Archive for April, 2012

Unctad and global finance: G77 issues stunning rebuff to rich countries

Although this is not purely of interest to Europe, it is of tremendous interest to Europe. Some of its member states are believed to be perpetrators in this little-reported (but fundamentally important) struggle now playing out in Qatar.

The Tax Justice Network has just blogged a dramatic statement by senior and highly respected former staff members of the UN Conference on Trade and Development (UNCTAD), highlighting what appear to be attempts by the global financial services industries, via their representatives in developed country governments to neuter UNCTAD’s analysis of financial globalisation, which has often stood out against the prevailing financial orthodoxy.

Now, courtesy of David Spencer, here is an even more dramatic statement on the same issue, issued on Friday.

The statement is entitled Statement by H.E. Ambassador Pisanu Chanvitan On behalf of the G77 and China Preparatory Committee, At the Preparatory Committee of UNCTAD XIII, 13 April 2012, Room XXVI, Palais des Nations, and it begins as follows:

“It is with deep regret that I make this intervention because it means the current situation warrants some very candid words from the Group of 77 and China. It means that we have reached the point where high diplomacy – the finest diplomacy – is needed. It also means that the time for candor is needed more than ever. I will therefore be clear and candid.”

Paragraph 2 reads:

“While we have always held firmly to our principles, the Group of 77 and China has tried to be as flexible as possible on how we have articulated them in our various negotiations in UNCTAD. Throughout our preparations for the Conference, we have felt that perhaps our constructiveness was viewed as weakness, and our accommodation viewed as capitulation.”

And it does not let up. Paragraph 3:

As a result, some of our partners regressed to behaviour perhaps more appropriate for the founding days of UNCTAD, when countries of the North felt they could dictate and marginalize developing countries from informed decision-making. I have to be blunt and single out the handling of the JIU issue by one coordinator as reminiscent of the darkest days of the North-South divide.

And there is a whole lot more. Now read on.

No Comments

New paper: why automatic exchange is superior over withholding taxes

Adapted from the Tax Justice Network blog:

Following my articles (e.g. here and here) about the Swiss Rubik deals for the EU Observer blog, I’ve been sent an important new paper by Itai Grinberg of Georgetown University Law Center, who was until recently a member of the Office of International Tax Counsel at the US Treasury Department. Entitled “The Battle Over Taxing Offshore Accounts,” it says we are passing through an “evolutionary moment in cross-border tax cooperation.” The article is subscription-only, but it crystallises some important concepts and it is important enough that it is in the public interest to reproduce a few of its essential insights here. It begins:

“The international tax system is in the midst of a contest between automatic information reporting and anonymous withholding models for ensuring that nations have the ability to tax offshore accounts.
. . .
the contest . . . implicates broad questions about the future of tax sovereignty in a globalized economy and the treatment of the wealthiest vis-à-vis other taxpayers.”

In one corner, we have the secrecy-steeped “withholding” model, led by Switzerland with its Rubik deals, where one jurisdiction withholds taxes on income (and occasionally on other things) but keeps the taxpayers’ details secret. In the other corner is the potentially far more effective (and ethically far cleaner) model of automatic information exchange, which is the emerging global standard.

Grinberg explains why the automatic reporting model is so superior to the Swiss model, and provide yet more reasons why the UK and German governments, and others, are so grievously mistaken to sign up to the Swiss subterfuge.

“The eventual triumph of an information reporting model over an anonymous withholding model is key to
(1) allowing for the taxation of principal,
(2) ensuring that most countries are included in the benefit of financial institutions serving as tax intermediaries cross- border, and
(3) encouraging taxpayer engagement with the polity and supporting sovereign policy flexibility, especially in emerging and developing economies.”

Grinberg expands on first point, differentiating between the asset (principal) itself, on the one hand, and the income on that asset, on the other:

“anonymous withholding exists to limit exchange of information, and thus such a regime runs counter to the extensive cross-border administrative assistance necessary to ferret out tax evasion on principal . . . automatic information reporting can be structured to both report on income and gains and to measure the growth of principal in a foreign account. Untaxed principal is a significant concern for tax administrators.”

He provides a number of other arguments outlining why information reporting is superior:

  • Automatic information reporting also preserves tax morale, maintains the expressive values associated with the taxation of capital income, and supports government policy flexibility, particularly outside the large developed economies.
  • Unlike anonymous withholding, an automatic information reporting solution has the capacity to develop into a broadly multilateral regime.
  • Whereas anonymous withholding delegates the collection of tax to a foreign entity, automatic information reporting shores up a government’s capacity to tax its own citizens (TJN: in other words, the Swiss are saying ‘trust us’. Read Tom Bowers’ book Blood Money, then consider whether the Swiss ‘trust me’ approach should ever again be accepted in civilised society).
  • Contrary to some conventional wisdom, anonymous withholding is not significantly cheaper, simpler, or more administrable than information reporting.

These are all killer arguments against the Swiss model.

The Tax Justice Network (TJN) has been highly critical of the OECD’s Global Forum, but recognises that it is an institution of significant influence in the international tax arena.TJN adds:

“We therefore formally call on the Global Forum to to review the compatibility of the Swiss ‘Rubik’ agreements with the standard of effective exchange of information.”

TJN  have also been critical of the Financial Action Task Force, but recognises their influence too. It adds:

“We formally call on the FATF to assess whether the Rubik deals are consistent with the tax amnesty standards that they have set.”

We believe that in both cases the Swiss deals will be found wanting, and the UK, the original collaborator with Swiss secrecy, as well as Austria and Germany and others that may sign Rubik deals, could be shamed into changing their behaviour.

The Grinberg paper has more to add, still, emphasising that despite the conflict between the models, they also have a lot in common:

“Four incongruent initiatives of the European Union, the OECD, Switzerland, and the United States together represent an emerging international regime in which financial institutions act to facilitate countries’ ability to tax their residents’ offshore accounts. The growing consensus that financial institutions should act as “tax intermediaries” cross-border represents a remarkable shift in international norms that has yet to be recognized in the literature.
. . .
the emergence of the EU, OECD, Swiss, and U.S. approaches to cross-border tax administrative assistance has shifted the discourse of international tax cooperation from a dispute about whether financial institutions should function as cross-border tax intermediaries to a dispute about how financial institutions should perform that role.”

We have written plenty about this here, though we have not woven the strands together like this. The article ends by describing ways to help reconcile the emerging automatic information exchange approaches to produce an effective multilateral system. All in all, a highly valuable contribution to the literature.

Cartoon, courtesy of Mark Morris.

No Comments