Facebook's UK corporation tax bill last year was less than it pays a single average worker

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This is an extraordinary story, from the UK's Daily Mail:

The average salary package paid to each member of Facebook staff in the UK last year was more than the entire amount the internet giant paid the Treasury in corporation tax.

Facebook paid just £238,000 to Her Majesty’s Revenue and Customs during 2011 despite annual revenues for its UK arm being estimated at £175million.

In comparison, the average staff remuneration package was £270,000 during the year.

This involved a transfer pricing game, using Ireland as the offshore bolthole. It illustrates among other things that when people talk about Ireland's headline corporation tax rate of 12.5%, this is easy to misunderstanding. What Ireland is selling, much more than that, is its willingness to help multinational corporations exclude whole chunks of their income from the tax net altogether.  TJN's Richard Murphy is quoted:

"Tax accountant Richard Murphy said the accounts were ‘meaningless’ because so much of the revenue was channelled through Ireland.

He added: ‘These accounts show that Facebook is recording expenses through the UK to claim tax relief on them, but recording costs through Ireland to benefit from its low rate of tax. It’s the same old story of we pay the price and they get the benefit.’

This company is taking the benefits from Britain - its roads, rule of law, regulated markets, educated workforce, universities, and so on - and then using the offshore system to get out of paying for any of these privileges. Facebook (presumably) hasn't actually broken the law. But this sort of thing is, to use an expression, simply criminal.

Read more about transfer pricing here. Read a fascinating tale about how Ireland created a swamp of financial and tax abuse and crime, here.

And if you want to watch a fantastic film/movie about this stuff, which manages to pull off the feat of being highly entertaining yet highly accurate at the same time, go here.

New Global Wealth Report: US median wealth close to Greece's

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Credit Suisse provides comprehensive annual reports on global wealth, which are quite well regarded by inequality and wealth experts we have spoken to. The 2012 Global Wealth Report (main report here, with data here) provides some quite surprising information.

Perhaps the most dramatic numbers in here do not concern absolute levels of wealth (Credit Suisse reckons total world wealth adds up to over $220bn) or even average levels of wealth per capita, but median levels of wealth, which give a better (if still imperfect) measure of the wealth of the ordinary  person.

Australia tops the median income scale by a country mile, with $193,653, while Italy, Japan and the UK come in at a still very creditable $123,710,  $141,410 and $115,245 respectively.

Now here is a fact that may surprise some people. The United States of America comes in at only $38,786 - just ahead of Greece, at $35,714.

The average wealth per capita tables are completely different, of course: Switzerland, which only has $87,137 in median wealth, tops the table for average wealth per capita, at a whopping $468,186 per person, with the United States not so very far behind, at $262,351, just behind France, at $265,463.

Now remember: these kinds of statistics need to be treated with care. The Sydney Morning Herald greets the latest reports with a gloomy report, noting that

"Our top position in the Credit Suisse report is exceptional but it is largely the result of an overvalued currency."

Indeed. India fared poorly, compared to last year, for similar reasons. Currency factors have a massive impact. 

Also, wealth distributions are very different from income distributions, which tend to be more important for ordinary people's wellbeing, and the distributions are skewed by many things, not least the prices of residential real estate, which have fallen quite far in the United States in recent years, but have remained pretty stratospheric in significant parts of the United Kingdom, particularly in London and the Southeast. House price ownership is also much wider in the UK than in, say, Switzerland where property ownership is concentrated in far fewer hands (a tendency that reduces Switzerland's median wealth but not average wealth, relative to the UK). 

There is tons more in this report: these are just the first facts that popped out at us.

For methodology nuts, it might also be interesting to note this, which is useful to note in the context of our July 2012 publication Inequality - You Don't Know the Half of It, accompanying our estimates of global offshore wealth, which garnered headlines around the globe.

Although sample surveys do not formally exclude high net worth (HNW) individuals with net assets above USD 1 million, they are not always captured, and the value of their wealth holdings is likely to be underestimated. The same is true to a much greater extent for ultra high net worth (UHNW) individuals with net assets above USD 50 million. In fact, the US Survey of Consumer Finances, which otherwise does an excellent job in the upper tail of the wealth distribution, explicitly omits the 400 wealthiest families from its sampling frame. This is not enough to completely invalidate our general approach: for example, the world’s billionaires reported by Forbes magazine for the year 2012 were collectively worth about USD 4.6 trillion, which equates to 2% of our estimate of USD 223 trillion for total world household wealth. However, further analysis and appropriate adjustments are required in order to paint an accurate picture of the number of the wealthiest individuals and the size of their holdings."

(And they do make adjustments.)

Tax haven Jersey, hiding over 99% of assets held there

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The government of tax haven Jersey is trumpeting:

Jersey’s Acting Comptroller of Taxes, David Le Cuirot, has sent to EU Member States a total of £4.6 million in retention tax for the year 2011.

Now let's put that into context. First, under the EU Savings Tax Directive, jurisdictions withhold taxes on certain kinds of income, then retain 25% of that for themselves and remit the rest to the home countries of the relevant taxpayers, assuming they are resident in one of the 42 jurisdictions effectively covered by the Savings Tax Directive. That means Jersey withheld £6.1 million in total.

The tax rate applied under this scheme was 20% for the first half of 2011, rising to 35% in the second half, for an average of 27.5%. Assuming a rate of return of 3% per annum, that means that the STD "captured" an asset base of roughly £740 million. 

But Jersey Finance noted that by December 2011 Jersey had £158.1bn of banking deposits and £189.4bn of funds under administration, for a total of about £350 billion.

Of the banking deposits, about 35% are from EU residents, suggesting that a total of very roughly £125 billion of potential assets.

So that £740 million only about 0.6 percent of all the assets that the Directive could cover. Over 99% of the Jersey assets escape the Directive.

It would be amusing to see the Jersey spin on these numbers, if this weren't so serious.

"The Acting Comptroller of Taxes is happy that the process of exchanging information and the payment of retention tax is continuing to work extremely well.  

 Is it, now.

David Le Cuirot said “I am extremely grateful once again for all the cooperation and help received from the paying agents, in particular the banks, who bear the greatest burden.”

Our emphasis added. That is such a terrible burden for those banks, who are facilitating a 99 percent escape rate. Let us pause, a moment, to express our sympathy.
.
.
. 




And finally,

The Treasury and Resources Minister, Senator Philip Ozouf, said “As part of our good neighbour policy we are pleased to continue voluntarily to lend support to the Member States in the implementation of their Tax on Savings Income Directive.”

Well they sure are big-hearted people over in Tax Haven Jersey. How about now doling out a few dollars to charities which dare to question Jersey's tax haven policies? Or would they prefer to continue to blackmail them?

All of which makes more odious the ongoing efforts (hat tip Richard Murphy) of those in Jersey, and those in the City of London and British establishment who support them, to urge an increase in the amount of media spin Jersey should conduct to try and shake off its richly deserved tax haven label, and the time the British government spends giving them time, while the calls of ordinary British people fall on deaf ears.


Hat tip: here

Rahm's real fight

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As I write this, the Illinois Supreme Court has ruled that they will hear the case that will determine if Rahm Emanuel, the former Illinois Congressman and White House Chief of Staff, can run for Mayor of Chicago. The ruling also has halted all ballots being printed until they make a final determination.

The issue is whether Emanuel has truly established residency to run for the office. There is a law that says a person running for mayor in an Illinois municipality must be resident of that municipality for one year before the election. There is also another law that says a person voting in any Illinois election must establish residency for one year prior to the election, unless said person is called into service for the United States of America.

Emanuel has a home in Chicago, for he was the Congressman for Illinois' 5th District from 2003 to 2009. Ironically, he replaced Rod Blagojevich in Congress. In January of 2009, he became the Chief of Staff for President Obama. He resigned in October of 2010 to run for mayor of his hometown.

