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21/05/13 8:46 PMUK Prime Minister writes to British tax havens. How serious is he? |Havens and the men who stole the world | A book by Nicholas Shaxson

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May 20 2013

UK Prime Minister writes to British tax havens. How serious is

he?

Posted by: Nick Shaxson in:Thoughts

This is cross-postedfrom the TJN blog: I wrote it and can be quoted on any of it.

Today Britains Prime Minister David Cameron wrote to the UKs Crown Dependencies and OverseasTerritories, reading them the riot act sort of.

Headline summary from us: this contains much that is positive. But the devil and devilry will lie in thedetail. This follows on from a blog we wrote recently entitled Will the UKs tax haven agreements be anexercise in missing the point?

Here are a few take-outs from the letter, dealt with in order.

I respect your right to be lower tax jurisdictions. I believe passionately in lower taxes as avital driver of growth and prosperity for all.

This raises several questions. First, whatever happens on transparency, these jurisdictions zero-tax statuscreate gigantic opportunities for global abuse, from transfer pricing shenanigans to offshore trusts. So

there is a massive lack of coherence here, right from the get-go. Second, Cameron believes in lower taxes.But lower than what? In the case of the tax havens, he cannot mean lower than zero. So what is he talkingabout here? Second, why does he think that lower taxes are a driver of growth and prosperity. Where,exactly, is the evidence?

Next:

There is no point in dealing with tax evasion in one country if the problem is simplydisplaced to another.

On the face of it, this is a nonsense argument. Defenders of the status quo often say that cracking down is

like squeezing a balloon: activity is displaced elsewhere, while the volume of the balloon staysunchanged. Camerons words there is no point seem to lie firmly in this belief system. But that isnt at


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all how things work in the real world. Its more like squeezing a sponge: you squeeze in one place, andyou catch some and you lose some. Tax evaders, deprived of the easy options, will go to more exotic,risky and difficult locations. Many wont go to the trouble, and they will instead choose to obey the law.Thats imperfect, but its called progress. Still, Camerons point that greater international cooperation and

coherence here makes it easier for everyone is a good one.

Next:

We also need to ensure information exchange works effectively for all, particularly thepoorest countries in the world. That is why we strongly support the Multilateral Conventionon Mutual Assistance in Tax Matters. I know many of you have been considering joining andI ask you all to commit to do so in the run-up to the G8 Summit.

Thats good, as far as it goes. As is this one:

I very much welcome the commitments you have made to automatic tax informationexchange, both on a bilateral and multilateral basis.

Yes, and this is good to see. Though one question that this begs is: just how multilateral will this be?Will this only help rich countries, or will it be rolled out to those vulnerable countries that need it most?What will be the position inside Europe on the EU Savings Tax Directive? This is the opportunity to putinto place the improvements, the amendments to the Directive, and hopefully this week Luxembourg andAustria will be called to account on this by European leaders. Its too early to tell, but this importantrecent paper from Itai Grinberg plays a crucial role in addressing these questions.

Next:

Dealing with tax evasion is not just about exchanging information. It is also about improving

the quality and accuracy of that information. Put simply, that means we need to know whoreally owns and controls each and every company. This goes right to the heart of the ambitionof Britains G8 to knock down the walls of company secrecy.

. . .

[Tax havens' action plans on beneficial ownership] will need to provide for fully resourcedand properly managed centralised registries, that are freely available to lawenforcement and tax collectors, and contain full and accurate details on the trueownership and control of every company.

Now that stuff in bold is very good to see. We like it, as far as it goes but a reminder from RobertPalmer of Global Witness.

Its only really meaningful if accompanied by transparency eg open registries of beneficial

ownership of companies & *trusts*

Even this does still, however, beg a number of questions.

First, why only companies? These are important, for sure, but what about trusts? These are a gargantuanpart of the British offshore system, and theres nothing specific about them. (Very often, trusts are higherup the ownership tree than companies: the companies are typically owned by a trust.) An earlier statementonly said information exchange also includes information on certain accounts held by entities, such astrusts which, as we blogged recently, raises all sorts of other questions.


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Second, which countries law enforcement agencies will get access to to these registries? Will it only bethose rich countries with sufficient political muscle to be able to intimidate the small tax havens intoshaping up? Or will the books be opened to, say, Tanzanias tax authorities? Will it be possible for themto search the registries for evidence of what their citizens are up to, without having to find the evidence

first? Or will information from these registries be available only once you have the smoking gun on aparticular criminal or taxpayer? Who will police this, and make sure that tax havens dont make a businessmodel out of accidentally failing to do the proper due diligence?

Third, what about ownerless assets such as those held in discretionary trusts or Liechtensteinfoundations? How will they be tackled?

Were not saying that this statement doesnt reflect progress: it does, albeit from a pathetically low base.But we know from long experience that tax havens core business models involve the creation ofloopholes and how serious is the UK government in ensuring that the loopholes are plugged?

Questions, questions.

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