The Swiss government has announced that it has examined the dossiers of over four thousand UBS clients suspected of committing tax evasion offences in the United States, but they have only transmitted their findings to the US authorities for around half of the examined cases.
Under the terms of the administrative agreement agreed between Switzerland and the US in August 2009, criteria were established for proceeding with an administrative assistance request submitted by the Inland Revenue Service. This included a requirement that the Swiss Federal Tax Authority examines 4,450 UBS client dossiers and issue decisions in respect of releasing each dossier before the agreed deadline of 26th August 2010.
Procedural delays arising from a court decision in January 2010, which concluded that the agreement between the Swiss and US authorities was illegal, hampered the FTA’s process, and in an attempt to head of the threat of a John Doe summons brought against UBS the Swiss government are now aiming to finalise the outstanding decisions before the year end.
From Bloomberg:
China’s households hide as much as 9.3 trillion yuan ($1.4 trillion) of income that is not reported in official figures, with 80 percent accrued by the wealthiest people, a study showed. The money, much of it likely “illegal or quasi-illegal,” equates to about 30 percent of China’s gross domestic product, the study, conducted for Credit Suisse AG and published last week by the China Reform Foundation, found.
A while ago we pointed to a study by Misereor that had concluded, on the subject of double tax treaties (DTTs) and tax information exchange agreements (TIEAs), that
Only 6 percent of DTTs show a signature of a Low Income Country (with an even smaller participation of 3 percent for Least Developed Countries). The situation with TIEAs is even worse: There is no single LIC (leaving aside LDC) as signing party of any TIEA documented on the OECD website. . . . While G20 and OECD are promoting DTTs and TIEAs as centrepieces of a global standard on transparency and cooperation in tax matters statistics show that poor developing countries are simply left out in this picture. How these countries should get access to “the benefits of a new cooperative tax environment” (G20 London Summit) according to the recipes of the G20 and the OECD remains an open question.
Following on from Ghana’s recent World Cup defeat at the hands (literally) of Uruguay’s Suárez, Khadija Sharife has just posted a blog on how Ghanaian people are probably becoming victims of cheating on a far larger scale, albeit not so visible on television sets around the world.
Ghana is entering into its era of oil production. Before end-2010 the Jubilee oil field, one of Africa’s biggest offshore finds since the start of this century, could turn Ghana into the continent’s fifth largest oil-producing nation, bringing in upwards of $800 million a year. Happy days.
But dig a little deeper, and you find the first signs of the resource curse are readily discernible. As Sharife reports, ownership of the Kwame Nkrumah MV 21, the Floating Production Storage and Offloading facility used in the Ghanaian production programme, is obscured through offshore special purpose vehicles in the Netherlands, a country widely used as a conduit for shifting profits offshore.
Following our blogs about BP’s damaged oil rig being offshore in more ways than one, we are intrigued to see this letter sent by Senator Grassley to the chair of BP.
It contains the following questions:
And these two:
The Huffington Post is carrying an interesting editorial by Peg Chamberlain, President of the National Council of Churches of Christ, an ecumenical consortium of Christian denominations in the United States.
In the Gospel of John, Jesus states that those who do what is right do so in the light, while wrong-doers shroud their deeds in secrecy and darkness.
. . .
That is why so many in the faith community are strongly supporting an amendment to the financial reform bill that would require greater transparency for these companies.
TJN is open to all faiths, and to all non-believers, and all fence-sitters, we are firmly aligned with the thinking outlined above.
Our colleagues at CCFD-Terre Solidaire in France have prepared a progress report (in French) on what has changed since the G-20 Summit in London last year. Sadly, it does not make for happy reading.
The report addresses 12 questions, as follows:
Tax in Kenya is something that for a long time was thought best left to 
the experts. This perception has resulted to ordinary Kenyans being unaware of how the tax system has a direct impact their lives and livelihoods. The Kenya Tax Justice Report (available here in a printer-fiendly format, and here in wide-screen format) addresses the human welfare linkages in taxation.
Rights-based campaigns such as those calling for housing rights, and women’s rights and in particular better maternal health provisions should link up with tax campaigners who call for greater tax equity. These and many other rights can only be achieved through adequate and equitable revenue collection. Why are capital gains no longer taxed in Kenya? Why have propety taxes contributed so little in overall revenues?
Among the findings the report quotes that for the year 2001/2002 the tax effort varied from 85 per cent on the beer excise tax, to 65 per cent on personal income tax, 56 per cent for the value-added tax, while corporate tax was the lowest at 35 per cent effort.
Former Malaysian Prime Minister, Dr Mahathir Mohamad, who is widely credited with directing Malaysia’s modernisation programme from 1981 to 2003, has published an analysis of the financial crisis in which he examines how laissez-faire economics degraded financial market prudence and created markets for financial products that served no useful purpose. And he also notes how lax regulation in offshore tax havens contributed to causing the crisis:
46. The investments by the hedge funds and their leveraging (borrowings) are mysterious. It seems that they need not report to the Government on their activities. Besides, by operating from offshore tax-free havens, they needed to submit reports to no one. Investors in hedge funds were thus able to make huge profits.