Emanuel contends that he meets the residency requirement to be a voter in the upcoming election, thus making him a qualified elector, and therefore a qualified candidate for mayor. He claims that his service as Chief of Staff qualifies for the service to the United States exemption. The Chicago Board of Elections agreed with that premise and qualified him as a candidate.

However, that ruling was challenged to the Illinois Appellate Court and that court overturned their ruling. Unfortunately, I agree with the Appellate Court and I believe the Illinois Supreme Court will also. The problem for Emanuel is that while he may qualify as a voter for the election, the law concerning the qualifications as a candidate are clear and distinct. The fact that he has not been a resident of the state for one year prior to the election, and that absence is documented, Rahm Emanuel is not qualified to run for Mayor of Chicago.

It is a shame because he was the leading candidate going into the February 22nd primary. He campaigned on a positive vision for the city and was not only well-funded, but well-organized also. The main beneficiary of Emanuel leaving the race will more likely be former U.S. Senator Carol Moseley Braun, who has also campaigned as a healer, not a divider.

If the Illinois Supreme Court rules otherwise it will be a surprise, but it is a tough fight that Emanuel has to engage in and in the long run, it will bring some clarity to Chicago politics, which would be a rare, but welcome, moment indeed.

My thoughts on Mississippi's Nov. Initiatives

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As usual, while most Mississippi voters are focused on individuals seeking the various statewide, legislative and county offices, many may not be aware that there are three initiatives on the ballot as well that will impact their lives greatly. Below is my take on those initiatives and where I stand on them. I will start with Initiative #31: Should government be prohibited from taking private property by eminent domain and then transferring it to other persons? Initiative #31 would amend the Mississippi Constitution to prohibit state and local government from taking private property by eminent domain and then conveying it to other persons or private businesses for a period of 10 years after acquisition. Exceptions from the prohibition include drainage and levee facilities, roads, bridges, ports, airports, common carriers, and utilities. The prohibition would not apply in certain situations, including public nuisance, structures unfit for human habitation, or abandoned property. During my time in the Mississippi House of Representatives, this issue showed its importance as we were trying to figure out how to get Nissan to locate their new plant in Canton. We committed millions of dollars in infrastructure development which included the use of eminent domain to make that happen. Eminent domain, which is the attainment of private property for public use, in that regard was a positive because it was used for public projects but it was clear it was beneficial for a private economic development interest. This initiative will clarify in the Mississippi Constitution that eminent domain is only supposed to be used for public projects. It will prohibit eminent domain to be used, for example, to acquire land for the building of a strip mall, factory or an office building. The Farm Bureau has taken the lead in pushing this initiative because any expansion of eminent domain for private economic development would immediately threaten the largest group of landowners in the state, our farmers. I will vote YES on this initiative. Initiative #27: Should the Mississippi Constitution be amended to require a person to submit government issued photo identification in order to vote? Initiative #27 would amend the Mississippi Constitution to require voters to submit a government issued photo identification before being allowed to vote; provides that any voter lacking government issued photo identification may obtain photo identification without charge from the Mississippi Department of Public Safety; and exempts certain residents of state-licensed care facilities and religious objectors from being required to show photo identification in order to vote. One of the most emotional days during my tenure in the Legislature was when we had to take a vote on making Voter ID mandatory, so much so that I wrote a column about it in the Jackson Free Press. Every member spoke on the floor and expressed their feelings, either in support or opposition, and afterwards many of us became closer, despite competing political philosophies. Needless to say this is an emotional issue to members of the African-American community that remember poll taxes and questions like how many bubbles are there in a bar of soap. Voter ID seems like a practical, innocuous argument to preserve the integrity of the voting process. However, it has been used to suppress voter turnout for certain groups in other states. In Tennessee, a 96-year-old Black woman was denied the right to vote recently because she did not have a driver's license. In Florida, college students cannot use their college IDs, even if they attend state universities. The author of the initiative, Sen. Joey Fillingane (R-Lamar County), organized the initiative drive after killing the Voter ID bill passed by the House in the Senate. His argument was that there needed to be a "clean" Voter ID bill, without provisions that would have allowed early voting, same-day registration and restoring the suffrage of first-time felons once they have served out their sentence. It is questionable whether the US Department of Justice will approve a Constitutional Amendment that requires Voter ID for all voters, but it is very possible. It is the only initiative that has a cost attached to it. It is estimated that the initiative, if passed, could cost as much as $1.5 million from the Department of Public Safety budget. Obviously the proponents of the measure do not feel strongly enough to convince the state's 82 Circuit Clerks to provide photos on the voter registration cards they provide in their respective counties. I will vote NO on this initiative. Initiative #26: Should the term “person” be defined to include every human being from the moment of fertilization, cloning, or the equivalent thereof? Initiative #26 would amend the Mississippi Constitution to define the word “person” or “persons”, as those terms are used in Article III of the state constitution, to include every human being from the moment of fertilization, cloning, or the functional equivalent thereof. I am considered a pro-life politician. I was endorsed by Pro-Life Mississippi when I served in the House. I am opposed to abortion, an emergency medical procedure, being used as a form of birth/population control. I am a strong proponent of adoption and a former abstinence-only counselor. I voted for the House Bill that banned abortions in this state, but I was also the author of the amendment in that same bill that allowed exceptions for rape, incest and the health of the mother. As a Christian, I believe life begins at conception and that God has predestined our lives before our existence on this earth begins. However, I have also made the argument that the US Constitution and the Mississippi Constitution are not the 67th and 68th books of the Holy Bible. To redefine "person/persons" in Article III of the Mississippi Constitution would effectively ban abortions in this state, but how broad of a swath will this provision cut? Medical professionals are divided on whether the initiative would prevent in vitro fertilization and outlaw forms of conventional birth control. Would family planning activities be possibly outlawed? Would the exceptions of rape, incest and the health of the mother be considered? Here is another scenario that has not be broached: Say an immigrant couple from El Salvador comes to Mississippi without proper documentation. The wife becomes pregnant in Mississippi and then they are caught. At that point, the deportation process begins. If the personhood initiative is passed, does that fetus, which would be considered a person in the Mississippi Constitution have the right to stay, thus preventing the mother from being deported? If the Federal Government is successful in deporting the mother, can the child come back and petition for US Citizenship based on the notion it was conceived in Mississippi and was considered a person by that state's Constitution? This initiative has failed twice in Colorado, but will be introduced in four other states. The Mississippi initiative supporters' strategy is for this initiative to be challenged and struck down in the Federal Courts, moved up in the Federal docket to the Supreme Court of the United States, thus forcing them to re-visit the Roe v. Wade decision. I consider this an extreme action based on a constitutionally extreme political philosophy. I will vote NO on this initiative. Those are my positions. Research these initiatives for yourself and then cast your vote on November 8th.

We're Not Broke premieres in Scotland

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Her Majesty on a recent visit to Tax Dodging Central

The tax justice film 'We're Not Broke' has just had its European premiere at the Take One Action Film Festival in Edinburgh and Scottish trade unionist Dave Watson was there to take part in the post-film discussion.  You can read his blog here, but the following snippets caught our eye:

 "While the film focuses on the US, there were plenty of messages for us in Scotland and the UK. Not least because many of these tax havens have the Union Jack in their flags. In effect the Queen is the head of the world’s leading tax dodging corporation! Those in the SNP leadership who really think Ireland’s Corporation Tax rate is the way Scotland should go, should also watch the film. It’s done little for the desperate Irish economy and as the US experts pointed out, these corporations are not interested in halving Corporation Tax, they want zero tax. It’s just a race to the bottom."

We often draw attention to Britain's role as the Big Daddy of the global tax haven, but much more needs to be done to draw attention both to Britain's historical role in building its tax haven empire world and to its current role as blocker of international initiatives to roll back on tax havenry.  The sordid Rubik agreement with Switzerland being one example.Watson also draws attention to the role of accounting firms in advising their clients on tax dodging strategies:

 "Another message for us was the role of the big accountancy companies in oiling the wheels of corporate tax dodging. As an audience member pointed out, these are the very same companies brought in to advise on efficiency in Edinburgh council and others. Again you couldn’t make this up."

