Firstly, following Action Aid’s recent report on SABMiller and its abusive transfer pricing practices in developing countries, several tax authorities in Africa are conducting further investigations on the company’s operations.

“African tax authorities have not only acknowledged the impact of ActionAid’s recent report highlighting tax avoidance by the global brewing company SABMiller, but also committed to doing something new in response to it. Meeting last week to discuss our report under the auspices of the African Tax Administration Forum (ATAF), several of the countries in which SABMiller operates agreed to work together to step up efforts to combat tax dodging by multinationals.”

You can also read the full blog post on this topic by Action Aid’s Martin Hearson.

Secondly, last week the Dutch Parliament adopted a motion urging the government to push for country-by-country reporting to become an international norm. For more information on this development, please follow the link to read the post by Koos de Bruijn.

Let us know what you think about these stories by leaving your comments below.

By: Torben Bjørn Hansen*

“Coffee shops” are causing trouble and increasing crime rates in small Dutch towns that border neighboring countries. To some degree it’s drug tourism, visitors coming from other countries to engage in infamous Dutch, legal pastimes. However, these “coffee shops” that sell drugs are also facilitating the expansion of organized crime and of the underground economies both in the Netherlands and in neighboring states. As the underground economy grows, the government’s ability to govern slowly erodes, and the bigger fish become harder to track and catch.

While drug tourism is a small problem compared to, for example, a corrupt African official stealing government money or huge multinationals evading hundreds of millions of dollars in taxes annually, transporting drugs into a country where their sale and/or consumption is illegal contributes to undermining state security.

According to a recent New York Times article, the Dutch city of Maastricht now has a crime rate three times that of similar-size cities in the country that are farther away from the Dutch border. Criminals from other countries are coming into the Netherlands to buy large volumes of cannabis and other drugs to then smuggle across the border and sell in their home countries. The article cites estimates of up to US$ 2 billion a year in business – “much of it tangled in organized crime and money laundering.”

The United Nations Office on Drugs and Crime (UNODC), in its World Drug Report 2010, estimates that over 7.5 percent of Western Europeans used cannabis at least once in 2008 alone.  Of the identified countries reporting to the UNODC, the Netherlands is third only to Morocco and Afghanistan as a main-source of cannabis resin to the world—making up five percent of the total from reporting countries in the study.

Small time drug tourism is small in its impact on global development and security. However, sometimes, starting with a micro-perspective and doing what can be done at the local level to curb illicit activities and illicit flows can also contribute to the bigger picture; it can help increase financial transparency and governance in the developing European countries that are struggling to spark and maintain economic development and security. By GFI estimates, the developing countries of regional Europe, between 2002 and 2006, lost over half a billion U.S. dollars in illicit flows—most of which leaked out as unrecorded outflows from the Balance of Payments. As these IFF estimates are not able to capture much of the proceeds of criminal and commercial smuggling such as drugs, minerals and contraband goods, these are certainly conservative estimates. If you add the un-recordable proceeds from criminal drug smuggling from these Dutch towns to that half a billion U.S. dollars from GFI’s estimates, the true cost of illicit activities would be significantly larger.

The Maastricht City officials are trying to address the issue of drug tourism and illegal drug smuggling out of the Netherlands by pushing to make the legality of recreational drugs a Dutch-only policy, which would ban sales to foreigners who cross the border to acquire drugs. However, the likelihood of European Union free trade laws allowing such a local law inhibiting cross-border economic activity is slim.

Drug smuggling to this degree is not exclusive to the Netherlands, but it does offer a concrete example of one of many small-scale issues which contribute to the larger, macro, issue: unrecorded and illegal activity growing the underground economy and undermining governance to the detriment of common citizens.

* Image license: Some rights reserved by Torben Bjørn Hansen

Since the beginning of the year, approximately 1500 people have declared their savings in foreign banks to the Dutch tax authorities. The Ministry of Finance says this is twice as many people as in the years 2006 to 2008.

Continue reading at rnw.nl…

LONDON – The Bermudan government said Monday that it has signed a tax information-exchange agreement with the Netherlands which allows it to meet international standards on tax-haven transparency.

The move is expected to allow Bermuda to compete for financial services business more effectively against offshore jurisdictions which have already met these standards, such as the Isle of Man, Guernsey and Jersey.

Continue reading the article at Nasdaq.com…

The Bermudan government said Monday that it has signed a tax information-exchange agreement with the Netherlands which allows it to meet international standards on tax-haven transparency…

The Organisation for Economic Cooperation and Development has said that tax havens must sign 12 such agreements with other nations to demonstrate they are committed to operating in a transparent manner and to meet its internationally- agreed tax standard.

The tax agreements are designed to allow countries to request information from other financial centers, including those viewed as tax havens, which allows them to levy the right amount of domestic tax on their citizens.

Unfortunately, the story fails to point out that tax-information exchange agreements which (like this one) do not require automatic exchange of tax information, are of little practical use.  Certainly this is a move in the right direction, but information exchange by request forces the requesting country to know the information that they’re requesting before they request it.  A scenario akin to receiving the combination for a locked safe, after you have succeeded at opening the safe.

Luxembourg Minister of Budget Luc Frieden concluded a new tax agreement with Dutch State Secretary of Finance Jan Kees de Jager on 29 May. The agreement will provide for the exchange of information in tax matters between the two countries in accordance with the OECD standard.

A statement from Luxembourg’s Ministry of Finance said that the protocol, which amends the existing double tax convention of May 8,1968, provides for the exchange of information on request in individual cases between the tax administrations of both countries. It applies to tax years 2010 and following and has no retroactive effect. The agreement does not seek an automatic exchange of bank information and does not allow for general inquiries, or so called ‘fishing expeditions’.

Continue reading the article at Tax-News.com…

The Dutch Deputy Finance Minister, Jan Kees de Jager, has said in a letter to parliament that, unofficially translated, says:

“The Netherlands would like to go a step further in the relationship with these countries, and make agreements on the automatic exchange of information. This way, tax evasion can be addressed (even) more effectively. . . . The Netherlands strives for automatic exchange of [tax] information, at the multilateral level (OECD, UN) as well as the bilateral level (at the conclusion of tax treaties and Tax Information Exchange Agreements).”

The Netherlands will be contacting Austria, Luxembourg, Switzerland, Belgium, Liechtenstein and Singapore to improve agreements about information exchange. De Jager also wrote that he intends to conclude TIEAs with Monaco, Andorra, Bermuda, Panama, the Cayman Islands and the British Virgin Islands. This is significant, and it shows that political will exists to push this superior standard of information exchange forwards.

Now look at this. A story in The Economist quotes Anthony Travers, chairman of the Cayman Islands Financial Services Association and one of the most influential voices on the island, as criticising Obama’s recent budget provisions to close tax loopholes that would curb use and abuse of the Cayman Islands. Then he says something surprising:

“Better, he says, would be a “proactive” treaty, with the American authorities automatically notified of their taxpayers’ offshore accounts.”

Is the Cayman Islands interested in automatic information exchange? We do not know what the detail is of what Travers is proposing, or what exactly he meant, but this comment certainly looks interesting. Either way, step by step, pressure is building for the superior standard to emerge.