THE NEXT STEPS EDITION VOLUME 4, NUMBER 4 JUSTICE FOCUS Tax and development Jeffrey Owens 1

EDITORIAL What a year! The quarterly newsletter of the tax justice network 4

FEATURE Measuring Tax Justice Edmund Valpy Fitzgerald and John Roche 6

NEWS Doha: A cup half-full? John Christensen 8 TAX AND DEVELOPMENT Tax systems for poverty reduction 10 S4TP – a project for South-South Why tax is important for development co-operation 10 BOOK REVIEWS Institutional competition No country has succeeded in developing a well functioning market based economy derived from tax with Indira Rajaraman 12 10% coming from without a broad based tax system and tax plays a key role in promoting democracy Economics of non-tax sources, e.g. Alessandro Santoro 14 by making governments accountable to their citizens. Lack of dependence on fees and charges). citizens for tax revenues is a major cause of weak, unresponsive governance in This was confirmed at many poor countries, especially those which are heavily dependent on aid.1 the recent UN Doha meeting where tax issues ran throughout ID and TAX are both three letter Aid and tax should be seen as complementary: Jeffrey Owens the discussions. words, but that’s where the similarities poor countries will continue to need aid as they Astop. Tax encourages governments to set about building up their tax capacity. In fact, Yet as can be seen from Figure I, the ratio of be accountable to their citizens; aid to donors; aid can play a vital role in helping developing tax to GDP in lower income countries is, on tax can provide a predictable long-term source countries build up their tax capacity, decreasing average, about half of that in OECD countries. of revenue which is within the control of in the long term their overall reliance on aid. Nobody is suggesting that Sudan should move Editor: Nicholas Shaxson the government, aid is less predictable; tax to the tax levels found in Sweden, but clearly Contributing editor: John Christensen enable governments to use the money where The Monterrey Consensus recognised the there is fiscal space for many low income Design and layout: www.tabd.co.uk it is most needed, aid is often tied to specific key role of taxation in mobilising domestic Email: info(at)taxjustice.net countries to increase their tax take through Published by the Tax Justice Network International resources (90% of domestic revenue is usually projects. more effective tax systems. Secretariat Limited © Tax Justice Network 2009 For free circulation, ISSN 1746-7691 1 See “Taxation and Governance”, OECD, February 2008. FIRST QUARTER 2009 VOLUME 4 ISSUE 4 TAX JUSTICE FOCUS

Figure 1. Tax to GDP ratio (2005) are facing a major challenge just to maintain governments need to ensure that the tax base. This may require reviewing their current revenue base. alternative sources of revenue are already the taxation of land and buildings; % 35 in place. This suggests that as the process exploring new ways to tax households; ii) Weak tax administrations: Many, 30 of liberalisation continues, there needs to re-examining the tax treatment of small- although not all, low income countries have be a phase-in period since all the sources medium size enterprises; introducing 25 tax administrations which are corrupt, of revenue which could replace tariffs – simple environmental . It may also 20 with poorly trained and underpaid officials; personal or corporate incomes taxes; sales require moving towards a heavier reliance 15 antiquated administrative structures, often or VAT; taxes on moveable or immoveable on fees and charges. 10 still based upon the old colonial model property – are far more complex to 5 (e.g. separate departments to deal with administer than tariffs. iv) Reduce the outflow of funds to tax income and consumption taxes); weak havens: Over the last 10 years OECD 0 SS Africa LICs MICS OECD risk management and poorly articulated ii) Build up the capacity of the tax countries have established high standards of strategic goals. Yet a tax system is only administration: In most developing transparency and exchange of information as good as its tax administration and countries this will require creating an in tax matters which have achieved a global What are the Constraints faced by without a dramatic improvement in independent with well paid endorsement from the G8, G20 and United Developing Countries in raising their these administrations, it is unlikely that officials, free from corruption and political Nations Committee on Taxation. Regular Tax Take? developing countries will meet the interference. The Commissioner must be assessments are undertaken of how far on A typical developing country faces multiple Monterrey commitments. a strong visionary individual, and be able and offshore financial centres are meeting constraints in improving its tax capacity: to see tax in the broader perspective of these standards.2 Implementation of these cultural attitudes towards government; weak iii) Outflow of funds to tax havens: Tax developing a market based democracy. The standards is progressing. Twenty-six of tax administrations; narrow revenue tax base; havens have been referred to as “sunny old colonial divisions between direct and the 30 OECD countries already meet competitive pressures from other countries; places for shady people”. Whilst many tax indirect taxes need to be replaced with the standards as do the vast majority of corruption; capital flight; aggressive tax havens are sunny places, today they can be an integrated administration arranged on non-OECD countries. Of the 40 plus tax planning and many more. I will focus on what found throughout the globe. OECD defines functional lines. Risk management needs havens that the OECD identified in 2000, I see as the three major constraints: a as a jurisdiction which has no to replace a system based upon trying nine (The Netherlands Antilles, Aruba, or nominal taxation and lacks transparency, to control and audit the vast majority of Bermuda, British Virgin Islands, Cyprus, Isle i) Heavy reliance on cross-border tariffs: effective exchange of information and “real taxpayers. A balance between enforcement of Man, Guernsey, and Malta) are A typical African country relies on tariffs activities”. Many citizens of developing (and and taxpayer service must be achieved actively implementing the standards either for more than half of its revenue. Yet developed) countries now have easy access with the revenue service being seen as a by means of Tax Information Exchange this source of funding is under pressure to tax havens and the result is that these “friend” rather than “foe” of business. New Agreements (TIEAs) or tax treaties and the from liberalisation promoted by the countries are losing to tax havens almost technologies will have a role to play in international community needs to recognise WTO and regional blocks (e.g. SADC). three times what they get from developed modernising the tax administration but can this progress. Hong Kong is reviewing As countries join these initiatives so they countries in aid. If taxes on this income never, by themselves, provide a substitute its position on exchange of information. are required to reduce their tariffs. Trade were collected billions of dollars would for a well designed administration. Nevertheless, much remains to be achieved. liberalisation is in itself desirable, but it become available to finance development. There are still three jurisdictions on the comes at a price for a low income country iii) Broaden the tax base: Developing OECD list of unco-operative tax havens since tariffs are far easier to administer What Needs to be Done? countries need to explore how the tax than alternative sources of revenue (e.g. i) Phase-in trade liberalisation: Before base can be broadened and how people in VAT). Consequently, low income countries 2 The latest assessment of 84 financial centres was removing tariffs on cross-border trade, the informal sector can be brought within issued in September 2008 under the title Towards a Level Playing Field.