We understand that 'We're Not Broke' is being prepared for release in other languages, which is very good news.  Despite its focus on US tax dodging companies, the film covers themes relevant to every country in the world.  We hope to see it coming to a screen near you very soon; watch out for it.

Memo to the UK: the only way to win a race to the bottom is not to play

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From a speech by UK Prime Minister David Cameron:

"Because the truth is this. We are in a global race today. And that means an hour of reckoning for countries like ours. Sink or swim. Do or decline."

Now, he doesn't spell out in detail what that race is. But we at TJN, like many others, have watched this government -- even more so than the last Labour government -- engage in tax and regulatory competition, pernicious processes of beggar thy neighbour on tax, financial regulation and other public goods, in a global race to the bottom. Here Mr. Cameron would be advised to consult the US crime expert Bill Black, who, writing last March, saw the same thing from across the Atlantic, in the context of a particular piece of legislation. He cites the movie War Games where Matthew Broderick plays a hacker who gets into Department of Defense computers in a game of Global Thermonuclear War - a game in which the only way to 'win' is not to play:

The JOBS Act is insane on many levels.  It creates an extraordinarily criminogenic environment in which securities fraud will become even more out of control.   One of the forms of insanity is the belief that one can “win” a regulatory “race to the bottom.”  The only winning move is not to play in a regulatory race to the bottom.  The primary rationale for the JOBS Act is the claim that we must win a regulatory race to the bottom with the City of London by adopting even weaker protections for investors from securities fraud than does the United Kingdom (UK).

It would be one thing to engage in a race with other countries to provide the best and broadest education, and the best infrastructure, and so on. Those things require tax, the rule of law, good regulation, and so on.



It is quite another thing to engage in what Britain is doing: a race to cut taxes on the most mobile forms of capital, in order to attract the world's hot money -- those forms of capital that benefit the wealthiest sections of society, leaving the poorest sections to pick up the tab. A race to degrade financial regulation in pursuit of the hot money.



Here is the basic offering of a financial centre, pitched to a holder of global hot money: "We will not steal your money. But we will help you to steal other people's money." That stealing may take the form of foreigners evading taxes (stealing foreign taxpayers' money) or setting up unregulated insurance subsidiaries that eventually blow up and almost bring down the global financial system (again, ultimately stealing from foreign taxpayers.)

There are three problems with engaging in such a race to the bottom.

First, if you try to get rich helping people steal other people's money (and in our experience, this always involves the rich robbing the poor) then other players in the race will play the same trick back on you. The second problem is that in a race to the bottom the stealing and criminality that you assist in -- which is supposed to harm only people in other countries -- through the inexorable logic of the race simply has to get worse and worse, and eventually it will eat one's own country. And third, someone once said that the problem with rat races is that even if you win, you are still a rat. But it's worse than that here, because to win is to lose. As Richard Murphy notes, in a different commentary on Cameron's words:

"The destination is the bottom."

Facebook's UK corporation tax bill last year was less than it pays a single average worker

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This is an extraordinary story, from the UK's Daily Mail:

The average salary package paid to each member of Facebook staff in the UK last year was more than the entire amount the internet giant paid the Treasury in corporation tax.

Facebook paid just £238,000 to Her Majesty’s Revenue and Customs during 2011 despite annual revenues for its UK arm being estimated at £175million.

In comparison, the average staff remuneration package was £270,000 during the year.

This involved a transfer pricing game, using Ireland as the offshore bolthole. It illustrates among other things that when people talk about Ireland's headline corporation tax rate of 12.5%, this is easy to misunderstanding. What Ireland is selling, much more than that, is its willingness to help multinational corporations exclude whole chunks of their income from the tax net altogether.  TJN's Richard Murphy is quoted:

"Tax accountant Richard Murphy said the accounts were ‘meaningless’ because so much of the revenue was channelled through Ireland.

He added: ‘These accounts show that Facebook is recording expenses through the UK to claim tax relief on them, but recording costs through Ireland to benefit from its low rate of tax. It’s the same old story of we pay the price and they get the benefit.’

This company is taking the benefits from Britain - its roads, rule of law, regulated markets, educated workforce, universities, and so on - and then using the offshore system to get out of paying for any of these privileges. Facebook (presumably) hasn't actually broken the law. But this sort of thing is, to use an expression, simply criminal.

Read more about transfer pricing here. Read a fascinating tale about how Ireland created a swamp of financial and tax abuse and crime, here.

And if you want to watch a fantastic film/movie about this stuff, which manages to pull off the feat of being highly entertaining yet highly accurate at the same time, go here.

New Global Wealth Report: US median wealth close to Greece's

To contact us Click HERE
Credit Suisse provides comprehensive annual reports on global wealth, which are quite well regarded by inequality and wealth experts we have spoken to. The 2012 Global Wealth Report (main report here, with data here) provides some quite surprising information.

Perhaps the most dramatic numbers in here do not concern absolute levels of wealth (Credit Suisse reckons total world wealth adds up to over $220bn) or even average levels of wealth per capita, but median levels of wealth, which give a better (if still imperfect) measure of the wealth of the ordinary  person.

Australia tops the median income scale by a country mile, with $193,653, while Italy, Japan and the UK come in at a still very creditable $123,710,  $141,410 and $115,245 respectively.

Now here is a fact that may surprise some people. The United States of America comes in at only $38,786 - just ahead of Greece, at $35,714.

The average wealth per capita tables are completely different, of course: Switzerland, which only has $87,137 in median wealth, tops the table for average wealth per capita, at a whopping $468,186 per person, with the United States not so very far behind, at $262,351, just behind France, at $265,463.

Now remember: these kinds of statistics need to be treated with care. The Sydney Morning Herald greets the latest reports with a gloomy report, noting that

"Our top position in the Credit Suisse report is exceptional but it is largely the result of an overvalued currency."

Indeed. India fared poorly, compared to last year, for similar reasons. Currency factors have a massive impact. 

Also, wealth distributions are very different from income distributions, which tend to be more important for ordinary people's wellbeing, and the distributions are skewed by many things, not least the prices of residential real estate, which have fallen quite far in the United States in recent years, but have remained pretty stratospheric in significant parts of the United Kingdom, particularly in London and the Southeast. House price ownership is also much wider in the UK than in, say, Switzerland where property ownership is concentrated in far fewer hands (a tendency that reduces Switzerland's median wealth but not average wealth, relative to the UK). 

There is tons more in this report: these are just the first facts that popped out at us.

For methodology nuts, it might also be interesting to note this, which is useful to note in the context of our July 2012 publication Inequality - You Don't Know the Half of It, accompanying our estimates of global offshore wealth, which garnered headlines around the globe.

Although sample surveys do not formally exclude high net worth (HNW) individuals with net assets above USD 1 million, they are not always captured, and the value of their wealth holdings is likely to be underestimated. The same is true to a much greater extent for ultra high net worth (UHNW) individuals with net assets above USD 50 million. In fact, the US Survey of Consumer Finances, which otherwise does an excellent job in the upper tail of the wealth distribution, explicitly omits the 400 wealthiest families from its sampling frame. This is not enough to completely invalidate our general approach: for example, the world’s billionaires reported by Forbes magazine for the year 2012 were collectively worth about USD 4.6 trillion, which equates to 2% of our estimate of USD 223 trillion for total world household wealth. However, further analysis and appropriate adjustments are required in order to paint an accurate picture of the number of the wealthiest individuals and the size of their holdings."

(And they do make adjustments.)

Links Oct 12

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Coke jilts Greece as Geneva clings to holdings swissinfo
Oct 12 - "The European Union is trying to crack down on this; the example of Coca-Cola jilting Greece for Switzerland illustrates how a boon for the Swiss economy helps spell out disaster for Greece, one of the eurozone’s weakest players. See commentary on TJN Germany blog here.

