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.
 
Links:
http://www.france.attac.org/spip.php?article2976

http://www.taxationweb.co.uk/expert-eye/general/so-which-tax-haven-should-you-use/print.html

http://www.taxresearch.org.uk/Blog/2008/11/13/ireland-feels-the-obama-heat/

http://taxjustice.blogspot.com/2008/11/obama-and-stop-tax-haven-abuse-act.html

 

Europe's tax dodgers in the dock

http://archive.timesonline.co.uk/tol/archive/

The Times December 7, 1973
Europe's tax dodgers in the dock by Oliver Stanley

Just a note that this excellent research is available and free for a limited time, so if you want to research any Times story, look here.

I select for the readers' interest this story, which I place a selected snippet of here to whet the appetite. For copyright reasons, if you want the full details, you must register (which is free, and you don't need credit card details). Then go to:

http://www.timesonline.co.uk/tol/emailArticleViewer.arc?articleId=ARCHIVE-The_Times-1973-12-07-25-004,ARCHIVE-The_Times-1973-12-07-25

Now, the outlook for all international tax havens has become uncertain, and prospects for United Kingdom tax haven investors, individual and corporate, are bleak. It is per- haps fair to say that the end of the tax-free world is at hand. It is not the moral wrath of the political left that tax avoiders need fear, but a more powerful adversary---the EEC, which, earlier this year, issued a first report recommending joint Community action against tax avoidance and all tax haven countries both in and out of the Community. Since that report, the EEC has come down in favour of the imputation system of corporation tax, as against the old classical system, one reason being that imputation will help discourage the setting up of fictitious tax avoidance corporations. The EEC report and inter national reactions to it served as a useful peg on which to hang the worldwide Associated Business Programmes conference in Amsterdam during November. Herr Gert Sass, the German head of the tax harmonization division of the EEC, opened the proceedings in the role of leading counsel for the prosecution. The substance of his case was that "letter-box" companies- that is, artificial holding companies set up in tax-free zones-distort capital markets. Then, the prisoners in the dock (from Switzerland, Luxembourg and Jersey) all earnestly pleaded their innocence. Not a single one of these countries should be regarded as a tax haven, and they should never have been charged with the offence, said their advocates. Mr Colin Powell, Economic: Adviser to the States of Jersey, went so far as to concede that Jersey was "a low tax area", but it was not a haven. It was, above all, respectable. In the face of all this special pleading, it was difficult for the distinguished international lawyers and accountants present to reach any verdict, other than "not proven ".

I remember back in the 1970s, the days of the "Sark Lark", and also in Jersey - where a plate with a company name would be accompanied by "nominee directors" of the company, who were not the ultimate beneficial owners. Even up to 1998, the Edwards report commissioned by Jack Straw noted that total Directorships held by Sark residents (pop 575) may have been around 15,000 or more, and 3 residents appeared to hold between 1600 and 3000 Directorships each.

Changes in Jersey Company Law (following recommendations by Edwards) sealed the fate of that by making directors legally responsible for the company and decisions and activities, and tying control down to location more strictly, and I remember noting that the practice vanished with rapidity. I am sure that was the correct and responsible thing for Jersey to do.

One question arises though: would the Island authorities been motivated to change the law internally? Would it be good practice for them to take the initiative in every five years (for example) seeking an independent assessment of practices which might, in hindsight, be regarded as morally bankrupt?

After all, as Edwards noted "Although formally Directors, some of these nominee Directors are Directors of so many companies that they could not credibly discharge the proper duties of a Director with respect to all of them, especially in cases where they have no professional or technical support. "

It is interesting to note how the European Union - then the EEC was making moves towards greater transparency and harmonisation. Personally, I think the idea of harmonisation is one of those ideas which - like a single European currency - may be fine in principle, but does not work well in practice. VAT rates and tax regimes differ across Europe, and as these are geared to the spending patterns and finances of national economies. The European central bank is at the moment fudging the issue on countries which stray outside of its initial (supposed) strict limits on borrowing and deficits.

