Happy Birthday Tax Justice Network

9th November 2002: Founder's Meeting in Florence, Italy

The Tax Justice Network was founded in Florence on 9th November 2002.  Today is our tenth anniversary.  Happy Birthday, TJN.

The Founder's Meeting followed two days of discussions at which researchers and activists from across Europe considered how to fight against tax havens and tax evasion, and agreed to build a European network (later a global network) to take the lead in campaigning against the cancer of tax havens.  These seminars were convened by Sven Giegold (Attac Germany, now a Member of the European Parliament) and Bruno Gurtner (at that time senior economist of the Swiss Coalition of Development Organisations, and since 2006 the Chair of TJN's global board of directors).

For this blogger, the meeting in Florence was a turning point.  I had been researching tax havens since the early 1980s, which had involved 14 years working offshore in the British tax haven of Jersey. I was convinced that tax havens were the root of much poverty and inequality, and was looking for the right moment to shift from research to activism. Florence was that moment.

Three years earlier, in 1999, Oxfam had approached me to advise on their seminal report on tax havens - Tax Havens: Releasing the Hidden Billions for Development.  Oxfam's report had triggered interest around the world, leading many people to ask me what actions needed to be taken against tax havens.  In August 2002, just months before the meetings in Florence, three activists from Jersey - Jean Andersson, Pat Lucas and Frank Norman (the latter now sadly deceased) - visited me at my home in Chesham, and over tea and cakes made a simple request: "Liberate Jersey from the grip of the offshore bankers."  How could I refuse?  This was the equivalent of Gandalf booting Bilbo out of his own front door: my life's Big Adventure was underway.

Things moved forwards at lightning speed in the weeks that followed tea and cakes with Jean, Pat and Frank.  My long-standing friend Prem Sikka agreed to co-organise (under the joint banners of Attac Jersey, Attac Saint Malo, and the Association for Accountancy and Business Affairs), a conference on tax havens in Saint Helier.  Prem also invited a chartered accountant called Richard Murphy to that conference.  This was the first time I met Richard and, bizarrely, within minutes of meeting we were discussing the need for country level disclosure of multinational company accounts: the idea of Country-by-Country Reporting was born in Jersey, of all places.

The Jersey conference was followed by an event organised by Matti Kohonen of Attac UK at University College London, where activists from a variety of British organisations, most notably War on Want and what is now known as Stamp Out Poverty, agreed to launch a campaign to tackle tax havens.  Days later a British delegation consisting of War on Want's Pete Coleman, Dr Mark Hampton (University of Surrey) and I, flew south to Florence to meet other European activists in Florence.  

We were so rushed in our preparations that neither Mark or I had organised accommodation in Florence, which had been frightened by then Prime Minister Berlusconi into thinking that tens of thousands of dangerous, hooded troublemakers were descending on the city.  Most of the hotels, pensiones, shops and cafes were closed and boarded up.  Riot police and secret service were everywhere.  The locals peered anxiously from behind their curtains, fearing the worst.  Mark and I struggled to find somewhere to stay, but David Hillman came to our rescue and all was well.  Thanks David.

Before arriving in Florence we had expected no more than a handful of people would attend the seminars convened by Bruno and Sven.  Wrong.  Dozen upon dozen came to the first seminar, titled "General Introduction into the Problematic of International Tax Evasion/Tax Competition/Tax Havens: Presentation and Critics of the Activities of the International Institutions (EU, OECD, UN, IWF)".  Despite the unsnappy title and obvious language barriers, it was clear that we shared common understandings of how tax havens harm development.  It was equally clear that there was an appetite to take action.

The second seminar, on Friday 8th November 2002, took a closer look at Europe's tax havens, including Austria, Belgium, Luxembourg, Switzerland and United Kingdom and mapped out the reform proposals coming from different experts and organisations in Europe.  Once again, it was clear that - despite the OECD's politically motivated blacklisting of only small island tax havens in 2000 - we shared a common understanding that tax havenry involves some of Europe's most influential capitals.

By the time we met on the following day, in the tiny office of a local community activist group in central Florence (see photo above), we were ready to get started.  Within hours we had agreed a name - Tax Justice Network - and the bare bones of what would become the Tax Justice Declaration and Manifesto.  Pete Coleman and I agreed to prepare the first draft of these documents, and Andreas Missbach (Berne Declaration) offered a small pot of cash to create our website. TJN was born that day.  Less than six months later we were formally launched at an event hosted at Britain's Houses of Parliament.  

