TAX JUSTICE FOCUS

the quarterly newsletter of the

first quarter 2006 volume 2 number 1 Pulp reality,tax fiction Trade issue The building of a huge pulp factory in Uruguay by Finnish company Botnia not only Letter from Davos 2 represents a threat to the environment. Thanks to the various tax exemptions the Letter from Bamako 3 company has secured, the Botnia investment will bring little real benefit to the country’s economy,writes Jorma Penttinen. Campaigns and TJN news 4 The supply side of corrupt he benefits of foreign direct invest- and according to the calculations pro- the pulp mills on environmental grounds. practices 7 ment are more or less taken for duced by Botnia, the factory would in- According to an opinion poll carried out T Media roundup 7 granted. The transfers of technology, crease the country’s GDP by 1.6 per in August 2005, just over half of Uru- employment opportunities, direct cent. guayans opposed the pulp mills. The is- The WTO and taxation 10 money flows, and revenues for local and sue will be referred to International state government are seen to benefit Botnia’s investment is explained by lower Court of Justice by Argentina, and the Mind the tax gap 11 the host country. costs: fast growing eucalyptus trees and presidents of both countries will meet in cheap labour mean that production costs the near future to discuss the two pulp The hidden face of corporate It was no surprise then that Uruguay are half of those in Finland. The pulp is mills. corruption - unmasked 12 was more than keen to accept the not destined for South American mar- building of huge pulp factories on the kets; it will be transported to Europe As well as the environmental concerns, Reviews and new research 13 banks of river Uruguay, on the other and China. there is another more complex question side of which is Argentina. of whether the Botnia investment will Calendar 15 The Finnish-owned Botnia the company will There are, however, dark bring any real benefits to the Uruguayan factory would produce not pay income clouds over the Botnia project. economy. one million tonnes of pulp tax under the free Civil society organisations in Editor: Jenny Kimmis email: [email protected] when operating, and the trade contract Uruguay and Argentina, which In Finland, Botnia currently has five pulp Published by the Tax Justice Network Spanish-owned Ence lies just across the river, share mills. Their combined production is 2.7 International Secretariat Ltd would be half that size. concerns about the environmental im- million tonnes – only three times that of © Tax Justice Network 2005 For free circulation pact of the mills. Protest has been par- the Botnia mill in Uruguay – and they Botnia’s plant will be the biggest ever ticularly strong in Argentina, where the employ directly some 1,600 people. The ISSN 1746-7691 foreign investment in Uruguay’s history, president has also voiced opposition to mills are situated mainly in small towns FIRST QUARTER 2006 volume 2 number 1 TAX JUSTICE FOCUS and are very important to the surround- struction period the project will employ ment means that this power is trans- ing communities. To the local municipal- around 4,500 people, and later there will ferred to foreign companies. This is a Letter from ity, the personal income tax of the com- be some 300 people working in the mill. great loss to democracy. pany employees is the most important It is estimated that the pulp mill will gen- benefit; and in a good year the company erate 8,000 jobs indirectly, mainly in the The Finnish state is selling itself short by Davos taxes equal this. There is also a property eucalyptus plantations. According to Bot- supporting this kind of investment. Free tax which goes directly to the local mu- nia, the project is already the biggest trade areas and the many tax exemptions Lucy Komisar nicipality. The benefits from dividend private employer in Uruguay. available give transnational firms a green avos is not my idea of where to taxes and VAT are paid mainly to the light to avoid their social responsibility Dhold a meeting. It is cold at the end state. But when Ricardo Carrere of the World by not paying taxes. Until now, transna- of January, and though the views of Rainforest Movement was asked what tional companies that are at least seen as snowy Swiss hills are charming, the town In Uruguay, Botnia has been able to ne- financial benefits the pulp mill will pro- Finnish (for example, only 10 per cent of is not – just a long street lined with gotiate itself free of these kinds of obliga- vide, his answer was “none”. He had Nokia shares are actually held by Finns) shops, hotels and restaurants. Yet an tions. The land area was rented for seen pulp mills in Indonesia, South Africa, have been able to use their financial entrepreneur named Klaus Schwab knew $20,000 for 30 years, which is practically Brazil, Chile and Finland, and argued that power to influence policy on foreign in- that powerful people in business and nothing. The special legislation of the the vast Uruguayan mill will diminish into vestment. politics would come to network with Zona Franca free trade area will guaran- a small one when all tax exemptions and their peers – each group being bait for tee that Botnia does not have to pay any subsidies are taken into account. A big political issue in Finland at the mo- the other – and that corporate journal- customs duty on machinery and equip- ment is the announcement by paper ists would show the rich and powerful ment imports; which equals nearly one Basically, the pulp mill will not pay any company UPM-Kymmene that it plans to their usual reverence. hundred million euros tax relief in a bil- taxes. As Carrere explained, the harvest- reduce its workforce in Finland by 3,600 lion euro project. The majority of the ing of eucalyptus trees is supported by people over the next two years. It seems So the World Economic Forum in Davos equipment is manufactured in Finland. tax relief and the state is building roads, particularly odd that the Finnish embassy has since 1971 been a magnet for busi- port facilities and other infrastructure in Uruguay should be vigorously support- ness people, whose companies now pay Furthermore, the company will not pay for the company. ing the Botnia investment at such a time. about $20,000 to ‘belong’, $10,000 each income tax under the free The project is seen in Uruguay and Ar- profits will mainly to attend the meeting, $78,000 to be an trade area contract. It will Carrere does believe, how- gentina – and also in Finland – as ‘a Fin- ‘Annual Meeting Partner’, and $250,000 pay source tax on divi- be given in the form ever, that the increase in nish project’, yet the benefits for the each year to be an ‘Institutional and/or dends, services and assem- of dividends to GDP will indirectly benefit Finnish state and people are very ques- Knowledge Partner’. Politicians are only bling work. Uruguay. The growth of GDP tionable. foreign shareholders too happy to come to connect with po- and thus exported and major foreign investment litical financiers with such deep pockets. The profits will mainly be will improve the image of the The WEF website says “The Forum is given in the form of dividends to foreign country in the eyes of international under the supervision of the Swiss Fed- shareholders and thus exported out of monetary institutions, banks and inves- Jorma Penttinen is a freelance journalist and the eral Government.” The Swiss official de- the country. Even though the production tors. coordinator of TJN Finland. votion to profitable tax evasion explains costs are half of those in Finland, the e [email protected] why TJN is not among the handful of pulp will be sold at the world market The problem is that future investors will NGOs invited. price. certainly demand equal treatment from the state, and the companies will con- Since 2000, however, two Swiss NGOs, It has been estimated that pulp mill will tinue to avoid paying taxes. A factory of The Berne Declaration, which is a TJN add $200 million per year to Uruguayan this size is a powerful economic agent in member (one of its staff, Andreas Miss- GDP, and that it will generate some $25 a country like Uruguay; granting tax ex- bach, serves on the TJN steering com- million annually in taxes. During the con- emptions to encourage foreign invest- mittee), and Pro Natura, the Swiss

