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John Christensen ■ The Offshore Wrapper: a week in tax justice #62

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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

Europe: the final countdown…?

A series of news stories came out this week about European Union proposals to tackle tax avoidance by multinational companies and secret offshore banking. Is this one reason why that well known tax haven the United Kingdom seems desperate to leave?

Totally addicted to (the Common Consolidated Corporate Tax) Base

The first and possibly most significant EU proposal is for a Common Consolidated Corporate Tax Base (CCCTB).

This proposal has a long back story, but past attempts to breathe life into the project have been shelved after opposition from member states. Now the European Commission is set to revive the plan when it launches its action plan against aggressive tax planning this month.

But what does a common tax base mean, and will it do the job? The EU states it is “a single set of rules that companies operating within the EU could use to calculate their taxable profits”.

A key benefit, the EU said in 2011, was reducing the tax and compliance burden on business. The plans only discussed harmonising the rules by which taxable income is calculated. They ruled out and indeed encouraged competition on tax rates, a practice which we believe to be extremely harmful.

However, it also listed repayments on debt as a expense that should not be deducted from the corporate tax base, something which the TJN has campaigned on for some time because of the huge tax avoidance opportunities that open up though debt repayments between sister companies.

The latest proposals will be revealed on June 17. No doubt the business lobbies and their friends in the European tax havens have their knives out already.

 

Once I had a secret love bank

Swiss leech anyone?

A giant financial leech

There have been a couple of moves forward to stop Switzerland, that giant financial leech, from sucking out tax revenue though its aggressive secrecy rules.

The EU has signed an agreement with Switzerland which means that the bank details of all EU citizens in Switzerland will be automatically shared with the national tax authority of the country they are from.

This may require a referendum in Switzerland before it can take effect, although the Swiss have some time to organise one since the deal will only start in 2018.

According to City AM, similar agreements are being negotiated with Liechtenstein, Monaco and San Marino.

This beats the entirely useless tax exchange deal that the UK signed with Switzerland a few years ago, which allowed Switzerland to continue with its highly damaging banking secrecy practices. Perhaps this highlights the benefits of the EU working together on international, cross border issues.

 

He shall not, he shall not be moved…

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Despite the arrest of a number of high-ranking officials last week, FIFA the Farcical International Football Association, ploughed ahead with the re-election of Eternal Leader  Sepp Blatter.

From a tax justice point of view, it is worth stressing how central tax havens have been to the FIFA bribe machine. As highlighted by the UK’s Observer newspaper last Sunday, the indictment issued by the Department of Justice lists several tax haven based companies as being used to allegedly handle bribes to FIFA officials.

As Global Witness points out, the money we are talking about here is more than you can stuff under a mattress and so it needs the banking system and anonymous companies.

But this really should be of little surprise to anyone. Tax havens are the easiest way of transferring large amounts of money anonymously in an unregulated environment. And this is not the first FIFA bribe scandal to involve the use of tax havens. As TJN highlighted before, the BBC Panorama investigation into FIFA’s bribes in 2010 involved the tiny European secrecy jurisdiction of Liechtenstein.

Of course, it must also be noted that FIFA is itself based in Switzerland, and no doubt its highly secretive banking system helps no end with facilitating FIFA’s corrupt financial network.

This explains why TJN has been campaigning to end financial secrecy in football through our Offshore Game project.

 

Can’t get enough

Despite the massive spotlight thrown on the illicit activities in tax havens, corporates are still heavily reliant on using them, according to a report in the FT.

The report quotes research from MSCI, which says that 16.3% of the companies in its world index are either located in tax havens or have a majority owned subsidiary in a tax haven.

The figure rises to 20% if you include the Netherlands.

Why do companies continue to do this? Because quite simply it pays.

According to MSCI, companies in developed world economies are avoiding $82bn in taxes though the use of tax haven subsidiaries. If tax haven based tax avoidance strategies were outlawed then the 243 companies with a large tax gap would see returns to investors slashed by 20%.

 

Y viva España

y

A new initiative in Spain is calling on local governments to exclude companies that use tax havens from their procurement processes. The initiative is being promoted by the Platform for a Just, Environmental and Socially Responsible Fiscal Policy.

However, Spanish local authorities may be in for a challenge since 32 out of 35 companies on the IBEX, the Spanish stock exchange, use tax havens.

The attempt to get local government interested in tax havens is not new. Last year a group from the UK, France, Germany, Spain, Norway, Sweden and Finland launched a movement to get cities to become tax haven free. The move seems to have been slow to take off and hopefully this new initiative can start a renewed push towards more financially responsible local government.

 

 

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