The Offshore Wrapper: a week in tax justice #35

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The Offshore Wrapper is written by George Turner, c/o Wrapper Towers

The Offshore Wrapper is written by George Turner, c/o Wrapper Towers

Tax Justice Network Africa launches legal challenge on Kenya government

The Tax Justice Network Africa has launched a legal challenge to the Kenyan government’s double taxation agreement with Mauritius.

xThe potential to use the agreement to avoid capital gains tax has prompted concern from campaigners.

According to TJN-A, if a company buys a Kenyan business using a holding company in Mauritius, it can avoid capital gains tax when the business is sold on. This is because instead of selling the Kenyan firm, a company can sell the Mauritian company. Kenya recently introduced capital gains tax but Mauritius doesn’t tax capital gains.

The TJN-A argues that the policy goes against the Kenyan constitution, which states that financial policies must be accountable and sustainable.

Capital gains tax avoidance using offshore holding companies is one of the oldest tricks in the book and commonly practiced throughout the world. But it has been rarely if ever challenged in the courts. TJN-A is calling this a “unique and unprecedented case”.

We will keep Wrapper readers regularly updated on the progress of this important case.


Putin wants offshore capital to fly home

Khodorkovsky: "People around Putin have plundered the Russian budget."

Khodorkovsky: “People around Putin have plundered the Russian budget.”

Russia is considering an amnesty on offshore funds in the hope that the cash which has flooded offshore in recent years will return.

Never mind that Vladimir Putin is reputed to have his own secret horde of offshore loot. Capital flight is now an increasing source of concern for the Russian president.

Witness his annual state of the nation address in 2013, when Putin said that $110bn of Russian money had passed though offshore accounts in 2012. He called for a renewed crackdown on tax evasion.

Readers of the Wrapper interested in how so much money ended up offshore would do well to read Lucy Komisar’s post on Khodorkovsky’s Contradictions.

Khodorkovsky was an oligarch who got his hands on some of Russia’s oil through Yukos – an energy giant. Like many of his contemporaries, Khodorkovsky moved some Yukos profits offshore.

But instead of being a Kremlin patsy, Khodorkovsky’s criticised the government. This provoked Putin and Khodorkovsky was arrested and served a prison sentence for tax evasion.

Other oligarchs who played the offshore game were spared if they kept quiet, and passed their time shopping in western Europe’s luxury stores.

Using the time tested theory that it takes one to know one, Khodorkovsky probably has a good idea about what happened to all the money in Russia.

Khodorkovsky recently told the Council of Foreign Relations in the US:

“People around Putin have plundered the Russian budget. This is obvious enough for the majority of Russians. Likewise easy enough to see is that they did not keep this money in Russia, but took it out to the West. Everybody understands that you knew about this.

Then they put this money into western real estate, western banks, into their good life and the good life of their families in the West, and everybody knows that you knew about this, and you were fine with the fact that the Russian people are being plundered.”

So now it seems that Putin wants the dirty money laundered through the Western banking system to come home.

The question is: how will the British and American banking system deal with what could be a case of capital making a return flight?


Cox to the Rescue!

Bush: acquited on 11 charges

Bush: acquited on 11 charges

A British Member of Parliament, Geoffrey Cox QC, had an excellent excuse to miss party conference season this year.

This is because Cox was in the Cayman Islands successfully defending its former Prime Minister in a high profile corruption case.

McKeeva Bush, was acquitted of 11 charges last week. The charges relate to allegations that the former Prime Minster spent $50,000 on a government credit card at casinos and hotels in Florida, Las Vegas and the Bahamas.

This included $12,289.43 at the Mirage Hotel and Casino, the Bellagio Hotel and The Venetian Las Vegas Casino Hotel and Resort in Las Vegas, during a trip in February 2010.

Geoffrey Cox represents West Devon in rural South West England for the Conservative Party in the UK Parliament and represented Mr Bush at the trial. Geoffrey, despite being a full time Member of Parliament also still practices as a barrister.

Mr Cox, did not deny that the former PM had withdrawn the cash from the Cayman government bank account, but argued that no laws had been broken and that the cash had been paid back.

The judge told the jury that although some of them may be surprised that a Prime Minster travelling on business would spend “hours and hours” at slot machines, they should not allow their personal feelings about gambling to affect their judgement.

Readers of the Wrapper may have their own views on the appropriateness of this.


Lonmin, mistakenly paid millions to Bermuda subsidiary – or did they?

Craig McKune, an investigative Journalist working for the M&G Centre for Investigative Journalism and a member of TJN’s Illicit Finance Journalism Programme, has been digging into the affairs at Lonmin’s mining operation in South Africa.

Last month the M&G published a story which revealed that the company had been making payments to a marketing subsidiary based in Bermuda.

Lonmin responded to say that the payments did not happen. But that directly contradicted the accounts submitted to the South African revenue authority.

If Lonmin is correct then there may well be some difficult questions of the company’s auditors, who checked the reports.

The whole episode is as clear as the mud, but we are sure the M&G will keep digging.


Colombia goes further than OECD on tax havens

Colombia has recently added Panama, Kuwait, Barbados, Qatar and the United Arab Emirates to the list it considers tax havens. Colombia’s decision raises an interesting issue about the different lists governments use to determine tax havens and capital flight.

The OECD hosts the Global Forum, which looks at how well money laundering and tax avoidance rules are implemented by financial centres. Jurisdictions that do not live up to international norms are judged non-compliant with the global forum criteria. Some countries and international institutions use this as a guide to how their authorities should look at offshore finance centers.

According to the Global Forum, Qatar is largely complaint, Barbados is partially compliant, the UAE is complaint and Kuwait has not been assessed. Colombia now appears to have significantly stricter criteria for assessing tax havens than the OECD.

Panama is considered a non-compliant jurisdiction so that is one thing the OECD and Colombia can agree on.

Sadly, Panama appears to be in complete denial. After learning of the designation from Colombia, the Panamanian foreign ministry said it has “a competitive and sound tax system, and therefore the national government categorically rejects any tax-haven designation.”

We’ve seen it all before.



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About The Author

John Christensen

Trained as a forensic auditor and economist, he has worked in many countries around the world, including a period of working in offshore financial services with Touche Ross & Co. For 11 years he was economic adviser to the government of the British Channel Island of Jersey. In 2003 he became what the Guardian has described as “the unlikely figurehead of a worldwide campaign against tax avoidance.” His research on offshore finance has been widely published in books and academic journals, and John has taken part in many films, television documentaries and radio programmes.
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