Tax

Another excellent cartoon from Hugh:

Those of us who seek to change things know this.

And aren’t put off by it.

Those who object to change do not know this.

And object as a consequence, futilely.

Source.

This with blind faith in private enterprise say it solves all our problems. And generates all wealth.

I don’t agree. If it did I do not believe its supporters would need to take control of parliament to ensure they can capture the public sector to deliver wealth to their friends.

Two hundred years or so ago this [process involved seizing land because the private sector could not work out how to generate wealth for itself before the coming of railways. As Wikipedia notes:

Enclosure  is the process which was used to end some traditional rights, such as mowing meadows for hay, or grazing livestock on land which is owned by another person, or a group of people. In England and Wales the term is also used for the process that ended the ancient system of arable farming in open fields. Under enclosure, such land is fenced (enclosed) and deeded or entitled to one or more owners. By the 20th century, unenclosed commons had become largely restricted to rough pasture in mountainous areas and in relatively small parts of the lowlands.

The process of enclosure has sometimes been accompanied by force, resistance, and bloodshed, and remains among the most controversial areas of agricultural and economic history in England. Marxist and neo-Marxist historians argue that rich landowners used their control of state processes to appropriate public land for their private benefit. This created a landless working class that provided the labour required in the new industries developing in the north of England. For example: "In agriculture the years between 1760 and 1820 are the years of wholesale enclosure in which, in village after village, common rights are lost".[1]

I’m surprised the author thought you had to be a Marxist to think that: it seems pretty much universally accepted that this is what happened at the time.

This process is, I suggest, happening again. Private enterprise has no clue how to generate wealth right now. I mentioned the consequence a while ago. Private business has no idea what to invest in now, no new product to make, no big idea to offer.

So this government is offering it the NHS, education and more so that public benefit can be enclosed for private gain.

This is what happened two hundred years ago.

And it’s happening again.

There was a fascinating combination of articles I noted recently I’ve been meaning to blog ever since.

John Plender in the FT noted:

The UK’s Financial Reporting Council, the chief corporate watchdog, produced a stewardship code last week in response to City of London grandee Sir David Walker’s recent report on financial sector governance identifying a lack of proper shareholder oversight of banks. The code’s aim is to encourage shareholder dialogue and engagement. It includes seven principles that will operate, like the main UK Corporate Governance Code for listed companies, on a “comply or explain” basis, with a focus on transparency. This builds on a code put together by the main representative bodies on the UK Institutional Shareholders Committee.

With similar initiatives under way in France, Canada, the Netherlands and elsewhere, there is growing interest in the UK’s pioneering effort – which, like the 1990s Cadbury code on which today’s code is based, may well become a model.

Yet there is considerable uncertainty as to how such codes will work – not least because the investment community is so disparate.

Plender reproduced data from the ONS suggesting that ownership changes have looked like this:

 

But then I noted another FT article that said:

The amount of the UK stock market owned by overseas investors could be less than half the level suggested by official government figures, according to new data seen by the Financial Times.

Share ownership by individuals and company directors is as much as twice the figure contained in the official figures, while ownership by pension funds and insurance companies is lower than was previously thought, according to a study by Junction RDS, a shareholder analysis group.

It calculates that the amount of the UK market held by overseas investors is under 20 per cent, against Office for National Statistics figures showing foreign ownership of more than 40 per cent.

The UK Statistics Authority, the monitoring body for government statistics, is looking into the quality of the ONS data after being alerted to the findings. The ONS said it was confident in the methodology used to compile the official share ownership data.

However, flaws in the ONS calculations, which feed into the national accounts, could have led to an underestimation of individual dividend income, and the amount of tax generated by an increase in capital gains tax.

Junction RDS has examined the shareholder registers of every UK-domiciled company, compared with an ONS methodology looking at about 200 companies, or less than 10 per cent of the UK market.

The reality is clear. we don’t know who owns companies. There are enormous consequences. One is for tax. Another for corporate governance. As a Guardian article recently reported this also has impact on corporate behaviour:

Modern businesses are "soulless corporations" that are in danger of becoming a "cancer" on society, a leading UN environmental official warns today.

Companies usually take a short-term view of the importance of the environment, said Pavan Sukhdev, head of the UN’s investigation into how to stop the destruction of the natural world. This short-term thinking is seen in their lobbying against new policies that could slow environmental devastation, he said.

That’s only possible because over so long we have allowed companies to be utterly detached from their ownership – whatever ownership of a share means.

