tax havens

New tax penalties – but will they work?

Published by Anonymous (not verified) on Fri, 17/11/2017 - 9:11pm in

As the Chartered Institute of Tax has noted this morning:

The Chartered Institute of Taxation (CIOT) has highlighted that two significant new penalties for tax non-compliance have come into effect following Royal Assent to Finance (No. 2) Act 2017.

The first of these is a substantial penalty for ‘enablers of defeated tax avoidance’ which comes into effect in relation to enabling actions carried out on or after the date of Royal Assent and tax arrangements entered into on or after that date.

The second is a penalty for ‘failing to correct relevant offshore tax non-compliance’ which applies to failures to correct inaccuracies and omissions existing at the end of the tax year 2016/17 within the period from 6 April 2017 to 30 September 2018.

I do, of course, welcome any measure targeting tax abuse, and the professional people who facilitate it. Of these two I happen to think the second regime may well be useful, precisely because it removes the defence that proper advice had been taken, which has let far too many off the hook of tax liability in the past. I suspect there will be some anxiety about getting some past misdemeanours corrected as a result of that one. It’s the first penalty that concerns me a lot more.

That legislation is fundamentally flawed. What it does is impose penalties on anyone involved in a scheme to which the UK General Anti-Abuse Rule, introduced in 2013, applies. It does not apply to tax avoidance schemes notified under the Disclosure of Tax Avoidance Scheme rules of 2004. And it most certainly does not apply to anything widely thought to be avoidance, such as the practices of Google, Amazon and Apple. As a result this law is entirely toothless. So far the General Anti-Abuse Rule has been used once in four years. And that is not by accident, but by design. HMRC always wanted a GAAR they would not have to use because they knew that if they used it too often it may be challenged in the Courts and its absurd tests (that an arrangements entered into “cannot reasonably be regarded as a reasonable course of action”) might prove to be of no legal worth.

That’s why it’s not being used by HMRC. Or rather, it is that and the fact that a panel drawn from the tax profession has also to give its consent to HMRC using it before it can be used to challenge a taxpayer – a case of putting the fox in charge of the hen house if ever there was one.

But the result is that this new law is also utterly toothless because the pre-condition of it being used is never going to exist. To put it another way, this law is knowingly useless and yet is being promoted as a solution to this problem when all in the tax abuse profession know it cannot work – as do HMRC and HM Treasury.

So it has to be asked why a law has been proposed to tax scams that is itself a scam? Is this deliberate? Is it incompetence? Or is it the government actually showing it is  in hock to the tax abuse profession,  onshore and offshore, who create these things?

We need to know because right now the government is misleading the public, who are rightly concerned about tax abuse, into thinking action is going to be taken when that is likely to never be the case. I’d suggest the government is avoiding the issue of tax avoidance – and that is wholly unacceptable.

The Big 4 are at the heart of tax haven abuse

Published by Anonymous (not verified) on Wed, 15/11/2017 - 6:32pm in

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This blog was posted by the Tax Justice Network yesterday. Because I think it important I am sharing it here, with permission:

As scandals emerge from the Paradise Papers, the Big Four accountancy firms seem to have managed to stay largely out of the spotlight once again. But research released today shows that scrutiny of their practices is justified in the public interest. The new study is authored by Dr Chris Jones and Dr Yama Temouri of Aston Business School and the Tax Justice Network’s chief executive, Alex Cobham. You can find the abstract and details for access here, but here’s a summary of the findings:

Leading estimates show that profit shifting by multinational companies is responsible for tax revenue losses globally of $500 billion or more each year. Various document leaks, including the Paradise Papers and earlier LuxLeaks, have shown anecdotally the central role of the ‘big four’ accounting firms – Deloitte, EY, KPMG and PwC. Now our research published today in a top tier, peer-reviewed academic journal shows the systematic nature of the Big Four’s role.

We find that multinationals that use a Big Four audit firm to audit their accounts make significantly greater use of tax havens compared to a set of firms who choose not to use the Big Four. Hence, we demonstrate a strong correlation between Big Four use and tax avoidance but also, and importantly, we offer evidence of causality. It would appear that those multinationals that take on a Big Four firm become more tax aggressive. 

Our research shows that rather than leading the way in ensuring the public accountability and transparency of their clients, the big four are key players in the promotion of financial secrecy and complexity that underpins the massive revenue losses globally from profit shifting. Those losses in turn impose enormous social costs through cuts in public spending.

