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

 

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?

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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

Eye on TNJ

Some interesting remarks recently on his blog (http://taxjustice.blogspot.com/).

"It is quite astonishing that the word 'corruption' occurs only once in this 13,000-word survey of tax havens. Tax haven activities promote cross-border crime and corruption. Corruption has a demand side (money-launderers, tax evaders, kleptocrats, fraudsters, and their like); and a supply side: those who provide secrecy and sell the services that exploit it. The general strategy for fighting drug abuse by tackling both users and suppliers is equally applicable to the global struggle against corruption. While The Economist survey stops short of actively encouraging criminal activity, it does so indirectly, by actively advocating tax haven activities. In doing this, The Economist is indirectly encouraging cross-border crime, and corruption on a global scale."

Private Eye did a good expose of how Tesco used a tax vehicle to reduce tax in the U.K. until Gordon Brown got wise to that (in the course of a year) and then closed the loophole off. There were facts, figures, dates, companies involved etc.

It would be nice to see that kind of attention to detail in the TNJ's blog, rather than rhetorical flourishes. Case studies please?