I suggest that’s a massive mistake – and has handed power to an elite – and an abusive elite at that. We have all lost as a result – yes them included. Sir Fred Goodwin’s children had to be taken out of the country.

So what do I suggest? Three things:

1. All shares must be recorded in the name of the beneficial owner;

2. Except for quoted companies or regulated registered mutual funds such as pension funds beneficial owners have warm bodies;

3. Beneficial ownership must be proven before title to shares can be claimed – in other words shares without proven ownership should be forfeit.

I accept this is radical.

But we have to hold corporations to account. And that starts by holding shareholders to account.

A friend of mine runs a holiday establishment.

A man from the British Banker’s Association came in.

When he’d left he’d annotated my friend’s Robin Hood Tax poster:

Looks like some people just can’t do holidays.

And who takes post it notes with them when away?

I have written a programme in five parts for tackling the abuse that offshore secrecy jurisdictions facilitate. It tackles the key issues of opacity, tax abuse, corruption, corporate unaccountability, transfer mispricing and more besides that these secrecy jurisdictions are intended to create or facilitate. That is both an allegation and a fact: nothing has so far changed in the world of offshore to make me change my mind on any such issue and no regulation yet created has had anything but token impact on the processes used to facilitate such abuses – not least because almost no regulation has yet looked at what happens on the ground in most of these places.

That is though why this programme did not start in the obvious place – focussing instead on what happens in the onshore world before giving any consideration to offshore. There is good reason for that, because we set the right example we cannot demand the same of others.

There is also good reason for one of the major asks being for the promotion of a changed philosophy of property rights. We have to view the needs of people as being more important than the interests of property if we are really to change the well being of the poorest people in this world –a the people whose suffering the offshore world is designed to exploit.

That these people suffer is, of course, partly circumstantial. But to far too great a degree it is also a matter of choice – and our choice at that. We can demand change and we can expect the way limited companies and trusts are managed to be transparent if that benefits us all. We can demand accountability. We can then expect that accountability to be exported, with the threat of sanctions attached if it is not. We can expect information exchange to be undertaken automatically when it is possible to do so to eliminate crime – and not just minor crime, but the biggest ongoing heist of all time. And we can expect a bias to the poor in the world’s tax system.

Is that too much to ask? I don’t think so. But you too can decide. And you have an obligation to do so.

I have suggested that if we are to reform offshore we have to start at home, and have detailed a programme of reform that many governments would have to undertake. I have also suggested a programme of reform for secrecy jurisdictions. The next target for reform on my agenda of necessary change to transform the offshore world was the international arena after which I proposed necessary reform to the philosophy of property rights and obligations. That leaves one last agenda item: the presumption of a bias in favour of developing countries.

Developing countries face problems on many fronts, but one of the biggest is their struggle to develop into fully fledged nationhood in the face of almost insurmountable obstacles designed to prevent them doing so. Their natural resources are sold from under them; their tax revenues are stripped from their shores, their leaders have corrupt practices laid in their path by an army of corruption services providers operating from secrecy jurisdictions. Offshore secrecy jurisdictions play an enormous part in all these processes that undermine the developing nation state. If the problem of offshore is to be tackled then these issues have to be addressed.

There are three ways to do this in addition to the reforms already noted, many of which would themselves be of enormous benefit to developing countries. The first is that these countries must be supplied with the direct aid they need to create viable tax systems. This includes technical support, IT support and cash. The latter is needed to ensure that staff can be retained within the tax administrations of these countries and not be poached once fully trained by the big firms of accountants.

Second, these countries must be specifically encouraged to recover information from secrecy jurisdictions on the structures maintained by their citizens in those places, and be provided with all the technical assistance required to ensure that this data van be handled and used. This is vital if the curse of corruption and the abuse of the tax base of these countries is to be stopped.

Last, these countries must be allowed to develop tax systems that suit their particular needs. The IMF, World Bank and others argue that these states must have open tax systems that encourage trade and the free flow of capital, but the reality is that no state has come to maturity with such a tax system in place. These are tax systems that mature states can afford. Developing countries cannot afford VAT systems that assume literacy when that does not exist. Nor can they abandon tariffs when these are easily the most effective mechanisms, and the cheapest, for ensuring that tax is collected on the limited range of exported goods they have to offer that are vital to their state income. And they also need tariff barriers to protect fledgling enterprises. If these impede the flow of capital to offshore centres, so be it. That is a price well worth paying. Put simply, development comes before the ideology of free movement of capital that secrecy jurisdictions espouse on every occasion.