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Figure 2. Tax related assistance as a process of entering into negotiation of TIEAs. proportion of Official Development Developing countries can only continue to Box 1. : The Governance Dimension in Rwanda Assistance (ODA) in 2006 benefit from the move towards less political DFID’s support to the Rwandan Revenue Authority (RRA) has resulted in a significant tolerance of countries that facilitate non- increase in domestic revenue (from 9% of GDP in 1998 to 14.7% in 2005). Costs of collection have also been reduced. This success is the result of strengthening internal organisational ODA for compliance with the tax laws. government structures and processes and of building accountable relationships with external partners, administration, What’s the Future Role of such as central and local government, a growing tax profession and taxpayers themselves. economic The RRA now plays an important role in strengthening relationships between citizens policy and Public International Institutions and NGO’s? and the state, helping to build a “social contract” based on trust and co-operation. Financial NGO’s have played an important role in Management linking tax havens and finance for development. Source: Department for International Development (DfID), 2007 ODA for tax They need to continue to build up political and revenue support for a truly global implementation related tasks In this context the recent initiative of African the amounts of revenue lost to tax havens. of the international standards. They must, and OECD Tax Commissioners to create an Ministries of Finance, Central banks and however, avoid endangering their case by African Tax Administration Forum deserves international organisations need to lead this unsupported claims of the amounts of strong support. This is an initiative designed work to give it creditability. Also, the focus tax revenues that are being lost by by Africans, for Africa with bilateral and must be on providing data which can lead to (Andorra, Liechtenstein and Monaco); some developing countries to tax havens. jurisdictions which made commitments multilateral donors, including the African policy responses. From the perspective of a to the standards in 2000 are refusing to The United Nations Committee needs to Development Bank and the OECD, playing a developing country it is more interesting to 3 implement them (e.g. Panama). encourage all of its members to include in supportive role. know how much revenue is lost to Singapore has refused to even endorse the standards. their tax treaties the new Article 26 of the or Panama than what is the global loss of The International Tax Dialogue – a grouping UN Model Tax Convention (this is the article revenue to tax havens. of the DFID, EU, IMF, Inter American The UBS and Liechtenstein scandals dealing with Exchange of Information) and to Development Bank, World Bank and the To conclude, Monterrey and Doha have have refocused political attention on the pursue its work on a Code of Conduct. role of excessively strict bank secrecy and OECD – can also play a key role in ensuring raised the profile of tax in the finance for how this can be used as a barrier to effective The OECD and its Member countries need that the efforts of bilateral and multilateral development debate. We need to maintain exchange of information. The next 12–18 to move away from a distinction between donors are more co-ordinated and in providing this political profile and to have all the actors months will see a fresh impetus towards the co-operative and unco-operative offshore benchmarks against which developing – governments, international organisations, implementation of the standards since the G8, financial centres based upon whether there countries can measure the performance of NGO’s – pulling together, combining their G20 and a joint Franco-German initiative have is a commitment to the standards to one their tax administrations. The ITD efforts in efforts, so that we have a long-term co- all recently called for a rapid implementation based upon whether the standards are this respect could be reinforced if the UN ordinated approach to raising tax capacity in of the standards and a reporting back in being implemented. Also, there needs to be and more national aid agencies were to join developing countries. 2009. a renewed effort on the part of aid agencies the ITD. Jeffrey Owens is Director of the OECD’s Centre to support projects in developing countries New efforts are required to develop an for Administration. Developing countries can directly benefit which are aimed at improving their tax internationally accepted methodology to from this initiative. Once a financial centre capacity. As can be seen from Figure 2, in measure the size of the offshore sector and The views expressed should not be taken to establishes high standards of transparency 2006 only 0.073% of aid went into the tax represent those of the OECD or its member these benefit all countries. Similarly a number area yet as can be seen from the example of of developing and middle income countries countries. Rwanda (see Box 1), tax related aid can lead 3 See the Pretoria Communiqué (http://www.oecd.org/ (e.g. China, India, and South Africa) are in the to a significant increase in revenue yields. dataoecd/1/33/41227692.pdf)

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editorial WHAT A YEAR! Nicholas Shaxson

The tax justice agenda is now spreading fast. Major non-governmental organisations, professionals, comedians, and newspapers are taking up the campaign, around the world. It is fair to say that in 2008 tax justice moved to the core of the agendas of several of the world’s most influential non-governmental groups.

he election in the United States of We are getting recognised for our foresight. Barack Obama, co-sponsor of the In October the weighty Observer Newspaper, T Stop Tax Haven Abuse Act, is a signal under a headline “The Seers” singled out TJN of hope too. And the emerging economic crisis – and especially John Christensen, Richard has started to focus attention on these issues Murphy and our friend Prem Sikka as being as never before: French President Nicolas among very few to be “bang on the money” Sarkozy, German Chancellor Angela Merkel, about the economic crisis, ahead of time. the Vatican Pontifical Council for Justice and Christensen, Murphy and others from TJN Peace; Angel Gurría, Secretary-General of the are appearing regularly on TV and radio and in OECD (click here) – the Nobel Prize-winner the written press. Accountancy Age magazine - among many other influential has ranked our Richard Murphy at number 25 people – have now made powerful statements in their Financial Power list for 2009. The Power of Ideas: the TJN International Secretariat Headquarters supporting our cause. Fights between Germany and Liechtenstein, and between the United The Doha conference on Financing for led by Jo-Marie Griesgraber and TJN’s We helped stir up a major challenge to States and the Swiss bank UBS, have added to Development – see our last but one edition David Spencer in New York. See page 10. Britain’s hateful domicile rules which resulted the fire. In the news, articles such as “Blockade of TJF – was a highlight. John Christensen An Africa tax conference in September in important changes to the law – though the Tax Havens” by an FT columnist, Willem describes it on page 8. We are grateful to many highlights how this agenda is growing, and we’re not all the way there yet. Expect more Buiter, now appear regularly; the Irish people, especially Jean Meckaert of Plateforme Germany’s Development Ministry is now, fireworks this year. We saw steps to tighten musician Bono easily won a popular magazine Paradis Fiscaux et Judiciaires (PPFJ) and Maylis following discussions with TJN and others, up the European Union’s Savings Tax Directive poll to find “the most artful tax dodger”, and Labusquière of -France for their work pushing for an International Tax Compact (STD) – which is full of holes but nevertheless British supermarket chain Tesco took on the influencing French president Nicolas Sarkozy. and to develop new cooperation at national, the world’s pre-eminent transparency Guardian newspaper in a landmark libel case In the context of Doha, a remarkable new regional and international levels. See initiative of its kind – and we know we over Tesco’s offshore tricks. “South-South” project is now taking shape, more here. were instrumental in helping push change.

