Football: a game of two halves – corruption and scandal
The World Cup of scandal and corruption rolls on. This week Global Witness has exposed the role of the Brazilian Development Bank, Banco Nacional de Desenvolvimento Econômico e Social, in funding a number of questionable deals.
The bank has a mandate to reduce inequality but has spent hundreds of millions supporting projects linked to large corporations. These include the building of infrastructure for a World Cup which many say has little benefit to ordinary Brazilians.
In particular, Global Witness highlights the Beira Rio Stadium. Built by Brazil’s second largest construction firm, the project was 150% over budget and 80% of costs were covered by the development bank.
One group who will most certainly benefit from the world cup is FIFA. Sportcal Insight has reported this week that FIFA will make £2.2bn from the World Cup though various commercial deals.
As previously reported FIFA insists that every host nation gives them a wide range of tax exemptions allowing them and their multinational sponsors to take billions out of the country tax free.
How Isis got rich
Last week there were reports that Isis, the brutal terrorist group that overran three cities in Iraq and now controls an area of land the size of Belgium, has become the world’s richest terrorist group after it had stolen $425m from a bank in Mosul.
However, just days later it emerged that this was just a drop in the ocean. The Guardian has revealed that memory sticks seized from ISIS shows that the terror group has assets of $2bn.
Isis has amassed its wealth by looting, smuggling and even stealing a Syrian oil field. Some of the stolen items include 8,000-year-old antiquities. So who bought the precious objects?
What Isis can do with this money is terrifying. The group were once kicked out of Al-Qaeda for being “too violent”.
A UK Member of Parliament has told the Times (£) that accountants and financial professionals who market tax avoidance schemes should be prosecuted.
Charlie Elphicke, a Conservative MP and former tax lawyer, has said that it is important to go after the people who advise wealthy individuals on how to avoid tax rather than just target those benefiting from the schemes. He has tabled amendments to the Finance Bill currently in parliament to achieve this.
Mr Elphicke said he does not expect the amendments to become law.
This may be of some relief to firms like Osbornes an accountants that advertises tax planning services on their website. Among the case studies on the website the firm boasts:
We act for a company that usually makes enough profits each year such that is shareholder/directors are able to stay just below the higher rate of tax. Part way through their accounting year they had a pleasant problem, a lucrative one off contract fell into their laps that would earn them an extra £200,000 of profits that year.
We advised them that after corporate and personal taxes they would only see £120,000 of their money. This was the best result available using straightforward planning.
We suggested a bespoke structure involving the use of an LLP and a trust to get the funds into their hands tax free. It was likely HMRC would enquire into the structure but unlikely that the planning would be broken.
For a tax deductible fee of £20,000 our client saved tax of £80,000.
We asked Osbornes what it thought about Elphicke’s amendment. But at the time of publishing, the company has not given us a comment.
UPDATE 17/6/14 9.30am
Osbornes has now got back to us. A company spokesperson told us:
“Osbornes are a firm of accountants based in Melton Mowbray, we provide accountancy services to clients throughout the UK. As part of our services we provide tax advice to our clients to ensure the correct amount of tax is paid, not a penny more. In accordance with the recent case of Mehjoo v Barker we advise our clients on all legal options available to them to reduce their tax liabilities and this can sometimes involve introducing them to third parties who offer bespoke solutions. Our understanding is that the amendments to the law are not directed at firms like Osbornes.”
Phantom companies stole $11bn from Ukraine in 3 years
The Associated Press has released a brilliant account of how the deposed kleptocratic Ukraine regime siphoned $11bn out of state coffers.
The piece details claims from new deputy Ukrainian minister for tax, Ihor Bilous that his predecessor was complicit in fraud. Here at Wrapper Towers, we have no way of verifying this claim.
But Bilous has revealed to AP that a “secret chamber” across the corridor from his office contains a “sound proof vault”. The vault was equipped with white noise generators to beat eavesdroppers and furnished with clear plastic furniture so visitors could be confident there were no listening devices. Here the proceeds of corruption were divided.
There are now 30 corruption investigations under way in Ukraine and they have revealed large amounts of money flowing through phantom companies. Some were registered to buildings which had been demolished several years ago.
The full fascinating story can be found here.
EU prepares to bite Apple
The European Commission has launched an investigation into whether the tax structures set up by Apple, Starbucks and Fiat in Ireland, the Netherlands and Luxembourg constitute illegal state aid.
Last year a US Senate committee released a report which said that Ireland had functioned as a tax haven for Apple which allowed it to pay just 1.9% tax on overseas profits of $39bn.
Under EU rules, member states are not allowed to grant aid to specific companies or sectors if it would damage competition in the market.
Much of the investigation will therefore focus on whether officials from those countries cut special deals with the companies over their tax affairs.
A previous European Court of Justice decision on Gibraltar concluded that tax advantages introduced by could be counted as state aid.
Europe is often accused of “meddling” in the affairs of member states. If that stops a few tax havens from undermining the European governments though damaging tax practices, “meddling” may not always be a bad thing.
Seven days that shook the world
THE TAX DIRECT ACTION GROUP, UK Uncut returned this week after a long break. The group closed down several Vodafone stores claiming that the company has avoided billions in taxes. Vodafone, it will be of no surprise were unimpressed, calling the action ‘ignorant’ and ‘undeserved’. Nevertheless, UK Uncut plans more action ahead of Vodafone’s AGM.
CAMPAIGNERS IN NAMIBIA have challenged global diamond mining giant DeBeers to prove that they are not engaged in tax avoidance through transfer pricing. The campaigners are citing an academic study from the University of Manchester which points to evidence of transfer pricing issues in the mining industry. The campaigners want DeBeers to open their books for an independent inspection.
IN A WIN FOR CAMPAIGNERS IN ZAMBIA, the country’s revenue authority has launched an investigation into the mining firm, Vedanta Resources. This was triggered by a speech by Vedanta boss and founder, Anil Agarwal. Agarwal claimed that his company had made between $500m and $1bn every year for ten years from its 79% owned Konkola Copper Mines subsidiary. The size of profits contrasted with what the firm had previously reported. Agarwal said his comments were taken out of context. But they sparked protests in the Zambia.
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