-a-month trade deficit, and the weakness of manufacturing investment and of the so-called knowledge economy-R and D-which is confined to a very few sectors. Those also have to be taken into account. My point is not that the City of London does not have a key role, but that it cannot be allowed to exploit that role at the expense of reducing the capability of Britain as a sustainable industrial base.

Even when other countries have recently made what can only be regarded as a very serious effort to counteract some of these excesses in tax avoidance, the UK has taken a lead in blocking them. The UK has for example regularly refused to allow the deduction of tax from interest payments within the EU, which would hugely restrict the effectiveness of tax havens because the basic rate of tax-presumably about 20 per cent.-would already have been deducted from the income before it reached the tax haven. There can be little doubt that this withholding tax proposal of the EU was stymied in order to preserve the UK as a tax haven, given the City of London links to the overseas protectorates and Crown dependencies.

If I may I shall give just one more example of what I think is an industrial and financial way of life that is not sustainable. Maintaining fiscal independence from Europe may be a populist move-clearly it is in this country-but in reality it enables the international corporations to play the EU and other countries off against each other in constantly bargaining for lower tax rates.

The credit crunch and the approaching downturn, which some people, even today, believe may have very serious consequences, show that a different approach is now necessary. Not only is closer regulation of the financial markets clearly now imperative to prevent future damage to the international economy-the precipitate collapse of Bear Stearns is clearly not the last of it-but the UK in particular can no longer afford either the prohibitive cost of the tax privileges of the City or, just as importantly, the collateral manufacturing damage inflicted on Britain as an industrial nation. [ Interruption. ] Before the hon. Member for Runnymede and Weybridge (Mr. Hammond) gets carried away, let me remind him that Winston Churchill, as Chancellor in 1925, said that he would rather see industry with head held high and finance less proud. He was absolutely right, and that applies just as much now.

In particular we need a fundamental change in the tax culture in this country so that corporations and super-rich individuals no longer regard it as a duty-as we learned from Tesco in the press a few weeks ago-to minimise tax by any artificial devices that can be dreamed up to secure private gain. It is surely, by contrast, a responsibility that they make a fair contribution to the overall public gain of which they are a part.

There are several ways to achieve that. Obviously a key one is to seek to eliminate tax haven abuse. The non-governmental organisation Tax Justice Network calculates that the total assets now held by the wealthiest people in the world in tax havens amounts to a staggering $11.5 trillion, at a potential cost to world Governments in tax forgone of about $255 billion. To put that in context, the money lost to Governments worldwide is more than two and a half times total global aid flows last year.

Mr. Prisk: The right hon. Gentleman is talking about the amounts that high net-worth individuals have, which he says are lost to Government. How would he comment on the contributions of people such as Bill Gates, who give a huge proportion of their income to the very aid that he is trying to support? Governments do not have to do that on their own; individuals can contribute to it.

Mr. Meacher: That is fine. I know that some of the richest people such as Gates, Warren Buffett and, to some extent, Richard Branson have made substantial contributions, which is extraordinarily creditable, but that is not an argument for saying that very wealthy individuals should not pay their full, proper and due tax.

In the UK alone, the tax amnesty for those holding accounts with the offshore branches of some UK high street banks in the main Crown dependencies-I am thinking of Jersey, Guernsey and the Isle of Man-is expected by the Treasury to yield a recovery of about half a billion pounds in tax from just 60,000 people, or 0.1 per cent of the population, who admit to undeclared income in these places. That shows the sheer scale at present, and it is unacceptable.

I am not against amnesties; I understand why we have had one now, and I think it is succeeding. Instead of just having occasional amnesties, however, all UK dependencies and protectorates-particularly the Cayman Islands-should now be required to use the same standards of disclosure and accountability as the UK itself. The UK standard should also be tightened by requiring all UK-registered companies to report annually on all their overseas subsidiaries, including their revenues and how many people are employed. If we were to introduce that transparency, it would dramatically improve the prospect of fair and balanced tax collection, and I intend to table an amendment to the Finance Bill to that effect-if the Government do not do that first. [Interruption.] Yes, I think that that is unlikely, which is why some of us need to assist and nudge an arm or two.

There are several other ways of dealing more effectively with tax avoidance and evasion. We should look at the tax reliefs and allowances that accrue to those earning over £100,000 a year-the richest 1 per cent. of the population. One might ask: what is the justification for enhancing by means of tax reliefs an already enormous salary, when that will mean that others will have to pay more to compensate?

Mr. Love: I agree with many of my right hon. Friend’s points, although I must say that we ought not to set manufacturing and finance in competition with each other; both must flourish within our economy. How does he respond to the classic argument that is made against his case for proper taxation of the wealthy, which is that they are so mobile that they will simply move outside the jurisdiction of the UK authorities?

Mr. Meacher: I shall come on to that. [Interruption.] I know that many Members say that when they might not intend to do so, but I do intend to-in the brief time that I have left.