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Special thanks to Richard Murphy who Bruno Gurtner and Matti Kohonen for all (which is starting a new Tax Justice it will be a bestseller, reaching large new submitted a report on behalf of Tax Research their work. Watch out, too, for a research campaign in January) and with Berlin-based audiences. Research and writing will happen LLP and TJN to a European Parliament workshop in September at the Instituto Transparency International. This, we hope, in 2009 and we expect to publish in mid- workshop on reform of the STD. More must de Investigaciones Economicas of the will help radically shift global perceptions 2010 – in partnership with a documentary be done. We have seen major progress in the Universidad Nacional Autónoma de México. of what corruption really is. See our major film to be made by Speak-It Films (makers of EU and the US in pushing for Country-By- A call for papers will come soon. article on corruption published in The the remarkable Black Gold, which has been Country Reporting: mostly limited to the American Interest, co-authored with Raymond shown in more than 40 countries). This will area of extractive industries, but we see We now have funding from the UK Baker of Global Financial Integrity (GFI) be a major priority for us in this and future broader progress too. Many thanks (again) Department for International Development in Washington, which has just published years. to Richard Murphy. We should also highlight (DfId) to support our work on tax and remarkable new research on illicit financial his lengthy submission, on behalf of TJN, international development – see the news flows. Tax Justice Focus in response to an enquiry on tax havens item on page 10 for more details – with an In our lead article in this edition Jeffrey by the UK Treasury Committee of the important Latin American component. Given Our project Mapping the Faultlines, funded Owens, head of tax at the OECD, outlines House of Commons, to counterbalance the role that offshore has played in the by the Ford Foundation and partnered with issues of major importance in tax and the many submissions from tax havens, various Latin American debt crises – among Baker’s GFI, is at least as important. This will international development. We generally accounting firms, banks and other financial many other problems – imagine the potential produce the first ever publicly available live welcome his words – though we don’t agree intermediaries who use Offshore Financial political support we hope to harness in this database on tax havens and tax mechanisms, with them all. For example, his statement Centres. varied continent. to be updated and amended over time. First that “OECD countries have established high data streams will emerge this year: many standards of transparency” does not fit the Edmund Valpy Fitzgerald and John Roche are 2009 – an even fuller agenda thanks to Richard Murphy and Markus world as we see it. Britain, , also preparing a ground-breaking Plato Index Things will accelerate this year. Following Meinzer. Switzerland and others exhibit a shocking measuring tax justice, which we hope will the launch of our Africa network in 2007, disregard for transparency, and this is what eventually be incorporated into the United we now aim to build a Latin American The European Commission has now we are campaigning to change. Another Nations Human Development Indicators. network: look forward to a Latin American confirmed funding for a three-year project statement – that non-governmental See his article on page 6, and a short summary edition of TJF later this year. In Brazil, we involving our truly excellent Dutch organisations should be careful about how here. plan a two-day seminar on February 2–3 colleagues at SOMO – which will overlap they present data – is right – though we stand with Matti Kohonen’s work with Dfid on by the substance behind assertions (which with the International Centre for Tax Law Note two other exciting developments. tax and international development (see do, admittedly, sometimes misrepresent the at the University of Sao Paulo, aimed at tax We hope to complete our new Financial policy specialists, and three seminars at the above.) It has the catchy title Towards Tax underlying data), that he seems to refer to. Transparency Index, in partnership with Justice: Raising Awareness, Building Capacity, World Social Forum in Belem. Thanks to Germany’s Misereor and Christian Aid Supporting International Coordination and Policy This edition also contains two top-quality Dialogue to Make National and International book reviews by experts in their fields A REQUEST Tax Systems More Supportive of Development – Indira Rajaraman’s review of Institutional The picture on the previous page illustrates how it is possible to achieve much with minimal and will involve multiple partners in Africa, Competition and Alessandro Santoro’s look funding. Good ideas spread far, with only modest encouragement. But we still need money Asia, Europe and Latin America. at Economics of Tax Law, all round off another to run our organisation. We now have a donation button on our website. fun-packed Tax Justice Focus. Enjoy. Last, but not least, TJN now has agreed a Please click here, and give what you can. major publishing contract with Random House for a hard-hitting book – we hope

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feature THE PLATO INDEX Edmund Valpy Fitzgerald Measuring tax justice and John Roche

“When there is an , the just man will pay more and the and developing countries rich countries redistribution is often dominated We know that taxes in developing countries by cash transfers, most poor country systems unjust less on the same amount of income” are too low, and poorly administered. While lack this. This has not been helped by a ‘tax PLATO, The Republic, bk. I, 343-D rich countries can obtain direct tax revenues consensus’ among international financial typically equivalent to around 12–18% of institutions that emphasises tax neutrality their GDP, poor countries can generally only – in practice meaning a shift away from direct ax is increasingly being regarded as So Christian Aid, the Tax Justice Network, muster 2–6% (see Figure 1). taxation (such as income taxes) towards more being at least as important as trade and the Oxford Department of International regressive indirect taxation (such as Value T and aid in the development equation. Development are therefore creating a joint Poor countries tend to be weak in administering Added Taxes) – which, as Alex Cobham has The long-term goal for developing countries project that will do two things. First, we their tax systems, so significant levels of tax are shown, has singularly failed to deliver on the must be to put government revenues on a are creating a new Plato Index that will unpaid, both through evasion and corruption. four Rs – Revenue, Redistribution, Repricing sustainable footing – and, as the OECD enable us to measure tax justice through Taxes are also very unfair; unlike in richer and Representation – needed for sustainable recognises, the only really sustainable source comparisons of direct between countries taxes are not progressive: while in human development. of long-term development finance is tax. countries and over time. This has not been The objective of development has to be the done before. Second, we are creating an Table 1. Estimated direct tax pressure, 2000 creation of viable independent states capable international tax research database to The PLATO INDEX of supporting their own populations. stimulate research in this area. Around 2000 Around 2000 Income shares Gini dirtax/ govrev/ dirtax/ PLATO Tax systems in developing countries are By being able to measure tax justice across Top 10% Top 20% coeff govrev GDP GDP INDEX poorly measured. International comparisons countries, we can have an objective measure Argentina 38.9 56.4 52.2 17.9 14.9 2.7 4.5 of tax burdens simply divide the tax burden to use in order to advocate for better Brazil 40.7 64.6 59.1 19.4 25.9 5.0 7.2 Chile 47.0 62.2 57.1 20.3 19.2 3.9 5.9 by GDP, which does not allow us to measure policies. A database will overcome one of the Colombia 46.5 61.8 57.6 34.2 13.3 4.6 6.9 or compare how progressive taxation is in major barriers to researchers looking into Mexico 43.1 59.1 54.6 34.0 14.4 4.9 7.7 each country, nor is the effective income base this area. Venezuela 36.3 53.4 49.1 19.6 20.5 4.0 7.0 UK 28.5 44.0 36.0 39.7 30.0 11.9 21.3 for direct taxation identified. Few countries Greece 28.5 43.6 35.4 22.7 30.2 6.9 13.6 have official tax incidence statistics, and Initial empirical results in our project indicate Ireland 27.6 43.3 35.9 41.8 29.0 12.1 21.9 international organisations do not address wide variations over time and region, but there Spain 25.2 40.8 32.5 29.7 19.5 5.8 12.5 this systematically – nor, surprisingly, do they is enough variation and counterexamples to Russia 22.5 37.5 31.6 26.4 20.3 5.4 12.5 Phillippines 36.3 52.3 46.1 39.8 15.0 6.0 10.3 appear to take this issue seriously enough to clearly show policy space for progressive Turkey 30.7 46.7 40.0 33.5 28.4 9.5 16.9 generate the necessary data. change. Source HDR HDR HDR GFS IFS

