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Jan
17

KPMG in the Isle of Man admits the island may be used for egregious tax avoidance

Richard Murphy

The Isle of Man Today website noted last week:

MOVES by the UK Treasury to introduce a general anti-avoidance tax rule could impact negatively on the Isle of Man.

KPMG island director Greg Jones said it was by no means a foregone conclusion that we would get a general tax anti-avoidance rule (GAAR) in the near future.

But he added: ‘If we did, however, there’s no doubt that it would impact negatively on places like the Isle of Man.

‘Even if the GAAR were targeted as narrowly as the working party report recommends, in my view it would strike out a number of (what has to be admitted are) fairly contrived tax planning arrangements I am aware are promoted from the island.

‘There may be some work for tax practitioners in advising whether a particular planning idea falls within the GAAR’s scope, but on the whole I think we’d lose a certain amount of the business currently being undertaken by some niche service providers.’

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Jan
17

Why the OECD’s approach to transfer pricing is a joke

Nicholas Shaxson

TJN has been long been a critic of the OECD’s Arm’s Length system for addressing transfer pricing shenanigans (see TJN’s summary of what is involved here). A system that might have worked well enough 70 years ago is not fit for purpose today.

About a year ago TJN published two articles summarising longer papers in Tax Notes by Michael Durst, former head of the U.S. Internal Revenue Service (IRS) Advance Pricing program and a world authority on the subject. This blog is a reminder of those two important articles. In the first, entitled The OECD Should Reevaluate Transfer Pricing Laws, Durst states that

“the current system is based on faulty assumptions regarding the way multinational business is conducted, so that the system, no matter how hard one seeks to reform it, simply is not capable of functioning acceptably.”

In the other article, The Two Worlds of Transfer Pricing Policy Making, Durst argues that the OECD’s Arm’s Length method:

“is based on a fundamental misunderstanding of practical economics.”

He also notes the strength of the lobbying effort in favour of the current arrangements.

I have frequently observed it at close hand, and I believe it has been influential. The effectiveness of lobbying efforts has been enhanced, I believe, by the absence of any financially interested constituency that might serve as an effective counterweight and therefore as a political force for changes to current laws.

And there is much more to consider in those two articles. Once again, the two summaries are here and here. Important contributions to the debate, from a leading expert.

Further discussion of the shortcomings of the OECD’s system, and the proposition of alternative systems, is available on the TJN Transfer Pricing page.

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Jan
13

Featured Allied Organization of the Week: HUMANBE

Sarah Bracht

Every other week, the Task Force highlights a Featured Allied Organization. The Task Force has more than 120 member organizations from all over the world which endorse its mission.  The current featured Allied Organization is HUMANBE.  To learn more about the Task Force Allied Organizations and to see a full list of our members please visit the Allied Organization webpage

HUMANBE is a unique organization focused on promoting sustainable development throughout all aspects of life: economic practices, the environment, social interaction, etc.  The organization’s mission is to change both the individual and collective behavior of society through the implementation of concrete and sustainable solutions. Recognized as an organization working to build a more humane society, HUMANBE makes every effort to build awareness of our interdependence.
HUMANBE’s latest global campaign is project ECCOPLANET. This campaign takes their holistic approach to sustainable development a step further by inviting individuals, businesses, and organizations to voluntarily report and share on their practices related to financial transparency, the environment, ethics, and much more.  Through ECCOPLANET, HUMANBE is working to build a transparent global network that promotes good practices in all activities.

For more information on HUMANBE please visit their website. If you would like to join project ECCOPLANET or learn more about the project please contact them at info@humanbe.com.

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Jan
13

The World’s Best Tax?

Ann Hollingshead

flickr / Silveira Neto

The global financial crisis—including the housing market bubble in the United States, the plummeting of the stock market, soaring unemployment and the resulting Great Recession worldwide—sparked an inundation of ideas about what we should do next or what we should have done differently. Many of these ideas are not new. In fact, many of them are very old. As a result, particularly in the United States and in Europe, we’ve seen a resurgence of economic thought from the full spectrum of thought—from Frederick Hayek and Milton Friedman to John Maynard Keynes.

One of Keynes’ ideas (though not his originally) that’s gained some traction and popularity in the wake of the crisis—which many perceive to be one of the most spectacular market failures of all time—is the financial transactions tax (FTT). In this idea, governments levy a tax on specific financial transactions (for example, on the sale of currency, bonds, or stocks), not on financial institutions themselves.

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Jan
11

Raymond Baker at he Huffington Post: Outflows, Not Aid, Must Be Curtailed to Fight Poverty

EJ Fagan

Raymond Baker, Director of the Task Force, wrote today:

We learned some devastating news last month. A new study from Global Financial Integrity revealed that despite the onset of the global financial crisis in late 2008, the developing world still suffered nearly $1 trillion in illicit financial outflows in 2009, a number that is almost 10 times larger than the official development assistance they receive each year from Western economies like the United States, United Kingdom and Norway.

These outflows — the proceeds of crime, corruption and tax evasion — bleed developing economies of much-needed tax revenue, exacerbate income inequality, and fuel the underground economy. They undermine the rule of law, entrench corruption, and shrink developing nation economies at a time when they can least-afford it.

