Tuesday, 3 February 2009

Panarama and Tax Havens

Nowhere to hide for tax havens? says Panorama.

Her Majesty's government is broke - a record £44bn in the red - and yet one estimate is that the taxman loses £18.5bn a year thanks to tax haven abuse. In the past, the political will in Westminster to move against British protectorates such as the Bounty Bar island tax haven of the Caymans in the Caribbean and the fish-and-chip tax havens closer to home like Jersey, Guernsey and the Isle of Man, has been feeble. But now that may be changing thanks to tough pressure from the new man in the White House and a drip-drip of revelations from tax havens, both independent and British-protected, that undermine bland assurances that everything "off-shore" is good for everybody "on-shore".

Never mind, there is always the good old USA to stash away foreign funds, and as long as the US Tax authorities are happy it is not American taxes that are being evaded, they could not care less, because it brings money into the USA.

On June 23, 2008, Brazil's Congress published Law 11,727/2008, which, effective as of January 1, 2009, will amend Brazil's transfer pricing regulations and expand the legal definition of tax havens. The surprising news in all of this is that it is widely believed that these changes were made specifically so that the exotic state of Delaware could be designated as a tax haven, or at least a jurisdiction with the characteristics of one. Yes, you read that right - Delaware - the second-smallest state in the United States. The state which elected Joe Biden, Barrack Obama's vice presidential running mate, as a United States Senator, may be designated by Brazil as a fiscal paradise, just like the Cayman Islands, Panama, the British Virgin Islands and Bermuda.

Richard Murphy was going on BBC Radio Jersey this morning about "secrecy jurisdictions" as a better term than tax havens, which is exactly the position adopted by Brazil in its attack on the USA States of Delaware. Indeed, Mr Murphy does think on his blog that Delaware should "clean up its act", but what I'd really like to see is a stinging attack in one of his presentations to the US authorities, or in a US paper like the Washington Post. Instead, he seems to sing Obama's praises for a crack down on tax havens, whereas Delaware may well be losing Brazil lots of tax revenue. Perhaps he thinks they won't listen to him so much if he attacked them too! In a blog entry on the Stop Tax Haven Abuse Act, he quotes the following:

"This is a basic issue of fairness and integrity," Obama said when the bill was introduced. "We need to crack down on individuals and businesses that abuse our tax laws so that those who work hard and play by the rules aren't disadvantaged." Levin added that: "In effect, tax havens sell secrecy to attract clients to their shores. They peddle secrecy the way other countries advertise high quality services. That secrecy is used to cloak tax evasion and other misconduct, and it is that offshore secrecy that is targeted in our bill."

Notice, however, how this says "our tax laws", and "offshore secrecy". That "our" is very significant. If you are live outside the USA, they really couldn't care less - notice how they haven't signed up to Data Protection Laws, or the International Court of Justice in the Hague. It is USA residents they want to catch, and if they profit from outsiders, well and good. Now back to the Brazil Law:

Law 11,727/2008 broadens this definition to include jurisdictions which don't permit access to information about a legal entity's shareholders, members or partners, how much equity they own, or the identity of its nonresident beneficial owners. Basically, if a jurisdiction doesn't require and permit access to a registry of the shareholder, members and partners of legal entities located there, then such jurisdiction may be designated as a jurisdiction with favored taxation or a tax haven.

Well, as it turns out Delaware is such a jurisdiction. For instance, when you create a limited liability company or LLC in Delaware you are not required to list the equity participants, called members, in the document you file with the state to form the LLC. Nor are you required to file, register or disclose the LLC Agreement in which the members and their equity participation in the LLC are designated. So, unless the members of the LLC decide to disclose this information, or a governmental agency such as the IRS or the Securities Exchange Commission decides to cause or require the LLC or its members to disclose it, you can't access it.

Panorama also failed to mention Luxembourg, Austria and Belgium - part of the EU - where under the current EU savings tax regime Luxembourg, Belgium and Austria were allowed to keep their bank secrecy rules by adopting a version of the law that is different from the rest of the bloc. Clearly by the Richard Murphy guidelines, they are tax havens too. Germany has a Tax Information Exchange Agreement (TIEA) with Jersey. It does not have one with Luxembourg, Austria and Belgium

Attac France does see this, however, and in 2001, said that "it is now time to denounce the role played by Luxembourg in the laundering of dirty money." That was in 2001. There is an attempt now to remove that secrecy, but it requires the approval of all 27 member states - including Luxembourg, Austria and Belgium. Don't hold your breath - going for other jurisdictions, especially easy targets outside the cosy EU club is fine, but Luxembourg has already stated it sees no reason to change its rules.

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