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“Tax systems in developing countries are poorly measured. developed countries where lower quintiles Although those with connections to do pay significant direct taxes. universities can often access the data through Few countries have official tax incidence statistics, and an institutional subscription, NGOs wanting international organisations do not address this systematically We might expect that countries with worse to work on tax data would have to pay to gain – nor, surprisingly, do they appear to take this issue seriously income distribution would exhibit higher access. In addition, the format that the data Plato, so as to restore equity; but our comes in is very unwieldy and unconducive enough to generate the necessary data.” preliminary work suggests the reverse is to econometric analysis, because it requires true. The evidence in Figure 2 is of a Plato extensive reformatting to be analysed using Arguments for higher effective direct taxation This is why we are creating the Plato Index, Index value for advanced industrial countries statistical and econometric software. We are in developing countries are based on a which we define as the ratio of direct tax at 20+ and 10-15 for recently industrialised therefore creating our own database that recognition that the better off should pay a revenue to the pre-tax disposable income of the ones. Latin America is very low at 5–7; well compiles the IMF data with other sources of greater burden of the provision of common top quintile of households. below comparable industrialising middle- tax data to be publicly accessible on a website infrastructure and social services, and that a income countries. We can only conclude linked to the Tax Justice Network. This will base combined with direct Unlike conventional measures, which simply from this that there is clearly room for provide the research community with a transfers to the worse off, are the basis divide the tax burden by GDP, the Plato Index considerable increases in effective tax rates robust data set to allow analysis of issues like for reducing poverty. Direct tax rates on combines information on income distribution in many developing countries. the relation between taxation and growth, higher income groups in developing countries and tax pressure. If the upper income groups governance, and human development. are extraordinarily low by international are strongly taxed then this will be reflected The tax database standards. in a higher Plato index. We would normatively The international tax research database will The challenge faced by developing countries expect that for a given direct , the provide the basis for comprehensive Plato in benefiting from taxation requires serious A counter argument commonly used – that worse the income distribution, the higher the Index estimates across countries and through research, which so far has been lacking. A this would retard growth by increasing direct tax yield should be. time, and in addition will become publicly database will overcome one of the major disincentives to work for the poor and available as a source for economic research in barriers to research. By being able to measure reducing incentives to invest for the rich The methodology for estimating the index is this area. The first part of the work has been tax justice across countries, we can have an – is undermined by our analysis which set out in appendix 2 of this paper. It rests on to collate this data into an accessible format objective measure to use in order to advocate shows that the negative growth effects an assumption that all direct taxation is paid by that allows for econometric research, using for better policies. are not large when compared to the welfare the first quintile – as the other four quintiles the IMF’s Government Finance Statistics. In gains. So improvements in direct taxation generally fall below the , contrast to other development statistics This work will provide a key input to Christian may be the best option for many do not occupy taxable urban property and such as much of the World Bank’s and the Aid campaigns on tax justice, and we hope to developing countries seeking greater are not covered by social security. While UN’s data which can be accessed through a get the Plato Index included in the UNDP’s revenue independence, lower income the assumption may be valid for developing pub lic website, these IMF statistics require a Human Development Report. inequality and clearer channels of political countries, it requires some adjustment for subscription and are thus less easily accessible. representation. Edmund Valpy Fitzgerald is Professor of International Development and Director of the The Plato Index Department of International Development at We seek to discover the range of direct tax “The international tax research database will provide the Oxford University, and a senior adviser to the incidence on the upper income groups, to basis for comprehensive Plato Index estimates across countries Tax Justice Network. John Roche is a graduate student in the Department of Economics at derive some idea of what might be possible and through time, and in addition will become publicly and where best practice might lie. SOAS and is working on the creation of the tax available as a source for economic research.” research database.

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Doha: A cup half full? by John Christensen