Swiss are world's wealthiest individuals swissinfo
Oct 11 - "Although average individual wealth in the country dropped by 13 per cent since last year, the Swiss remain the wealthiest people in the world, according to the annual Global Wealth Report from Credit Suisse."

Argentina Targets Monsanto in Tax-Evasion Probe NASDAQ
Oct 11 - "Afip [Argentine tax authority] has suspended several of the country's largest grain-trading firms, including Bunge Ltd. (BG), Molinos Rio de la Plata SA (MOLI.BA), Louis Dreyfus and Oleaginosa Moreno, from the registry on charges of tax evasion. In 2010, Afip accused the companies of using shell companies in neighboring countries for accounting purposes that left minimal profits on the books of their Argentine units."

New Zealand: IRD extends confession time for tax dodgers New Zealand Herald
Oct 10 - "Self-employed taxpayers who paid themselves artificially low salaries to avoid the top personal tax rate are being given an extension of time to confess all to the Inland Revenue Department and arrange to pay back-tax."

See also:
Clawback less than expected New Zealand Herald
Oct 11 - "Hundreds of taxpayers are believed to have been affected by a Supreme Court decision that found two orthopaedic surgeons - Ian Penny and Gary Hooper - had avoided income tax by paying themselves low salaries through a structure of companies and trusts."

Vodafone May Avoid $2 Billion India Tax After Report Bloomberg Businessweek
Oct 10 - More reporting on this story.  See also India: Retrospective tax: a timeline of flip-flops Business Standard "The Vodafone deal was the first among many such to have escaped the tax net. The tax department estimated it would lose about Rs 40,000 crore in revenues from other Vodafone-type deals following the apex court's decision."

U.S.: The 10 Most Corrupt Tax Loopholes The Village Voice
Oct 10 - "From 2008 to 2010, at least 30 Fortune 500 companies—including PepsiCo, Verizon, Wells Fargo, and DuPont—paid more for lobbyists than they did in taxes. They collectively spent $476 million sucking up to Congress, buying protection for tax breaks, loopholes, and special subsidies."

U.S.: Surprise! More IRS Auditing of Large Companies Results in More Taxes Paid AllGov
Oct 10 - "It might seem like common sense, but researchers have validated the assumption that cracking down on deadbeat companies by the Internal Revenue Service (IRS) will result in more taxes being paid. In a paper published by Accounting Review, three academics concluded more IRS audits yields more government revenues. Hat tip: TaxProf.

U.S. Investment arms should not be used as a tax dodge, most poll respondents say Silicon Valley BizBlog
Oct 9 - "With more than $117 billion in capital under management, a low-profile Apple subsidiary called Braeburn Capital has been called the world's largest hedge fund. Yet some contend that Braeburn's purpose is less to invest Apple's cash horde and more to shield it from taxes, since investment capital is subject to less stringent tax laws and Braeburn doesn't have to file any papers with the SEC."

UK: The City has no interest in closing tax havens The Scotsman
Oct 10 - "The UK may claim it wants to stop avoidance, but its actions tell another story .."

New data: Swiss tax privileges for commodity groups contribute to exploitation of developing countries

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Here is a slightly condensed and translated version of a press release from the Berne Declaration, originally in German. This provides important new information on a little-understood sector. This comes in the context of interesting dynamics in Switzerland, with a sizeable share of the population apparently increasingly uncomfortable with commodity-based sleaze. Read about that here.
New data: Swiss tax privileges for commodity groups contribute to exploitation of developing countries
The Swiss Tax Administration has for the first time released official figures showing the size of profits of Swiss-incorporated transnational companies that enjoy special tax status.

A study published early October by the Swiss Federation of Trade Unions (SGB) estimated the profits of multinational corporations with special status (benefiting at the cantonal level from a preferential tax rate) to 39 billion CHF (in 2008). This was the first time these gains were quantified. The EU strongly criticizes these special rules. That's why the Swiss tax administration so far has been careful not to release data about this explosive topic.

This week, Swiss Television (RTS) (in French here) first published official figures. According to information provided by the Swiss Federal Tax Administration these untaxed corporate profits in 2008 amounted to 53 billion CHF and the following year even to 62 billion CHF. Not included in these gigantic sums are tax-exempt profits booked by holdings, which amounted to 195 billion CHF in 2008 alone.

To take advantage of these special rates, companies must generate at least 80 percent of their sales abroad. So the tax base is not generated in Switzerland, but consists of artificial profit shifting, to benefit from lower or zero tax. The SGB study shows that a large part of these profits booked in Switzerland stems from commodity trading and extractive industry firms - a sector whose turnover has exploded in recent years.These corporations, attracted by cantonal tax privileges, are predominantly active in developing countries. With its corporate tax policy, Switzerland therefore contributes significantly to the migration of the tax base and hence the exploitation of these countries.

More information here (RTS broadcast "toutes taxes comprises") or contact Olivier Longchamp, Berne Declaration, 0041-21620 03 09, longchamp@ladb.ch

Facebook's UK corporation tax bill last year was less than it pays a single average worker

To contact us Click HERE
This is an extraordinary story, from the UK's Daily Mail:

The average salary package paid to each member of Facebook staff in the UK last year was more than the entire amount the internet giant paid the Treasury in corporation tax.

Facebook paid just £238,000 to Her Majesty’s Revenue and Customs during 2011 despite annual revenues for its UK arm being estimated at £175million.

In comparison, the average staff remuneration package was £270,000 during the year.

This involved a transfer pricing game, using Ireland as the offshore bolthole. It illustrates among other things that when people talk about Ireland's headline corporation tax rate of 12.5%, this is easy to misunderstanding. What Ireland is selling, much more than that, is its willingness to help multinational corporations exclude whole chunks of their income from the tax net altogether.  TJN's Richard Murphy is quoted:

"Tax accountant Richard Murphy said the accounts were ‘meaningless’ because so much of the revenue was channelled through Ireland.

He added: ‘These accounts show that Facebook is recording expenses through the UK to claim tax relief on them, but recording costs through Ireland to benefit from its low rate of tax. It’s the same old story of we pay the price and they get the benefit.’

This company is taking the benefits from Britain - its roads, rule of law, regulated markets, educated workforce, universities, and so on - and then using the offshore system to get out of paying for any of these privileges. Facebook (presumably) hasn't actually broken the law. But this sort of thing is, to use an expression, simply criminal.

Read more about transfer pricing here. Read a fascinating tale about how Ireland created a swamp of financial and tax abuse and crime, here.

And if you want to watch a fantastic film/movie about this stuff, which manages to pull off the feat of being highly entertaining yet highly accurate at the same time, go here.

Links Oct 11

To contact us Click HERE
Australia Ratifies Multilateral Tax Cooperation Agreement Government Press Release
Oct 4 - Australia ratifies the Multilateral Convention on Mutual Administrative Assistance on Tax Matters.

Swiss/US QIA Compatible With Banking Secrecy Tax-News
Oct 11 - "The Swiss Federal Council has recently adopted a report on the compatibility of the Swiss/US Qualified Intermediary Agreement (QIA) with bank client confidentiality. According to the Swiss Federal Department of Finance, the Federal Council stated that banking secrecy would not be violated by the Swiss banks' agreement with the United States."

STEP and EU Commission join forces for cross-border tax conference STEP
Oct 4 - "European Commissioner for Taxation and Customs Union, Audit and Anti-Fraud Algirdas Šemeta is due to present the Commission’s proposals for tackling cross-border inheritance tax at a conference in Brussels next month" - a joint event held by The Society of Trust and Estate Practitioners, and the EU Commission.