2 FIRST QUARTER 2006 volume 2 number 1 TAX JUSTICE FOCUS branch of Friends of the Earth, have After a morning press conference at the breaches the barriers and lines of secu- sponsored the Public Eye on Davos to Evangelical Church community centre, rity police and confronts the world's Letter from provide an alternative to the neo-liberal, the big afternoon event was jammed powerful CEOs. profit-centred focus of WEF with members of the public and media, (pronounced ‘wef’, rhymes with ‘Jeff’). and, in good humour, was hosted by The most significant political event of Bamako Swiss cabaret artist and actor Patrick January in Davos was a statement re- The Public Eye initially ran alternative Frey. Amnesty International Secretary leased by the International Confedera- Emma Lochery conferences. For the last two years, it General Irene Khan gave an incisive tion of Free Trade Unions (ICFTU), y first night in dusty Bamako, has given alternative ‘awards’ for world- speech. A comic highlight was the ap- which represents 155 million workers in Mstunned by my sudden relocation class socially irresponsible behaviour. pearance of Maurizio Antonini, a Silvio 236 affiliated organizations in 154 coun- from a chilly Oxford morning, I won- TJN's nominees in the tax category have Berlusconi look-alike, starring in the Ital- tries and territories. (They were invited dered what strange series of events had been winners (or losers, depending on ian-German guerrilla comedy Bye Bye to WEF.) landed me in Mali preparing to partici- your point of view). Last year the prize Berlusconi! He arrived with ‘bodyguards’, pate in the World Social Forum. Though went to KPMG and this year to Citi- was introduced as the Italian Prime Min- The ICFTU expressed its concern about I was familiar with the aims of the Tax group. As I wrote the Citigroup report, I ister, and declared proudly, in Italian, “plummeting corporate taxes”, making Justice Network, I had no experience of got to present it. that he was a master of money- the connection between joblessness and the social forum movement and no idea laundering. Berlusconi was awarded the poverty-level pay. It highlighted the shift how the idea of a Tax Justice Network Public Eye’s ‘Pinocchio Prize’ for the from corporate to personal taxes. “More for Africa would be received by a diverse most irresponsible businessman of the and more of the tax burden is falling on selection of representatives from African year. individuals, while major companies are civil society. failing to pay their fair share”, said ICFTU None of the real ‘honorees’ showed up General Secretary Guy Ryder. “The Taking off from Bamako airport four to claim their prizes – stylized sculptures ICFTU, the World Confederation of days later, I had my first chance to reflect of the Public Eye. Labour and our global trade union part- on the Forum and found that I had an ners will be putting this issue on the in- overwhelming sense of joy – of hope. I had requested accreditation to the ternational agenda this year”, he said. The people I had worked with and en- WEF as a representative of TJN, but that countered in Bamako had a truly vision- was predictably denied. I would have While still in Davos, I met with ICFTU ary view of how to tackle the problems liked to present the award sculpture in President Sharan Burrow of Australia of the international financial system. person to Citigroup CEO Charles and three other labour officials and we They suggested practical solutions to Prince, who was there. When I looked at established the beginnings of collabora- improve the situation of developing the list of prominent CEOs in atten- tion between TJN and the ICFTU. countries without claiming to offer yet Lucy Komisar speaking at the Public Eye dance, it was clear that Citigroup wasn't another panacea. Awards 2006, Davos. the only tax evader represented. Davos turned out to be an important networking place for us – if not exactly The TJN team comprising John Christen- We were in good company at the cere- However, I was surprised to discover what its corporate sponsors had in mind! mony, with Amazon Watch presenting sen, Matti Kohonen and myself held that the issue of tax evasion has moved three workshops to explain the history the environmental winner, Chevron, for Lucy Komisar is a New York based up a notch on the agenda even of WEF, of TJN and the reasons we thought the poisoning large numbers of people and although it wants to keep it outside the investigative journalist. time was right to establish a network land in Ecuador with oil waste, and SA- corporate meeting. It co-sponsored a lkomisar(at)msn.com e across Africa. In each seminar we then COM, a Hong Kong student and teach- civil society forum on the subject with ers group, targeting Disney for the viola- Read more on the Citigroup report on TJN’s opened the floor, hoping our comments Bread for All, Switzerland. It may not be website: would frame a discussion led by the par- tion of workers' rights in Chinese facto- too long, however, before the issue ries. w www.taxjustice.net ticipants. And what happened in the first 3 FIRST QUARTER 2006 volume 2 number 1 TAX JUSTICE FOCUS workshop and continued throughout the In South Africa, COSATU (Congress of whole Forum affirmed the need for a South African Trade Unions) along with TJN for Africa. other civil society organisations publishes Campaigns and TJN news the People’s Budget which they present to Our plans were complemented with a government. To strengthen and improve Slovenia conference on flat tax needs no further reiteration. He also depth of knowledge, experience, and the initiative, they are seeking ways to Richard Murphy appears to believe that the tax he pro- passion from all sides of the vast conti- include information on the taxes compa- poses is inevitable. nent. Participants in the workshops – nies should be paying. They need exper- I was surprised and pleased to be invited to speak at the International Academic researchers, trade unionists, journalists, tise – exactly what the proposed Tax It was therefore something of a responsi- Forum on the Flat Tax Rate in Slovenia NGO workers, and students – offered Justice Network would provide. bility to be his main opponent on the examples from their own countries of in early February. The conference was a joint initiative of the International Mone- platform, but in practice I had a lot of fun abuse of tax policy by multinationals, the One of the big questions repeatedly showing just how riddled with loop-holes tary Fund (IMF) and the Center of Excel- connection between kleptocratic leaders raised in the workshops was how to gen- his proposal is. First, the flat tax only lence in Finance (CEF), a training insti- and secret bank accounts erate the political will to fight charges wage income and the cash flow mining companies in tute for public finance in the Balkans. in the North, and the in- the problems of tax evasion surplus of business to tax; it allows all creasingly regressive na- Ghana are given tax and tax avoidance. This con- other income to escape charge. Second, ture of domestic tax sys- amnesties for ten cern cuts right to the heart of My invitation arose from an article writ- ten for the Guardian newspaper in the it would not be levied on any foreign tems. We heard about years and then leave the reasons for launching a source income. This adds up to what I UK in which I made clear that the choice how mining companies in six months before network. Having the ability to described to the conference as a ‘tax to adopt a flat tax was not a tax based Ghana, notoriously oper- match resources and exper- planner’s idea of heaven’. The message the amnesty is due decision but was instead a political ating in the city of Ashanti, tise to people and their ideas was noted. I think quite a number of to expire choice about the whole system of gov- are given tax amnesties for will apply pressure to compa- treasury officials went away wondering if ten years and then leave six months be- nies and government in the most potent ernment and society that a country wanted. flat tax is the panacea that Rabushka de- fore the amnesty is due to expire. Activ- places. A Tax Justice Network for Africa scribes. At least, that is my hope. ists from Kenya remarked that the infa- will be launched: all eyes on Nairobi mous Goldenberg scandal was just one 2007. The importance of the conference can- not be overstated. Slovenia is consider- example of the damage that dirty money Conference papers available at: causes in many African countries. ing a flat tax. If it does not adopt one Emma Lochery is in the final year of her degree then this may mark the turning point in w www.cef-see.org However, despite recognition of the at St. Anne’s College, University of Oxford, and the march of flat taxes through Eastern scale of the problems there was a strong is a researcher for the Oxford Council for Europe. There are also signs that Hun- Good Governance. gary and the Czech Republic might reject Richard Murphy’s review of the arguments for consensus about the possibility for action and against flat taxes commissioned by the As- and opportunities to change the situa- flat taxes. For many of those present the sociation of Chartered Certified Accountants e [email protected] tion. In Ghana, due to conditionality en- stress of the argument was apparent. should be published before the next edition of forced by the International Financial In- TJF is distributed. stitutions, taxes had been levied which The result was a range of speakers who were taxing people into poverty. Due to were in general excellent, and some of research, advocacy, continuous lobbying the thinking was of the highest quality and finally cooperation between authori- (almost, without exception, I have to ties and civil society, there is now a prin- add, from those opposed to any flat tax). ciple in the tax policy which prevents Alvin Rabushka’s presentation was nota- such unjust taxation. ble by its weakness. It seems that after 20 years of talking flat tax he believes the argument has been won and therefore 4 FIRST QUARTER 2006 volume 2 number 1 TAX JUSTICE FOCUS