I have suggested that if we are to reform offshore we have to start at home, and have detailed a programme of reform that many governments would have to undertake. I have also suggested a programme of reform for secrecy jurisdictions and for the international arena that regulates those secrecy jurisdictions. But that is not enough. Regulation enforces rules. The fact is that hearts and minds also have to be won over for change to be effective in the long run. For this to happen there needs to be reform in the philosophy of tax, offshore and opacity.

My particular concerns here are twofold. The first is that we have forgotten why we allowed the incorporation of companies in the first place. My second is that we have also forgotten why it was we allowed trusts to come into existence.

This is not the moment for an extensive discussion of either issue: suffice to say that both limited companies and trusts are designed to alter property rights. Limited companies ring fence those rights, attributing them to an artificial legal person who (quite extraordinarily if you stand back for a moment and think about it) is not responsible for its debts if it runs out of cash, leaving that debt for others to then suffer. That is a quite exceptional privilege to grant to the owner of a limited liability company. That privilege is granted by society. I think there is an obligation that is expected by society in exchange – and that is an account of to whom this privilege has been granted and an account of what they do with it. This is why companies should place information on public record, and yet over many years appreciation of this fact has diminished to the point that it is now thought that the right to privacy that an individual has when transacting in their own name (except with regard to land – where the public interest requires disclosure) extends to the ownership, management and the accounting of limited companies. It does not. This has to be appreciated once more.

Likewise, trusts reorganise property rights, quite artificially. This too requires account to be made of the advantage to do so that the existence of trust law permits. These are not natural rights. They are rights granted by society through legislation to members of society. It is quite reasonable that society demand obligation in return, and I strongly recommend that it do so.

Offshore has done much to advance the right to exploit these structures whilst denying all obligations arising from doing so. By doing that it has diminished property rights universally, distorted well being and almost certainly undermined the effective operation of many economies. It is as such at the forefront of the need for reform in this area.

From the Royal Society of Arts.

Yes, I know it’s Marxist.

But it’s also worth watching. Because someone has to ask these questions.

I have suggested that if we are to reform offshore we have to start at home, and have detailed a programme of reform that many governments would have to undertake. I have also suggested a programme of reform for secrecy jurisdictions. The next target for reform on my agenda of necessary change to transform the offshore world is in the international arena.

In this arena there are several essential reforms. The most important from my perspective is the introduction of country-by-country reporting – about which I have written so much I just link to my summary on the subject, here. One of the many advantages of country-by-country reporting is that it will shatter the secrecy space which the published consolidated group account of multinational corporations represent. In that secrecy space all manner of intra-group transactions can be lost from view. This opacity has to be broken at the same time as that of secrecy jurisdictions themselves if we are to really know all we must know about the operation of multinational corporations and are to hold them to account for what they do.

Second, there must be international agreement on making tax evasion a predicate offence. This means tax evasion would automatically be considered an offence that in turn gave rise to the right to prosecute for the offence of money laundering. It seems so obvious that an act of illegality involving theft of a government’s property should be a predicate offence that it is hard to see how anyone can object to this – but object they do.

Third, we quite clearly have to solve the mess surrounding the taxation of international transactions. The arm’s length pricing model for transfer pricing promoted by the OECD might have worked in the 1930s when it was first adopted but it is hopelessly out of date now. It must be replaced by a more appropriate mechanism for resolving how tax revenues might be allocated to jurisdictions. Of the alternatives available formulary apportionment is by far the most appropriate. I explain it at page 33, here.  It is not without faults, but it so happens that it produces, with much less effort ,the outcome most countries seek to achieve when negotiating transfer prices – which is a fair proportion of profit allocation based on the real underlying economic factors that drive income generation – usually being where your customers are, where your people are and where your assets are.

Fourth, we must reform the way in which international regulation works. Both the IMF and OECD monitor offshore and so far the outcomes have been profoundly disappointing. The time has now come to stop asking if a jurisdictions has the right pieces of paper in place so it might regulate (which is all that has really been tested by these authorities to date) and instead to ask whether the secrecy jurisdiction has actually regulated transactions – to which a blind eye has been turned to date. This would radically transform the assessment of offshore compliance and force real change on it, of which there has been far too little.