Continue reading at The Huffington Post.

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Jan
11

The Changing Dynamics of Terrorist Financing

Ann Hollingshead

In 1998, an article in the Washington Post argued Osama bin Laden was able to “shroud his finances in such secrecy and with so many front companies that American officials acknowledge it could take years to decipher them.”  At the time, U.S. officials understood that the key to bin Laden’s power was wealth—which was extensive as he inherited a substantial sum of money from his prosperous Saudi father.  Yet they were often stymied in their ability to track his or other terrorists’ resources as they did not have the capability to comprehensively track, freeze, and seize assets.

After 9/11 that changed.  One important reason for the turnaround was the increased focus on terrorist financing by officials, academics, and intelligence officers, which resulted in a better understanding of the practice.  Jack Williams, an expert in Law and the Middle East at Georgia State University College, put it this way: “Post 9/11, we’ve learned an awful lot about how terror organizations finance themselves, how they select their targets, the importance financial institutions have for them as a target or for growing their enterprises.”

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Jan
9

Monday’s Daily News Digest

EJ Fagan

Make tax evasion criminal offence, push for other reforms to combat black money
The Economic Times (Op-Ed), January 7, 2012

Former Umno members join DAP
The Sun Daily (Malaysia), January 9, 2012

Politics and business don’t mix, says Lim
Free Malaysia Today, January 8, 2012

U.S. May Take Legal Action Against Swiss Bank: Report
Reuters, January 9, 2012

Tax havens want DTAAs not just TIEAs
The India Express, January 9, 2012

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Jan
6

Friday’s Daily News Digest

Cliff Dalson

Dirty money is beyond Lokpal
Tehelka, 6 January 2012

Secrecy in private banking under Western siege
The Business Times, January 6, 2012

FinCEN Sees Uptick In Reporting, Annual Report Says
Wall Street Journal, January 5, 2012

Spanish Government to Crack Down on Tax Evasion
The Latin American Herald Tribune, January 5, 2012

Nick Clegg vows clampdown on tax avoidance
The Telegraph, January 5, 2012

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Jan
5

Five Achievable Steps for Transparency in 2012

Ann Hollingshead

The New Year is a great time for resolutions. Of course most of these resolutions are made on a personal basis. But resolutions can also be made on a national and international level. So in that spirit, here are five realistic resolutions to help theUnited States and the international community achieve more financial transparency in 2012:

  1. The U.S. passes the Incorporation Transparency Act. This bill would require companies to disclose the names of the beneficial owners of corporations and limited liability companies (LLCs) when formed. This would close a major loophole that criminals exploit to launder their funds within U.S. boarders and strengthen law enforcement officials’ ability to keep criminal and tax evading money out of the United States.
  2. FATF lists tax evasion as a predicate offense to money laundering. If FATF implemented this reform banks and financial institutions in member countries would need to examine and evaluate incoming deposits for signs of tax evasion for reporting. As Rebecca Wilkins, senior counsel at Citizens for Tax Justice, put it: “Tax evasion — whether committed by individuals or corporations — is a crime and its victims are honest taxpaying citizens all over the world. The proceeds of those crimes are the funds that should have been paid to the government and are badly needed to fund critical services, especially in these difficult times.”
  3. The U.S. Passes the Stop Tax Haven Abuse Act. This bill would permanently close offshore tax loopholes, which in turn would raise revenue and increase transparency and accountability for multinational businesses. The bill would also require annual country-by-country reporting by SEC-registered corporations related to their employees, sales, purchases, sales, financing arrangements, and taxes. Raymond Baker, director of Global Financial Integrity, has called it a “game changer.”
  4. FATF creates a new government requirement for trusts to be registered with the relevant authorities. The World Bank, the OECD, and the FATF have all observed that money launderers often use trusts to their identities and distance themselves from the proceeds of their crimes. There is no requirement for legal structures like trusts to register with government agencies and as a result there is little information about them, which makes them vulnerable to money laundering. Should the FATF implement this recommendation, trusts would have to provide the same information that other covered institutions collect on their customers. This would aid financial institutions in performing their due diligence.
  5. The U.S. Passes the Combating Money Laundering, Terrorist Financing, and Counterfeiting Act. This bill, proposed by Senators Chuck Grassley (R-IA) and Dianne Feinstein (D-CA), would make all felonies trigger crimes for a money laundering charge, no matter where in the world a person committed the crime. According to current U.S. anti-money laundering laws, there is a difference between what is criminalized if it occurs inside U.S. borders and what is criminalized if it occurs outside them. Which means that it is perfectly legal for U.S. banks to accept the profits from some crimes, provided the original crime occurred in another country, when it would be illegal to do so if the same crime was committed in the United States. The bill would close this large loophole.

As with personal resolutions, these steps would not be easy. But also, like any good goal should be, these steps are achievable. In that spirit, here’s to a happy, healthy, and transparent New Year!