I was talking about how we might deal with offshoring, and I also wish to talk about the domicile rule. Frankly, it is indefensible. If it were abolished, that would recoup more than £4 billion in lost taxation. Abolition might not be the answer, but there should certainly be a considerable reduction in its application. As for so-called capital gains on all assets held for less than a year, they are clearly not capital gains but a form of income, and they should be treated as such and be subject to income tax. That would save about half a billion pounds in otherwise lost tax. Also, the tax authorities should make it absolutely clear that they are deadly serious. The UK should co-operate with other countries, particularly in Europe, to ensure that tax is paid where the taxable economic activity occurred. That would largely stop misallocation of profit to tax havens.

More complex tax avoidance should be tackled by enshrining in law the general principle that wherever an otherwise commercial transaction is added to any arrangement the sole or main purpose of which is to reduce tax liability, Her Majesty’s Revenue and Customs should disregard the artificial addition and tax the transaction accordingly. Counter-productively, HMRC is being run down by 25 per cent. in the five years to 2010. In order that corporations and super-rich individuals understand that tax avoidance does not pay, it should instead be built up substantially, as the Treasury calculates that each member of HMRC staff recovers 96 times their full cost of employment.

Artificial tax avoidance and tax evasion are a cancer on the body politic. Economically, this is the best time for decades to launch a systematic campaign to eradicate that, and I look to the Treasury to set it in place.

My del.icio.us bookmarks for March 21st

2008-03-22T08:39:00.000-07:00

These are my links for March 21st:

Comment is free: Money from thin air - James Robertson argues the case, convincingly

BIG TROUBLE ON TREASURE ISLAND

2008-03-21T08:35:00.000-07:00

It was good to celebrate my 50th birthday this morning reading an excellent article in the Guardian with the above title. As the sub-title said:

Jersey’s status as a tax haven has made it one of the richest places on Earth. But there is a widening gulf between the millionaires of the financial sector and locals struggling with low wages and rising prices. As Jon Henley reports, the backlash is growing.

It’s a privilege to help those fighting this injustice.

The awareness of the criminality of Jersey and its ilk is also growing. As The Times reports today:

Britain should tighten controls on the gambling industry and monitor the activities of wealthy foreigners to combat money laundering, according to a report by the US State Department. The annual International Narcotics Control Strategy Report identified Britain as “a jurisdiction of primary concern” and said that despite improved anti-money-laundering laws and regulations, at least £15 billion of criminal profits is processed through Britain each year.

According to the US, Britain is a favourite place for money launderers, alongside Afghanistan, the Cayman Islands, Cyprus, Liechtenstein, Pakistan and the United Arab Emirates.

The report also names Guernsey, Jersey and the Isle of Man as money-laundering destinations.

They are.

Who are the Taxpayer’s Alliance?

2008-03-17T08:02:00.000-07:00

The Guardian carried an article under this title this morning. The question is a good one. Especially as they are specifically contrasted with the Tax Justice Network, to whom I am an adviser.

The answer is raised in a media context: how do they get so much publicity. They claim the answer is:

“We are always available 24 hours a day,” says [chief executive] Elliott. “We put the work in so we get good coverage.”

Actually, I don’t buy that. Lot’s of people are available 24 hours a day and don’t get as much coverage. TJN, for start, even though we (unlike the TPA) actually try to provide considered analysis and real research on stories.

The reason why the TPA get coverage is much easier to explain. Take chairman Andrew Allum’s profile for a start. As he says:

He left the [Conservative] party in 2003, having lost faith that it represented his brand of free market, individualist and compassionate politics.

Put it another way: he moved further Right than the right wing of the Tories. He moved out of the political mainstream and into the Neo-Con, libertarian hinterlands. He gave up analysis at that time. He took up government bashing (by which I mean, all government, not just the government of the moment) and that covered his anti-tax agenda (I mean all tax, not particular tax).

And we have a media that supports this view; laps it up and feeds it as objective comment to the British public. Just look at the Sunday Times budget supplement yesterday, which featured on ’stealth taxes’ and actually quoted a women claiming she was questioning the value of her £16,000 a year job because she was going to suffer a £27 tax increase this coming year.

This is crass reporting. The story is complete rubbish. She simply won’t notice the difference. Her family as a whole will be £88 a year worse off (but I note increases in child allowance weren’t taken into account, so that probably overstates the case) but the media wanted to find an anti-tax story. The Tax Payer’s Alliance pedals them this sort of nonsensical yarn knowing that no-one will ever act on what they say. Which is precisely why the Tories said yesterday that there were no grounds for cutting taxes.

Unlike the TPA, the TJN works in the real world. We talk to real politicians, from the Conservatives, Lib Dems and across the Labour perspective. We do not deal outside the limits of credibility. But facing real issues makes it so much harder to get coverage.

But I’ll trade fewer press reports for credibility any day, and there is no one of any credibility in government or opposition in our parliament who takes the TPA seriously. Thankfully.

About Us

2001-01-01T08:28:00.000-08:00

Firstly, this website is not run by the UK's foremost expert on tax and corporate accountability, Richard Murphy.

This site is an accurate and faithful re-creation of Richard Murphy's wildly successful Tax Research UK blog with only one twist, comments are allowed. Note, that does not mean that comments are not moderated. It does mean that a lively discussion of ideas is allowed on this site, unlike other sites with similar content.

Personal vitriol will be edited/deleted. Further note, outside of this singular post all content on this website is culled from the original. Previous writings from the Tax Research UK blog will be back-filled as time warrants.