Finally, sanctions should be adopted for states that will not comply with reasonable requirements. These should focus on tax based penalties – and most especially the right to withhold tax on all payments into a jurisdiction that does not comply with regulations – and on all payments into a jurisdiction that helps another breach internationally required regulation. When there is a weapon in the armoury cooperation is more likely.

The University of Kent Business School has just published this Working Paper on development prospects for small island tax havens. Co-authored by Mark Hampton and John Christensen, the paper explores how recent changes, including the emergence of strong civil society coalitions engaged in combating tax evasion and offshore secrecy, confronts small island tax havens with difficult decisions about their future.

The paper argues that the 2007/8 financial crisis has changed the nature of the external pressures on tax havens, especially since major political power blocs face unprecedented fiscal pressures which force them to confront their massive tax losses from tax evasion. Unlike the situation at the start of 2000, when the small islands were easily able to mobilise political support to resist the OECD’s harmful tax competition initiative, the situation in 2010 requires them to seriously address the need for alternatives to the tax evasion industry:

Unlike the multilateral initiative in the 1990s against tax havens, spearheaded by the OECD, which fizzled out when the US Bush Administration withdrew its support in 2001, the current initiatives are being driven by three power blocs, the Group of 20 countries, the EU and the US, all of which are confronted by the deepest recessions experienced since the 1930s. Domestic budgetary pressures within these economies have played an important part in swinging the pendulum away from tax havens. In this context, preparing development strategies that reduce dependence on rent incomes from what the OECD terms ‘the tax industry’ should be regarded as a priority for small islands.

But identifying a realistic Plan B will not be straightforward. Many small island tax havens have allowed their offshore finance sectors to crowd-out other industries, and their options are constrained by what economists term ‘path dependency’. As the authors argued in an earlier paper in 2002:, many small island tax havens:

have become locked into their relationships with the offshore finance industry by their dependence upon the earnings potential of predominantly imported skills and expertise, and their lack of skills and knowledge in alternative sectors. This means that any attempts at diversification into other sectors would be constrained by the need for wholesale re-skilling and the acquisition of new knowledge bases.

The authors, both Jerseymen, cite that island as an example of how political short-sightedness and arrogance has locked Jersey’s economy into a situation where its future prospects are almost entirely dependent upon decisions taken outside the island. This particularly applies to its ill-judged zero-ten corporate tax policy, which face scrutiny by the European Union’s Code of Conduct Group on Business Taxation on the grounds that it harms the tax sovereignty of other countries:

For many decades Jersey’s key politicians have assumed that the EU could not extend its powers to include Crown Dependencies and that the UK government would intervene to protect their autonomy on tax matters. This is clearly no longer the case: the powers of the EU Code of Conduct Group on Business Taxation extend to the Crown Dependencies and the Group has required their respective governments to remove “harmful tax practices” such as the ‘ring-fencing’ of tax exempt status to non-resident companies.

Despite clear evidence that their existing tax regimes constituted harmful tax practices as defined by the EU, Jersey officials are largely dismissive of efforts to strengthen international cooperation. For example, the Chief Executive Office of Jersey Finance, Geoffrey Cook (2009), commented that: “An unlikely alliance of tax hobbyists, left wing newspapers, trades unions, and development agencies has catalysed around calls for greater concentration of the means of wealth creation in the hands of governments, and implicitly greater taxation of business and wealthy individuals through the outlawing of wealth structuring and planning, together with restrictions on cross border capital flows. They hope that their own constituencies will be beneficiaries of this new ‘contract’, with the authors; the tax hobbyists, gaining fame and funding, and their supporters feeling validated in their enduring distrust of the wealthy and their advisers.

Despite having been warned in 2006 by a number of experts, including one of the authors of this paper, that proposed amendments to their corporate tax regime (the so-called Zero-Ten tax policy) would be rejected by the Code of Conduct Group, in 2007 the States of Jersey adopted measures that were indeed deemed unacceptable in 2009.

The paper’s conclusions do not make for happy reading for small island tax havens. Their options for diversification are restricted by past decisions, and attempts to diversify face major structural barriers, including the high cost bases of their local economies and the lack of local skills base outside the finance sector:

Some tax haven islands, including Jersey, are already facing unprecedented budgetary pressures. But they have limited scope for reducing their dependence on offshore financial services. With approximately one quarter of its economically active population directly employed in the OFC, and the majority of the remaining workforce employed in secondary sectors like construction, distributive trades and catering, there is virtually no alternative skills base on which new industries can draw. This path dependence has been reinforced by the extraordinary high costs of land and labour, which have crowded-out pre-existing industries. Taking measures to diversify the local economy will therefore require politically unpalatable steps to significantly reduce the domestic cost base.

