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Richard Murphy on tax and economics

How I got to £119.4 billion: the detailed workings behind my tax gap estimates

3 hours 55 min ago

PCS has now published the detailed workings behind my new tax gap report.

The full report, for those with time on their hands, is here.

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PCS press release on new tax gap report

9 hours 31 min ago

PCS have just issued the following press release:

Tax evasion spirals to more than £80 billion a year, new figures show

The cost of tax evasion to our economy spiralled to more than £80 billion last year, according to new figures for the Public and Commercial Services union.

A report by tax expert Richard Murphy, being launched on Tuesday (23) at the Labour party conference, reveals the overall amount of tax owed, evaded or avoided has barely reduced since 2008, despite government pledges to be clamping down.

While tax debt and avoidance have fallen, partly due to the effects of the recession, a more comprehensive analysis of tax evasion using new data shows it increased to £82 billion last year. If unchecked, evasion could rise to £100 billion by 2018/19, Murphy concludes.

His report calls for a range of measures, including a reversal of the job cuts in HM Revenue and Customs that have meant a 43% reduction in the workforce in little more than a decade.

The launch comes on the same day as HMRC’s “thanksgiving service” in Westminster Abbey, which the union believes is ill-judged.

The report focuses on:

– Tax evasion in the shadow economy: economic activities that are not recorded or declared to avoid government regulation or taxation

– Tax lost as a result of other criminal or fraudulent activity in the UK economy

– Capital gains tax and inheritance tax and offshore tax evasion

– Tax evasion on investment and rental income

And suggests the following measures:

– Introduction of a proper anti-avoidance rule into UK tax law

– Introduction of country-by-country reporting for multinational corporations

– Reform of small business taxation to discourage avoidance and tackle tax evasion

– Enforcement of proper regulation of companies in the UK to ensure they file their accounts and tax returns and pay the taxes they owe

– A reversal of the cuts to staff in HMRC and Companies House

In 2005, HMRC had 92,000 staff. It has now less than 62,000 and by 2016 it is expected to have around 52,000.

The department announced in June a further 23 offices would close. This follows last year’s decision – against the majority of views expressed in its consultation – to close all of its 281 walk-in enquiry centres.

PCS general secretary Mark Serwotka said: “While politicians of all parties are falling over each other to claim there is less money around, this important report reveals why and how we can tackle it.

“Collecting even a fraction of these stolen billions would change the debate about public spending overnight and allow much-needed investment in our communities instead of more damaging cuts.”

Richard Murphy, director of Tax Research UK, said: “This report provides the most detailed explanation of tax evasion in the UK economy offered by anyone to date, revealing it could be almost four times as much as HMRC’s estimate.

“HMRC has persistently refused to engage with alternative calculations of evasion even though the International Monetary Fund has suggested it is not as good as it likes to think it is in identifying tax losses.

“If we are to have a fair tax system in the UK that creates a level playing field for everyone, we need a tax system run by a tax authority that seeks to collect all the revenue due to it. We do not have that right now and the result is social injustice throughout the UK.”



– The report, ‘The tax gap: tax evasion in 2014 and what can be done about it’, will be launched at a lunchtime fringe meeting at Labour conference on Tuesday. Follow the link above for the executive summary; full report available on request

– Contact PCS national press officer Richard Simcox on 020 7801 2747, 07833 978216 or

– PCS is the UK’s sixth largest union and represents civil and public servants in central government and in parts of government transferred to the private sector. Mark Serwotka is the general secretary and the president is Janice Godrich – on Twitter @janicegodrich

– Follow PCS on Twitter @pcs_union


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New report: The tax gap is £119.4 billion and rising

10 hours 3 min ago

A new report by PCS, the union for most staff at HMRC, issued this morning, reappraises the UK tax gap and suggests it was £119.4 billion in 2013/14, and is rising steadily.

I wrote the report on PCS’s behalf.

Building on work I published earlier this year, funded by Oxfam and the Joseph Rowntree Charitable Trust, this new report reviews the three main components of the tax gap and in the process replaces the estimates I made of the tax gap for PCS in 2010.

