Tax Justice Blog

Post-Panama Papers sunlight on New Zealand Trusts

July 13, 2017   Beneficial Ownership, Blog, Secrecy

Wellington,_New_Zealand,_2_March_2007_-_Flickr_-_PhillipC

UPDATE BELOW, 24/07/2017

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:

Half measures mean Mauritius will continue to be a tax haven for the developing world

July 12, 2017   Africa, Blog, Tax Havens, Tax Treaties

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:

Australia Botswana Egypt
India Malaysia Mozambique
Namibia Nepal Pakistan
Bangladesh China Rwanda
Senegal Singapore Sri Lanka
Thailand Tunisia Uganda
Zambia Zimbabwe

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.

Our July 2017 Spanish language Podcast: Justicia ImPositiva, nuestro podcast de julio 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 the July 2017 programme:

  • The fire in Grenfell Tower in London that shocked the world and exposed the social housing problems and the power of tax havens there
  • In our mini-series on tax havens we look at the biggest users of tax havens – multinational companies
  • Feminism, economics and gender inequality – does the tax system discriminate against women?
  • There are no more tax havens! That’s the rather odd view of thee OECD. How come Guatemala’s one of the first beneficiaries of this announcement?

Guests:

  • Writer and housing activist George Turner
  • Economist Verónica Grondona, adviser at the European Parliament
  • Corina Rodriguez Enriquez, Economist at the National Scientific and Technical Research Council in Argentina, CONICET
  • Abelardo Medina, director del Instituto de Centroamericano de Estudios Fiscales, ICEFI
  • Brief appearances from Jeremy Corbyn, Labour Party leader and the Ecuadorian President, Jimmy Morales

G20: Pressure rising on tax haven USA

Whilst the eyes of the world focused on the isolation of the US from the ‘G19’ position on climate change, something remarkable played out elsewhere in the process. Following closely the common EU position that we highlighted a few days ago, the G20 communique devotes important space to tax justice.

It’s so good we quote it in full below. But the key point is in our added italics: the EU (and presumably others) have managed to get the US to sign up to the new international standard for automatic, multilateral exchange of tax information, the Common Reporting Standard (CRS).

The US is currently the only financial centre of any size not to sign up to the CRS.

Further on in the text the communiqué threatens sanctions against countries which do not meet the agreed international standards on tax transparency which include adoption of the CRS. So has the US given up on the opaque road marked ‘Tax Haven USA’?

The logic of the communiqué is clear. If the OECD is serious about enforcing international standards of tax transparency, it must blacklist the US if it fails to adopt the CRS before 2018. This will pave the way for other countries to put in place sanctions against US banks, forcing compliance. Whether the OECD will have the political space, or the guts to do that to its biggest member, is another question altogether. But it’s now clear that the EU is promoting the CRS as the standard it expects the US to reach. The EU blacklisting process will also be watched with interest.

International Tax Cooperation and Financial Transparency: We will continue our work for a globally fair and modern international tax system and welcome international cooperation on pro-growth tax policies. We remain committed to the implementation of the Base Erosion and Profit Shifting (BEPS) package and encourage all relevant jurisdictions to join the Inclusive Framework. We look forward to the first automatic exchange of financial account information under the Common Reporting Standard (CRS) in September 2017. We call on all relevant jurisdictions to begin exchanges by September 2018 at the latest. We commend the recent progress made by jurisdictions to meet a satisfactory level of implementation of the agreed international standards on tax transparency and look forward to an updated list by the OECD by our next Summit reflecting further progress made towards implementation. Defensive measures will be considered against listed jurisdictions. We continue to support assistance to developing countries in building their tax capacity. We are also working on enhancing tax certainty and with the OECD on the tax challenges raised by digitalisation of the economy. As an important tool in our fight against corruption, tax evasion, terrorist financing and money laundering, we will advance the effective implementation of the international standards on transparency and beneficial ownership of legal persons and legal arrangements, including the availability of information in the domestic and crossborder context.

EU-US tax war comes to the G20

July 6, 2017   Blog

The Juncker/Tusk letter of 4 July setting out common positions for the EU at the G20 throws down a direct challenge to the Trump administration, on Tax Justice Network priorities in particular – dealing with tax avoidance, tax evasion and anonymous ownership of companies, trusts and foundations.

Recovering Africa’s Stolen Assets: from Jersey to Kenya

July 4, 2017   Africa, AllAfrica, Blog

An interesting event has come to our attention that we’d like to share, taking place at Chatham House in London. Full event details here.

Recovering Africa’s Stolen Assets: Lessons from the Windward Trading Case

A report by the World Bank’s Stolen Asset Recovery programme found that, while nearly $1.4 billion in suspected corrupt assets were frozen in OECD countries between 2010 and 2012, less than $150 million was returned. Recovering stolen assets is of particular importance for sub-Saharan African countries, given the extent of the looting of public funds carried out by corrupt leaders and officials.

Prosecuting international corruption and recovering stolen assets has proved difficult and time-consuming. Both states from which assets have been stolen, and those where these assets are laundered or stored, have struggled to produce results.

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