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.
From the Michigan Law School’s Tax Policy Workship co-ordinated by tax expert Reuven Avi-Yonah, a paper by Alison Christians of the University of Wisconsin draws attention to some important points. Entitled Taxation in a Time of Crisis: Policy Leadership from the OECD to the G20, its introduction notes that
“An entrenched international architecture of tax policy expertise ensures that a small group of established players continue to shape tax norms and practices throughout the world. This architecture is based on historical international power relationships and institutional history. For diplomatic restructuring on the world stage to usher in a new age of inclusion for previously marginalized states and peoples, systemic changes must also take place in these entrenched institutions and processes.”
It notes that although the G20 includes many developing countries,
Update: Tagesanzeiger cited the wrong figure for Austrian money, we believe; the version below is corrected.
The Tax Justice Deutschland Blog has picked up on a new report by the Geneva financial research firm Helvea, which estimates that Switzerland has about 500 billion Euros of “black money” (Schwarzgeld, in German) stashed away.
Last September Andreas Missbach of the Berne Declaration in Switzerland also did a calculation, which he wrote up for TJN, estimating that Switzerland hosted 2.5 – 4.0 trillion Swiss Francs in foreign private wealth (later the Swiss Bankers’ association estimated 2.15 trillion) which is not incompatible with the Helvea estimate of 862 billion of total European money (including declared money). Missbach cited estimates for the proportion of the CHF 2.5-4 trillion that is undeclared ranged between 30 and 90 percent – leading to a total estimate between CHF 645 to 3000 billion range of dirty money.
Why, despite the financial crisis and the sabre-rattling of the G-20 countries, do 
the ultra-rich and multinational companies still not pay tax? This extraordinary enquiry into the machinations of tax havens sends shivers down the back: nearly 12,000 billion Euros are still tucked away in these protected territories. And France is not immune from this scandal.
In a book loaded with revelations the author exposes the systems, the trusts, holding companies, redomiciliation, which enable the tax burden to be shifted onto the middle classes and small and medium enterprises, often in ways which are totally legal.
The OECD’s Global Forum on Development meets in Paris on 28th January to consider how tax contributes to development. Like us, they know that good tax policies play a crucial part in tackling poverty and promoting sustainable (which includes equitable) development.
One of the items on the agenda is our proposal for country-by-country reporting by multinational companies. This proposal, just by itself, is likely to release more tax revenues for developing countries that the combined aid budgets of the entire OECD community.
In a letter to OECD Secretary General Angel Gurria, no less than 34 civil society organisations call for the OECD to carry out a review of the feasibility and impact of country-by-country reporting. The French and U.K. governments have already called for such a study, and asked that the OECD report on it to the 2010 G-20 summit later this year in Canada.
Recently we wrote a blog looking at how tax havens (secrecy jurisdictions) undermine clean markets by allowing related parties in the telecommunications industry to trade with anonymity and collude to fix prices. Well, we’re not the only ones worried about this: the Indian Securities and Exchange board seems to be, too – as the FT reported recently:
“Société Générale was on Friday threatened with expulsion from the Indian equities market for allegedly violating “know your client” rules that compel companies to provide complete information on overseas customers.
The Securities and Exchange Board of India (Sebi), the market regulator, alleged SocGen had provided incomplete information on overseas clients that had bought shares of Reliance Communications, controlled by Indian billionaire Anil Ambani, through offshore derivatives known as participatory notes.”
The Seattle Weekly is running an article headlined “Microsoft Tax Dodge Letter Gets Sent to 150 Legislators, One Responds.”
This is about a former Microsoft employee, Jeff Reifman, who sent a letter about Microsoft to the entire legislature in Washington State, where Microsoft has over 40,000 employees and where a $2.6 billion deficit faces the state with “nothing but bad choices.” As Reifman says,
“Since 1997, Microsoft has used a series of Nevada subsidiaries to excuse itself from paying up to $728.8 million in royalty taxes.”
It’s one thing if Microsoft, if this story is correct, has been dodging taxes. (This may be legal, but it’s abusive, and no small matter – see Reifman’s MicrosoftTaxDodge.com for more details.) But the headline points us to a bigger problem: the fact that tax dodging, especially offshore tax dodging, is a crime (or at least an abuse) of the elites – which seems to make it very hard for politicians to take action. As the American author Jonathan Chait once put it: “there’s no bloc richer and more powerful than the rich and powerful.”
Invitation to participate in a research seminar on:
Mobilising Tax Revenue for Development:
Opportunities and Challenges for Africa
Date: Wednesday, March 24th to Friday, March 26th 2009 in Nairobi
Introduction
Revenue collection has been improved in many African countries over the last few years. The tax to GDP ratio of many African countries has increased from as low as 15% in the 1980s to today‟s average of 20%. This, however, is still comparatively low in comparison to the OECD‟s countries average of 35%. Tax effort – measured as ratio between the potential and the actual tax revenue – is relatively low as compared to other regions of the world. At the same time, recent research shows that Africa has lost up to 607 billion US dollars in the last 35 years as a result of capital flight.
The European Union has today pledged US$ 10.6 billion (€7.2 billion to be exact), spread over three years to help mitigate climate change in developing countries, in a deal that Gordon Brown hailed as ‘helping generations to come.’ But do the numbers really add up? The pledges for climate change are around US$ 35 billion (in total committed funds).