Tax justice was a key focus at the cooperation. TJN was the first 3. Including an explicit commitment Follow-up International Conference genuine organisation to to progressive taxation (anathema on Financing for Development (FfD) participate as observers at the UN to anti-state extremists); in Doha, Qatar, from November Tax Committee’s annual sessions in 29th to December 2nd. This, in itself, Geneva, and we now see it as the 4. Adopting measures to tackle tax represents great progress for TJN, most legitimate agency working in practices that undermine the and marks a contrast from the first this important area (the OECD plays integrity of tax regimes, e.g. the FfD conference held in Monterrey, a powerful role, but it ultimately aggressive of tax Mexico, in 2002. represents rich countries.) havens; Promoting the UN Code of Conduct on Cooperation That conference had lain out a From September 2006 the TJN team, in Combating International Tax new agenda for development - the strongly supported by the Paris- Evasion. Monterrey Consensus - which did based Plateforme Paradis Fiscaux et emphasise the importance of using Judiciaires, started to focus on the Our advocacy efforts principally domestic resources as a source for Doha follow-up conference. It was targeted EU member states and the both private and public investment Doha: a tax haven in the making? an opportunity to galvanise European EU Presidency, which was held by – though the many concerns that non-governmental organisations President Sarkozy of France during had been raised at the Monterrey undermine development, such as tax developing countries and countries (NGOs) around a short list of clear the second-half of 2008. conference about capital flight and competition and , and with economies in transition; demands, including: tax scarcely got a mention in the the role of tax havens in facilitating (section F, paragraph 64). In the end, we made significant final Consensus document. all of these. Importantly, however, the 1. Strengthening commitment to progress with items 1 and 2, but not Monterrey Consensus did include This clause helped stimulate the tackling illicit financial flows, with 3 and 4. But we had a broader To understand the recent Doha the following commitment: launch of the Tax Justice Network. capital flight, and aim, too: raising tax justice up the outcomes, it is necessary to look We were heartened in December avoidance; agenda – and in this we were highly first at how the FfD process has Strengthen international tax 2003 when the UN General successful: tax issues were centre evolved over time. cooperation, through enhanced Assembly agreed to upgrade 2. Upgrading the UN Tax stage at Doha – and many allies dialogue among national tax the obscure and flaccid Ad Hoc Committee to intergovernmental rallied around. In the original Monterrey Consensus, authorities and greater coordination Group of Experts on International status and rebalancing its capital flight was mentioned (in of the work of the concerned Cooperation on Tax Matters composition to include a larger On illicit financial flows, the section paragraph 10) but tax evasion multilateral bodies and relevant to Committee status, with a number of genuine developing on systemic issues saw a new, was not. No mention was made regional organizations, giving mandate to advance the Finance countries and fewer tax haven stronger wording emerge, addressing of tackling tax practices that special attention to the needs of for Development agenda on tax countries; our calls for more transparency

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Doha: A cup half full? (Cont’d) and information disclosure: the key assist efforts to reduce illicit the American negotiators and their towards this goal may be slower have strong views on corruption sections are: financial flows. (Paragraph 72) allies. The paragraph continues: than we would like, the agreed (see our article in The American formulation does allows time to map Interest for more details) and hope New and highly globalised financial While each country is responsible That last sentence came in at the out a more balanced representation to see tax evasion explicitly listed instruments continue to change the for its tax system, it is important last moment, apparently sponsored in the committee (resisting efforts as a corrupt practice under the UN nature of risks in the world economy, to support national efforts in these by the Germans. This gives us a good by vested interests to shoe- Convention Against Corruption. requiring continuing enhancement areas by strengthening technical hook for future work, including horn multiple tax havens into the of market oversight and regulation. assistance and enhancing the country-by-country reporting “developing country” categories), Other positive outcomes from Doha To strengthen the resilience of international cooperation and standard, and disclosure of beneficial and to push for stronger political included the launch of a book on the the international financial system, participation in addressing ownership. The reference to risk status, and better resourcing and South-South Sharing of Successful we will implement reforms that international tax matters, including disclosure has a strong bearing on staff. We see this as a vital step Tax Practices Programme (see the will strengthen the regulatory in the area of . off-balance sheet vehicles used in towards improving on the current news item on page 10), and the 2008 and supervisory frameworks of the shadow banking system, which … which served as a preamble to situation, where the interests of Social Watch Report, which includes financial markets as needed. We in no small way contributed to the what was possibly one of the most poor people from real developing a chapter on tax and development will strive to improve key accounting current financial crisis. Off-balance hotly contended sections of the countries are not being effectively contributed by TJN. standards to remedy weaknesses sheet financing has no legitimate entire document: served by this United Nations body. and deficiencies, including those role and must be outlawed. Half full? Half empty? Definitely the exposed by the current financial In this regard, we acknowledge Paragraph 20 refers to strengthening former. Despite strong resistance crisis. National regulators should Paragraph 16 includes the following: the need to further promote national and multilateral efforts from the usual suspects, including international cooperation in tax enhance financial information We will step up efforts to enhance to address factors contributing to tax havens from the G-77 group matters, and request the Economic and transparency at the domestic tax revenues through modernised capital flight and to efforts to tackle of countries, our demands were and Social Council to examine level. We will further enhance tax systems, more efficient tax money laundering and preventing supported by important allies, and the strengthening of institutional cooperation amongst national collection, broadening the tax base illicit financial flows. The paragraph the wording of the Doha outcome arrangements, including the United regulators from all countries to and effectively tackling tax evasion. is weak on specifics, but the broad report shows considerable progress Nations Committee of Experts on strengthen international financial We will undertake these efforts commitments are immensely since the Monterrey conference. International Cooperation in Tax standards. These efforts should with an overarching view to make important. Above all, we came away with a Matters. address timely and adequate risk tax systems more pro-poor. feeling that tax matters have moved disclosure standards in order to Now this latter part is hugely Paragraph 21 elaborates on the from the periphery to the core improve the foundation of decisions That’s OK as far as it goes, but important. TJN had been hoping fight against corruption “in all of of the development debate, and of investors. There is also a need for earlier drafts of that sentence read for stronger wording explicitly its manifestations” in the private we know we have played a part enhanced transparency by financial “more progressive and pro-poor.” committing the UN to upgrading and the public sectors, and calls for in making this happen. That alone institutions. Enhanced disclosure The reference to progressive tax its Tax Committee to inter- “effective legal and judicial systems makes our efforts over the past two practices and transparency should was deleted at the insistence of governmental status. While progress and enhanced transparency.” We years more than worthwhile.

9 FIRST QUARTER 2009 VOLUME 4 ISSUE 4 TAX JUSTICE FOCUS news

Tax Systems for Poverty Reduction S4TP – a project for South-South TJN’s new 3-year DfID Funded Programme co-operation