Launch of Plateforme Paradis PPFJ is a member of the Tax Justice Network. International Conference on Oxford meeting on tax and poverty Fiscaux et Judiciaires in France PPFJ can be contacted by emailing Claire Innovative Financing for Develop- Alex Cobham John Christensen ment in Paris Bertucat: On 1 March, TJN held a joint event at St Raphael Calvelli The launch in early February of Plate- Anne's College, Oxford. With St Anne's forme Paradis Fiscaux et Judiciaires e [email protected] As the international community contin- PPE Society and the Oxford Council on (PPFJ) creates a new coalition of major ues its search for new ways to finance Good Governance (OCGG), the event French development agencies which development and fight poverty, this con- featured four speakers and a lengthy were involved in the activities of the ference in Paris (28 February-1 March) Q&A on the title “Only the little people '2005 - Plus d'Excuses' campaign. PPFJ was a timely opportunity to discuss the pay tax” - The Issue at Heart of Global Ine- has been launched with the principle ob- Barcelona debates on tax havens various options with a wider group of quality. An audience of students and aca- jective of tackling the illicit activities of Juan Hdez. Vigueras countries and groups. Over one hundred demics contributed to a lively and wide- offshore tax havens. Attac Catalunya organised two events countries and around 60 non- ranging discussion. (on 14 and 15 February) in Barcelona to governmental organisations participated. In their initial work coalition members stimulate debate on tax havens. On both Emma Lochery (St Anne's) organised and will be focusing on research, public edu- days, Juan Hdez. Vigueras (Attac Spain The decision to establish a tax on airline chaired the session, and spoke on the cation and awareness raising, and work- member and TJN steering committee tickets with some of the proceeds being subject of a TJN for Africa, reflecting her ing within mainstream French and inter- member) presented the main arguments used to fund medicines to fight pandem- experiences at the World Social Forum national civil society to promote meas- from his recent book Tax Havens: how ics, which will soon become effective in in Bamako. John Christensen (TJN) ex- ures against tax havens. offshore centres undermine democracy. 13 countries, is welcomed by TJN. But it plained the genesis, aims and progress is also important that measures such as made by the Tax Justice Network – PPFJ member organisations include: At the 14 February event at the Llibreria this are accompanied by further efforts stressing the need for further success in to strengthen national tax regimes. Thus pushing tax up the international policy Secours Catholique / Caritas France Central del Raval, the discussion was led TJN hopes that global taxation, and par- agenda. Matti Kohonen (TJN) set out the www.secours-catholique.asso.fr by Juan and Nuria Almirón (a writer, professor at the Barcelona University ticularly the problems associated with role of tax havens in the world financial Comité Catholique Contre la Faim et and member of Attac Catalunya). At the capital flight and the proposal for a Tobin system, emphasising their pernicious ef- Pour le Développement 15 February event at the Economics Fac- tax, will now have higher priority in in- fects for poverty. Alex Cobham www.ccfd.asso.fr ulty of Barcelona University, the round ternational discussions. It will be inter- (OCGG) outlined the demands made of Centre de Recherche et d'Information table discussion was led by Juan and Ar- esting to see what the follow-up confer- tax systems in richer and poorer coun- pour le Développement cadi Oliveres (professor at the Universi- ence in Brazil in June 2006 brings. tries, and the trends over the last thirty years that have undermined their ability www.crid.asso.fr tat Autònoma de Barcelona, president of ‘Releasing the Hidden Billions for Develop- Justícia i Pau and member of Attac Cata- to deliver. Eau Vive www.eau-vive.org ment’, the paper given by Bruno Gurtner of lunya). TJN at the Paris conference, is available on the Réseau Foi & Justice TJN website. www.aefin.org/fr For more information on Attac Spain and the campaign on tax havens see: Survie www.survie-france.org w www.taxjustice.net w www.attac.org.es ATTAC France www.france.attac.org To contact the author, Juan Hdez. Vigueras: Transparence Internationale www.transparency.org e [email protected]

5 FIRST QUARTER 2006 volume 2 number 1 TAX JUSTICE FOCUS

Discussion on global taxation in the ter; and third, a meeting between civil nance), Craig Holman (Public Citizen), Comprehensive tax reform legislation is Spanish Parliament society organisations and NENS, a pro- Joseph Horgan (Teamsters Union) and currently on the back burner, at best. Juan Hdez. Vigueras gressive think tank. John Irons (Center for American Pro- The Bush administration continues to gress). Bill Fant is the Director of TJN- maintain it will renew the focus on re- On 7 March an event titled Global Taxes Debate during all three events showed USA form in 2007, but given its current politi- and the Financing of International Develop- that significant resources for interna- cal fortunes, this effort appears to have ment was held at the Congress of Depu- tional development could be raised if The steering committee approved cam- little promise. ties of the Spanish Parliament. The event was convened jointly by the Presidents more attention were focused on tackling paigns regarding: the problem of tax evasion and reform- of the Commissions for Economy and Corporate tax return disclosure. ing policy in the arena of international International Development of Spain’s The revenue agency (IRS) commissioner, taxation. The conferences also provided Launch of Belgian campaign on tax lower house. Among the speakers lead- Mr Everson, has called for a discussion of a great opportunity for networking and havens ing the discussion were Sony Kapoor partial or full disclosure of corporate tax valuable links were made between Italian Patrick Ruymen (TJN), David Hillman (Stamp out Pov- returns. TJN-USA is sending a letter in erty), Juan Hdez. Vigueras (Attac-Spain campaigners working on both tax and support of the Everson initiative. TJN- Following campaigning success which development issues. and TJN) and Ricardo Gª Zaldívar (Attac- USA is also requesting a meeting with resulted in Belgium enacting legislation Spain and TJN). the IRS Commissioner to raise the issue introducing the Tobin-Spahn tax, Belgian of requiring one set of corporate books, activists have now turned their attention The event was attended by representa- rather than allowing one set for the IRS to combating the negative development tives of Spain’s main political parties as TJN-USA sets out campaign priori- (showing losses) and another for the effects of tax havens. This campaign in- ties well as a number of non-governmental SEC (showing profits). volves a broad cross section of civil soci- Lucy Komisar and Bill Fant organisations. A lively debate resulted in ety from the Walloon, Brussels and a commitment from those members of There is now a Tax Justice Network Transfer pricing. In 2005, the Treasury Flemish networks. Parliament present to establish a parlia- USA! An organising meeting was held in proposed regulations regarding cost- mentary working group to examine in Washington DC on 20 March to set up sharing (transfer pricing) arrangements TJN’s publication tax us if you can has more detail the issues discussed: financ- the new TJN affiliate. The meeting at the between US companies and their foreign been published in both French and Dutch ing for development, global taxes and the offices of Citizens for Tax Justice, headed subsidiaries with respect to development and will be used by campaigners to raise control and regulation of financial mar- by TJN steering committee member Bob of intangibles such as intellectual prop- awareness of the issues among the gen- kets. McIntyre, established a steering commit- erty. TJN-USA is commenting on the eral public in Belgium. On 24 March, a tee and basic operating rules for the new regulations, which are good in parts, but press conference was held at the Belgian group and adopted a series of policy based on separate-company accounting. Parliament to kick start the campaign and Financing public goods and tax eva- measures. to promote tax us if you can. sion: two issues linked in Italy Capital gains disclosure. Currently in the Raphael Calvelli The steering committee includes Co- US, brokerages are only required to re- Chairs Bob McIntyre and Lucy Komisar port to IRS gross proceeds from the sale Three conferences took place in early (also on the TJN steering committee), of stock; they are not required to report March in Rome around a similar theme: and members Jack Blum (Americans for any information on basis. Senator Bayh where to find new resources for financ- ing public development? First, an event Democratic Action), Cristina Martin Fir- has introduced legislation that would vida (National Women’s Law Center), require brokers to report a taxpayer’s called Global Financing for Global Public Joel Friedman (Center for Budget Policy initial purchase price when reporting to Goods and Development at research cen- and Priorities), Marc Granowitter the IRS on stock transactions the tax- tre Instituto di Studi e Analisi Economica (American Federation of State, County payer has engaged in. TJN-USA is sup- (ISAE); second, a meeting run by the Ital- and Municipal Employees), Jo Marie Gri- porting this. ian Forum of Social Movements for Wa- esgraber (New Rules for Global Fi-