The tax gap is the difference between the tax that should be paid in the UK is the tax system worked as parliament and HMRC intended and the amount actually paid. It is made up of three parts:

  • Tax debt: tax that is not paid by a person or a company who knows that they owe it, but who doesn’t pay, or delays payment or which cannot be collected by HMRC.
  • Tax avoidance: tax that is lost when a person claims to arrange their affairs to minimise tax within the law in the UK, or in other countries with impact on the UK.
  • Tax evasion: tax lost when a person or company deliberately and unlawfully fails to declare income that they know is taxable or claims expenses that are not allowed.

As the report notes:

The amount of debt outstanding has fallen in recent years, but the amount of debt written off as irrecoverable or discharged by HMRC during each year is growing. In 2013/14 the estimate of tax debt is as a result £18.2bn.

This is a reduction from the estimate of late paid debt used in 2010 of £25 billion, but since it is now an annual cost and not a point estimate is fully inclusive in the tax gap. HMRC will, of course, challenge this figure, as they do all others in the report.

The figure for tax avoidance estimated in the report is also down from that estimated in 2010, at £19.1bn for 2013/14. The figure is
lower than the £25bn estimated in 2008, which reflects declining corporation tax rates (which means the amount avoided also declines, automatically), declining capital gains tax rates, and a likely decline in non-domicile activity as a result of legislative changes as well as caution being made in other estimates.

At the core of this avoidance estimate is HMRC’s own estimate of tax avoidance and tax lost to legal interpretation disputes, which makes up approximately half the sum. The remainder relates to issues such as the use of permanent establishment rules by the likes of Google that HMRC refuses to consider avoidance even though it at the core of international efforts to beat tax avoidance and other similar issues which have vexed HMRC in the past but which it is refusing to consider as avoidance at present. The fact that the figure has fallen might seem like good news, but when most is the result of falling tax rates there is little to celebrate.

Most worrying is the key finding of the report, which is that tax evasion is now likely to amount to £82.1 billion a year, and is rising. This estimate is an increase from 2010. The detailed calculations are based on 2011/12 and then projected to 2013/14, as shown in the following tables:

Projections are, of course, dependent upon the accuracy of Office for Budget Responsibility estimates of GDP.

It will be noted that in some areas I simply accept HMRC estimates of tax evasion: on occasion there is no reason not to do so. The estimates are likely to be sound. This is especially true of errors within the tax system where the IMF noted that HMRC performed well when reviewing their work in 2o13. The IMF were, within the boundaries of the normal diplomatic language they use and the fact that they were consultants on this occasion and no consultant overtly criticises their client, not so complimentary about HMRC’s ability to capture data on errors outside the tax system – which, of course, is precisely what most tax evasion is. Here they thought there was room for improvement in HMRC performance and I have explicitly looked for areas where I think this is likely to be the case.

My work on the shadow economy has already been discussed and I will not reiterate that here. It will however be noted that I have explicitly identified other areas where a review of data in the economy as a whole suggests that declarations on tax returns are likely to be seriously understated. So, for example, data on both house price sales and share trading suggest declarations for capital gains tax purposes are likely to be heavily understated whilst data on total UK asset worth strongly implies that there must be serious under-declaration of the value of estates for inheritance tax purposes, having made substantial allowance for available reliefs. More tax is also likely to be lost to offshore activity than HMRC estimate whilst tax is also lost as a result of criminal activity and fraud in the UK, and although the chance of recovery is particularly low here the failure to record the loss is important: the tax system is intended to deliver greater equality in the UK and all ways in which it fails to do so need to be recorded.

Other areas where there is likely to be significant abuse, such as rental income, are explored in the report, but wherever there is risk that an identified non-disclosure has already been covered by activity in the shadow economy new and refined estimates have been excluded from totals to eliminate risk of double counting.

The resulting estimate is, I stress, just that i.e. it is an estimate. I am not for a moment seeking to claim spurious accuracy, and in reality the estimates must be mid-points in ranges. As is also apparent from all the work I undertook, I round estimates down, deliberately. What is important then is the difference in the estimate offered from that made available by HMRC and to consider the reasons for this.

There are a number of such reasons. The first is HMRC’s outright refusal to estimate or even consider some tax avoidance on which they are, however, heavily engaged. Why this should be is hard for most people, include the Public Accounts Committee, to understand.