We have come a long way since then.  What was initially a gesture of hope, has turned into a genuinely influential global movement.  

Long live TJN!

John Christensen

Here is the full list of founders:

Josep Parramon                        Attac Andorra

Gerhard Totschnig                   Attac Austria

Oscar Torres                              Attac Catalunya

Anders Lund                              Attac Denmark 

Raphael Calvelli                        Attac Florence

Jean-Luc Wingert                     Attac France

Pansu Gilles                               Attac France

Nycette Isnaro                           Attac France (Sarthe)

Jeannine Francoise Rouxin    Attac France (Sarthe)

Astrid Kraus                               Attac Germany

Brigitte Henkel                          Attac Germany

Detlev von Larcher                   Attac Germany

Jacob von Recklinghausen     Attac Germany

Michael Thomas                       Attac Leipzig (Germany)

Sven Giegold                             Attac Germany

Bernard Bouzon                       Attac Romans (France)
Rudy de Meyer                         11.11.11, Belgium

John Christensen                    Association for Accountancy & Business Affairs
Andreas Missbach                   Berne Declaration

Zsusanna Kovacs                     Solidarity Youth Alternative (Hungary)

Gergely Czigany                       Solidarity Youth Alternative (Hungary)

Bruno Gurtner                         Swiss Coalition of Development Organisations

Peter Hofstetter                       Swiss Coalition of Development Organisations

Mark Hampton                        University of Surrey

Sèbastien Guex                        Université de Lausanne

Pete Coleman                           War on Want (UK)
David Hillman                         War on Want (UK)

Rene Schober                           individual

Dirty Jersey: Drug dealers, gun runners and HSBC

HSBC Saint Helier: Where the Bad Things Are.  Photo - J Christensen

FURTHER INFO:  TJN has been asked to point out that the head of Jersey Finance, Mr Geoffrey Cook, who has regularly attacked TJN in the media (and was the author of the letter to the Financial Times cited in this blog, has long connection with HSBC's offshore wealth managment division.  Mr Cook, whose job it is to promote Jersey's offshore financial services industry, was head of wealth management at HSBC)

Well now, this is awkward for the Jersey financial authorities.  After years and years of proclaiming the island as well regulated, transparent and only open for legitimate business, Britain's Daily Telegraph is running a lead story about HSBC Jersey under the headline "HSBC Investigation: Drug Dealers, Gun Runners and Britain's Biggest Bank."  Whoops!

This follows a whistleblower leak to HM Revenue & Customs of account details of British residents holding offshore accounts in Saint Helier.  The list of account holders, which exceeds 4,000 people, is thought to reveal accounts held by a wide variety of tax evaders, drug dealers, fraudsters and a man once dubbed as London's "number two computer crook."  According to the Telegraph:

 "The Telegraph understands that among those identified on the list are Daniel Bayes, a drug dealer who is now in Venezuela; Michael Lee, who was convicted of possessing more than 300 weapons at his house in Devon; three bankers facing major fraud allegations and a man once dubbed London’s “number two computer crook”. A series of other accounts containing six-figure deposits are also registered to modest addresses in relatively poor parts of the country."

These disclosures are equally damaging to the reputation of Britain's largest bank.  HSBC is already making provision for what might potentially be the largest banking fine in history for its role in money laundering through its American outlets.  Outstanding questions remain over the activities of its Geneva offices, which also suffered a data leak of information about tax evading clients using offshore accounts in Switzerland.  And now HSBC Jersey comes under the spotlight.  As the Telegraph comments:

"The disclosures raise serious questions about HSBC’s procedures in Jersey, with the bank already preparing to pay fines of around $1.5 billion in America for breaking money laundering rules. The bank is legally obliged to report to the authorities any suspicions about the source of money deposited in its accounts. HM Revenue and Customs is now understood to be trawling through a list of the names and addresses of more than 4,000 people based in Britain who had bank accounts at HSBC in Jersey."

For years TJN has alleged that the Jersey financial authorities are complacent and lax.  Our assessment of the island's track record for disclosure requirements, information sharing and anti-money laundering compliance is damning.  These latest disclosures confirm our assessment.  Rather than hiding behind its usual public relations bull and bluster, Jersey's politicians should engage in a long, hard re-evaluation of how they can create a properly regulated offshore finance centre in Saint Helier.  