Famously, during the late-1990s South East Asian financial crisis Dr Mahathir chose to ignore the IMF’s policy prescriptions for Thailand, Indonesia and other neighbouring countries and imposed capital controls to protect the Ringitt. Subsequent events proved him right. He is correct again in pin-pointing how tax havens act as the achilles heel of the globalised financial markets. And his concluding remarks provide very little comfort for western politicians and the cheerleaders of laissez-faire economics:
Well, what a surprise. In the much-publicised fraud case involving a lawsuit filed by the Securities and Exchange Commission against Goldman Sachs, it is absolutely no surprise to us to find that this deal, known as Abacus 2007-AC1, involves:
Issuer: Abacus 2007-AC1, Ltd., Incorporated with limited liability in the Cayman Islands
Co-Issuer: Abacus 2007-AC1, Ltd., Incorporated with limited liability in Delaware
The issuer of this $2bn CDO is a Cayman Islands Special Purpose Vehicle. You can see the structure of the thing on page 51. Note also an earlier story from McClatchy’s, the only one we’re aware of which focused strongly on the offshore aspect, and which notes that Goldman had 148 of these kinds of deals in the Cayman Islands.
“These Cayman Islands deals, which Goldman assembled through the British territory in the Caribbean, a haven from U.S. taxes and regulation, became key links in a chain of exotic insurance-like bets called credit-default swaps that worsened the global economic collapse by enabling major financial institutions to take bigger and bigger risks without counting them on their balance sheets.
. . .
In January 2010 the German government, in association with the European Commission and the Spanish Ministry of Foreign Affairs, organised a meeting of its International Tax Compact to consider the relationship between tax and development. Abusive tax practices featured high on the agenda.
Details of the meeting, including the final communiqué and the papers submitted by participants, who included Jo Marie Griesgraber from our partners, New Rules for Global Finance, and our Director, John Christensen, are available here.
We recently reported on the disclosure provision to combat tax evasion incorporated into the Hiring Incentives to Restore Employment (HIRE) Act, a new job creation bill signed by President Obama on 18th March. A contact in Miami now draws our attention to another provision in the same bill which closes off a sneaky little tax avoidance device which, according the US Government Accountability Office is losing American taxpayers billions of potential revenue through the use of so-called dividend equivalent strategies.
Under US tax laws, dividends paid by US companies to foreign shareholders should be taxed at 30 per cent. For decades, however, US banks have structured deals using derivatives that allow clients to turn their dividends into “dividend equivalents.” These have the appearance of a dividend, but by being embedded into a derivative they don’t generate a tax liability.
According to the New York Times, here’s how they work:
Responding to Christian Aid’s campaign on transparency, taxation and international development, British Conservative Party leader David Cameron has issued the following statement:
“Just as Conservatives believe that aid needs to be more effective and accountable in order for it to have the maximum possible impact on global poverty, so there is no doubt that more needs to be done to increase transparency in tax affairs.
The UK Government has a responsibility to work with other countries, including overseas territories, to ensure that information on the tax position of individuals and companies is exchanged between tax authorities. This is vital in addressing tax evasion and also money laundering.
Ultimately, an international accounting standard on country-by-country reporting may well address many of the problems currently created by a lack of transparency. We need to ensure that any such reporting regime provides the relevant information and does not deter multinationals investing in developing countries.
In the shorter term, the UK Government must continue to press for further exchange of information agreements, greater monitoring of the use of transfer pricing and the use of complex structures and greater transparency.”
ON 17th March the US Senate passed an Act (the Hiring Incentives to Restore Employment (HIRE) Act) which includes provisions relating to what is termed Foreign Account Tax Compliance (FATC). These provisions are designed as a revenue raising measure aimed at offsetting part of the costs arising from the job creation aspects of the HIRE Act. We have seen a memorandum on the FATC provisions, and can highlight some of their key aspects.
According to the memo, tackling offshore tax evasion is a central part of the provisions:
The overall purpose of the Foreign Account Tax Compliance legislation is to detect, deter and discourage offshore tax abuses through increased transparency, enhanced reporting and strong sanctions. The ultimate goal of the Taxes to Enforce Reporting on Certain Foreign Accounts portion of the legislation is for the United States to obtain information with respect to offshore accounts and investments beneficially owned by US taxpayers in an efficient and timely manner rather than have the New US Withholding Tax Regime imposed.
Our colleagues Dries Lesage (Ghent University), David McNair (Christian Aid), and Mattias Vermeiren (Ghent University), have had a scholarly paper published in Development Policy Review in which they trace recent progress in the global debate on tax and finance for development.
The paper explores the background to the Financing for Development (FfD) process of the United Nations, explaining the institutional and political reasons why the original Monterrey Consensus of 2002, described by the authors as “a mix of . . . compromise and lowest common denominators between the different blocs,” rarely mentioned tax. This was not for want of trying on the part of those who had been pushing the FfD agenda prior to Monterrey, including and especially Ernest Zedillo (ex-President of Mexico), whose high-level panel of experts had identified how ill-conceived tax policies, illicit financial flows, and tax evasion, were eviscerating the tax regimes of poorer countries.
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June 25, 2009 | 5 Comment(s)
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