6 FIRST QUARTER 2006 volume 2 number 1 TAX JUSTICE FOCUS The supply side of Media roundup corrupt practices TJN media and communications adviser Mike Lewis gives an overview of TJN’s media John Christensen work in an exciting and varied first quarter 2006.

shift of focus in the corruption de- nti-corruption activists in Nigeria, theme of the Bamako coverage of TNCs [transnational companies] shirk Abate away from petty bribery of Athe offshore connections of British Ghana's largest daily paper, the Daily theirs.” The inbuilt tax advantages of local government officials in the direction cabinet ministers, prospects for African Graphic (24 January). TJN's John Chris- transnational companies over their do- of grand scale looting of entire nations welfare states...TJN's recent media pro- tensen was quoted on the role of tax mestic competitors was also discussed, by kleptomaniacs and their assorted cro- file shows the Network is beginning to avoidance in the globalisation process, as and Pienaar placed TJN Africa in the con- nies is long overdue. So the report by be seen as a serious commentator on a companies reconfigure their investments text of South African Minister of Finance the British Africa All Party Parliamentary range of tax and social justice issues be- and trading patterns in order to take Trevor Manuel's recent call for a discus- Group which focuses on the supply side yond its own immediate work. It also advantage of tax havens: “whilst capital sion of tax avoidance by transnational of dirty money flows is wholly welcome. shows the increasing reach of TJN re- markets and institutional investors have companies. search and comment, which has been globalised, tax regimes remain largely Published in March 2006, The Other Side recently cited in the media not just by nationally based and tax havens are used The role of Western banks and offshore of the Coin: the UK and Corruption in Africa, TJN members and spokespeople but by to exploit the gaps between nations by finance centres in concealing the taxes highlights what further actions the British Ghanaian editorial writers and the head providing zero tax regimes and banking and financial dealings of oil companies in government needs to take to tackle the of the UK's Revenue Department. secrecy.” Other participants discussed Nigeria was the theme of the Nigerian trade mechanisms which facilitate cor- the gender implications of unequal glob- daily Vanguard (23 January and 9 Feb), ruption, including tax evasion. It also There is now a new TJN media resource alisation, and the need for democratic quoting John Christensen and other par- draws attention to the inadequacy of for journalists, activists and network reforms within the UN and the WTO. ticipants at the Bamako meetings. existing measures to prevent abuse of members: Tax Justice Network's new Crown Dependencies and Overseas Ter- blog (http://taxjustice.blogspot.com), Hans Pienaar, writing in South Africa's European press interest in the Bamako ritories for money laundering purposes which will be used to host press releases Cape Times (24 January) and syndi- leg of the World Social Forum was sadly and proposes a variety of measures to and short comment pieces for use by cated in the Sunday Independent (29 limited. Germany's Tageszeitung (24 tackle this abuse, not least full disclosure Network members in their own media January) and African News Dimen- January) mentioned the TJN seminar in of beneficial ownership of offshore com- work, and also to publicise tax-related sion (26 January), hailed TJN's planned its brief coverage of the Bamako meet- panies. news stories from the Intertax email list African network, seeking to establish “a ings, but most major European papers and around the world. network of top-class taxation profession- focused instead on the parallel meeting TJN-UK participated in the consultation als to do battle with their counterparts in Venezuela. process which preceded the publication TJN at the World Social assisting transnational companies in Af- of The Other Side of the Coin, and many, Forum rica”. He also trailed TJN Africa's formal An op-ed by John Christensen and Mike though not all, of our recommendations TJN's presence in January at the African launch at next year's Nairobi World So- Lewis from the TJN Secretariat, carried have been incorporated in the report. leg of the World Social Forum, held in cial Forum: “John Christensen said the by the weekly Ghanaian paper Public Bamako in Mali, opened up new contacts best way forward for the development of Agenda (4 February), the Africa-wide and unprecedented coverage for the countries of the south (the Third World) development newsletter Pambazuka John Christensen directs the TJN International Network outside Europe and North was not increasing aid or debt relief but (15 February), and AllAfrica.com, re- Secretariat. America. simply protecting governments from flected on the contrast between the vi- The full report can be downloaded from the capital plunder - an issue not merely for brancy of civil society coming together in TJN website. The need for strong tax regimes to pro- governments but for consumers and Bamako, and the “suits, celebrities, steel w www.taxjustice.net mote development was the headline workers who carry the tax burden when fences and security forces” of the World

