Our overall feeling is that we’re winning some minor victories in the battle against tax dodging, but we risk losing the war. We’ve gained a new template for country-by-country reporting, and some new anti-abuse provisions for tax treaties are emerging. But our political momentum to achieve a more fundamental change to the global tax system can be undermined by the fact that OECD sells these rather limited steps forward as a magic solution to tax dodging. Furthermore, some very concerning tendencies are developing:
The September edition of TaxCast, the monthly podcast from FTC member Tax Justice Network, has arrived.
In September’s TaxCast, we look at U.S. corporate inversions, the recent Scottish referendum on independence, and efforts from the OECD to address tax evasion. The TaxCast is produced by Naomi Fowler for the Tax Justice Network. You can listen via the player below or on YouTube.
In the United States, the overall noncompliance rate for all federal taxes and individual income taxes stands at about 14 percent. According to studies by the Taxpayer Compliance Research Program and the National Research Program, about 1 percent of wages and salaries are underreported and about 4 percent of taxable interest and dividends are misreported. A study of Germany found that the corporate tax base would have increased by 14% if no income-shifting had occurred. Developing countries lose about $900 billion in illicit outflows per year, which severely undermines these nations’ abilities to effectively raise revenue.
These activities are not merely an inconvenience for citizens and policymakers, but rather they undermine the very core of tax systems around the world. There are many things a good tax system should do, but all tax systems should have the three key goals: provide revenue, distribute costs fairly, and promote growth and efficiency. Tax evasion and avoidance, whether via an offshore tax haven or an anonymous corporation, undermine the world’s ability to achieve all of these goals.
Goal 1: Provide the appropriate level of revenue in a timely manner. The first and most obvious goal of any tax system should be generate revenue. Of course, the level of revenue produced by a tax system should not be arbitrary. The tax system should generate enough revenues to meet the needs of the nation with the appropriate level and in a timely manner.
WASHINGTON, D.C.—The G20’s recent focus on financial transparency is a welcome development, but instituting bare minimum requirements, or plans that allow for exclusion, simply give illicit flows an opportunity to continue their hazardous drain on the world’s most vulnerable economies.
Last Tuesday, the OECD released recommendations on Base Erosion and Profit Shifting (BEPS), which are aimed at cutting down on the ability of corporations to shift profits into tax havens. It’s well intentioned, but the execution leaves much to be desired.
“Apparently, transparency now takes place behind closed doors,” said Porter McConnell, Manager of the Financial Transparency Coalition (FTC). “From a small group of nations setting the standard for the rest of the world, to the OECD’s extreme measures to preserve total confidentiality in country-by-country reporting requirements, G20 Finance Ministers are ultimately getting flawed guidance.”
In an opinion piece that ran in the Sydney Morning Herald, Alvin Mosioma of the Tax Justice Network – Africa, Subrat Das of the Centre for Budget and Governance Accountability, and Oriana Suarez of the Latin American Network on Debt, Development, and Rights called on the G20 Finance Ministers to act on a number of vital financial transparency issues. The ministers will meet this weekend in Australia, ahead of November’s Leaders Summit.
The article focused on the need to address all aspects of financial transparency, including beneficial ownership, automatic information exchange, and public country-by-country reporting.
WASHINGTON, D.C. — The Organization for Economic Cooperation and Development’s (OECD) new recommendations to fight multinational corporate tax avoidance look robust from the onset, but there’s something missing. Since the most vital reporting information will remain out of the reach of ordinary citizens, the recommendations don’t do enough to bring transparency to a global financial system badly in need of it.
The OECD’s project on Base Erosion and Profit Shifting (BEPS) is intended to crack down on the ability of corporations to move profits overseas, through mis-invoicing trade transactions to avoid taxes and other dubious practices. With nearly a trillion dollars leaving developing country economies each year in illicit cash, coordinated global action to plug the loopholes is desperately needed. But key elements of the financial data collected will be kept confidential, and out of the public’s view.
We often think of tax havens as tropical islands or tiny nations nestled in the mountains. We know most of them are geographically and demographically small. Very small. Given their huge reputations, just how small they are just might surprise you.
Ireland, which is well known for its emerald hills and low tax rates, is about the same size as South Carolina. Luxembourg, a tax haven nestled in Western Europe between France and Germany, is about 2,500 square kilometers, or about a third of size of Rhode Island. Bermuda, a group of islands off the coast of South Carolina, is just over 50 square kilometers. That’s about one third of the size of Washington, DC. Singapore has about the same land mass as El Paso, Texas. Hong Kong is about the same size as Suffolk, Virginia. The notorious Cayman Islands have the same land mass as Shreveport, Louisiana.
These statistics might be surprising. How can nations so small garner such strongly negative reactions in the international community? Any why are so many tax havens so small? Is it coincidence? Or is there something else going on?
RIO DE JANEIRO, Brazil / WASHINGTON, DC – More than US$400 billion flowed illegally out of Brazil between 1960 and 2012— draining domestic resources, driving the underground economy, exacerbating inequality, and facilitating crime and corruption—according to a new report to be published Monday, September 8th at a press event in Rio de Janeiro by Global Financial Integrity (GFI), a Washington DC-based research and advocacy organization.
Titled “Brazil: Capital Flight, Illicit Flows, and Macroeconomic Crises, 1960-2012,” the study finds that trade misinvoicing—the fraudulent over- and under-invoicing of trade transactions—accounted for the vast majority (92.7 percent) of the country’s illicit financial outflows over the 53-year period analyzed.
Tomorrow, Heather Lowe of FTC member organization Global Financial Integrity will participate in a panel discussion organized by the U.S. Department of State. The event, hosted at the OpenGov Hub in Washington D.C., will also include officials from the World Bank’s Stolen Assets Recovery Initiative, the State Department, and Transparency International USA. The discussion will focus on the inherent links between governance and corruption, and how to combat them.
If you aren’t based in Washington, or are unable to attend the event, there’s no need to worry, as a live stream will be available on the Internet. You can submit questions to the panelists via Twitter using the hashtag #StateofRights, as well.
If you have had much contact with the disciple of economics in the last year, you’ve heard of the book Capital in the Twenty-First Century, written by French economist Thomas Piketty. And Capital concerns two subjects that are very near and dear to us at the Financial Transparency Coalition: inequality and taxes.
Piketty’s book is all the rage among economists and policy wonks. Perhaps for good reason. In a unique exploration of a new dataset, Piketty parses through literally centuries of tax data to discern long-term trends in inequality and wealth. His conclusions are broad and many, but one of his main findings is this: wealth inequality was high before World War I, it fell after and for much of the century, and it has been on the rise again since the 1980s.
That income inequality is already extreme (and getting worse) should come as no surprise to readers of this blog. We’ve heard that the richest one percent of Americans earn about a fifth of the nation’s income. Central to Piketty’s thesis, inequality is even starker in terms of wealth, rather than income. By contrast to the top earners who make one-fifth of the nation’s income, the wealthiest one percent of Americans hold about one-third of the nation’s wealth.
The Deputy President of South Africa, Cyril Ramaphosa, has issued some strong words against individuals and corporations funneling money out of the country to avoid taxes. Speaking at the National Council on Provinces, Ramaphosa called on citizens to report cases of tax evasion.
The latest edition of TaxCast, the podcast produced by the Tax Justice Network, is out! In this edition, you’ll hear about a tug of war between Switzerland and India for information on tax evaders, how Russian sanctions are affecting business in Europe, and much more.