Tax Justice Blog

The Price of Entry: residence and citizenship by investment around the world

May 23, 2017   Blog

Many thousands of people a year risk their lives to cross borders into what they hope will be countries of greater safety, opportunity and quality of life. Yet for others who are wealthy enough, the borders are open. For those who can pay, nationality, residency and freedom of movement are theirs.

There are many concerns around the issues of residency (see our recent blog Faking residency on how the OECD’s Common Reporting Standard for automatic exchange of banking information leaves the door wide open for fraud).

Associate Professor Allison Christians, H. Heward Stikeman Chair in the Law of Taxation at the McGill University is currently doing some very interesting research on so-called ‘residence and citizenship by investment’, a handy kind of ‘fundraiser’ that many countries seem keen on implementing. Why does this matter? Well, there are many, many concerns about this, and as blogger Christian Wayne says of this research,

“The implications of the commodification of citizenship and access to immigration vis-à-vis pay-to-play visa programs has long been a hot-button issue for international tax scholars and political scientists alike. Most historical analysis, however, does not typically consider the role taxation dynamics between origin and host countries can play, nor how they impact the tax regime in terms of gross revenue or the distributional effect on the wider economy.”

And he goes on, Allison Christian’s interest in immigrant investment programmes

“is what she dubs “The Inequality Factor”—that is, how much can wealthier, more developed countries demand in terms of higher prices and more stringent requirements (such as actual residence in the host country) for entry, versus how much poorer, less developed countries can demand in price and commitments from their applicants. Christians cautions that her research is still ongoing, but “the answer seems to be that there appears definitely a ‘rich get richer’ quality to the distinctions among programs, but there are lots of details in the programs that require further thought.”

Those of you reading this who listen to our monthly podcast the Taxcast (also available here, here and on iTunes) will have heard us discuss the slippery world of ‘residence planning’ and specifically the ‘synthetic residency’ dodge offered by Dubai in our January 2017 episode (starting at around 6 minutes 57). And this shocking example really does highlight the issue of just how low these offerings can go and how far countries will compete in a race to the bottom. Regrettably, there are plenty more of these.

Now, here’s what Allison Christians has presented on her team’s findings so far on her blog, along with a very interesting graphic:

Price of Entry-25 April 2017

Faking residency: OECD’s Common Reporting Standard leaves the door wide open for fraud

The OECD’s Common Reporting Standard (CRS) for automatic exchange of banking information leaves the door wide open for fraud. The OECD has recently made available a form to report potential avoidance schemes of the CRS. While this form is a first useful step – we’ve been sharing with them the loopholes and risks we’ve identified, and a suggestion on how to assess countries compliance with the CRS. However, we haven’t seen anything get fixed yet…

While the lack of access to automatic banking information by developing countries is our major concern with the CRS (all as a consequence of the OECD’s arbitrary conditions, such as the need for reciprocity or to be chosen in return through the ‘dating system’), for those countries that will manage to exchange information with each other, other risks prevail. Most notably, the need to (effectively) determine the residency of each account holder.

Campaign victory disarms big tobacco’s lobby front in developing countries

May 22, 2017   Blog, Praise for TJN

Update: the Financial Times has covered the great news.

Below is a press release cross-posted from Tax Tobacco for Life, about a major campaign victory, which could save hundreds of thousands, even millions of lives in some of the poorest countries in the world. Here’s the quick story.

Big Tobacco has targeted lower-income countries as the only growth markets of the future, leading to projections of many millions of unnecessary deaths. Tobacco tax is perhaps the single most important tool to prevent this – and so the use of the International Tax and Investment Center (ITIC) to influence tax policy was a key part of the companies’ strategy for growth (that is, their strategy for death).

Following our joint campaign with many of the leading development and health groups (see note 2 below), and a major media splash in November, ITIC has now decided to drop its tobacco board members and sponsors. Victory!

Evading Tax and Avoiding Tax Evasion: for decades British governments have shied away from tackling cross border crime

May 19, 2017   Blog, Corruption, Secrecy, Tax Havens

Guest blog authored by Dr Michael Woodiwiss (Arts and Cultural Industries, University of the West of England) and Dr Mary Alice Young (Bristol Law School, University of the West of England)

Al Capone: tax evader

Al Capone: tax evader

In the 1920s, an embryonic tax collecting organisation was steadily growing in the US. The Internal Revenue Service (IRS) was an agency ignored by the majority of Americans. However, the tide turned in 1931 when the IRS secured the conviction of Chicago gangster Al Capone for tax evasion.