The 1973 article goes on to comment with almost prophetic insight that:

The only conclusion was that the attitudes of governments towards tax havens will vary according to the economic interest of a country and its sense of competitiveness with other countries. That seemed incontestable. It is the principle of fair economic competition which has moved the EEC towards a tax haven clampdown In particular, it is the use of letter-box companies in Luxembourg and Gibraltar, where preferential tax treatments are offered, which the EEC considers an abuse.

That is why, the report continues, the Community would need to take action against all tax haven countries. On the other hand, the Amsterdam conference was told that life in the EEC moves slowly, and anyway there are undoubtedly problems of classification which will impede progress.

It then moves to the crux of the matter. What is a "tax haven"?

Tax havens are notoriously difficult to define. Like mirages, they tend to move farther away as you approach. Even tax avoidance is a confusing concept. Clearly it does not mean "evasion," breaking the law by fraud or default. On the other hand it is not entirely innocent, and the infamous judicial dictum to the effect that everyone is free to prevent the depletion of his wealth by the Revenue has become dated and is no longer (pace Mr Colin Powell) accepted by the courts in Britain.

The current EEC view seems, not surprisingly, close to a French concept, that tax avoidance is "un abus de droit", an abuse of rights, and in its more flagrant forms should be treated as evasion. Just where the dividing line is to be drawn is not clear and varies from case to case. Of course, there are perfectly innocent types of tax avoidance such as giving up beer and cigarettes; it is principally a question of motive. If tax avoidance is the sole aim of a specific financial structure, or transaction; then that is abusive. If there is a bona fide commercial purpose, then any incidental tax mitigation achieved is excusable. As it happens, this test is the one used in the principal piece of United Kingdom anti-tax avoidance law-Section 478, dating from 1936. To that extent we are for once already in step.


Jersey is clearly making headway. For a start, looking back at the situation in 1973, the brass plate companies are gone. Then there are already two Tax Information Exchange Agreements (TIEA), one with the United States, and a large number of others in the pipeline. Despite some critics of Jersey (such as Richard Murphy) saying that this changes nothing, you have only to look at the people who stash money in tax havens just because they are havens. Those people, such as the pundits at the Sovereign Society (and many others, for example Barber Financial Associates), are sounding a very different note. They say that:

"However, I can confirm that the "Tax Information Exchange Agreement" (TIEA) between the United States and Guernsey authorizes the IRS to accompany Guernsey tax officials in tax examinations (Article 6(2)). (The U.S.-Jersey TIEA has similar provisions.) And while wholesale electronic surveillance of offshore services providers may not be occurring, a local court may authorize surveillance against any target. "

This is an important reason why The Sovereign Society recommends offshore jurisdictions that impose strict controls on the disclosure of financial (or other) information to foreign authorities. In Austria, for instance, there's no Tax Information Exchange Agreement in effect. If the IRS wants to learn about your Austrian bank account, IRS agents can't simply accompany an Austrian tax inspector to the bank, and surreptitiously examine the records. Instead, IRS agents must present evidence a crime has been committed, with that evidence confirmed by Austrian officials. Similar laws are in effect in Switzerland, Liechtenstein and Panama.

The website "Escape Artist" - again for investors wishing for the old fashioned "tax haven", notes that:

If you read the press releases from the offshore jurisdictions that signed TIEAs, you'll come away believing that they may be invoked only in the event of probable cause of tax fraud by a particular taxpayer. But that's not what most of the treaties actually say. Instead, most TIEAs state that any information "foreseeably relevant or material to United States federal tax administration and enforcement with respect to the person identified" for investigation must be turned over to the IRS.

Not "probable cause" of a criminal or even civil tax offense. Not even "reasonable suspicion." Merely "foreseeably relevant." U.S. courts have interpreted this authority as permitting TIEA information requests "even if the United States has no tax interest and no claim for U.S. taxes are potentially due and owing." In other words, fishing expeditions into offshore accounts are explicitly permitted.