Jersey: The richest offshore tax shelter of them all CNN
Oct 10 - "The tiny island in the Channel Islands is facing mounting criticism about its culture of secrecy ... if billions of dollars can influence the outcome of a U.S. presidential election, just think of what it can do to the de-democratization of a small island in the English Channel"

Cyprus: Taxman eyes luxury properties Cyprus Mail
Oct 10 - "The Inland Revenue Department has asked municipal authorities to furnish financial data on large residences so as to compare their owners’ assets with their income tax statements. The move is seen as part of a broader crackdown on tax evasion and avoidance."

A Double Taxation Agreement with Liechtenstein would be a tax policy "Own Goal" for Germany TJN Germany Blog
Oct 11 - A DTA would make it easier to hide untaxed money in Liechtenstein. Germany should go the route of strengthening moves towards automatic exchange of information.
Read the full opinion here.  

Oil Companies' Lawsuit Seeks to Undermine Global Transparency Revenue Watch
Oct 10 - "By filing suit today to overturn U.S. law requiring oil, gas and mining companies to publish what they pay governments, the American Petroleum Institute (API) and others are trying to turn back the clock to an era when secrecy was the rule about public resources."

If only Bill, if only Bono….then we’d have real change and no need for “innovative financing for development” Tax Research UK
Oct 11 - On a meeting between France's President Hollande with Bill Gates and Bono, where support was voiced for strengthening transparency obligations of accounts in mining and forestry. As Richard Murphy points out, "If only that transparency extended to IT companies in developing countries. And to music sales around the world."

To Tax, or Not to Tax, Overseas Cash Hoards Bloomberg Businessweek
Oct 10 - More commentary on the repatriation issue. "Citizens for Tax Justice estimates that if all the revenue from corporations’ overseas profits were collected, the Treasury would raise $583 billion over 10 years."

Apple, Google, Facebook, Amazon, eBay All Pay Minimal UK Corporation Tax Huffington Post
Oct 11 - While the headlines are concentrating on the minimal amounts of UK tax paid by Facebook, the social networking monolith is far from alone in generating questionable tax figures."

Seizure Of Over $31 Million In Connection With An International Drug Trafficking And Money Laundering Scheme U.S. Attorney's Office
Oct 10 - "Manhattan U.S. Attorney Preet Bharara said: “While this allegedly notorious drug trafficking family may be beyond our reach, the proceeds from their decades long money laundering scheme are not." Shell companies were used to layer and disguise the family’s illegal cocaine proceeds for decades.

Rahm's real fight

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As I write this, the Illinois Supreme Court has ruled that they will hear the case that will determine if Rahm Emanuel, the former Illinois Congressman and White House Chief of Staff, can run for Mayor of Chicago. The ruling also has halted all ballots being printed until they make a final determination.

The issue is whether Emanuel has truly established residency to run for the office. There is a law that says a person running for mayor in an Illinois municipality must be resident of that municipality for one year before the election. There is also another law that says a person voting in any Illinois election must establish residency for one year prior to the election, unless said person is called into service for the United States of America.

Emanuel has a home in Chicago, for he was the Congressman for Illinois' 5th District from 2003 to 2009. Ironically, he replaced Rod Blagojevich in Congress. In January of 2009, he became the Chief of Staff for President Obama. He resigned in October of 2010 to run for mayor of his hometown.

Emanuel contends that he meets the residency requirement to be a voter in the upcoming election, thus making him a qualified elector, and therefore a qualified candidate for mayor. He claims that his service as Chief of Staff qualifies for the service to the United States exemption. The Chicago Board of Elections agreed with that premise and qualified him as a candidate.

However, that ruling was challenged to the Illinois Appellate Court and that court overturned their ruling. Unfortunately, I agree with the Appellate Court and I believe the Illinois Supreme Court will also. The problem for Emanuel is that while he may qualify as a voter for the election, the law concerning the qualifications as a candidate are clear and distinct. The fact that he has not been a resident of the state for one year prior to the election, and that absence is documented, Rahm Emanuel is not qualified to run for Mayor of Chicago.

It is a shame because he was the leading candidate going into the February 22nd primary. He campaigned on a positive vision for the city and was not only well-funded, but well-organized also. The main beneficiary of Emanuel leaving the race will more likely be former U.S. Senator Carol Moseley Braun, who has also campaigned as a healer, not a divider.

If the Illinois Supreme Court rules otherwise it will be a surprise, but it is a tough fight that Emanuel has to engage in and in the long run, it will bring some clarity to Chicago politics, which would be a rare, but welcome, moment indeed.

My thoughts on Mississippi's Nov. Initiatives

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As usual, while most Mississippi voters are focused on individuals seeking the various statewide, legislative and county offices, many may not be aware that there are three initiatives on the ballot as well that will impact their lives greatly. Below is my take on those initiatives and where I stand on them. I will start with Initiative #31: Should government be prohibited from taking private property by eminent domain and then transferring it to other persons? Initiative #31 would amend the Mississippi Constitution to prohibit state and local government from taking private property by eminent domain and then conveying it to other persons or private businesses for a period of 10 years after acquisition. Exceptions from the prohibition include drainage and levee facilities, roads, bridges, ports, airports, common carriers, and utilities. The prohibition would not apply in certain situations, including public nuisance, structures unfit for human habitation, or abandoned property. During my time in the Mississippi House of Representatives, this issue showed its importance as we were trying to figure out how to get Nissan to locate their new plant in Canton. We committed millions of dollars in infrastructure development which included the use of eminent domain to make that happen. Eminent domain, which is the attainment of private property for public use, in that regard was a positive because it was used for public projects but it was clear it was beneficial for a private economic development interest. This initiative will clarify in the Mississippi Constitution that eminent domain is only supposed to be used for public projects. It will prohibit eminent domain to be used, for example, to acquire land for the building of a strip mall, factory or an office building. The Farm Bureau has taken the lead in pushing this initiative because any expansion of eminent domain for private economic development would immediately threaten the largest group of landowners in the state, our farmers. I will vote YES on this initiative. Initiative #27: Should the Mississippi Constitution be amended to require a person to submit government issued photo identification in order to vote? Initiative #27 would amend the Mississippi Constitution to require voters to submit a government issued photo identification before being allowed to vote; provides that any voter lacking government issued photo identification may obtain photo identification without charge from the Mississippi Department of Public Safety; and exempts certain residents of state-licensed care facilities and religious objectors from being required to show photo identification in order to vote. One of the most emotional days during my tenure in the Legislature was when we had to take a vote on making Voter ID mandatory, so much so that I wrote a column about it in the Jackson Free Press. Every member spoke on the floor and expressed their feelings, either in support or opposition, and afterwards many of us became closer, despite competing political philosophies. Needless to say this is an emotional issue to members of the African-American community that remember poll taxes and questions like how many bubbles are there in a bar of soap. Voter ID seems like a practical, innocuous argument to preserve the integrity of the voting process. However, it has been used to suppress voter turnout for certain groups in other states. In Tennessee, a 96-year-old Black woman was denied the right to vote recently because she did not have a driver's license. In Florida, college students cannot use their college IDs, even if they attend state universities. The author of the initiative, Sen. Joey Fillingane (R-Lamar County), organized the initiative drive after killing the Voter ID bill passed by the House in the Senate. His argument was that there needed to be a "clean" Voter ID bill, without provisions that would have allowed early voting, same-day registration and restoring the suffrage of first-time felons once they have served out their sentence. It is questionable whether the US Department of Justice will approve a Constitutional Amendment that requires Voter ID for all voters, but it is very possible. It is the only initiative that has a cost attached to it. It is estimated that the initiative, if passed, could cost as much as $1.5 million from the Department of Public Safety budget. Obviously the proponents of the measure do not feel strongly enough to convince the state's 82 Circuit Clerks to provide photos on the voter registration cards they provide in their respective counties. I will vote NO on this initiative. Initiative #26: Should the term “person” be defined to include every human being from the moment of fertilization, cloning, or the equivalent thereof? Initiative #26 would amend the Mississippi Constitution to define the word “person” or “persons”, as those terms are used in Article III of the state constitution, to include every human being from the moment of fertilization, cloning, or the functional equivalent thereof. I am considered a pro-life politician. I was endorsed by Pro-Life Mississippi when I served in the House. I am opposed to abortion, an emergency medical procedure, being used as a form of birth/population control. I am a strong proponent of adoption and a former abstinence-only counselor. I voted for the House Bill that banned abortions in this state, but I was also the author of the amendment in that same bill that allowed exceptions for rape, incest and the health of the mother. As a Christian, I believe life begins at conception and that God has predestined our lives before our existence on this earth begins. However, I have also made the argument that the US Constitution and the Mississippi Constitution are not the 67th and 68th books of the Holy Bible. To redefine "person/persons" in Article III of the Mississippi Constitution would effectively ban abortions in this state, but how broad of a swath will this provision cut? Medical professionals are divided on whether the initiative would prevent in vitro fertilization and outlaw forms of conventional birth control. Would family planning activities be possibly outlawed? Would the exceptions of rape, incest and the health of the mother be considered? Here is another scenario that has not be broached: Say an immigrant couple from El Salvador comes to Mississippi without proper documentation. The wife becomes pregnant in Mississippi and then they are caught. At that point, the deportation process begins. If the personhood initiative is passed, does that fetus, which would be considered a person in the Mississippi Constitution have the right to stay, thus preventing the mother from being deported? If the Federal Government is successful in deporting the mother, can the child come back and petition for US Citizenship based on the notion it was conceived in Mississippi and was considered a person by that state's Constitution? This initiative has failed twice in Colorado, but will be introduced in four other states. The Mississippi initiative supporters' strategy is for this initiative to be challenged and struck down in the Federal Courts, moved up in the Federal docket to the Supreme Court of the United States, thus forcing them to re-visit the Roe v. Wade decision. I consider this an extreme action based on a constitutionally extreme political philosophy. I will vote NO on this initiative. Those are my positions. Research these initiatives for yourself and then cast your vote on November 8th.