South Africa’s Finance Minister year we will have produced a Tax TJN side, is now in the process The basic idea behind S4TP is Trevor Manuel noted at the Finance Us IfY ou Can Africa edition and country of being integrated with a larger to foster the sharing of best tax for Development meeting in Doha briefings for Ghana, Kenya, Brazil initiative managed by our partners practices among developing that his initials are T.A.M. – but and Bangladesh. In the second year SOMO in the Netherlands (through countries, and to identify where sometimes he wonders whether we will produce regional editions of Francis Weyzig and Maaika Kokke) there is greater scope for regional they should be T.A.X. Jeffrey Owens Tax Us If You Can for Latin America which starts in January 2009. and multilateral co-operation. of the OECD has a different take and Southern Asia. Richard Murphy’s This project is being developed in – he thinks aid should be spelt with Tax Research LLP (Richard wrote the context of the Financing for the same three letters – t.a.x. the original Tax Us If You Can) is a Development process – which Trevor Manuel, South African Finance key player in the rewriting process. Minister, reading our book. started in Monterrey, Mexico in Donors and multilateral agencies We will also write six thematic tax 2002 and whose latest event was the are now waking up (so late!) to the education packs on themes ranging Another major programme, high level conference in Doha, Qatar central importance that tax plays in from Tax for Small and Medium-sized complementing the projects with in November–December 2008 (see finance for development. Now the enterprises to Tax for Accountability DfID and the EU, is a remarkable “Doha: a cup half full?” on page 9). Tax Justice Network has secured and Democratisation. initiative led by Jo-Marie Griesgraber funding from the UK Department The S4TP project brings together of the New Rules for Global Finance for Development (DfID) for a three- A central aim is to strengthen experts from developing countries coalition (and co-chair of TJN-USA) year programme from November NGO partner interventions in this to share their perspectives. We have and David Spencer, a practising New 2008, to work with civil society area, so that they can work more already held two conferences – the York attorney who is representing partner organisations in Africa, effecively in engaging on tax policy first one in May 2008 was hosted at TJN (David is one of our senior Latin America and Southern Asia to matters. This will help DfID broaden the prestigious Law School of New advisers.) These two organisations bring tax issues to the forefront of its existing tax work, which in the York University (see the conference are working in partnership with the development and state-building past has focused largely on capacity report here), and a second conference the UN Development Programme agenda. building. At the same time we are on was held in (UNDP) and the UN Department building a campaign from the ground Amsterdam in August, at which David of Economic Affairs (UN-DESA). The project will produce a new up, drawing on lessons from the Tax Spencer spoke about transfer pricing The programme is known as range of bespoke education Justice for Africa programme which as a component of capital flight and “South-South Sharing of Successful Tax materials and will deliver training has been running now for 2 years. illicit cross-border flows. Practices: Revenue’s Role in the Quest programmes, through a series of for Inclusive Development – What workshops and seminars, in Africa, This DfID project, which is being We have also put together a Works and What Can Work Better?” Asia and Latin America. In the first managed by Matti Kohonen on the book (see South Africa’s Finance – or S4TP for short.

10 FIRST QUARTER 2009 VOLUME 4 ISSUE 4 TAX JUSTICE FOCUS news S4TP (Cont’d) In fi lm Minister reading it, in our picture) THE END OF POVERTY? which is essentially a collection of Directed by Philippe Diaz; produced by Beth Portello papers presented at the New York Conference, with many tremendous LA GRANDE ÉVASION In a world with so many resources, driven by such continual progress, how contributions from important can we still have so much poverty? Today 25% of the world’s population A 52-minute fi lm by Fred Brunnquell fi gures such as Michael Waweru of uses more than 80% of the planet’s resources. Two billion people survive the Kenya Revenue Authority and on less than a dollar per day. How did we come to this? When did it all Vimal Gandhi, President of India’s begin? When did people start to become rich and poor? Income Tax Appelate Tribunal, who This is the question we are trying to answer, or at least create real and spoke about the importance of an honest debate around, in our new movie: “The End of Poverty?” In the effective tax judiciary and the key fi lm, we let the experts answer. role it can play in promoting tax justice. The book was launched at The experts interviewed in the fi lm all agree – our chosen economic the Doha Conference by Vito Tanzi, system always was (and still is) fi nanced by the poor. This is done in many a former head of the Department Tax havens on the production line in La Grande Évasion ways, such as by repaying international debts or, as the Nobel Prize- of Fiscal Affairs at the IMF who has Our fi lm explores how tax havens work, and looks into how the new winning economist Joseph Stitglitz explains, by giving monopolistic control done important work on tax havens globalised world economy really operates. To show this, we designed and over resources and other privileges to multinational corporations, or by and other “fi scal termites” gnawing used an object to symbolise the tax havens: the snow globe. using unfair subsidies or tools like intellectual property rights. The poor away at countries’ tax systems. may have to pay unfair taxes on their labour and consumption, while More conferences, materials and In our fi lm we give our snow globes to U2’s Bono and to Lakshmi Mittal. capital gets a free ride. Capital market liberalisation, as John Christensen co-operation are planned in this We give them to billionaires who don’t pay their taxes, and to their points out, opened “a new kind of criminal environment where capital multi-year project. attorneys and members of the big accounting fi rms that help them can avoid taxes by being shifted all around the world.” put together the fi nancial schemes to sidestep taxes. In sequence after We are very grateful to David and sequence, our globes provoked a range of emotions: sneers, delight, This movie was made by gathering testimonials from experts and poor Jo-Marie for their work in this smiles and contempt. people alike, to fi nally (and hopefully) inspire a true debate about the important project, and for the great real causes of poverty. The early success of the fi lm – being selected support we have received from In Washington D.C., we meet incorruptible U.S. Senators battling this at the Cannes Film Festival and by another dozen international festivals Michael Lennard of the UN Tax economic setup. In Ghana, we look at a country that may turn itself into – shows the genuine interest the world has in fi nding a solution. Are we Committee. a tax haven. In the British Virgin Islands we did a hands-on demonstration, ready to listen, and even more importantly, are we ready to change our creating a company to import our snow globes without paying taxes. I way of living? remember trying to sell our snow globe in Saint Helier in Jersey, in the street. Nobody was smiling there! In French www.TheEndofPoverty.com