7 FIRST QUARTER 2006 volume 2 number 1 TAX JUSTICE FOCUS

Social Forum's twin, the World Eco- Rundschau, Grenchner Tagblatt, tion tax rates - effectively avoiding £20bn ance contributions, local business rates nomic Forum. Drawing on work by Am- Basler Zeitung, Bieler Tagblatt and of tax between 2000 and 2004. The sec- and irrecoverable value added tax”). But herst economist Léonce Ndikumana, Zürcher Oberländer all carried the ond report found consistent inaccuracies TJN's figures themselves were not dis- Christensen discussed Africa's particular story (24 Janaury). Russia's RIA in most of these companies' tax ac- puted, and the Financial Times' tax vulnerability to capital Novosti news agency and counts, making it impossible to account correspondent Vanessa Houlder noted flight, draining such a “Africa - a continent we Interpress News for around £5.2bn of tax. (8 March) that “businesses do not bear high proportion of sub- are continually told is Agency's Rome and the cost of taxes levied on them; it falls Saharan Africa's GDP irrevocably indebted - Johannesburg bureaus Mind the Tax Gap was launched with an on shareholders, customers and suppli- that “Africa – a conti- mentioned Tax Justice exclusive in UK national Sunday broad- ers. Raising employers' national insur- nent we are continually could actually be a net Network's nomination, sheet The Observer (15 January). In ance contributions, for example, will told is irrevocably in- creditor to the rest of while the major German the same edition economics correspon- mean lower wage rises for employees debted – could actually the world”. daily Suddeutsche dent Conal Walsh added a feature on over time.” be a net creditor to the John Christensen quoted in Ghanaian Zeitung (26 January) 'How UK plc stays ahead of the taxman', rest of the world”. paper Public Agenda. noted that “Citigroup connecting TJN's findings with recent The Hundred Group's report itself ac- subsidiary Citibank is the cases in the European Court of Justice in knowledged the impact of TJN's work, And the winner is...Citigroup largest non-Swiss private bank, helping to which Marks and Spencer and Cadbury saying that “companies were coming un- While TJN meetings were taking place in transfer money to tax havens for rich tax Schweppes argued that UK tax law on der increasing scrutiny as a result of Bamako, four thousand kilometers away refugees, corrupt and criminal ruling group taxation broke EU law. He noted moves to put tax 'firmly on the agenda of in the Swiss ski resort of Davos, com- powers, according to the Tax Justice that “nobody likes paying taxes, but Brit- the corporate responsibility move- pany CEOs and Hollywood glitterati Network”. Even Tibet's Phayul news ain's biggest companies have got com- ment'” (Financial Times, 9 March). were meeting at the World Economic website (27 January) carried Citigroup's plaining down to a fine art”. Satellite TV The findings have also made inroads Forum. TJN took part in the parallel civil nomination. Cosima Marriner, money channel Sky One mentioned the report amongst policymakers, with the head of society meeting, Public Eye on Davos, diarist for UK daily broadsheet The in their breakfast bulletin that morning. the UK's Revenue and Customs depart- where it nominated banking giant Citi- Guardian (25 January) wryly noted the CFO.com and Accountancy Age, the ment citing TJN's figures in evidence to group for a Public Eye 'corporate social dangers of this global profile: “sponsoring leading UK weekly journal for the ac- UK parliamentarians to argue that irresponsibility in taxation' prize, releas- the high profile economic gabfest in counting profession, also picked up the “company accounts did not provide any- ing a comprehensive new report detailing Davos has its downsides, as Citigroup story that week. Coverage in the Finan- thing like a useful representation of cor- Citigroup's 40-year history of offshore discovered when it was singled out for cial Times (8 March) focused on the porate tax contribtions” (Accountancy banking scams, tax avoidance schemes 'corporate social irresponsibility in massive amount of deferred taxation Age, 9 March; Financial Director, 9 for dictators from Chile's Augusto Pino- taxation‘ at the Public Eye on Davos found by the study in the FTSE50's tax March). chet to the family of Nigeria's Sani awards...” accounts: “£36bn...a sum slightly greater Abacha, and clandestine networks of than all the corporation tax paid in the Mr Mills and the Mafia companies for international money trans- Mind the Tax Gap UK in 2004-05”, which may never be The offshore world hit UK and Italian fers. In January and February TJN-UK re- paid. headlines in early March with the politi- leased two innovative pieces of research cal furore surrounding Italian prosecu- The global reach of the winning corpora- on corporate tax avoidance led by Rich- The controversy has continued into tors' allegations that David Mills, husband tions ensured that Citigroup's award, ard Murphy, one of TJN's senior advis- March, with the 'Hundred Group' of fi- of UK government minister Tessa Jowell, alongside other Public Eye winners in ers. The product of a major project to nance directors from the UK's largest had received corrupt payments from human rights abuse, environmental dam- establish a methodology for analysing corporations releasing their own figures Italian Prime Minister Silvio Berlusconi, age, and bad labour law categories, was corporate tax avoidance, Mind the Tax to counter TJN's report, citing £9bn of distributed through a network of off- covered in national and international Gap found that the UK's 50 largest com- other taxes paid by the UK's big compa- shore trusts and shell companies in Jer- press. Switzerland's Tages Anzeiger, panies had paid 5.7 per cent less tax than nies in addition to corporation tax sey, Guernsey and the British Virgin Is- Aargauer Zeitung, Berner expected according to headline corpora- (“most notably employers' national insur- lands. The UK has yet to mobilise its

8 FIRST QUARTER 2006 volume 2 number 1 TAX JUSTICE FOCUS own laws against corruption and money- ministers, experts and IMF representa- opment Goals in 2015, and that an Afri- 'Scam of Offshore Looting' (10 March), laundering to investigate the case. The tives debating Flat Tax in Bled, Slovenia. can New Deal can only be funded by citing TJN's estimates of untaxed off- UK's national broadsheet The Inde- Slovenia Business Week (3 Feburary) tackling tax avoidance and evasion. His shore wealth and arguing that “tax is pendent on Sunday (4 March) quoted quoted Slovene Finance Minister Andrej research has found that $385bn emerging as an overlooked but central TJN's John Christensen arguing that Bajuk arguing that flat tax would make (£221bn) in revenue is foregone by issue in the fight against poverty.” these laws remain poorly enforced: the Slovenian economy more competi- poorer countries due to tax avoidance “there appears to be sufficient evidence tive, although he acknowl- and tax evasion each year: TJN's work was also cited in a report (24 to investigate [Mr Mills] under the provi- edged that the state would “tax is emerging as three times the amount March) on a UNDP workshop in Nigeria sions of the Proceeds of Crime Act have to “take care of those an overlooked but that could be produced by bringing together government and civil 2002.” David Raynes, an anti-corruption who would lose out because central issue in the the UN goal of increasing society representatives from 13 West strategy adviser, backed his argument: of the move”. fight against poverty” aid budgets to 0.7 per African countries to discuss the UN “[t]his is a UK citizen bringing £350,000 Public Agenda, 10 March 2006 cent of rich countries' Convention Against Corruption. Nige- into the UK via a network of offshore 'A New Deal for Africa' GDP. He also cited TJN's ria's UNDP representative Duada Toure trusts, who has not yet proved without Ghanaian weekly Public Agenda (27 Tax Gap figures to argue that highly visi- announced that “supporting anti- doubt the money was honestly earned. February) and the website of UK daily ble tax avoidance continues in the UK corruption institutions and concerned This is the type of activity the Proceeds broadsheet The Guardian (20 Febru- and other OECD countries. He urged Civil Society Organizations in their ef- of Crime Act 2002 was designed to deal ary) carried an opinion piece by Alex the UK Department for International forts at curbing corruption was high on with.” Cobham, from the Oxford Council for Development to take a lead in insisting the agenda of the UNDP in its five year Good Governance. Responding to pro- that rich countries exchange tax informa- plan for 2006-2010”. Flat Tax posals by UK international development tion with poorer countries, and putting On 3 February TJN adviser Richard Mur- minister Hilary Benn to support African tax firmly on the development agenda. phy went head-to-head with the father of welfare states, he argued that aid budg- To contact Mike Lewis: the Flat Tax, Stanford University's Alvin ets are already well short of the level Public Agenda followed up Alex Cob- Rabushka, at an international forum of required to meet the Millennium Devel- ham's piece with a major editorial on the e [email protected]

Tax, poverty and finance for development Workshop at Essex University,6-7 July 2006 The role of tax policy in alleviating poverty and inequality and promoting sustainable growth will be the main theme of this workshop jointly organised by the Association for Accountancy & Business Affairs and the Tax Justice Network.

The workshop will bring together researchers,academics, journalists, consultants and professionals, politicians and representatives of civil society organisations, government and international organisations to facilitate research through debate and discussion, and to gen- erate ideas to inform and shape the political initiatives and campaigns already under way.