PS  Since posting this blog early this morning, I've been asked to point out that all of these scandals now engulfing the World's Local Bank happened on the watch of Reverend Lord Stephen Green,  Trade Minister in the current British government and also a Church of England vicar. Green was chairman and CEO of HSBC from 2003 to 2010.  Doubly awkward!

Germany poised to kill off Swiss Rubik deal?

Just in from our colleagues in Berlin: 17h00 GMT

The finance minister of Nordrhein-Westfalen, Norbert Walter-Borjans, has just published a press release, saying that the Green and SPD länder will say No to the Swiss deal. (This is significant because there had been some uncertainty as to whether there would be enough breakaway SPD and Green Länder members, such as Baden-Württemberg, to allow the government to scrape enough of a majority to push the rotten Swiss-German tax deal through, which we've blogged on many occasions.)

It is significant that Walter-Borjans says "länder": by including the Greens, he also includes Baden-Württemberg. This represents grounds for hope. 


Read more about Switzerland's poisonous Rubik deals here.
Photo credit: Susanne Jakoby - demonstrators against Rubik outside the Bundestag

European Social Forum- 10 years on and in the thick of it

November 2002: The first European Social Forum, in Florence

10 years ago social activists across Europe met in Florence, Italy, to oppose neo-liberal policies across Europe, to say no to debt in the global South and to warn that if policies remained in place, Europe would face a crisis in the near future. The European Social Forum was born. Around the same time initiators of the Tax Justice Network were meeting to discuss how to oppose the invidious effects of tax havens and how to bring attention to the corruption and inequality caused when criminals, MNCs and the wealthy are able to live by a different set of rules.

10 years on the European Social Forum is re-convening in Florence (Nov 8th - 11th) to promote solidarity among networks and organisations across Europe. You can follow the conference on twitter #firenze1010.

The Tax Justice Network, founded at a meeting on 9^thNovember 2002, is supporting two slots in the packed programme : ‘Capitalists Mafias and Mafious Capitalism’ organised by Liberia International, where we will cover Corruption Services: the supply side from the Pin Stripe Mafia; and ‘Tax Competition or Just Taxation’ organised by ATTAC Europe, Kairos Europe/ Réseau pour la justice fiscal.

The conference has begun with many calls for working together. Herris from Transform spoke of the Greek experience "Greece is a guinea pig for European neo-liberalism and a fertile ground for fascism, but it is also a laboratory of social resistance and alternative proposals".

Corrina from Blockupy Frankfurt (and many others) called for support for the General strike next week (November 14th) and for Blockupy actions (blocking access to institutions, finance centres etc in acts of civil disobedience) in the coming spring. 

She ended: "Be courageous to fight, be courageous to win"

Links Nov 8

Swiss to Expand Team Helping Track Foreign Tax Cheats Reuters
Oct 31 - "Swiss tax authorities are to hire more staff to deal with a flood of requests for information from countries trying to track down tax cheats using Swiss bank accounts."

U.S.: A bill to end secrecy surrounding shell companies The Hill
Nov 1 - "A bipartisan Senate bill, the Incorporation Transparency and Law Enforcement Assistance Act, and a companion House bill, would help end the secrecy surrounding shell companies ... while critics often point blame at the corporate secrecy provided by places like the British Virgin Islands, Panama, and Lichtenstein, weak laws in many U.S. states make the U.S. an attractive place to establish anonymous shell companies."

Brazil: Petrobras faces $2.4 bln decade-old tax debt after court ruling Reuters
Nov 5 - "Petrobras, miner Vale SA, and other Brazilian multinationals have been fighting what they consider to be double taxation of their activities by Brazilian authorities. Officials allege that some companies improperly move business offshore to avoid taxes in Brazil."

Indian Tribunal Reaches Key Transfer Pricing Decision Tax-News
Nov 8 - "An Income Tax Appellate Tribunal in Ahmedabad, India, has ruled that the Income Tax Department does not need to demonstrate a tax avoidance motive by an enterprise in order to implement transfer pricing provisions, although it is permissible for an enterprise to offer discounts for bulk purchases when trading with an associated business if it offers the same discount to other buyers."

