In this month’s July 2017 Taxcast: we explore Land Value Tax and the billions in revenue we’re missing out on. Plus:
- Tax Haven USA signs up to potential sanctions and blacklisting of the few nations still refusing to comply with international financial transparency rules, which would er, include itself as the world’s prime offender. Did Team USA read the small print? And will the G20, OECD and the EU really blacklist one of the world’s biggest economies?
- Also, at last, Members of the European Parliament vote for public country by country reporting for the world’s biggest companies – but a last minute amendment was tabled…
Ireland: State and Apple near deal over billions in back tax The Irish Times
Certainty in the tax treaty regime Martin Hearson
Many Ways to Lose a Billion: How Governments Fail to Secure a Fair Share of Natural Resource Wealth Report by Publish What You Pay Canada
Today is the launch of #AltAusterity, a new, international research collaboration of which Tax Justice Network is a partner. The project aims to stimulate public debate on the subject of austerity though high quality research. It is a response to the lack of evidence which has underpinned the current policy agenda on austerity.
The project comes together following a December, 2016 workshop which brought together national findings on the damage being done under the rubric of austerity – not least, the UK’s persistence with dramatic corporate tax cuts, despite the clear and unrefuted evidence of the lack of benefits the policy brings. (See our Alex Cobham’s presentation slides.)
Over the coming years we will explore austerity in terms of cuts to spending (‘fiscal consolidation’) and revenue (e.g. tax cuts), but also public sector restructuring and labour market reforms. Although there is substantial evidence that austerity harms rather than aids economic growth and that it disproportionately hurts the most vulnerable of society, it remains salient and prominent in everyday political and policy conversations in many countries. Despite the growing public dissatisfaction with the policy, as expressed through the ballot box and protests.
Peer Pressure: Tax competition and developing economies The World Bank
Read about tax ‘competition’ and tax wars here.
Brazil Shuts Down Successful Corruption-Fighting Task Force The New York Times
See also: Brazilian authorities disbanding team that investigates mass corruption scandal The Washington Post, and Brazilians questioning whether big probe will end corruption ABC News
A study on the impact of the Panama Papers recommends the EU to protect whistleblowers European Federation of Journalists
RB tax avoidance – company calls for public country by country reporting after Oxfam report reveals profit shifting
Oxfam has today released a report on tax dodging by RB, the company formerly known as Reckitt Benckiser and the maker of thousands of well known household products.
The report looks at the 2012 restructuring of the company which saw it set up ‘hubs’ in the Netherlands, Dubai and Singapore, all well known corporate tax havens, and demonstrates the continuing power of the corporate expose as a mechanism for encouraging companies to change their ways. As a result of Oxfam’s work, RB itself is now calling on governments around the world to legislate to compel all multinationals to be transparent about the tax they pay though country by country reporting of key financial data.
If you ever wondered what kind of response to a financial transparency law might indicate a corrupted financial secrecy industry, look no further. We reported recently on what’s been happening to trusts in New Zealand in our Offshore Wrapper (our weekly take on tax justice news – for which you can sign up here, don’t miss out). First, here’s what our very own George Turner reported on about a month ago, followed by interesting updates:
There was news this week that Mauritius has signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). This is an initiative from the OECD to allow countries to take measures designed to stop tax avoidance by multinational companies and put them into their existing network of tax treaties without renegotiating those treaties.
This is a particularly important measure for a countries like Mauritius. Mauritius has a wide network of tax treaties with African and South Asian countries allowing it to act as a conduit for capital to slip tax freely between the West and the developing world. This is commonly called treaty shopping.
So, the signing of the MLI by Mauritius should be seen as good news. Well, not quite. The MLI does not change the relationship between the signatory and all other countries that have a tax treaty with the signatory. Jurisdictions which are not part of the MLI are not included, and even within the MLI jurisdictions can chose not to modify tax treaties with others in the system. This happens through the publication of each country’s ‘preferences’.
A closer look at Mauritius’s ‘preferences’ shows that a number of vitally important treaty relationships are not covered by the jurisdiction joining the MLI, leaving a number of developing countries vulnerable to companies using Mauritius to shift profits in an attempt to avoid tax.
We have been through the list of Mauritius’s ‘preferences’ in the MLI and Mauritius’s existing treaty network. The jurisdictions which currently have a treaty relationship with Mauritius but are not covered by the MLI are as follows:
Countries which are not covered by the MLI or do not match in terms of these preferences have to renegotiate their treaties on a bilateral basis to include clauses which prevent the tax abuse. Here things can get complicated too, as there are a range of anti-avoidance measures available to countries, some better than others. In one key area – the anti-treaty abuse rule – an effective option is to apply a “principle purpose test”. (PPT) This test denies the benefits of a tax treaty if one of the principle purposes of a transaction was to gain that treaty benefit. Mauritius has accepted this test as an interim measure in the countries it will implement the MLI with.
However, in bi-lateral negotiations it has said it prefers the limitation of benefit rule, which applies a large number of more technical criteria to the parties completing a transaction and denies treaty benefits to parties which do not meet those tests. Those tests can be a local ownership requirement, for example.
A limitation of benefits rule is much more complicated to administer than than a PPT test, which causes difficulties for developing countries.
Finally, through the MLI system a country does not need to implement all of the anti-avoidance provisions which form part of the MLI. As well as choosing which countries the MLI applies to, a contracting party can also express reservations on specific policy areas which it does not want to implement. Mauritius has a great deal of reservations about MLI provisions, including on measures such as strengthening capital gains tax from the sale of participations in domestic companies (article 9), the transfer of dividends (article 8), and provisions to prevent tax abuse of income from permanent establishments in third countries (article 10), and the artificial avoidance of permanent establishment status (articles 12 and 13).
So whilst Mauritius (and others) may celebrate the signing of the MLI as a great work of spin for this tax haven island, the weakness of the system still allows this jurisdiction to create significant problems for its neighbours in Africa and South Asia.