UK's former top tax man Hartnett ambushed at Oxford dinner by "trespassing scum" giving tax avoidance award

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The UK's former top tax man, Dave Hartnett, was ambushed while giving a speech at New College Oxford when a group posing as representatives of the tax-avoiding companies Vodafone and Goldman Sachs burst in to the event to present him with a "Golden Handshake" lifetime achievement award for his services to corporate tax avoidance.

Enjoy the video, which among many other things features an Oxford official called Robert (apparently Robert Venables QC, a corporate tax lawyer), gently ushering the protesters out with the not-so-gentle words, in a voice dripping with condescension

"You will depart immediately, before we set the dogs on you."

They depart, singing "for he's a jolly good fellow . . . and so say Goldman Sachs!"

And at the door, the same official pushes them out with the immortal words:

"You are trespassing scum. Go!"

In the light of the current "Plebs" scandal in the UK, the timing of this is rather unfortunate.
Interestingly, a few people in the Oxford audience appear to be clapping the protesters.

And just look at that list of speakers!  "Tax Planning for Trusts," and much more.

See the full story in The Telegraph.

Trust us, we're euphoric - Private equity and a tax haven part of the EBRD's first post-Arab Spring swoop

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For its first loan to 'Arab Spring' countries the European Bank for Reconstruction and Development has chosen vehicles and partners whose ability to deliver developmental value is highly uncertain.
Public investment millions provided to a private equity fund based in a tax haven - these days, with the buccaneer activities of private equity firms and the use and abuse of tax havens very much in the public spotlight, this kind of thing could validly be expected to provoke a public outcry. Yet when such investments are made under the cloak of international 'development finance', as the European Bank for Reconstruction and Development did last week, there is not only cursory media reporting but, by the sounds of it, some hearty back-slapping within the EBRD itself.

The deal in question, a EUR 20 million equity investment in Maghreb Private Equity Fund III, is part of the EBRD’s first raft of signed-off investments for the Middle East and North Africa (MENA) region.

Private equity may set some alarm bells ringing (just ask the Obama presidential campaign) but the Maghreb Private Equity Fund III is also based in Mauritius, a renowned tax haven, a fact not alluded to in the EBRD’s press materials. It is, however, cited in the bank's project summary document that was published unusually late: not months in advance of the EBRD's board meeting to discuss it, as is the norm, but on the same day as the board approved it.

Accompanying the press announcement of this private equity deal, and two others involving 'intermediated finance' (see below) in the EBRD's new region of operations, was a Tweet from the bank’s recently appointed president, Suma Chakrabarti:

Suma Chakrabarti @ebrdsuma EBRD Board just approved the first projects for Morocco, Tunisia and Jordan. Historic day. Euphoria, with staff and countries praised. 18 Sep 12

Clearly much excitement, then, as the EBRD’s lengthily trailed and controversial entry into the MENA region became a reality. Given the nature of these investments, though, and their highly uncertain ability to deliver developmental value in these acutely needy economies, what exactly is there to shout about?

Black hole development finance

Last week's private equity deal and the two other accompanying investments in Jordan and Morocco see the EBRD relying on intermediary institutions to select and pass on loans to thousands of final beneficiaries, usually in the small- and medium-sized enterprises (SME) sector.

While the intention of these investments is to spur economic development by lending to SMEs, the investment model (so called 'intermediated finance') raises more questions than answers.

For one thing, based on the EBRD's track record in eastern Europe over more than a decade, accountability for this type of lending is nowhere to be seen due to commercial confidentiality. The EBRD is not compelled to (and very rarely does) reveal publicly who the final beneficiaries are, or what they have been doing with the funding; nor do the intermediary institutions, be they commercial banks, private equity firms or hedge funds.

And yes, the World Bank's private lending arm, the IFC, has invested in a hedge fund under the 'development' banner. As Nick Hildyard of The Corner House has recently pointed out, though:

'An IFC review of its private equity portfolio has concluded that any correlation between high profits and wider positive development outcomes was relatively weak, and that the most pronounced impact of private equity investments was in "improvements in private sector development", such as encouraging changes in the law favourable to the private sector. In effect, what is good for private equity is good for private equity – but not necessarily for the wider public.'

What's more, a May 2011 report of the World Bank Independent Evaluation Group, Assessing IFC’s Poverty Focus and Results (pdf), found that less than half of the projects reviewed (the IFC invests only in the private sector) were designed to deliver development outcomes, and just one third of the projects addressed market failures, such as enhancing access to markets or employment of the poor.

A further red flag

If you're new to intermediated finance, then, it doesn't exactly seem to add up. But there's the added red flag that the investments announced by the EBRD include a client that is registered in a tax haven. In spite of its development bank status, and similar to other institutions such as the World Bank and the European Investment Bank, the EBRD is still permitted to provide financing to entities based in tax havens. The risks of doing so, particularly in a development context, are becoming increasingly well documented - as usual the peerless Tax Justice Network has been leading the way.

More evidence is provided in a recently published report from the development NGO Eurodad. Private profit for public good? Can investing in private companies deliver for the poor? maps out the recent rapid growth in the intermediated finance sums being doled out with a 'development' stamp by the international financial institutions, and has uncovered the alarming trends that come with it.

Analysing this kind of private sector financing provided by the EIB, the IFC and other development finance institutions (the EBRD was not part of the analysis), between 2006 and 2010, Eurodad found that:

• Only 25 percent of all companies supported by the EIB and IFC were domiciled in low-income countries.
• Almost half of the analysed financing went to support companies based in OECD (ie, developed rather than developing) countries and tax havens.
• Around 40 percent of the companies in Eurodad's sample are big companies listed in some of the world’s largest stock exchanges.

As the Eurodad report points out,

'Unfortunately development banks and private financial institutions have a spotty record when it comes to the development impact of their projects, so “trust us” does not qualify as an effective method of monitoring and evaluation.'