Now that you know about TIEAs, you'll understand why The Sovereign Society generally recommends jurisdictions that haven't signed such agreements, e.g., Austria, Liechtenstein and Panama. (Switzerland has consented to a TIEA-like addition to the U.S.-Swiss tax treaty, but its terms are far more restrictive than typical TIEAs.) While pressure continues on these countries, and others, such as the United Arab Emirates, to ratify TIEAs, these jurisdictions have the diplomatic and financial clout to avoid being intimidated by the U.S.

Jersey is about to establish a Tax Information Exchange Agreement with Finland, Sweden, Norway, Denmark, the Faroe Islands, Greenland and Iceland. The OEDC has commented on these agreements, saying

"The trend towards greater transparency and tax cooperation continues as more and more countries and jurisdictions implement the OECD standards."

"Recent events have put international tax evasion in the spotlight, demonstrating the pressing need for action to tackle tax compliance issues in an increasingly borderless world. These agreements will better equip their signatories to address all forms of tax abuses."

---

Links

http://www.gov.je/TreasuryResources/IncomeTax/TIEA/


http://www.archive.official-documents.co.uk/document/cm41/4109/a-chap11.htm
http://www.archive.official-documents.co.uk/document/cm41/4109/4109.htm

http://www.escapeartist.com/OREQ21/Asset_Protection.html
http://www.sovereignsociety.com/FAQs/tabid/3604/Default.aspx

http://www.economist.com/finance/displaystory.cfm?story_id=11487440

http://www.escapeartist.com/OREQ21/Asset_Protection.html
http://www.manxradio.com/readNEwsItem.aspx?id=21472

http://www.tax-news.com/asp/story/OECD_Welcomes_Tax_Information_Exchange_Agreements_xxxx30826.html

Stuart Syvret

Reading this (belows), a few notes:

1. As the JDA turned into a political farce in the last election - a breakaway Centre Party showing they couldn't hold it together, a drunk Geoff Southern on Election night doing a George Brown impersonation (old Labour, for those who remember), who needs friends like those? Jersey has a long tradition of independent candidates, and that Syvret did not jump on the party bandwagon (like Paul Le Claire, who has learned better) is in his favour.

2. I think that Attac and Richard Murphy sometimes say important things, but that doesn't mean I would want to agree with them all the time, or indeed much of the time. But it is useful to ask them what their arguments would be, even if one doesn't agree with them. I don;t particularly think Richard Dawkin's arguments (or rhetoric) is that good, but I am reading his latest book for myself and some of his arguments have merit and are worth stating. I think Syvret may have given misleading overtures to them, especially when he was feeling depressed, but to mention them as an argument is totally without merit. I think that anyone who resorts to ad hominem arguments based on an interpretation of emails (which are not cited) is not the kind of person I would care for on my side.

---

http://www.isthisjersey.com/news.php

Should he stay or should he go? The Stuart and Frank or Punch and Judy Show.

by Niccolo M

We have been here before with calls for the resignation of Senator Syvret. Undoubtedly there won't be a resignation, as Syvret loves the lime light and will savour the martyrdom of a vote of no confidence.

In the past what saved Syvret was public support. That may still be there to a degree, but one certain thing is that he has lost all his friends on the political left. Having failed to give any support to the JDA in the 2005 elections, for denouncing ATTAC and having fallen out with his adviser Richard Murphy and best friend John Christensen, there really is no one to help this organise his defence against the big bad wolf. This time there will be no demonstrations outside Cyril Le Marquand House or the States Building. The lesson is that you can't expect to dish your friends and then expect them to help you when you need them.

Sit back. Enjoy the hanging.

Tax thralldom network

Interesting article in Washington Post (see below). TJN is very strong on being against "tax competition", but they seem to be remarkably silent on tariff reform (e.g. CAP etc) all of which have a huge squeeze effect on 3rd World economies. Evidently it is ok to have "protectionist" policies when it comes to internal markets in goods, and deny African nations a fair market. Is that justice?

---

Tax thralldom network

18. marts 2007 Af Richard Rahn, Honorary Fellow & Director general of the Center for Global Economic Growth, a project of FreedomWorks Foundation.