The UN Framework Convention on Climate Change (UNFCCC) estimates that adaptation alone in developing countries will cost between US$ 27.75 – 58.25 billion, while the World Bank estimates that adaptation will cost some US$ 75-100 billion. So even on adaptation, i.e. keeping the current level of livelihoods, the funding that is currently pledged falls far short.
What about mitigation, i.e. reversing the trend of increasing CO2 and other greehouse gas (GHG) emissions in the atmosphere? Estimates vary even more here: the UNFCCC estimates US$ 52.4 billion, while the World Bank says US$ 140-175 billion — with cost of financing even higher if that money has to be borrowed and then repaid (financing cost is estimated anywhere between US$ 265-565 billion), hence the figure of US$ 400 billion to bring the level of CO2 in the climate down to a safer level of 450 parts per million (ppm) of CO2 in the climate.
Meanwhile there is a petition on the ’safe’ level actually being 350 ppm, requiring a lot more climate financing.
Financial Times journalist Victor Mallet has reported that Gibraltar, a British overseas territory, is trying to lose its image as a tax haven. His article quotes Peter Caruana, chief minister of Gibraltar, saying:
“We have been repositioning Gibraltar away from the tax haven, the brass plate, the place where people just hide their money in the hope that nobody else will see it, much more into a financial centre of the onshore European variety, and we are 98 per cent complete in that task.”
As evidence of the changes underway, the FT notes that the Gibraltar administration will be abolishing its exempt company regime, under which companies not trading in Gibraltar are not liable for tax, and adopting a single rate 10 per cent corporation tax applicable to all companies. The administration has also signed tax information exchange agreements with 13 other jurisdictions and will be signing four more agreements before year-end 2009.
So why are we not celebrating? Well, just four weeks ago we published a report which showed that Gibraltar is assessed as opaque or non-cooperative in respect of all but one of the twelve key indicators used in the preparation of the Financial Secrecy Index.
The results of the 2009 Financial Secrecy Index
Finally, the time has come to reveal the names of the secrecy jurisdictions that we have ranked according to both their lack of transparency and their scale of cross-border financial activity. For the first time ever, and based on far, far stronger criteria than those used by the OECD, we can now announce the world’s leading secrecy jurisdictions.
Nothing remotely like this has ever been done before.
Our new index assesses each jurisdiction on an opacity rating – how secretive the jurisdiction is – combined with a weighting according to size. We put special emphasis on the opacity score. Read more here.
And here we go . . .
This letter went out today to the Finance Ministers of G20 countries, signed by nine organisations including TJN. For the pdf version, with logos and signatures, click here.
Wednesday, October 28th 2009
Dear Finance Minister,
In the run-up to the G20 Finance Ministers’ meeting in St Andrews, civil society organisations from around the world are writing with regard to the G20 Heads of States’ commitment at the London Summit in April to ‘develop proposals by end 2009 to make it easier for developing countries to secure the benefits of a new cooperative tax environment.’
In November 2008 at the United Nations’ Financing for Development review conference, the world’s governments agreed that “capital flight, where it occurs, is a major hindrance to the mobilization of domestic resources for development.” A commitment was made to “strengthen national and multilateral efforts to address the various factors that contribute to it.”
Last March, Democratic Representative Lloyd Doggett introduced a bill in the U.S. House of Representatives as a companion to the (identical) Stop Tax Haven Abuse Act whose press released noted that
“We cannot tolerate $100 billion in offshore tax abuses burning a hole through our budget each year. We can fight back against secrecy jurisdictions and shut down offshore tax abuses if we have the political will.”
Doggett’s office has contacted us today and noted that new legislation has been introduced: the Foreign Account Tax Compliance Act of 2009 (FATCA.) Doggett said (no link available yet):
. . . and it is run by Raymond Baker and is based in Washington, D.C. It is curious that since GFIP started measuring the scale of illicit financial flows, another well-financed institution has popped up, sporting almost exactly the same name, and claiming to share the same sorts of ends as GFIP does: “governance,” anti-corruption, “ethics and integrity” – and so on. This new body is called the Luxembourg Institute for Global Financial Integrity, and it promises to be churning out reports.
Do not be deceived – for this is a very different organisation, with very different aims, from GFIP. Look at its Board of Regents: three of four of them are top politicians from Luxembourg – one of the world’s top tax havens — and one of them is Jean-Claude Juncker, the Luxembourg Prime Minister, who not so long ago forced a television journalist to issue a craven public apology for having the temerity to question Luxembourg’s penchant for bank secrecy.
Hat tip: Jérôme Turquey – who provides more analysis here. And if you want to see how secretive Luxembourg is, look here.
Two weeks ago we launched our new website for the Mapping the Faultlines project, which explores the furtive world of secrecy jurisdictions where furtive types get up to all sorts of monkey business.
Now we launch another site, www.financialsecrecyindex.com which takes you step-by-step into the details of our new ranking of secrecy jurisdictions. The ranking results will be published at the start of November, but we the know the results already and we can confidently say that they will turn many people’s pre-conceptions on their head.
We are also fairly confident that the rankings we publish in the Financial Secrecy Index will replace the failed OECD black / grey / white lists which came out in April 2009 and immediately fell flat on their faces.
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