Development ineffectiveness

The UK Department for International Development (DfID), the UK government agency responsible for interacting with and channelling UK development money to the EBRD and other agencies, has arrived at similar conclusions regarding the EBRD and development. DfID's 2011 multilateral aid review rated the EBRD among the bottom ten of 43 institutions assessed in 'contributing to UK development objectives'.

At the time of this review EBRD president Chakrabarti was the top civil servant at DfID, so these findings can not have escaped his attention. Transforming the EBRD into an institution that delivers much more effectively on development goals is surely one of the key challenges for Chakrabarti's presidency.

What's in store for Egypt?

It is highly concerning that the EBRD has opted to signal its entry into a new region of operations with these type of investments. More of the same can now be expected, involving not millions but billions of public money. With EBRD investments expected shortly to commence flowing into Egypt, where tax haven abuse by Hosni Mubarak, his family and other cronies was rife, the people of the region must be scratching their heads about the west's post-revolution response.

The EBRD's dubious infant steps into North Africa and the Middle East, not to mention its already very grey-tinged footprints in eastern Europe, could be set on a more appropriate path. To do so requires this development bank to grant full public disclosure of where these funds are going, who is benefiting and what the real added value in terms of job creation and environmental sustainability actually is.
This blog is cross posted with permission from CEE Bank Watch
Original author Greig Aitken, Bankwatch Mail editor in chief

UK's ruling Liberal Democrats, steeped in money from tax haven Jersey

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Cross-posted with the Treasure Islands blog:

A few interesting stories have emerged in the past few days about Britain's Liberal Democrats, the minority party currently in the ruling coalition with the Conservative Party (which used to be the self-styled party of Business, but is now really the party of Finance.)
Let's start with this one about a speech by LibDem Danny Alexander, Chief Secretary to the Treasury. The following heading and sub-heading say it all:

"Danny Alexander: firms in tax havens will be denied public money: Firms will be banned from getting public money if they are based in tax havens rather than mainland Britain, Danny Alexander has said."

The UK Business Secretary, Vince Cable, had a similar but broader message:

The business secretary told delegates he would crack down on those who used secretive, low tax jurisdictions: "No one keeps their cash in tax havens for the quality of investment advice; these are sunny places for shady people," he said.

So far, so good. But now look at these shockers. First, take a look at this from BBC Jersey, (which locals tell me -- and this story is a prime example -- is essentially a mouthpiece for the island's tax haven industry. It concerns the LibDems' leader, and the UK's Deputy Prime Minister, Nick Clegg:

"The financial services industry in the Channel Islands has been described as "hugely important" by the UK's Deputy Prime Minister Nick Clegg. He told the BBC the islands were "an important gateway for the wider financial sector and indeed the economy in the United Kingdom".

Well, first of all, this is accurate: in Treasure Islands I describe Jersey as a feeder of vast gobs of global finance into the City of London. Yes, the Channel Islands tax havens are indeed 'hugely important' to the City of London - but that is absolutely not the same thing as saying that this is a good thing. No, Virginia: it is an appalling truth.

And then we get to what may, perhaps, be the nub of the issue. Take a look at this, from the Daily Mail: a firm called Brompton Capital, based in The Septic Isle (a term that many financial experts use to describe Tax Haven Jersey - and we don't mean the population of Jersey here, but its financial sector), which is:

"the biggest corporate backer of the Lib Dems, donating £777,000 since the General Election in 2010. . . . Shares in the firm are owned by an offshore firm called Integro Nominees (Jersey) Ltd, which is based in the Channel Island tax haven."

The owner of the company has repeatedly refused to respond to questions about why his company shareholdings were based in Jersey, or why he had donated money to both the Lib Dems and a senior Conservative. One of the recipients of the company's money is Andrew Mitchell, who is fighting to save his job following claims he called Downing Street police officers ‘fucking plebs’ after they wouldn't allow him to pass through the main gate at Downing Street on his bicycle.

As Tax Research comments on Nick Clegg's and the LibDem party's acceptance of this money:

"Oh, how convenient. And how corrupt. He's been bought."

And if you have any doubts as to the depth of corruption in Jersey, try this, and follow the links on back. There's more. From the Guardian:

"Alpha Healthcare and its sister company C & C Alpha Group, part of a venture capital group in the private health sector, have together donated £970,000 to the Lib Dems since 2004. Alpha's parent company, Harberry Investments, is based in a small office in Tortola in the British Virgin Islands."

If you think Jersey is dirty - that's nothing compared to the gigantic global swamp of crime, corruption and secrecy that is the financial and offshore corporate and trust sector in the British Virgin Islands. (More on that quite soon.) And there's plenty more on the LibDems' offshore links in that same story.

(An aside: the owner of the Jersey company mentioned here won the UK Franchise for Domino's Pizza, which was one of the star purchases for Mitt Romney's Bain capital.)

We're Not Broke premieres in Scotland

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Her Majesty on a recent visit to Tax Dodging Central

The tax justice film 'We're Not Broke' has just had its European premiere at the Take One Action Film Festival in Edinburgh and Scottish trade unionist Dave Watson was there to take part in the post-film discussion.  You can read his blog here, but the following snippets caught our eye:

 "While the film focuses on the US, there were plenty of messages for us in Scotland and the UK. Not least because many of these tax havens have the Union Jack in their flags. In effect the Queen is the head of the world’s leading tax dodging corporation! Those in the SNP leadership who really think Ireland’s Corporation Tax rate is the way Scotland should go, should also watch the film. It’s done little for the desperate Irish economy and as the US experts pointed out, these corporations are not interested in halving Corporation Tax, they want zero tax. It’s just a race to the bottom."

We often draw attention to Britain's role as the Big Daddy of the global tax haven, but much more needs to be done to draw attention both to Britain's historical role in building its tax haven empire world and to its current role as blocker of international initiatives to roll back on tax havenry.  The sordid Rubik agreement with Switzerland being one example.Watson also draws attention to the role of accounting firms in advising their clients on tax dodging strategies:

 "Another message for us was the role of the big accountancy companies in oiling the wheels of corporate tax dodging. As an audience member pointed out, these are the very same companies brought in to advise on efficiency in Edinburgh council and others. Again you couldn’t make this up."

We understand that 'We're Not Broke' is being prepared for release in other languages, which is very good news.  Despite its focus on US tax dodging companies, the film covers themes relevant to every country in the world.  We hope to see it coming to a screen near you very soon; watch out for it.

Links Oct 10

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Singapore Designates Tax Crimes As Money Laundering Tax-News
Oct 10 - "The Monetary Authority of Singapore (MAS) has issued a consultation paper on the designation of tax crimes as money laundering (ML) ‘predicate offences’ in Singapore."

Bangladesh: No to IMF loan, Yes to Tax Justice Equitybd
A civil society network of right groups in Bangladesh is criticising the IMF for pursuing discredited tax policy in Bangladesh, asserting that VAT is regressive to the poor, and in respect of tax policy there should be emphasis on direct tax. Organisations supporting the mobilisation are urged to sign a statement here (scroll down the link for more information on the campaign).

India: Vodafone may get relief in tax dispute The Times of India
Oct 9 - Latest developments on this story: " In a recommendation that could give relief to companies like Vodafone, a government-appointed committee today favoured prospective application of tax law and waiver of interest and penalty in case of retrospective application. "

West Africa: Better Mining Tax Collection to Maximize Development Impact allAfrica
Oct 9 - World Bank press release: "In an effort to ensure that resources from mining have the greatest development impact in resource-rich countries, the World Bank's Oil, Gas and Mining unit recently organized a major capacity-building event on "Improving Mining Tax Collection Administration Frameworks" in West Africa."

Colombians have over $50B in offshore accounts: finance minister Colombia Reports
Oct 9 - Finance Minister Mauricio Cardenas revealed that there was more than $50 billion held in offshore accounts that is not contributing to the coffers of the country, but added that the country's new tax reform includes mechanisms to find and demand contributions from those whose money is kept abroad. Hat tip: Offshore Watch

Natural resources: From curse to blessing TJN Germany Blog
Oct 10 - A new campaign video from Micha-Initiative Deutschland makes it shockingly clear how the coltan used for our cell phone funds the war in the Congo, and what can be done about it. The blog points to developments in transparency initiatives.