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Jan
5

Cheating: A Game as Old as Games

Ann Hollingshead

Cheating in sports has existed for as long as the sports themselves. During the ancient Olympic Games in Greece, officials placed pedestals inscribed with athletes’ names at the entrance of the stadium. The names were not of great athletes, but of those who violated the rules of the Games, in order to punish them into perpetuity. In today’s version of public dishonor, our media nationally broadcasts the names and crimes of steroid-injecting baseball players, blood-doping cyclists, and plotting figure-skaters. Other athletes, who are perhaps not directly cheating in their sports, are engaging in morally reprehensible behavior. Nearly daily, headlines read of stories like Michael Vick’s dog fighting, allegations against Ben Roethlisberger for sexual assault, and Tiger Wood’s extramarital affairs.

It doesn’t seem to be getting any better. In a 2008 article on the “death of honor in sports,” Marc Ellenbogen grieves the loss of athletes like Babe Ruth and Hank Aaron, noting that sports are now riddled with “greed, dishonor, and arrogance.”  But at the end of his article, in what is now a twisted irony, he murmurs he is thankful there are “still athletes like Tiger Woods …who young people can look up to.” Less than two years after these words were written, Woods publicly admitted to having been unfaithful to his wife, telling reporters he had believed his athlete status meant that “normal rules didn’t apply.”

It’s not just athletes. In May of last year, the International Federation of Association Football (in French: Fédération Internationale de Football Association or FIFA), suspended two of its officials: Mohamed bin Hammam of Qatar and Jack Warner of Trinidad and Tobago. The national body accused these men  of attempting to bribe the 25 heads of the Caribbean football associations who were voting in an upcoming FIFA presidential election. Allegedly, Warner offered them cash gifts of $40,000 each in exchange for their votes for Bin Hammam. Warner adamantly denied the allegations against him.

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Dec
29

Will South Sudan Defy the Resource Curse?

Ann Hollingshead

United Nations Photo / flickr

The resource curse is a tragic phenomenon that countries well-endowed with natural resources tend to have slower economic growth and poorer development than those without. This theory has been demonstrated very strongly in quantitative terms. According to an analysis of developing countries by Jeffrey Sachs and Andrew Warner, the more an economy relies on mineral wealth, the lower its growth rate. Countries with significant natural resource endowments also tend to have an increased likelihood of experiencing war and violence and a decreased likelihood of having a democratic system of governance.

In January of 2011 the people of Southern Sudan—this also included expatriates and those living in the north—voted overwhelmingly in favor of independence from their northern neighbors. Their vote led to formal independence on July 9th, 2011, when South Sudan became the world’s newest nation. Given its declaration of independence has followed decades of conflict with the north—in which an estimated 1.5 million people have been killed—the secession itself was relatively painless. In a move emblematic of this relative ease, Sudan was the first nation to officially recognize its new Southern neighbor.

But now that South Sudan has officially asserted its independence, it faces numerous other obstacles. One of the most poignant is its vulnerability to the resource curse, which Secretary of State Hilary Clinton has already strongly cautioned the new nation to beware. South Sudan holds over 75% of what was the united country’s 500,000 barrels per day of oil output. Of the oil, Clinton noted: “We know that it will either help your country finance its own path out of poverty or you will fall prey to the natural resource curse which will enrich a small elite, outside interests, corporations and countries and leave your people hardly better off than when you started.”

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Dec
28

Senator Carl Levin: Watchdog for America

Ann Hollingshead

Last week, Global Financial Integrity (GFI) awarded its most prestigious honor, the Award for Exemplary Leadership, to Senator Carl Levin (D-MI). The Senator is the third person to receive this award and, given his long and exemplary career of leadership, it was well-deserved. He accepted the award at The Army and Navy Club inWashington,DC.

Senator Levin’s record of protecting American families, particularly by holding powerful institutions accountable, began with the first piece of legislation he proposed as a U.S. senator–a bill to end discrimination by credit card companies. Over his tenure in the U.S. Senate, Senator Levin has proved himself a formidable adversary for those powerful interests who seek to take advantage of weakness in our economic and financial system at the expense of ordinary Americans. He led investigations of the 2008 financial crisisabusive credit card practices, the Enron collapse, and speculation in energy and food markets.

Senator Levin has forcefully pursued his role as watchdog for Americain the field of overseas tax evasion and foreign bribery. To this end he has sponsored three pieces of legislation that promote transparency and financial integrity:

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Latest Press Releases

European Commission’s Tax Transparency Package keeps tax deals secret

Financial Transparency Coalition · March 18, 2015

The European Commission’s new measures to combat secret tax deals made between multinational companies and governments cannot be called ...

The world can’t afford to exclude developing countries from new anti-tax evasion system

Financial Transparency Coalition · March 16, 2015

BRUSSELS—Weeks after the shocking revelations of wide-spread tax evasion at HSBC’s Swiss branch, a new report from a European Commission expert ...

Leaked HSBC Records Shed Light on Culture of Corruption in the International Banking System

Global Financial Integrity · February 9, 2015

WASHINGTON, DC – Leaked HSBC documents revealed today by the International Consortium of Investigative Journalists (ICIJ) highlight a culture of corruption in the ...