11 FIRST QUARTER 2009 VOLUME 4 ISSUE 4 TAX JUSTICE FOCUS reviews

Institutional competition head-on. In a systematic manner, he therefore potentially improving rates with consumer preferences identifies three possible negatives welfare. This argument might for public services. Hoijer does Andreas Bergh and Rolf Hoijer (eds) and argues against all three. The possibly carry conviction in a largely concede that movement of people Edward Elgar, 2008 xvi + 264 first is that tax competition distorts homogenous universe, such as that is not natural or easy across ethnic investment decisions and violates of the EU. But the nation state in divides. Once again, this might not capital neutrality (that is, poorer destinations faced with seem an insuperable obstacle within that an investor should face the unconstrained tax competition will the EU, with visa-free movement. same taxes regardless of location). try to stay afloat by ensuring public But the opposition of the world The second is the negative impact services to mobile capital, but denying community to free movement of on public revenue (and therefore on them to sections of the population people illustrates the fallacy of the ability to provide public goods) without recourse. Scarce water extending the Tieboutian notion to of a on taxation might be diverted to the corporate contexts beyond that for which it This collection of ten essays from a that emerges – and it is an important of capital, as jurisdictions bid to sector, away from the parched was intended. Movement of people research project of the Ratio Institute one – is that decentralisation of attract mobile capital. The third is hinterland. Floodlit consumer will become ever more contentious in Stockholm investigates assorted governance offers scope for wider that footloose capital can shake off malls might draw scarce electricity as climate change forces people to aspects of institutional competition. experimentation and institutional the burden of taxation by roaming away from irrigation pumps. An move in the face of advancing sea Going beyond the inevitable debates diversity, with all the information the world, leaving relatively immobile internationally agreed levels. The 1999 empirical paper by over the definitional boundaries of and learning advantages that accrue. labour to bear the tax burden, with rate floor would protect against this. Radaelli is cited to show no obvious institutions, and the arena in which There are several instances of this implications for the distribution of The advantage of choice remains fall in government revenues, but they might be said to compete, the from around the world. In India, free income. with mobile capital: it is still free to as Hoijer concedes, that merely accepted interpretation in all the mid-day school meals for all children, rank destinations by public service establishes success in finding papers here is that institutional or public employment guarantees On distortion of investment value for taxes paid – but the rate compensating revenue sourced competition denotes competition during agricultural off-seasons, and decisions and violation of capital floor ensures, to that extent, that elsewhere. If a high-rate VAT is the between states at national or, within the experimental evidence that they export neutrality, Hoijer’s refutation public goods will not be allocated source of replacement revenue, nations, subnational level. could be done without bankrupting falls back on the familiar plank: away from the voiceless population. the tax system will become more the exchequer, were learned from that tax rates are merely the price regressive. Surely that is not a happy States can learn from each other. pioneering subnational governments. for public goods, and that mobile On the negative outcome of tax outcome. Positive advantages of this kind from Learning of this kind happens capital looks at tax rates and public competition on public revenue, what is called yardstick competition naturally; it does not need prodding. services provided as a package. Hoijer falls back on Tieboutian The third and related issue is the do not even need to be elucidated, He goes even further to suggest mobility (that households reveal replacement of revenue from capital since no policy action follows. These The possible negative outcomes of that tax competition facilitates the their preferences for public goods taxation with revenue from labour advantages are set forth in separate tax competition are, however, far pricing of public services in different through their decisions to relocate) taxation. Without adopting what papers by Roland Vaubel and Michael more compelling, and call for policy destinations, thus improving the to argue that there will be eventual Hoijer labels the Marxist distinction Wolgemuth. Perhaps the only lesson attention. Rolf Hoijer addresses this signaling properties of taxes, and jurisdictional alignment of tax between capital and labour, and

12 FIRST QUARTER 2009 VOLUME 4 ISSUE 4 TAX JUSTICE FOCUS reviews (cont’d)

conceding that embedded human Hoijer, that international tax performed and clearly reported. superiority of property rights in reductions, relative tax advantages capital is possibly as mobile as competition is beneficial rather than Neither spending decentralization India relative to China, to identify are evened out, settlement of a financial capital, it is hard to accept harmful. One argument - that direct nor subnational tax autonomy the distortion of incentives in India. universally agreed and enforced his argument that a burden shift is a tax rates have indeed fallen, but not over tax rates or bases has a floor will be to the revenue benefit transfer that permits no conclusions, (on average) to zero - neglects the significant impact on economic This book has much to commend it, of all, and the relative disadvantage since interpersonal neutrality does crucial issue that some destinations growth. However, when subnational because of the richness and diversity of no partner to the agreed floor. not enable offsetting of the gains to have indeed come down to zero, jurisdictions participate in joint of the issues addressed. However, some against the losses to others. ) and that the regulatory burden thus taxation systems at the national level, the uniform support of many of Indira Rajaraman He goes further to cite the classic placed on non-zero destinations the growth performance is worse. the pieces in it for unbridled fiscal Professor Emeritus at the National Diamond-Mirrlees result of 1971 to monitor transfer pricing is a From this the author concludes competition is not tenable. The Institute for Public Finance and Policy, that taxes distorting production deadweight loss that poor countries that tax autonomy, meaning the argument in favour of placing a floor New Delhi, India impose more deadweight costs can ill afford. The case for a universal absence of joint taxation, has had a above zero on tax competition, than taxes distorting consumption, above-zero tax floor surely remains positive influence on the economic whether between countries, or to suggest that a shifting of the tax irrefutable. The Bergh paper is set performance of OECD countries. within countries, is very simple. Tax burden from capital to labour might squarely in the European context, However, the leap from here to competition introduces noise into actually be a good thing. The leap to where it might be possible to tie tax- the conclusion that unlimited tax the relative attraction of investment- that conclusion may not be justified. benefit packages for the population competition is good for efficiency is seeking destinations, in a manner The key here is the locational saddled with a high tax burden on not warranted. that can seriously distort investment distortion posed by inter-country labour income. But in developing decisions away from efficiency. The variations in taxes on mobile capital. countries, the regulatory burden of An excellent paper by Erich Weede, argument that taxes are merely one Even if tax competition leads to imposing club restrictions on public comparing the institutional features side of a public services package, successive rate equilibria, there is services would pose an infeasibly of China and India, closes the the whole of which goes into a distortionary interregnum when large administrative burden on book. He executes admirably the the location decision, is invalid in rates are constantly re-adjusted. government. theoretical task he sets himself, of developing country contexts, where A global that imposes finding a common set of institutional reduced taxation of mobile capital a uniform non-zero floor rate of The only research paper in the factors which explains both why will see a corresponding decline in tax imposes an a priori equilibrium book is by Lars Feld. This important China and India fell behind the West services not to corporate enclaves, without distortionary rounds of contribution is the first ever to test and eventually started to catch up, but to the non-corporate hinterland. competitive rate reduction. for the impact of fiscal federalism on and also why China outperformed Developing countries increasingly economic growth, using data based India. Weede correctly identifies the challenged by climate change and The two other papers on the on an OECD method advanced in failure to protect property rights in food insecurity find themselves tax competition issue, by Victoria 1999. The exercise conducted with China and India relative to Europe effectively deprived of fiscal Curzon-Price and Andreas Bergh, panel data for 19 OECD countries as a key element of the story, and autonomy. Since at each temporary echo the general conclusion of from 1973 to 1998 is meticulously correctly reaches below the surface equilibrium after a round of rate