Pakistan: Notices issued to over 20 cricketers for tax evasion Dawn
Nov 2 -  "The income tax department has issued notices to over 20 cricketers who were found to have evaded taxes over the past two years. More than Rs100 million is expected to be recovered from them in back taxes. This is the first time that notices have been issued to cricket celebrities who will be grilled about tax liabilities." Hat tip: Offshore Watch

European Parliament: procurement policies and illicit flows vital to policy coherence for development Eurodad
Nov 2 - "The resolution explicitly mentions the negative impact of illicit financial flows in mobilising domestic resources in developing countries and consequently in promoting sustainable development policies. At the same time, the resolution supports Eurodad’s call for greater financial transparency, arguing that “it is essential for supporting revenue mobilisation and combating tax evasion.”

U.S. Election Fallout: Will Tech Cash Piles Remain Trapped Overseas? Forbes
Nov 7 - "One potential side-effect of Tuesday’s impressive win for Barack Obama and the Democratic Party could be to crush tech sector hopes for a cash repatriation holiday. Some large tech companies – in particular Apple, Microsoft and Cisco – are sitting on mountains of cash generated and stashed in low tax jurisdictions outside the United States."

See also:Apple paid only 1.9 pct tax on earnings outside US Boston Globe
Nov 5 - "Like other big companies, Apple leaves cash overseas. If it brought it home to the U.S., it would have to pay U.S. corporate taxes on the money. The cash that Apple has left overseas as of Sept. 29 has mounted to a stunning $82.6 billion, up from $74 billion as of June 30."

FATCA Burdens Worry Caribbean Economies Tax-News
Nov 8 - "Many in the region believe that developed nations are trading fiscal compliance for continuing aid."

Banks Need a Culture Shock Huffington Post
Nov 1 - "In the world of high finance, instilling a culture of integrity is not an easy sell, but it is a necessary one. As we have seen over the past years, too much is at stake."

Citigroup CEO Vikram Pandit Steps Down, Is Well Paid For . . . What Exactly? Rolling Stone
Oct 16 - Matt Taibbi comments on a piece by Bloomberg on the compensation package for departing CEO Vikram Pandit.

What exactly is the City of London police? Treasure Islands
Nov 7 - " ... is it any wonder that the banks can get away with so much when they effectively control their own policing?"

Time for a Change in International Tax

by guest blogger Sol Picciotto

(accompanying this paper on unitary taxation )

The evidence is mounting that the international tax system is broken and needs fixing. A succession of large transnational corporations (TNCs) have been shown to have been paying little or no income taxes in countries where they have been doing substantial business. For example, Reuters reported in October 2012 that Starbucks has shown no taxable profits in the UK for 10 years, although it has regularly trumpeted to its shareholders the profitability of its UK operations.

This has been done through legal tax avoidance, and despite the fact that HMRC proudly says that it employs 65 transfer pricing experts among nearly 3,000 officials focusing on big business. This shows that there is something seriously wrong with the system rather than how it is being applied. 

Now the UK and Germany in a statement to the G20 have put their weight behind a project cooked up in the OECD Fiscal Affairs Committee, called Base Erosion and Profit Shifting, which aims at `a policy framework that achieves a fair allocation of taxing rights between countries in accordance with an internationally agreed set of standards’.

We suggest that the best way to achieve this highly laudable aim is to shift towards Unitary Taxation of TNCs. This is explained in detail in a draft paper we are publishing today. Although it would involve a new approach to this issue, it builds on long experience and analysis of the actual practice of tax administrations, and the paper discusses transitional arrangements for the changeover. 

At the heart of many of the failings of the international tax system is the mismatch between the weak international coordination of taxation and the power of TNCs to organise their affairs so as to minimise their tax liabilities. The present international tax system treats TNCs as if they were a series of separate entities operating in different countries. This enables and indeed encourages `profit shifting’ and `base erosion’.

International tax avoidance involves two main methods. First, TNCs can create intermediary entities in convenient countries, usually those with no or low income tax (known as tax havens), to carry out activities (e.g. financial transactions, transportation, providing advice or other services), or to act as ``holding companies’ owning assets (e.g. intellectual property rights, bonds, shares). By attributing profits to them the group’s overall taxes can be reduced, even though they usually exist only on paper, perhaps with a name-plate on an office building. 