Rehn calls for end to tax havens yle
Oct 6 - The Vice-President of the EU Commission Olli Rehn has called for an end to tax havens ... A move to abolish tax havens would require a greater harmonization of taxation within the EU."

Will Britain tackle tax evasion? Transparency International
Oct 10 - Commenting on how several "tax havens" fall under UK jurisdiction - "They constitute a major responsibility for Britain, one which is largely avoided."

UK's former top tax man Hartnett ambushed at Oxford dinner by "trespassing scum" giving tax avoidance award

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The UK's former top tax man, Dave Hartnett, was ambushed while giving a speech at New College Oxford when a group posing as representatives of the tax-avoiding companies Vodafone and Goldman Sachs burst in to the event to present him with a "Golden Handshake" lifetime achievement award for his services to corporate tax avoidance.

Enjoy the video, which among many other things features an Oxford official called Robert (apparently Robert Venables QC, a corporate tax lawyer), gently ushering the protesters out with the not-so-gentle words, in a voice dripping with condescension

"You will depart immediately, before we set the dogs on you."

They depart, singing "for he's a jolly good fellow . . . and so say Goldman Sachs!"

And at the door, the same official pushes them out with the immortal words:

"You are trespassing scum. Go!"

In the light of the current "Plebs" scandal in the UK, the timing of this is rather unfortunate.
Interestingly, a few people in the Oxford audience appear to be clapping the protesters.

And just look at that list of speakers!  "Tax Planning for Trusts," and much more.

See the full story in The Telegraph.

Trust us, we're euphoric - Private equity and a tax haven part of the EBRD's first post-Arab Spring swoop

To contact us Click HERE

For its first loan to 'Arab Spring' countries the European Bank for Reconstruction and Development has chosen vehicles and partners whose ability to deliver developmental value is highly uncertain.
Public investment millions provided to a private equity fund based in a tax haven - these days, with the buccaneer activities of private equity firms and the use and abuse of tax havens very much in the public spotlight, this kind of thing could validly be expected to provoke a public outcry. Yet when such investments are made under the cloak of international 'development finance', as the European Bank for Reconstruction and Development did last week, there is not only cursory media reporting but, by the sounds of it, some hearty back-slapping within the EBRD itself.

The deal in question, a EUR 20 million equity investment in Maghreb Private Equity Fund III, is part of the EBRD’s first raft of signed-off investments for the Middle East and North Africa (MENA) region.

Private equity may set some alarm bells ringing (just ask the Obama presidential campaign) but the Maghreb Private Equity Fund III is also based in Mauritius, a renowned tax haven, a fact not alluded to in the EBRD’s press materials. It is, however, cited in the bank's project summary document that was published unusually late: not months in advance of the EBRD's board meeting to discuss it, as is the norm, but on the same day as the board approved it.

Accompanying the press announcement of this private equity deal, and two others involving 'intermediated finance' (see below) in the EBRD's new region of operations, was a Tweet from the bank’s recently appointed president, Suma Chakrabarti:

Suma Chakrabarti @ebrdsuma EBRD Board just approved the first projects for Morocco, Tunisia and Jordan. Historic day. Euphoria, with staff and countries praised. 18 Sep 12

Clearly much excitement, then, as the EBRD’s lengthily trailed and controversial entry into the MENA region became a reality. Given the nature of these investments, though, and their highly uncertain ability to deliver developmental value in these acutely needy economies, what exactly is there to shout about?

Black hole development finance

Last week's private equity deal and the two other accompanying investments in Jordan and Morocco see the EBRD relying on intermediary institutions to select and pass on loans to thousands of final beneficiaries, usually in the small- and medium-sized enterprises (SME) sector.

While the intention of these investments is to spur economic development by lending to SMEs, the investment model (so called 'intermediated finance') raises more questions than answers.

For one thing, based on the EBRD's track record in eastern Europe over more than a decade, accountability for this type of lending is nowhere to be seen due to commercial confidentiality. The EBRD is not compelled to (and very rarely does) reveal publicly who the final beneficiaries are, or what they have been doing with the funding; nor do the intermediary institutions, be they commercial banks, private equity firms or hedge funds.

And yes, the World Bank's private lending arm, the IFC, has invested in a hedge fund under the 'development' banner. As Nick Hildyard of The Corner House has recently pointed out, though:

'An IFC review of its private equity portfolio has concluded that any correlation between high profits and wider positive development outcomes was relatively weak, and that the most pronounced impact of private equity investments was in "improvements in private sector development", such as encouraging changes in the law favourable to the private sector. In effect, what is good for private equity is good for private equity – but not necessarily for the wider public.'

What's more, a May 2011 report of the World Bank Independent Evaluation Group, Assessing IFC’s Poverty Focus and Results (pdf), found that less than half of the projects reviewed (the IFC invests only in the private sector) were designed to deliver development outcomes, and just one third of the projects addressed market failures, such as enhancing access to markets or employment of the poor.

A further red flag

If you're new to intermediated finance, then, it doesn't exactly seem to add up. But there's the added red flag that the investments announced by the EBRD include a client that is registered in a tax haven. In spite of its development bank status, and similar to other institutions such as the World Bank and the European Investment Bank, the EBRD is still permitted to provide financing to entities based in tax havens. The risks of doing so, particularly in a development context, are becoming increasingly well documented - as usual the peerless Tax Justice Network has been leading the way.

More evidence is provided in a recently published report from the development NGO Eurodad. Private profit for public good? Can investing in private companies deliver for the poor? maps out the recent rapid growth in the intermediated finance sums being doled out with a 'development' stamp by the international financial institutions, and has uncovered the alarming trends that come with it.

Analysing this kind of private sector financing provided by the EIB, the IFC and other development finance institutions (the EBRD was not part of the analysis), between 2006 and 2010, Eurodad found that:

• Only 25 percent of all companies supported by the EIB and IFC were domiciled in low-income countries.
• Almost half of the analysed financing went to support companies based in OECD (ie, developed rather than developing) countries and tax havens.
• Around 40 percent of the companies in Eurodad's sample are big companies listed in some of the world’s largest stock exchanges.

As the Eurodad report points out,

'Unfortunately development banks and private financial institutions have a spotty record when it comes to the development impact of their projects, so “trust us” does not qualify as an effective method of monitoring and evaluation.'

Development ineffectiveness

The UK Department for International Development (DfID), the UK government agency responsible for interacting with and channelling UK development money to the EBRD and other agencies, has arrived at similar conclusions regarding the EBRD and development. DfID's 2011 multilateral aid review rated the EBRD among the bottom ten of 43 institutions assessed in 'contributing to UK development objectives'.

At the time of this review EBRD president Chakrabarti was the top civil servant at DfID, so these findings can not have escaped his attention. Transforming the EBRD into an institution that delivers much more effectively on development goals is surely one of the key challenges for Chakrabarti's presidency.

What's in store for Egypt?

It is highly concerning that the EBRD has opted to signal its entry into a new region of operations with these type of investments. More of the same can now be expected, involving not millions but billions of public money. With EBRD investments expected shortly to commence flowing into Egypt, where tax haven abuse by Hosni Mubarak, his family and other cronies was rife, the people of the region must be scratching their heads about the west's post-revolution response.

The EBRD's dubious infant steps into North Africa and the Middle East, not to mention its already very grey-tinged footprints in eastern Europe, could be set on a more appropriate path. To do so requires this development bank to grant full public disclosure of where these funds are going, who is benefiting and what the real added value in terms of job creation and environmental sustainability actually is.
This blog is cross posted with permission from CEE Bank Watch
Original author Greig Aitken, Bankwatch Mail editor in chief