Anyone interested in participating should contact Richard Murphy: [email protected] For further details and a booking form, see the AABA website: www.aabaglobal.org

9 FIRST QUARTER 2006 volume 2 number 1 TAX JUSTICE FOCUS

agreement on the avoidance of double taxa- TheWorldTrade Organisation and taxation tion. Jennifer Farrell looks at the ways the WTO can influence trade related tax policies and The NT obligation has even less cover- asks whether the organisation is equipped to take on the governance of international age for regulating discriminatory tax practices. Unless a member makes a spe- taxation issues. cific commitment in a particular service he World Trade Organisation The General Agreement on Tariffs still significantly dependant on revenue sector, the NT clause will not apply. T(WTO) is in the unique position of and Trade from trade taxes, and many low income Moreover, a carve-out for the effective or being the only judicial international insti- The General Agreement on Tariffs and countries have not recovered revenue equitable collection of direct taxes was in- serted by the US as a make-or-break tution providing regulation in the area of Trade (GATT) provides a two-pronged lost from the liberalisation of trade. issue for the survival of the GATS during taxation. The defeat of the US Foreign approach to ensure non-discriminatory the Uruguay Round negotiations. An- Sales Corporation and Extraterritorial international trade of goods. First, the While developing countries are granted Income Act (FSC-ETI) tax break, which Most Favoured Nation (MFN) clause special and differential treatment under the other exemption prevents the GATS resulted in the largest punitive trade requires that benefits granted to one WTO, there is a need for greater safe- dispute settlement being invoked for sanctions in the history of the WTO, member must be given to every other guards to ensure low income countries discriminatory tax measures falling under the scope of tax treaties. provided a timely opportunity to recon- member, thus creating a level playing can cope with trade liberalisation, par- sider the role of the field. Second, the National ticularly when their tax revenue is al- WTO Agreements in Treatment (NT) clause ready severely depleted by tax avoidance Despite these limitations, the GATS is the field of taxation The underlying principles obliges countries to treat and evasion. still in its infancy and can be viewed as a and the asymmetrical of WTO – namely, non- products crossing their transitional agreement whereby many exemptions will eventually be retracted. impact for developing discrimination and trans- borders in a no less fa- The General Agreement on Trade countries. However it vourable manner than like in Services parency – reflect those The Agreement on Subsidies and is unfortunate that the domestic products. Thus The 1994 General Agreement on Trade which would ideally be Countervailing Measures Doha Round, which incorporated into an in- all internal taxes applied to in Services (GATS) deals both with ser- has tabled over 50 is- goods must be applied in a vices and service providers, explicitly The Agreement on Subsidies and Coun- sues involving develop- ternational framework non-discriminatory man- covering indirect and direct taxes. How- tervailing Measures (ASCM) expands on the original subsidy clauses in the 1947 ing states, opted not to for tax justice. ner. There is a growing ever this wide scope is restricted by a GATT creating the most far-reaching tackle taxation issues. debate as to whether plethora of exceptions and exemptions. implications for members’ tax systems. A these obligations have now crossed over The MFN is weakened by allowing mem- The underlying principles of WTO – into areas of direct taxes that affect the bers to specifically exempt measures. subsidy is broadly defined as a financial namely, non-discrimination and transpar- international trade of goods. The US, not surprisingly, has exempted contribution granted by a government or ency – reflect those which would ideally all direct tax measures under the MFN public body where a benefit is conferred. There must also be a degree of specific- be incorporated into an international The GATT obligations have successfully obligation. Other major economies, in- ity to the subsidy either under industry, framework for tax justice. The expan- reduced discriminatory tariffs and border cluding the EU, Canada and Australia, sionist tendencies of the WTO, coupled taxes on international transactions of have also made various direct tax ex- regional, or enterprise sectors; or a pro- with the virtual elimination of traditional products to de minimis levels. The GATT emptions. Officially such exemptions hibited subsidy, contingent upon export barriers to trade, has left open the path has also opened up trade for developing should only exist for a period of ten performance or the use of domestic goods over imported goods. for many tax measures to be challenged countries which previously could not years, but members have imposed these under the WTO rules. The following afford to trade with richer nations. How- exemptions for an indefinite period. Tax An Illustrative List of export subsidies provides a brief overview of the main ever, Baunsgaard and Keen recently au- treaties are further exonerated from the areas of the WTO pertaining to taxation. thored an IMF working paper that found reach of the GATS by a general excep- includes reference to the exemption, developing and emerging economies are tion for tax treatment resulting from an remission or deferral of direct taxes and

10 FIRST QUARTER 2006 volume 2 number 1 TAX JUSTICE FOCUS the exemption or remission of indirect cessful of all international dispute sys- taxes in excess of those levied on do- tems. Its effectiveness was demonstrated mestic goods. Thus excessive border tax when the US had to make significant Mind theTax Gap adjustments, preferential tax treatment changes in tax policy creating the 2004 Richard Murphy or tax incentives, such as tax holidays for American Jobs Creations Act to end exports or special deductions, may all fall sanctions from the FSC-ETI rulings. under the scope of the WTO. first talked about preparing a report gests that in reality none of these liabili- Could the WTO serve as an Inter- Ion the Tax Gap in the UK at the TJN ties are, in aggregate, likely to be paid. The ASCM further provides rules for national Tax Organisation? tax conference at Essex University in July transfer pricing stipulating that transac- The framework of the WTO provides an 2004. As is usual with research based The conclusion is clear. The UK’s largest tions between exporters and importers attractive arena for dealing with tax jus- projects, it took longer than expected to companies are, despite a constant tax under the same control should be tice matters, or at the very least pro- deliver the report, which was published rate, paying a falling percentage of their charged at arm’s length. Potentially this vides a blueprint for a new international in January 2006. It is now available on the profits in tax. As the report also shows, rule could be used to challenge manipu- tax arbitration system. However, the TJN web site, along with a related report that fall cannot be explained by changes lative transfer pricing practices. WTO can never be a fully fledged an- called Do they add up? in the rates of tax applying to their over- swer to international governance of seas subsidiaries. The ASCM causes concern for develop- taxation as its purview only extends to In my research I set out to assess the ing countries that rely heavily on export international trade matters. Despite this difference between the tax which a rea- My research suggests the existence of subsidies for foreign direct investment limitation, there is scope to extend the sonable person might have expected the persistent, organised tax avoidance in and development. For example, export jurisdiction of the WTO into trade re- 50 largest companies in the UK to pay if these companies which launder profits to processing zones and tax holidays could lated tax issues, thus eliminating many they had settled their liabilities at the 30 non taxable or low tax territories. In- easily be challenged under the ASCM. arbitrary or discriminatory tax policies. per cent corporation tax rate (which was triguingly, however, the companies say On the other side of the coin, the Taxation must become a substantive in use throughout the five year period that if overseas tax rates have an impact OECD Harmful Tax Competition coun- issue for the WTO in future trade nego- the survey covered) and the actual rates on their declared tax rates then it is to termeasures have equally been accused tiations, with the view of clarifying the of tax paid in cash when compared to increase them, which is hard to believe. of violating WTO rules. For example, the tax rules and potentially creating a Tax- declared profits before the deduction of This leads to another conclusion: the countermeasure of disallowing deduc- Trade Agreement. any amortisation charges on goodwill disclosed data is not a reliable basis for tions or exemptions on transactions with (which are not tax deductible in almost assessment of the liabilities of these uncooperative tax havens may be action- any country). companies, which is confirmed by my able under GATT and even GATS. Jennifer E Farrell is a PhD Researcher at the second report, Do they add up? The lat- Centre for Commercial Law Studies, Queen The results were clear. Between 2000 ter shows that the tax accounting of Mary, University of London. Enforcement and 2004 the effective tax rate for the 50 these companies is unreliable. The WTO has two key enforcement e [email protected] companies surveyed fell from 26.6 per mechanisms: the Trade Policy Review cent to 22.1 per cent. The gap was Both sets of data are worrying and in- Mechanism (TPRM) and the Dispute Set- IMF Working Paper (WP/05/112), Tax Revenue worth at least £7.7 billion in 2004. dicative of the lack of real accountability tlement System. The TPRM requires and (or?) Trade Liberalization, by Thomas Bauns- in matters relating to tax. This suggests gaard and Michael Keen, Fiscal Affairs Depart- members to submit regular reviews of ment, International Monetary Fund. Available In addition, I identified that these 50 TJN has a continuing role to play in hold- their trade policies, including details of from the IMF website: companies alone increased the value of ing companies to account. their tax policies. This is a valuable their deferred tax (i.e. tax which they www.imf.org mechanism which allows an exchange of w might technically have to pay one day, information and policing for discrimina- but for which no liability is due at pre- Richard Murphy is Director of Tax Research tory taxes. The Dispute Settlement Sys- sent) from £8.7bn in 2000 to £36.2bn in LLP. tem is often considered the most suc- 2004. The constantly rising trend sug- w www.taxresearch.org.uk

