Council of Europe/OECD-Convention: New TJN briefing paper

When the G20 signed the Convention on Mutual Administrative Assistance in Tax Matters in November 2011, amid great fanfare, the OECD, a club of wealthy countries, set out to promote it as the ‘gold standard’ of international tax cooperation. As is often the case (see here or here), the OECD’s viewpoint is not quite the full story. While the Convention definitely provides various positive things — most importantly a tacit assertion that automatic information exchange must be part of effective information exchange — it also includes clear downsides.

Continue Reading »

Swiss-UK tax deal: good news coverage, lame responses

We have had good press coverage for yesterday’s UK-Swiss tax deal analysis, which reveals how the UK government’s claims that it will net 4-7 billion pounds in tax revenues are fatally flawed. See, for example: Swiss-U.K. Tax Agreement May Be ‘Revenue-Negative,’ Group Says – Bloomberg Swiss tax deal could end up costing UK – Guardian [...]

Continue Reading »

Germany is building a gateway for criminal money

TJN has repeatedly reported about Switzerland’s devious strategy of breaking the European Union’s thrust for a functioning system of automatic information exchange. The Swiss Finance Ministry, in conjunction with its banks, deployed a strategy to fence off the dawning end of financial secrecy, called the “final withholding tax”. It is designed to preserve banking secrecy while buying off noise-making foreign governments through the transfer of a final tax on foreign citizens’ financial account’s income (details here).

The German-language Swiss newspaper Tagesanzeiger reported on spokespersons of the German and Swiss Finance Ministries signalling their willingness to soon finalize the negotiations. Last week, German Finance Minister Schäuble caused confusion saying that this would be by end 2011, while Mario Tuor, Swiss Finance Ministry spokesperson, said before summer holiday, that is, within two months. Yesterday, the foreign ministers of both countries followed suit with a PR-tour, keen on portraying an image of restored relationships, having forgotten the fall-out over the banking secrecy scandal under former German Minister of Finance Steinbrück. Two fresh details are now standing out as particularly worrying.

Continue Reading »

Austria’s and Luxembourg’s Anglo-German Fig Leaf

The European presidency has just issued a note advocating a push to increase financial transparency in Europe through its Savings Tax Directive. As they say:

“The Presidency attaches crucial importance to gear up bilateral talks in order to reach political agreement upon the adoption of the Savings Tax Directive in the very near future.”

Unsurprisingly, there are some rather large flies in this ointment. Austria and Luxembourg have long been holdouts on the European Savings Tax Directive, working hard behind the scenes to spike progress on transparency. Instead of agreeing to automatic exchange of information for tax purposes, they offer only an anonymous withholding tax (see previous blog). This arrangement, as we have just argued, goes against the spirit of just payment of due taxes by European taxpayers, and against a drive towards cooperation amongst member states in acting not to deprive fellow EU members of revenue. Furthermore, the relevance of the European Savings Tax Directive goes beyond Europe: it could become the nucleus of a multilateral agreement on automatic tax information exchange.

Continue Reading »

Financial imbalances, the IMF and fiscal tea leaves

Economics is the art of reading tea leaves while taking refuge behind numbers. This truth appears to be increasingly fashionable in the West as the ‘global’ financial crisis transpires to be a western financial and economic crisis. A recent IMF paper entitled “What Caused the Global Financial Crisis – Evidence on the Drivers of Financial Imbalances 1999 – 2007” is a welcome contribution to the tea leaf reading jamboree.

It has been argued that low interest rates in the US were perhaps the most important root cause for the ensuing financial frenzy. This IMF paper does not deny this theory, but allows for the possibility that the causal relationship needs to be addressed from a different angle: capital inflows have contributed in some countries towards depressing the long term interest rate, leading to a reduction in the spread between long and short term bank lending rates. This is something first year undergraduates learn: capital inflows lead to lower interest rates, because the supply of money increases drives down the price of money.

But how did this translate into financial crisis? On page 9 we read:

Continue Reading »