The study was authored by Dr Chris Jones and Dr Yama Temouri of Aston Business School – which is in the top 1% of business schools worldwide with triple accreditation from AMBA, AACSB and EQUIS – and the Tax Justice Network’s chief executive, Alex Cobham.

On the publication of the new research Dr Jones said: “This study clearly demonstrates how the Big Four have become key enablers of the systematic use of tax havens and tax avoidance by multinational firms.”

Alex Cobham said:

The Big Four on a global scale appear to help MNEs to escape the regulatory limits and controls of specific nation states – which runs completely counter to their global licence to audit firms and ensure their accountability. It’s quite possible that the Big Four have a hand in the majority of the $500 billion of annual, revenue losses due to multinational profit shifting worldwide. It’s high time that policymakers consider global coordination to limit the damage the big four are imposing – and to re-evaluate urgently the enormous policy influence that they allow the Big Four to have.”

Dr Temouri said

An additional worrying feature of our study is the weakness of the Orbis database of company balance sheets – the leading data source for most studies of multinationals’ tax behaviour. The systematic weakness of data coverage for tax haven subsidiaries means that all these studies risk understating the degree of profit shifting – and similarly our results here are likely to be biased in a conservative direction.”. If multinationals are forced by legislators to publish their accounts on a country by county basis, and if this reporting is made public, then it will enable researchers to shed more light on the degree of tax haven use by multinational firms.”

Notes

1.      The Tax Justice Network is an independent international network launched in 2003. We are dedicated to high-level research, analysis and advocacy in the area of international tax and the international aspects of financial regulation. We map, analyse and explain the role of tax and the harmful impacts of tax evasion, tax avoidance, tax competition and tax havens. The world of offshore tax havens is a particular focus of our work. Our core goals are to create understanding and debate and to promote reform, especially in poorer countries. We are not aligned to any political party.

2.      Founded in 1895 and a University since 1966, Aston is a long established research-led university known for its world-class teaching quality, and strong links to business and the professions. Dr Chris Jones is a reader, and Dr Yama Temouri a senior lecturer, in the Economics, Finance & Entrepreneurship Department of Aston Business School 

3.      This research has been presented at the UK-AIB (Association of International Business) Chapter conference, Birkbeck 2016; the annual world AIB conference in New Orleans in 2016; the Academy of Management (AoM) annual conference in Anaheim in 2016; and the Tax Justice Network’s annual research conference in 2016. The 2018 annual conference will be held in Lima, Peru, in June. Registration and the call for papers will open shortly.

4.      Estimates of the global scale of multinationals’ profit shifting, and the resulting losses, are summarisedhere.

5.      The Journal of World Business (JWB) is a premier journal in the field of international business with a history dating to 1965 with the founding of the Columbia Journal of World Business. JWB publishes cutting-edge research that reflects important developments in the global business environment and advances new theoretical directions and ways of thinking about global phenomena:https://www.journals.elsevier.com/journal-of-world-business/

Cartoon of the day

Published by Anonymous (not verified) on Sat, 11/11/2017 - 12:00am in

Booming-Market_1024

Special mention

202488

Tagged: cartoon, commodities, life, profits, tax havens, time

‘What about the workers?’ is no defence for tax havens

Published by Anonymous (not verified) on Fri, 10/11/2017 - 8:44pm in

There is an article on the Conversation website this morning where Pete Hodson (who I guess comes from the Isle of Man) argues:

As in the 1970s, Manx economic and social prosperity is again reliant on one, troublingly fickle, economic sector. This time, it is asset management and offshore investment, rather than deck chairs and ice cream. Severing tax avoidance loopholes must, therefore, proceed gradually so as to protect the Isle of Man from a capital flight cliff-edge. The outcome would be a 1970s scenario of unemployment, emigration and social deprivation.

International wealth flows like water, settling in the jurisdiction where the tax regimes are most advantageous. A knee-jerk clampdown would spook investors and inflict severe economic damage on British Crown Dependencies – most of which lack alternative income streams. We need to instil a moral conscience among the super rich and demonstrate that their taxed wealth provides societal good. Their money – be it offshore, onshore, or in outer space – should be subject to the same tax regime as the rest of us.

Moral pressure and gradual legislative reform can achieve this. But don’t proceed in a way which could strip the Manx working class of their livelihoods overnight and for the second time in living memory.

I do not buy this argument. It’s akin to saying let’s not end the drug trade because some workers may not make a living any more. Or to saying that any technical innovation must be barred for the same reason. To provide another contrast, it’s like saying we should have carried on burning coal to save the jobs of mineworkers whatever the environmental consequence.