11 FIRST QUARTER 2006 volume 2 number 1 TAX JUSTICE FOCUS The hidden face of corporate corruption – unmasked While global anti-corruption efforts typically focus on ‘fixing’ problems in poorer countries’ public sectors, the power of private sector money to influence government policy is the bigger corruption story,argues Reg Crowder.

idely held but fanciful misconcep- “More specifically, money in politics is at adopt strong national legislation imple- Crown Dependencies and Overseas Ter- Wtions about poor governance and the heart of the interplay between the menting the 2003 United Nations Con- ritories are exempt. That means that corruption are standing in the way of corporate and public sectors, in terms of vention Against Corruption. today the offshore money centres of serious efforts to confront these two policy and institutional outcomes.” Guernsey, Jersey, the Isle of Man and the critical problems, which turn out to be “At the time of this writing, of the coun- Cayman Islands, as well as many others, two sides of the same coin, says Daniel He states that anti-corruption efforts tries having ratified the Convention only remain beyond the reach of the Conven- Kaufmann, Director of Global Programs have routinely ignored the power of pri- one is a rich OECD country, the remain- tion. and Governance at the World Bank. vate sector money to exert undue influ- ing being emerging economies,” Kauf- ence on government. mann writes. That nation, not named by “Behind the conventional definition of Kaufmann writes that the OECD Anti Kaufmann, was France, which ratified the Reg Crowder is an independent business analyst corruption – as the abuse of public office Foreign Bribery Convention, which was UN Convention Against Corruption on and writer based in Europe. He edits the inter- for private gain – lies the image of a adopted more than five years ago, has July 11, 2005. Ecuador’s ratification on net business news site, Reg Crowder on European Business. predatory state, seen as a huge out- been relatively ineffective. “Many multi- 15 September 2005, brought the number stretched hand, extorting firms for the national corporations still bribe abroad, of ratifications to 30, which automatically w http://regcrowder.blogsource.com benefit of politicians, high officials, and at times affecting public policy, and more put the measure into force 90 days later. bureaucrats,” Kaufmann writes in ‘Myths generally undermining public governance e [email protected] and Realities of Governance and Corrup- in emerging countries,” he states. The five wealthiest OECD member tion’. The article was published in the states, ranked by GDP, are the United World Economic Forum’s Global Com- He shows how previous anti-corruption States, Japan, Germany, the United King- For more information on the Global Competitive- petitiveness Report 2005-2006. efforts by international organisations dom and France. The convention went ness Report 2005-2006, see the World Eco- have failed because they emphasised in- into force in December without the rati- nomic Forum website: Research into corruption conducted tervention in the poorer countries’ pub- fication of the United States, Japan, Ger- w www.weforum.org, over the past six years tells quite a differ- lic sectors with “technocratic organisa- many or the United Kingdom. ent story: tional ‘fixes,’ often supported through click on initiatives, then global competitiveness. technical assistance, the importation of The UK subsequently ratified the Con- Report downloads as well as video interviews “Even in strong states, such as the rich hardware, organisational templates, and vention on 9 February 2006. However, with the report’s authors are available. OECD (Organisation for Economic Co- visits by ‘experts’ from rich countries.” the precise manner by which the govern- operation and Development) countries, ment took the action may have, in fact, powerful conglomerates can have signifi- Kaufmann appeals for an end to what he rendered the ratification meaningless. cant influence in shaping regulatory pol- described as today’s ‘business-as-usual’ icy. Consequently, it is of paramount approach to corruption. He argues that The British government’s action effec- importance to revisit the traditional no- the rich OECD countries should lead by tively restricted the application of the tions of the investment climate. example. A good start would be for all of Convention Against Corruption to Eng- the OECD member states to ratify and land, Scotland and Wales. As a result, the

12 FIRST QUARTER 2006 volume 2 number 1 TAX JUSTICE FOCUS

Unless you are an expert planning to erty. That may be true on occasion, but I Reviews and new research make a fortune offering advice in this still suspect that this card is overplayed area you do not need to know the detail by those who criticise the transfer pric- Joseph Stiglitz and Andrew Charlton liberalisation policies, especially in the of what this book says. But that is not its ing system. Indeed, as the book shows, Fair Trade for All: How Trade Can light of recent research showing that importance; that lies in the very exis- mechanisms have been developed to deal Promote Development developing countries are likely to suffer a tence of such a guide in the first place. with this difficulty. With rare exceptions Oxford University Press, 2005 loss of total tax revenue as a result of arising (about which business creates trade tax reductions, and are also likely To understand this look at what Ernst & enormous fuss without ever seeking to Published just prior to the WTO minis- to suffer adverse economic conse- Young say of their product in their intro- mention the fact that it quite often gets terial meeting in Hong Kong in Decem- quences. duction: away without paying tax at all) the result ber 2005, Fair Trade for All is a response is that taxable income is apportioned to a question posed by member coun- Banking secrecy should be effectively Planning transfer pricing strategies, work- between the states that might have a tries of the British Commonwealth. Re- proscribed and companies required to ing to limit tax exposures, and defending a claim to tax it. acting to the failure of the Doha Round fully disclose all payments made to for- company’s return position and transfer of trade negotiations to live up to its eign companies. “No bank” the authors pricing practices on a global basis require And what is really interesting is that the promise to be a ‘Development Round’, argue “should be allowed to deal with any (sic) knowledge of a complex web of coun- number of countries taking transfer pric- the authors were asked: “What would a bank in a country which does not conform to try tax laws, regulations, rulings, methods ing seriously and seeking a share of this true development round – one reflecting the agreed transparency standards.” Tackling and requirements. revenue is rising steadily. Six of the forty interests and concerns of the developing the supply side of the global corruption countries listed come from the ex-Soviet world, one which would promote their devel- and money laundering industry is likely This is fascinating language. It assumes block. The largest recent new entrant is opment – look like?” to yield far greater dividends than the challenge is inevitable in what they India. There is welcome representation persistent focus on bribery of petty offi- clearly view as an adversarial environ- from at least eight South American coun- Well for starters it might turn current cials, and would go a long way towards ment, that “limited tax exposure” (or tries that are beginning to see how im- priorities on their head and give promi- reducing the haemorrhage of financial not paying tax, to use more direct lan- portant this issue is for the protection of nence to liberalising services that are resources from developing countries. guage) is appropriate and that this is an revenue. But Africa remains represented intensive in the use of unskilled labour; it artificial world in which regulation is the by South Africa alone, giving some indica- would eliminate production subsidies as In this thought provoking and challenging key driver of behaviour. But this is con- tion of the isolation of that continent in well as export subsidies; and allow for book, Stiglitz and Charlton make a good trary to the theory of transfer pricing, tax terms. infant industry subsidies in developing start at integrating tax justice concerns which comes into play whenever two countries. Furthermore it would tackle into the trade justice agenda. entities under common ownership trans- According to recent business surveys in the tax incentivisation that has been fer products between them. The theory the UK transfer pricing is the tax issue urged on developing countries in their John Christensen says that transfer pricing should be ‘on about which business is most vexed. It is efforts to compete to attract investment arm’s length terms’ i.e. the sale should be easy to see why. Until recently less than flows. As the authors note: “The main at market rates. ten countries took the issue seriously, beneficiary of that competition is interna- giving ample opportunity for business to It is often said that using market prices is hide profits elsewhere in its supply chain. tional business, and often countries suffer Ernst & Young difficult, if not impossible because the With 40 countries in this book, it’s get- large fiscal losses without commensurate Transfer Pricing Reference Guide gains to either their domestic economy or to products transferred have no value to ting harder for them to do that. They are the market since they are often at an vexed simply because they are having to the efficiency of the location of international This review comes with a warning – production.” incomplete stage of production or are of do some work to prove they are not please do not try to read this book! You intellectual property which only the abusing multiple tax systems at the same will fall asleep very quickly. The reason is group involved is allowed to use e.g. li- time. A development focus would also draw simple. This guide is reference work to cence fees for group intellectual prop- attention to the fiscal impacts of trade the transfer pricing rules of 40 countries.