Germany rejects beneficial ownership transparency

May 18, 2017   Blog, Secrecy

On 17 May 2017, the members of the Finance Committee of the Bundestag cast their votes for ultimate amendments to Germany’s anti-money laundering law. The governing conservatives CDU/CSU and Social Democrats SPD rejected amendments supported by the left and Green party that would have remedied three fundamental flaws in the law which prevent the public from accessing beneficial ownership information on German legal entities. These flaws consist of

  • the failure to make the registry of beneficial owners public
  • the registry’s restricted scope which is likely in breach of the 4th EU Anti-money laundering directive
  • a watered down the definition of beneficial ownership.

The law will be voted on in its current form by the Plenary of the Bundestag in the evening of the 18th May, with no opportunity to change the text further. The only way to stop and/or amend the law would be through the Bundesrat, Germany’s upper chamber. However, after recent elections, this outcome appears to be less likely.

Despite severe critiques presented at the law’s public hearing in the finance committee on 24 April, none of the fundamental weaknesses identified by TJN, German Netzwerk Steuergerechtigkeit and Transparency International have been addressed by the amendments voted for by the governing coalition (TJN’s written statement can be read and downloaded here).

On the contrary, the law has been further watered down in at least two (relatively minor) aspects (one change involves exempting trusts, Treuhandstiftungen and limited partnerships from the obligation to document the steps taken for identifying a Beneficial Owner; another is extending a restricted obligation to report suspicious transactions which was applicable in the previous version of the law only to lawyers and auditors to all professions covered by professional confidentiality, e.g. tax advisers).

The three main problems persist which prevent the public from accessing beneficial ownership information of German legal entities. Two concern the watering down of the definition of the beneficial owner, the first of which relates to the senior manager opt-out clause, which the 4th EU AMLD is allowing, but which the UK did not implement and the EU-parliament in March 2017 actually rejected in its comment on the interim proposal for amending the 4th AMLD (and which we have analysed in depth here).

The second problem relates to the obligation to identify the beneficial owner for the purposes of the registry. The obligation to identify and report the beneficial owner of the company is limited to situations in which the German company or its shareholders are directly controlled by a beneficial owner. The graph below (or in the written statement on page 4) illustrates the problem.


Our May 2017 Spanish language Podcast: Justicia ImPositiva, nuestro podcast de mayo 2017

Welcome to this month’s latest podcast and radio programme in Spanish with Marcelo Justo and Marta Nuñez, downloaded and broadcast on radio networks across Latin America and Spain. ¡Bienvenidos y bienvenidas a nuestro podcast y programa radiofónica! (abajo en castellano).

In this month’s programme:

  • A new government in Ecuador: will President Lenin Moreno continue Rafael Correa’s policies against tax havens?
  • We analyse how to tackle banks, accountants and lawyers, the brains behind the offshore system
  • How the world’s most powerful country, the United States also suffers from the effects of tax havenry, it’s not only a developing country problem
  • And the arrest and release of Jurgen Mossack and Ramón Fonseca – yes, heads of the law firm at the heart of the Panama Papers scandal

Jainism and Ethical Finance

May 16, 2017   AllAsia, Blog

“The financial crisis of 2008 has led to a re-evaluation of the role of financial institutions and their relationship with the wider economy and society. There is an increased questioning of both the conduct of business itself and the principles behind commercial and financial activities. Yet non-western voices have been notably absent from this debate, as have alternatives to the dominant western-derived economic ideologies.”

This is part of the description of a new book by Senior Lecturer in Accounting & Finance at the University of Suffolk, Atul K. Shah PhD (also author of ‘Celebrating Diversity’). His latest book is co-written with Dr Aidan Rankin and is called Jainism and Ethical Finance: A Timeless Business Model.


The Achilles heel of effective beneficial ownership registration: Why is everyone fixed on 25%?

Civil society and allies are pushing for real (and useful) transparency when it comes to disclosing the beneficial owners (BOs) of companies, meaning the individuals who ultimately own and control the companies that operate in our economies, and that could be involved in illegal activities (e.g. tax evasion, corruption, money laundering, etc.).

After many scandals, including the Panama Papers, the international community is moving in that direction, with the G20, the OECD, the Global Forum, the EU and many countries starting to regulate and require beneficial ownership registration. index

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