This is a story about an international organization -- The Tax Justice Network (TJN) -- that advocates higher taxes, yet flies under the false label of "tax justice." Its odd concept of tax justice includes: Increasing taxes on savings and productive investment, which will destroy jobs and economic opportunity. Demanding that more efficient and less corrupt governments increase their taxes to the level of some of the less efficient and more corrupt governments. Not allowing people who live under high tax, corrupt and incompetent governments to move their assets to low tax, uncorrupt jurisdictions that will protect them. Insisting that people pay taxes on illusory gains caused by government induced inflation. And, demanding that people who work longer and harder pay not just more taxes, but also higher tax rates than the lazy and less competent. One of the TJN's best-known leaders, Richard Murphy of Britain, recently chided an official of the Isle of Jersey (a low-tax jurisdiction) for refusing his offer of a debate. Whereupon, Dan Mitchell, a senior fellow at the Heritage Foundation and a highly regarded tax economist, challenged Mr. Murphy to a debate. Mr. Murphy initially agreed, but demanded Mr. Mitchell debate in London or Jersey (Isle of), and pay all of the expenses for the debate, including Mr. Murphy's. Mr. Mitchell agreed, and then Mr. Murphy reneged -- with the laughable excuse that Mr. Mitchell had not provided him with private financial information about thousands of Heritage Foundation donors (information Mr. Mitchell did not have or, if he did, ethically could not disclose). Mr. Murphy and his "Network" colleagues are funded by labor unions, Fabian socialist sympathizers and activists and indirectly by unaccountable international organizations that directly benefit from big governments with high tax policies yet oppose personal privacy of private citizens. Clearly, Mr. Murphy was afraid (and I think rightly so) that Mr. Mitchell would expose the fallacies and hypocrisies that are TJN's stock in trade. The U.S. branch of the Tax Justice Network, "Citizens for Tax Justice" (CTJ), was founded by and has been funded by big labor. (Polls show most union members favor lower taxes, yet their dues are spent involuntarily by the labor bosses to fund an organization that promotes tax increases.) CTJ works closely with the Democratic Party, and according to its own Web site, which scores members of Congress based on who is in favor of tax increases, gives most Republicans an "F" and most Democrats an "A." CTJ vigorously opposed both the Reagan and Bush tax rate reductions, which in each case turned out to be the economic locomotives for record-setting generation of high-paying jobs. The officials at TJN claim they are trying to help the world's poor, but in fact their high-tax, big government spending agenda has been demonstrated time and time again to do just the opposite. Despite their language of compassion, they are really about shifting money and power from the productive private sector to government and international organization bureaucrats. Their rhetoric is designed to appeal to economic illiterates. For instance, they want higher taxes on corporations, assuming their target audience is too dumb to understand a corporation is only a legal form of business. These higher corporate taxes would be paid by customers in higher prices, stockholders in lower returns, and workers in fewer and lower-paid jobs. So much for compassion. TJN and CTJ support higher capital-gains taxes, yet in many cases the so-called gain is nothing more than a reflection of inflation caused by excessive money creation by government. Taxing people on gains due to inflation is nothing more than fraud even though it is committed by government, yet somehow TJN considers this "just." The TJN uses time-worn socialist rhetoric, such as saying it is "opposed" to "individualism" and "profit-motivated professionals." Finally, TJN and CTJ strongly oppose tax competition between countries and between the states within the U.S. Many Nobel Prize-winning economists, such as Milton Friedman, Gary Becker, James Buchanan and Vernon Smith, have spoken and written of the importance of tax competition for economic growth and opportunity, human liberty, and civil society. Without tax competition, governments would abuse their power to tax and spend even more than they do now. Tax competition pressures governments to manage their financial affairs more responsibly, and leads to less government waste and mismanagement. It is a fundamental human right for people to be able to flee, both physically and financially, oppressive high-tax regimes. TJN seeks to deny people that basic human right in the name of "justice." Published January 15, 2007 in Washington Times