Secondly, a TNC can adjust the prices of transfers between members of the TNC group, to shift profits from high-tax to low-tax countries. This is known as `transfer pricing’. However, it is not always easy to judge whether the aim is tax avoidance, since the prices set between related entities within a unitary group are generally decided administratively and not competitively, so they may reflect various strategic concerns of the TNC (e.g. management incentives, currency exposure). 

Unitary Taxation would deal directly with both of these problems. It treats a TNC engaged in a unified business as a single entity, requiring it to submit a single set of worldwide combined or consolidated accounts in each country where it has a business presence, and apportioning the overall profit according to a weighted formula reflecting the proportion of its actual presence in each country.

Tax experts have long known that this approach makes more sense, as it is in accordance with the economic reality that TNCs exist because of the advantages and synergies of combining economic activities on a large scale and in different locations. They also generally are oligopolies based on distinctive or unique technology or know-how. Hence, treating a TNC affiliate for tax purposes as a separate entity is both impractical and senseless. Although it was agreed in the 1930s to adopt the separate entity approach, it was recognised that in practice national authorities would have regard to the firm’s overall accounts and the proportion of the total profits attributed to affiliates. Indeed, since the 1990s there has been an increased use of profit-split methods in dealing with transfer pricing. 

It is not a very big step to move from profit-split methods to a full unitary taxation approach, although it does require a reorientation of approach. The main advantage, however, is that it would deal not only with transfer pricing, but also with the tax avoidance by TNCs through the tax haven system.

The time is now right to prepare for a change to the unitary tax approach. Although this would entail overcoming some problems, it would establish a much stronger basis for international tax coordination than the present system.

A transition should involve three elements. First, there should be expert studies exploring the economic and legal aspects of the change. Secondly, a unitary approach could be adopted by groups of countries, such as within the EU, or other regional groups such as MERCOSUR or ASEAN.

Thirdly, countries could immediately require the submission of a combined report by any TNC with a business presence within their jurisdiction. The information so provided could be used to apply the profit split methods already accepted by the OECD Guidelines, or to apply a formulary apportionment to specific sectors such as financial services.

Most importantly, a combined report would provide a true overall view of the firm, eliminating profit shifting both by transfer pricing and the use of tax havens. Complemented also by a requirement for country-by-country reporting of the taxes actually paid, this would be a giant step towards setting the international tax system on a basis of transparency and effectiveness, and hence restoring the legitimacy of taxation in all countries.

See also TJN's latest edition of Tax Justice Focus, on transfer pricing. See also our Transfer Pricing web page, to which this blog has been added. 

Tax Justice Focus - The Transfer Pricing Edition

The latest edition of TJN's quarterly newsletter, Tax Justice Focus, is available for download here.

Guest edited by TJN Senior Adviser, David Spencer, this edition has particular focus on transfer pricing, and includes articles summarising research by some of the participants at TJN's international conference on transfer pricing that was hosted by the Finnish government in Helsinki earlier this year.  The entire range of papers and presentations from that conference are available for download here

In her article Brazilian tax attorney Tatiana Falcäo contrasts the Brazilian approach to transfer pricing, which is based on a mix of safe harbours and fixed margins, with the OECD approach based on the arm's length method.

Australian attorney Kerrie Sadiq explains why the high level of integration and complexity of multinational financial institutions (MFIs) like banks allows massive opportunities for profits-shifting and proposes unitary taxation and formulary apportionment as the appropriate response for overcoming the problems that arise from trying to tax MFIs.

In our third feature article, Indian tax attorney Vikram Vijayaraghavan explores the deficiencies of the Indian transfer pricing system and proposes the use of safe harbour arrangements, formulary apportionment, and a streamlining of current transfer pricing provisions.

In his article, David Spencer, summarises the reporting requirements for resource extraction companies required by the Dodd-Frank legislation in the USA, and compares these new requirements with the broader reporting requirements that would be required by a full Country-by-Country reporting provision.

TJN's Moran Harari and Markus Meinzer provide a progress report on preparations for the 2013 edition of the Financial Secrecy Index, scheduled for launch in November 2013.

In his book review, John Christensen finds the new edition of A Dictionary of Taxation (Simon James, published by Edward Elgar, 2012) a helpful addition to his desk.

Plus our usual summary of news items from recent months.

Download your free copy of Tax Justice Focus, volume 7, number 3 here, and feel free to circulate to colleagues and friends.