I accept that there are real issues for those who live on small islands. That’s why the UK was so keen to foster tax havens in the first place. That was the wrong decision. So would their perpetuation be now. There is a need to prepare alternative economic plans for these places, and I have offered ideas on this issue. But keeping them as tax havens at enormous destructive cost to the greater economy is not one of the options now available, even if inevitable social disruption follows.

Where has all the surplus gone?

Published by Anonymous (not verified) on Fri, 10/11/2017 - 1:00am in

profits abroad

Thanks to the release of the so-called Paradise Papers, and the additional research conducted by Gabriel Zucman, Thomas Tørsløv, and Ludvig Wier, we know that a large share of the surplus captured by corporations is artificially shifted to tax havens all over the world. This, of course, is on top of the conspicuous tax evasion practiced by the individual holders of a large portion of the world’s wealth.

Thus, for example, U.S. multinational corporations now claim to generate 63 percent of all their foreign profits in six tax havens, the most prominent being the Netherlands, Bermuda and the Caribbean, and Ireland. This is 20 points more than in 2006.*

What this means is that, in the tax havens themselves, low tax rates can generate large tax revenues relative to the size of the economies. But it also means large multinational corporations can play off one tax have against others, and shift their profits to those with the most generous laws and regulations—as Apple has recently done, by relocating tens of billions of dollars from Ireland to the small island of Jersey (which typically does not tax corporate income and is largely exempt from European Union tax regulations).

tax loss

It also means that the putative home countries of the multinational corporations lose potential tax revenues, which means a larger tax burden is imposed on others, especially individuals and small businesses.

In the case of the United States, Zucman and his colleagues estimate that the United States loses almost 60 billion euros to tax havens (about three quarters from European Union tax havens and the rest from tax havens elsewhere), which amounts to about 25 percent of the corporate tax revenue it currently collects.

As Zucman explains,

Tax havens are a key driver of global inequality, because the main beneficiaries are the shareholders of the companies that use them to dodge taxes.

Clearly, the existing rules are such that large multinational corporations win twice: first, by capturing more and more surplus from their workers, whose wages have barely budged in recent decades; and second, by using tax havens to avoid paying taxes on a large portion of that surplus, thus shifting the tax burden onto workers at home.

 

*I created the charts in this post based on data that have been made publicly available by Zucman, Tørsløv, and Wier.

Tagged: chart, corporations, Europe, inequality, surplus, tax havens, taxes, United States, workers

Global tax debate and Ireland

Published by Anonymous (not verified) on Thu, 09/11/2017 - 8:31pm in

As the Irish Times has reported this morning:

On this week’s  [Irish Times] business podcast, UK based tax reform advocate Professor Richard Murphy and our legal affairs correspondent Colm Keena join Ciarán Hancock to talk about the world of offshore tax avoidance revealed in the Paradise Papers.

Colm looks at the details of the Irish cases found among the cache of leaked documents, while Richard explains the unusual way in which the Isle of Man has managed to fund itself while offering a zero per cent corporate tax rate.

You can listen here.

 

The UK loses 20% of total corporate profits to tax havens but HMRC are in denial about the missing £7 billion

Published by Anonymous (not verified) on Thu, 09/11/2017 - 2:00am in

This is from Gabriel Zucman’s latest work:

The UK is losing over 20% of all corporate profits that should be subject to tax before they ever get near the tax system if this data is right (and Zucman tends to understate things in my opinion).

Now look at this table:

That is the summary of the latest HMRC tax gap data. I have highlighted the large business line in blue: they’re the ones who, by definition will be shifting profits out of the country.

HMRC say the gap by these businesses is 5%. So, you could argue that using the Zucman data HMRC are 15% short. But I would argue that the 5% is based on the profits stated after the shifting Zucman has recorded has taken place. HMRC do not recognise profit shifting as tax avoidance: they have persistently said so. In that case extrapolating their data, if the 5% loss is stated out of 80% of the total (i.e. the sum net of Zucman’s 20%) then it’s 4% of the real total, meaning that the tax gap Zucman might be identifying is worth at least five times as much, or £7 billion a year on top of the £1.4 billion HMRC already recognise.

Some obvious thoughts follow. The first is why is HMRC in denial on this?

The second is that if one tax gap is wrong by a factor of five how much are the others out by?

Third, if they’re out by anything like the same amount why isn’t this creating more of an issue?

And why, in that case, isn’t HMRC’s failure to get something so basic right the cause for censure in its own right?