NB Cross posted from the Tax Justice Network with permission

Source here, even if I don’t agree with all Hugh writes about his reasoning. 

I have suggested that if we are to reform offshore we have to start at home, and yesterday detailed a programme of reform that many governments would have to undertake if they are to set appropriate standards of transparency.

I’d expect all secrecy jurisdiction governments to make the same commitments. Nothing less will do. That is therefore the first part of any programme of reform they must undertake, in my opinion.

That then leads to the question of what is needed in addition to this programme in secrecy jurisdictions? The answer is a commitment to real information exchange. Not Tax Information Exchange Agreements, which do not and cannot work to solve the problem of opacity in the offshore world (for reasons explained here) , but real information exchange.

I have outlined a comprehensive, but workable basis for this in a report I wrote last year. In it I said:

The key concern when tackling capital flight is the illegal, disguised nature of the illicit fund flows. Ignoring transfer mispricing, the key mechanisms used for this illegal purpose are offshore financial structures such as trusts, companies and foundations.

There is at present no automatic information exchange with regard to such structures within the EU, let alone elsewhere.

The automatic information exchange arrangements which currently exist relate only to interest income paid to accounts held in individual’s names. The European Union Savings Tax Directive (EUSD) is the key example of this arrangement.

Suggestion has been made that the EUSD should be extended to developing countries. If and when the EUSD is extended, as the Commission plans, to trusts and companies in offshore locations this might provide some benefits if extended to developing countries but in its current form the EUSD is unlikely to do so: it is quite unlikely that significant deposits resulting from illicit financial flows are held in individuals own names. It is relatively easy, and cheap, to set up trusts and corporate structures that can hide these flows from view.

This does, however, suggest exactly what information is required to trigger an effective information exchange request by a developing country. Those countries do not need to know the precise details of interest, profits, gains or other income accruing to offshore structures created by, owned by, or which benefit people resident within their jurisdictions to enable them to make an effective enquiry under a tax information exchange agreement. They simply need to know:

   1. That such a structure exists (a bank account qualifying by itself as a structure for this purpose);

   2. What each component (trust, company, or foundation) is called;

   3. Who manages it;

   4. Where it banks;

   5. Who in their jurisdiction benefits from it.

If this data were available it is likely that almost every country in the world could and would substantially increase the number of tax information exchange requests that they might make using the proposed network of Tax Information Exchange Agreements.

What is therefore required is that this information, which the regulatory authorities of every single jurisdiction subject to IMF /FATF regulation must have available to it, be automatically exchanged with the jurisdictions in which the beneficiaries of those structures are located; that location to be identified by both the place of main residence of a beneficiary and by the country which issues them with their passport (with those places issue passports of dubious repute to be specifically blacklisted for anti-money-laundering identification purposes).

If this data were to be automatically exchanged then no further information on income need be exchanged, at least in the early stages of any information exchange process. That is because sufficient data to firstly disincentive use of such arrangements and secondly to allow information exchange requests to be made would exist. Pragmatically, that is most of what is desired of the automatic information exchange process. This does, however, have the benefit of massively reducing the risks inherent in automatic data exchange by removing entirely from that process, at least in its initial stages, any reference to specific income details.

At least in principle many developing countries should be able to make matching information exchanges in return for receipt of this data but in practice if statistical data suggested it very unlikely that illicit funds flow through a location (as opposed to originating from a location), as will be true for most developing countries, it is suggested that the exchange of information might be made optional under any automatic information exchange agreement of this sort, and that automatic data exchange in the first instance only be required from designated financial centres to designated recipient jurisdictions.

This then requires:

   1. A secure delivery mechanism for distribution of the data;

   2. A robust channel through which subsequent enquiry can be made by developing countries of the jurisdictions in which such structures are located as to their use, and about the quantum of the funds flowing through them.

It is obviously possible for information to be sent directly between jurisdictions in such a process of automatic information exchange. Since the data exchanged would include no financial information the file format for exchange purposes should be relatively easy to agree. The following would appear to be necessary data that must be exchanged:

   1. Full name of person about whom data is being supplied and their:

      a. Date of birth;

      b. Gender;

      c. Passport number;

      d. Residential address;

      e. Tax identification number (if known);

      f. Previous names (if known).