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And I think we should we encouraged by Alain Deneault Like an elephant, corruption is hard to Stewart Lansley that vexation. Sophisticated governments Paul Martin & Companies – sixty define. But unlike an elephant it can be Rich Britain: The Rise and Rise of are not going to give up on their fair theses on the alegal nature of tax hard to recognise when we encounter it. the New Super-Wealthy share of tax, in which case they will ei- havens On the one hand we are told that accep- Politico’s, 2006 ther want to maintain transfer pricing English edition translated by Rhonda tance of bribes by petty officials is under- rules or some other basis of apportion- Mullins, 2006, Talonbooks, Vancouver mining good governance in developing A remarkable revolution has been taking ment. Business will argue for simplicity. countries. On the other hand intense place in Britain – a great surge in both The combination will eventually create It becomes increasingly difficult to avoid lobbying for tax incentives (which might the numbers of the mega-rich and in the pressure for two necessities. The first the link between political scandals and or might not include donations to politi- level of their wealth. The number of bil- are international arbitration mechanisms, offshore ‘junk states’. In Thailand, for cal parties or pet charities), and aggres- lionaires in Britain has more than tripled which are sure to happen. The second, in example, Prime Minister Thaksin Shi- sive tax avoidance by company directors since 1990 while the number of people the longer term, is a unitary basis for tax nawatra scandalised the country in Feb- and wealthy individuals is an indicator of worth over £100 million has risen more which might give a fair return to those ruary 2006 by selling his $1.9 billion superior intelligence and innate entre- than fivefold. Since 1997, the number countries that will never have the re- stake in Shin Corp, a telecoms and media preneurial skills, and is rewarded accord- with ‘liquid assets’ of more than £5 mil- sources to mount transfer pricing chal- conglomerate, via an offshore company ingly. lion has more than doubled to 9,000. lenges, such as most of those in the de- to avoid paying tax. In Italy, Silvio Berlus- This is tearaway growth by historical veloping world. coni and his tax lawyer David Mills await Deneault does not fully succeed with his standards. news of whether they will face trial on ambitious goal of exploring the ethics of In the meantime our job is to keep up charges relating to tax evasion and fraud. power in an era of globalised business. Despite turning Britain from one of the the pressure on this system, by calling And in Britain, Prime Minister Tony Blair But the questions he poses are crucial most equal societies in the developed companies to account and by requesting finds himself engulfed in allegations about for the future of democratic govern- world to one of the most unequal, the better mechanisms that will more accu- corruption in the way that the Labour ments and the debate needs to be sus- forward march of the super-rich has rately fulfil our desire that companies Party has been funded by loans from rich tained. Clearly Thaksin Shinawatra has been widely welcomed across most of should declare their profits where they businessmen, many of whom hold their transgressed what the Thai people con- the political divide, not least by Tony make them so that they might be taxed assets offshore to avoid paying tax. sidered to be acceptable. Maybe he was Blair. where they are earned. too blatant in calling his British Virgin Richard Murphy In this short series of reflections on the Island company Ample Rich Investments Of course, there are many examples of relationship between political power and (it’s true!). But what will it take to get successful entrepreneurs from James offshore money, Alain Deneault uses the the people of other democracies out Dyson to Stelios Haji-Ioannou who have Ernst & Young Transfer Pricing Global refer- example of former Canadian Prime Min- onto the streets in protest against the created wealth, jobs and opportunities ence Guide December 2005 available free from: ister Paul Martin, the sole shareholder of shocking financial antics of their elected and who are widely seen as worth their a shipping company whose ownership is leaders? place at the top. But the hard truth is w www.ey.com ‘entrusted’ to an offshore trust, to ask that today’s escalating personal fortunes what it means for democracy when John Christensen are not closely linked to record levels of those who are elected to hold power wealth creation. Rather, the ranks of the put their personal affairs outside the laws rich are dominated by tycoons, invest- of the country they have been elected to ment bankers and business executives govern. Should we be surprised? En- who, far from creating wealth, have raged? Or do we shrug our shoulders taken advantage of today’s pro-rich cul- and fall back on arguments that politics is ture to grab a larger slice of the cake for a dirty business which attracts certain themselves. What is happening is a com- types. In other words, does it matter? plex transfer from ordinary taxpayers, shareholders and customers.

14 FIRST QUARTER 2006 volume 2 number 1 TAX JUSTICE FOCUS

Twenty years ago, the typical chief ex- of Britain’s lax tax rules and thus at the ecutive of a FTSE 100 company earned expense of taxpayers as a group. Calendar 2006 some 25 times the pay of the average worker. Today it is close to 120 times. Rewards and merit have become increas- This surge in the pay gap might be justi- ingly decoupled. Many of the country’s fied if it had been driven by a transforma- super-rich have accumulated their per- April 22-23 tion in Britain’s business performance. sonal fortunes not by productive entre- IMF World Bank Spring meetings in Washington DC But, as Rich Britain shows, rising pay has preneurial activity that adds to the eco- been driven not by improved perform- nomic base but by the clever, if perfectly ance but by the importing of American legal, manipulation of the economic and April 25 business practices. financial system to divert wealth created UN workshop on New Resources for Development Finance, in New York. by others in their direction. Sponsored by the Chilean Permanent Mission to the UN. Speakers to include Despite persistent rows about ‘rewards John Christensen, Ricardo Ffrench-Davis, Jean Landau and John Williamson. for failure’, generous pay-off deals for Stewart Lansley even failing chief executives have become May 2-3 Stewart Lansley is the author of Rich Britain: The the norm. The management expert TJN Council Meeting and Strategy Meeting, Athens, Greece. Charles Handy has noted that such pay- Rise and Rise of the New Super-Wealthy, pub- lished by Politico’s in March 2006. outs have made ineptitude by senior ex- ecutives the shortest route to millionaire May 4-7 status. In America they are known as European Social Forum, Athens. ‘golden condoms’ because they ‘protect the executive and screw the share- holder’. May 13 World Fair Trade Day Escalating rewards to City lawyers, ac- countants and investment bankers are also mostly ‘undeserved’. The City in June 10-11 effect operates as an informal cartel Banktrack meeting in London on financial system issues. charging excessive fees for activity that, for the most part, involves the transfer (or sometimes the destruction ) of June 14-18 wealth rather than its creation. Major Quebec Social Forum, to be held at Trois-Rivières, Quebec. Attac-Quebec workshop on ‘Tax havens, the stock market and derivatives’. business decisions are often driven by the prospect of fat bonuses and fees for directors and their City advisers irre- July 1 spective of the long-term interest of the Finland’s EU Presidency begins company.

Many, if not most, of those sitting at the July 6-7 top of the rich lists from Philip Green Workshop at Essex University, ‘Tax, poverty and finance for development’. and Sir Richard Branson to Hans Rausing For more information see the notice on page 9, or visit: and Lakshmi Mittal have also inflated their fortunes through the manipulation w www.aabaglobal.org

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