And why isn’t action to recover this sum resulting?

NB Zucman says it is more

The case against subsidising the Isle of Man to be a tax haven goes to the House of Commons

Published by Anonymous (not verified) on Thu, 09/11/2017 - 12:40am in

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Dame Margaret Hodge called an adjournment debate on tax abuse and the Isle of Man in the House of Commons yesterday. Her closing comments were of particular interest to me, referring as they do to suggestions first made on this blog on Monday:

Back to the Isle of Man, one might ask how this small country can afford to raise enough in taxes to run its public services without any contribution from corporation tax. The answer is simple: we subsidise it. It is our tax money that substitutes for the tax income that it could receive from charging businesses properly. It is our money that enables it to be a tax haven. Our Government do not just tolerate tax havens. They are using our taxes to enable the Isle of Man to operate as a tax haven. As with all these things, the Government refuse to be transparent, so let me try to unravel this.

Because we and the Isle of Man share a border, we also share what is called a common purse for VAT and other import duties. All VAT and import duties collected by the Isle of Man are passed to Her Majesty’s Revenue and Customs, and then the Exchequer gives the Isle of Man a sum on the basis of a formula that is supposed to reflect how much VAT has been generated from the economic activity that takes place there. In 2016, the then Chief Secretary to the Treasury renegotiated the formula and agreed a generous annual uplift of way above the level of inflation.

We give the Isle of Man more than £300 million a year, which is just under one third of its entire budget for public expenditure. That figure is set to rise to £340 million by 2019. This sum appears to have nothing to do with what is happening in the Isle of Man’s real economy, where employment is down and the population is declining. It has everything to do with what seems to be a deliberate policy intention of our Government to subsidise the Isle of Man and thus promote and support it as a tax haven. The Treasury has refused to publish the details of the formula on which our payment is based. I ask the Minister to release those details so that we can see how the sum is determined.

What this shows is that we are not innocent bystanders who simply put up with the utterly unacceptable activities in tax havens that have been exposed in the Paradise papers. We actively support and enable tax havens to function and exist. Without our subsidy, the Isle of Man could not afford to have a zero rate of corporation tax and could not function as a tax haven. The Isle of Man is well and truly a UK tax haven. Far from being at the head of the fight against tax avoidance and evasion, and money laundering, we are at the heart of the evil conspiracy involving advisers, the super-rich, global corporations and Governments. We are aiding and abetting the very few wealthiest and most powerful in our society to keep their wealth secret and avoid paying their fair share of tax.

The Minister will try to claim that his Government have achieved a lot to tackle avoidance and evasion. He might try to say how much better his Government have been than the previous Labour Government. I have never defended the record of the Labour Government in this area, but his Government’s record is also shameful. It is not what is done that really matters, but what is left undone.

I urge the Minister to tear down the shroud of secrecy and force all our tax havens to have public registers of beneficial ownership. This simple ask for ​better transparency about who owns what and where is utterly central to our desire to expose avoidance and hence stamp on it. I ask him to toughen up our regulatory bodies and to hound the Bonos, the Mrs Brown’s Boys and the Lewis Hamiltons of this world through the courts to make sure that they pay their proper dues. I ask the Minister to introduce legislation that will ensure that the advisers who dream up these tax avoidance wheezes are held to account for what they do, and held responsible and punished when schemes that they invent are found to be unlawful. Those three actions would go a long way to ensuring we have a responsible tax system that is fair to us all. I look forward to his response.

As has often been the case, I am on the side of Margaret Hodge on this one.

And I am grateful to her for giving such an airing to my arguments.

Cartoon of the day

Published by Anonymous (not verified) on Thu, 09/11/2017 - 12:00am in

Bring on the democratic revolution

Published by Anonymous (not verified) on Wed, 08/11/2017 - 6:32pm in

I am up against it for work this morning and was, as usual, reading the news and thinking on what to blog when I read this, from Owen Jones in the Guardian:

The Paradise Papers underline, once again, the sheer rottenness, injustice, immorality and bankruptcy of our social order. One rule for those at the top, another for everyone else. Relentless austerity for hundreds of millions across the west, justified on the basis of “there is no money”, while a grotesquely rich elite hoard their wealth away in tax havens. We can’t tinker with this system, it has to be replaced. A democratic revolution is surely coming in the western world, and this shameless, decadent elite only have themselves to blame.

Sometimes someone else says something better than I can. And Owen has here.

I am happy to be a part of that democratic revolution. It is precisely what we need now.

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