   2. Details for each structure about which information is being supplied:

      a. Name of entity;

      b. Type of entity (bank account, trust, company, foundation, etc.,);

      c. Entity registration number (if it has one);

      d. Date entity created (if known);

      e. Address at which entity considered to be located;

      f. Name of those managing the entity;

      g. Known relationship between this entity and other entities (e.g. a trust might declare companies in which it has an interest, a company might declare the trust considered to own it, a bank account might be linked to the organisation or person in whose name it is operated, etc.,);

      h. Relationship between the entity and the person for whom disclosure is made

(settlor, trustee, director, enforcer, ultimate beneficiary, beneficial owner, etc.,);

The technical processes involved are relatively straightforward to resolve compared to those required to define the nature of income which may, or may not, be subject to information exchange, especially given that the problems of associating entities of the sorts noted with the ‘warm human beings’ who benefit from their existence have now been widely addressed for anti-money laundering purposes.

If such information could not be sent directly then the Financial Action Task Force / Board appears an obvious intermediary given its role in the anti-money land erring area, to which this data relates. The World Bank or IMF appear to be other obvious intermediary custodians of data for exchange purposes.

With this data Tax Information Exchange Agreements become meaningful: the ‘smoking gun’ required to make them useful would exist. There does, however, remain the problem of negotiating the necessary thousands of such exchange agreements, all of which will be remarkably similar. There appear to be two options to speed this process:

   1. That each jurisdiction likely to receive information requests make available a standard Tax Information Exchange Agreement that can be agreed with any applicant, subject only to assurance that the recipient state will not abuse the data sent to it, or:

   2. A multilateral Tax Information Exchange Agreement be made available.

Of the two options the former seems more realistic subject to the OECD approving the standard TIEA made available by a jurisdiction. There is no suitable multilateral agreement in operation at present.

I believe this is the workable basis for future information exchange. And it is entirely deliverable without endless debate on what constitutes income for the purposes of any tax – because no information on income is ever exchanged under this suggested arrangement. Everything that is exchanged is already in existence – as required for money laundering purposes. That’s the beauty of what I suggest. And that’s why any secrecy jurisdiction should be able to deliver it, now.

I have suggested earlier today that if we are to reform offshore we have to start at home. I have three goals. The first is to make sure there is information on public record to ensure that the users of limited liability entities, trusts and other related entities are accountable for what they do, as follows:

1. All companies to be registered with full details of the following on public record:

   a. All beneficial owners, with nominee intermediaries also disclosed;

   b. All directors on public record and the full names of all those in accordance with whose instructions they act also on public record;

   c. All accounts on public record, and abbreviated accounts not allowed;

   d. The same for all protected cell companies and international cell companies with full details disclosed for each cell;

2. Similar details for all limited liability partnerships;

3. All trusts on public record with the following disclosed:

   a. The trust deed;

   b. All letters of wishes;

   c. The name and address of the settlor;

   d. The names and addresses of all trustees and the names and addresses of all those on whose instructions they act;

   e. The name of any enforcer and the instructions they hold;

   f. The annual accounts of the trust;

   g. Details of all trust distributions with names and addresses of beneficiaries on record;

4. Similar information for all foundations;

5. Similar information for all charities;

6. Trusts with reversion to settlor to be abolished;

7. Full details of all redomiciliation on public record.

This would ensure that those choosing not to account in their own name (for which they would have a right to absolute privacy unless they owned land) are held accountable for what they do – and rightly so – which is why this is an issue I will return to in part 4 of this programme.

Second, I’d want governments held to account, and so we should expect the following on the part of all governments:

1. Full cooperation with the European Union Savings Tax Directive with maximum cooperation on information exchange;

2. An offer of full information exchange in the form outlined by Tax Research LLP in a memorandum published in June 2009[i] offered to any state that wants it, subject only to limitation in the case of potential human rights abuses (the same to be true for disclosures on public record – but with full information then being held by an international third party in the capacity as human rights registrar);

3. TIEAs and DTAs to be offered to whomsoever wants them, subject only to human rights limitations.

Finally, I’d want government itself to be accountable. So, I’d want the following:

1. Governments should publish budgets setting out their expenditure plans in advance of them being incurred, and they should require parliamentary approval;

2. Governments should account on a regular and timely basis for the taxation revenues they have raised:

3. Governments should account for the expenditure of funds under their command on a regular and timely basis.

The arguments are in explanatory note 6, page 55, here.