13 FIRST QUARTER 2009 VOLUME 4 ISSUE 4 TAX JUSTICE FOCUS reviews

Economics of Tax Law scholars, namely Michael Graetz and A 1987 paper by Joseph Bankman taxation of financial operations, Boris Bittker, on issues such as the and Thomas Griffith put forward treatment of losses, and the edited by David Weisbach use (and abuse) of numbers in tax a number of arguments defending valuation of goods when they cross Edward Elgar, 2008 lawmaking, or the interpretation of progressivity. They looks at the international borders. The analysis tax progressivity. labour-related efficiency costs of notes that flat taxes can easily be progressive taxation and critically avoided and that can exacerbate The best-covered area is on the examine traditional arguments that transfer pricing problems. choice of the tax base, including progressivity imposes important that of tax expenditures (that is, administrative costs. The part of the book devoted to exemptions and allowances) and tax shelters is fascinating, though of the tax unit. Most discussions David Weisbach, in “Ironing Out it includes only two papers, one focus on the alternatives between the ”, makes a convincing by Joseph Bankman and another income and consumption taxes, critique of flat tax proposals. He by David Weisbach, whose focus is The starting point of Economics of The papers included in the book and I would suggest starting looks at claims put forward by flat almost exclusively on U.S. legislation. Tax Law, a two-volume collection can be divided into three areas: first, from the 2006 paper by Joseph tax advocates - notably Robert Hall Bankman’s paper describes in detail of 40 papers mostly from academic the basic economics of taxation; Bankman and David Weisbach, and Alvin Rabushka – who argue that the new corporate tax shelters – economics and law journals, is a second, the choice of the tax base; which provides a comprehensive and flat taxes are simple and efficient, and the latest-generation shelters which contradiction. On the one hand, third, administration and compliance non-technical introduction to the suggests that these claims may well have been marketed to Fortune more than most legal subjects, issues. theoretical aspects of the alternative be false, once you properly analyse 500 companies rather than to high- taxation has long been the subject between the two tax bases. the design issues presented by flat income individuals, (as was the case of study by both lawyers and A few of the 13 papers that cover taxes. In particular, Weisbach focus for the old 1980s shelters.) economists. On the other hand, the the basic economics of taxation The interested reader wants to read his critiques on the openness of the law and economics revolution of provide non-economists with a the 1996 paper by Alvin C. Warren flat tax – that is, that deductions While the 1986 Tax Reform Act the Sixties and Seventies touched relatively gentle introduction to the Jr, and then explore the technicalities claimed by one taxpayer are not put an end to the old individual taxation far less than it did other optimal taxation of commodities by reading the papers by William necessarily offset by inclusions of shelters, the author writes, the fields: economists’ abstract models and of income: I would highlight Andrews, a law professor, and the another (and vice versa). new corporate tax shelters are tend to assume away many of the those written by leading economists economist Alan Auerbach. Readers much more sophisticated and legal details of real tax systems, and as William Baumol, David Bradford, from TJN might be especially For example, under a flat tax a complex. Bankman provides a useful lawyers often ignore the economics and Shlomo Yitzhaki. interested in the papers discussing business may deduct the cost of land taxonomy of the main of taxation and are scared by its progressivity and those discussing purchased from an individual, but the schemes with exotic names: the daunting mathematics. This book Economists, on the other hand, tax administration and compliance individual is not taxed on the sale. “High-Basis Low Value” scheme, the is therefore both important – and may find it interesting to compare issues. This generates many administrative “Step-Down Preferred” scheme; the difficult. their views with those of legal and compliance issues regarding “Instalment Sale” scheme (which

14 FIRST QUARTER 2009 VOLUME 4 ISSUE 4 TAX JUSTICE FOCUS reviews (cont’d)

Colgate-Palmolive and others Finally, another Weisbach paper, contributes the asset, and then the scheme which involves the use of tax bought from Merrill Lynch), and the Formalism in Tax Law, gives an partnership is ended by distributing shelters. Although recent papers by “Lease Strips.” The common aim of economic analysis of the alternative the money to B and the asset to A. Jim Hines and Joel Slemrod at NBER these schemes is to attribute losses options of rules and standards in These are formally covered by the may indicate a possible evolution in to a subsidiary located in the U.S., anti-abuse tax law. The problem with legislation on partnerships but their this important field, important gaps and then to allocate profits to zero- tax rules is that taxpayers manipulate economic substance is inconsistent remain for lawyers and economists bracket taxpayers, namely a foreign them to create results that were with the purpose of a ‘real’ to fill in future. person not subject to US tax, by clearly not intended by the drafters. partnership. The partnership is just using a complex set of financial and To avoid this, tax rules need to be a way to save the tax that B would Alessandro Santoro contractual arrangements involving very detailed and complex, and this pay by selling the asset outright to A. Assistant Professor of Public Economics at least 3 companies (the parent, increases their administrative and An anti-abuse rule would allow at the State University of Milan- the subsidiary and the zero-bracket social costs. On the other hand, the Tax Agency to rearrange this Bicocca taxpayer). In many cases, zero- however, standards are applied ex- transaction as a standard sale. bracket taxpayers are foreign parties post by courts or by administrators, located in a tax haven. and this reduces certainty and A number of interesting issues arise reliability in tax law. Weisbach from these two articles which lead us The article also looks at the supply advocates an intermediate solution: (in a way) back to the contradiction side of the tax shelter industry, anti-abuse rules that are drafted I noted at the start of this review. which is characterised by high ex-ante but which are fuzzy at the Tax shelters and tax havens pose competition between the older borders, like standards. These are huge legal and economic problems incumbents (investment banks and one-way and purpose-based rules, for developed and developing the like) and the newer entrants and they allow the government to countries. Research on this topic (accounting firms) which have taken depart from the literal language is challenging, and requires a deep up the lion’s share of the market, of the law (which is the source of understanding of corporate finance, thus limiting the role of law firms. their fuzziness) to require that the economics of corporate taxation, The last part of the article illustrates the taxpayer does not enter into and corporate tax law. Lawyers the possible long-term and short- a transaction with a purpose of tend to focus on the intricacies of term policy options. In the short- reducing tax liabilities in a manner the law, while economists adopt an term the author analyses a number contrary to the purpose of the oversimplified approach. In most of proposals put forward by legal statute or regulation. For example, economists’model, there is virtually scholars and by the US Treasury in take mixing bowl transactions, i.e. no difference between a simple 1999, and advocates a combination joint ventures between A and B evasion realized by underreporting of these as a viable approach. where A contributes the money, B of revenues and a complex

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