This is a commitment government’s must make to all their people to ensure they are accountable, those in their state are accountable and that the opportunity for abuse within the state is minimised in the interest of all.

I’d think that’s pretty hard to argue with.

[i] http://www.taxresearch.org.uk/Documents/InfoEx0609.pdf

I was asked recently what ten issues I would prioritise if I was to tackle offshore. The person making the request didn’t want much detail, just a list, but I’m not that good at doing “just lists” so I thought I’d share my thinking over a number of blogs.

First things first, I’d not list ten things. That suggests there are discrete action points in this area, and I’m not sure that’s true. So I offer five areas of activity where I’d develop issues, as I will in the blogs to come. They are:

   1. Starting reform at home. There’s almost no economy that does not need some reform to eliminate harmful offshore elements. These recommendations lay out a programme to address these issues.

   2. Reform in secrecy jurisdictions. This is, very obviously, key to progress, so some distinct and necessary reforms need to be highlighted.

   3. Tackle issues in the international arena. The whole point about offshore is it tries to be “nowhere” – falling in the gaps between jurisdictions as far as possible. That’s why international regulation is needed – and on more than tax.

   4. Philosophy needs to change. A little noted point – but we have forgotten why we granted limited liability in the first place and let companies be created. The same is true for trusts. We have to go back now and ask why society grants these privileges – for that is what they are – and ask what we want in exchange.

   5. We must help developing countries get the information they need so they can collect the tax due to them – indeed, so they can tax at all. Isn’t that an obvious need?

These are issues in which I propose to blog over the next few days.

It has been one heck of a week. One successful parliamentary debate. I’ve met about 45 MPs. One report on VAT published. Country-by-country reporting has made big progress. And more besides.

The result is though I am behind with work. Something has to give. That may well be comments on this blog over the next few weeks. They take a lot of time. And it’s time I haven’t got right now, so if your comment takes time to be posted, I apologise in advance. I will not be paying them as much attention as usual.

And if I delete it then it will be because I will be applying the moderation policy strictly – and the usual libertarian nonsense that passes for comment will be deleted, without conscience because let’s face it, much that many people seek to say here say is adequately addressed by this  video.

Or, as one Guardian columnist put it to me this week (and I’ve tidied the language a bit for the sake of saving blushes):

I write my stuff and never look at it again. I never, ever read the comments on the web. Finding the few that are worthwhile could never justify the effort.

I have some sympathy with that. As I also do with the discussion I heard on Radio 4 today suggesting that unless a person uses their real name to comment ion a blog  – and gives some evidence to a moderator that it really is their real name – why let them comment anyway? I suspect that would be just as onerous as hitting the delete button. But I’ll muse on it. When I get the time.

Great news from the USA. A provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in the Senate yesterday, will require energy and mining companies registered with the Securities and Exchange Commission (SEC) to report payments to foreign governments for the extraction of oil, gas, and minerals on a country-by-country basis.

Oil, gas, and mining revenues are critically important economic sectors in about 60 developing countries which, despite abundant natural resources, rank among the lowest in the world on poverty, economic growth, and governance assessments. With this information the citizens of these countries will be able to demand accountability for government corruption and ensure that a fair price is paid for their natural resources. As such the new disclosure is a vital weapon in tackling the problems arising for so many countries suffering from the so-called "resource curse."

The new reporting requirements will apply to petro giants such as Exxon Mobile, BP Corporation, Chevron, Conoco Philips, Royal Dutch Shell, and Hess.  Taken together, the oil and gas companies expected to fall under the new regulation accounted for approximately $2.2 trillion in sales and $200 billion in profits last year.

The measure is not full country-by-country reporting. But it is an enormous step forward, is based on the country-by-country reporting idea, and is a massive credit to Publish What You Pay who worked tirelessly for this.

I also happen to think it’s another step towards the inevitability of full country-by-country reporting – and given it’s still only 7 years since I created the concept that’s massive progress.

The FT reports:

The Securities and Exchange Commission has announced a $550m settlement of its civil fraud case against Goldman Sachs in a move that closes the most high-profile regulatory action related to the financial crisis.

The SEC called the penalty the largest ever by a Wall Street firm and Goldman acknowledged using incomplete information in its marketing materials and said it would “reform its business practices”.

What was the issue? Supplying asymmetric data.

What’s the solution?

Transparency.

It pays.