The second relates to debt where the difference between a debt discharge and an irrecoverable debt appears to be down to semantics or a lack of resources to pursue a sum previously considered owing. HMRC need to allocate considerably more resources to this issue, either by having sufficient staff to get their initial debt estimates right, or by having enough staff to pursue debt owing, or by offering better explanation as to how they can write off so much debt without apparent reason give. However looked at this data highlights considerable failure at one or more points in the tax system that imply more resources, better working and more accurate assessment is needed and all justify inclusion of this estimate in the tax gap as a result, which their own estimates gloss over.

Third, when it comes to tax evasion, what the estimates I offer really suggest are that HMRC’s estimation methods are woefully inadequate. It is simply absurd to estimate losses to tax evasion on the basis of the tax returns that are submitted to HMRC when, very obviously, the failure to submit a tax return at all is the main way in which a tax evader seeks to achieve their goal of non-declaration of tax owing. This seems to be so glaringly obvious it should not need pointing out, and yet it has to be, because as a matter of fact HMRC do not look at data outside the tax system to estimate most of the tax evasion gap. It is, inevitably, and seriously, understated as a result due to the most basic of methodological errors on its part that fundamentally undermines the credibility of the data it has to offer.

In my work I have sought to look, within the resources and time constraints that are inevitably imposed on me, at the alternative data that is available on which I can estimate tax gaps. These are all detailed in the fuller report that PCS will produce in the next day or so based on my work. Of course there may be better methods to use than those that I have offered, and I have no doubt at all that if more resources were available then these estimates could be refined and made more useful. I am not, therefore, suggesting for a moment that I am offering a definitive answer on the tax gap. What I am saying is that with the resources available to me, and simply using the logic that if you are looking for tax evasion then you have to look for evidence outside the tax system as well as within it or you are inherently and inevitably bound to seriously understate losses, then the estimates I have offered are the best currently available of the amount lost to the UK tax system each year.

HMRC will, predictably and with certainty, disagree and ministers will no doubt echo what they have to say, as will right wing commentators on this issue (who seem to think HMRC incapable of anything but estimating tax gaps correctly) but the reality is that it is time for HMRC to take this issue seriously and instead of investing heavily in defending its own inadequate tax gap methodology (as it has done over the last few years) it is time for it to sit down and talk about how its estimates can be improved to take into account the very real, and logical, criticisms I make here. Then we would see progress.

And then we might see more tax collected because then it might be obvious to HMRC senior management and ministers like that we need considerably more investment in HMRC if we are to have the fair and just tax system we need in this country that ensures that everyone pays the right amount of tax, in the right place, at the right rate and at the right time, which should be HMRC’s goal if it is to not just to collect tax but play its full part in building a tax system that is the foundation of a fair market economy where everyone competes on a level playing field as a well as a fair society where the tax system delivers social justice, not least through redistribution of income and wealth.

That should be HMRC’s aim. At present it is falling well short of that mark because it has set itself the spurious and inappropriate goal of simply collecting tax at the lowest possible cost, which ignores all the externalities that represent the social consequences of its work, just as its tax gap estimates ignores all the externalities to the tax system itself.

If there is a message from this report it is that HMRC’s goals need reappraising, and re-estimating the tax gap would be an indication that this process had begun.

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The City of London is at the heart of the UK constitutional crisis

Sun, 09/21/2014 - 09:58

I was reading Magna Carta the other day (as you do). I was looking for references to tax. And when doing so I realised that embedded within it is the problem at the very heart of the constitutional debate in this country.

The following clauses comes from the British Library  translation of Magna Carta.

* (12) No ‘scutage’ or ‘aid’ may be levied in our kingdom without its general consent, unless it is for the ransom of our person, to make our eldest son a knight, and (once) to marry our eldest daughter. For these purposes only a reasonable ‘aid’ may be levied. ‘Aids’ from the city of London are to be treated similarly.

+ (13) The city of London shall enjoy all its ancient liberties and free customs, both by land and by water. We also will and grant that all other cities, boroughs, towns, and ports shall enjoy all their liberties and free customs.

* (14) To obtain the general consent of the realm for the assessment of an ‘aid’ – except in the three cases specified above – or a ‘scutage’, we will cause the archbishops, bishops, abbots, earls, and greater barons to be summoned individually by letter. To those who hold lands directly of us we will cause a general summons to be issued, through the sheriffs and other officials, to come together on a fixed day (of which at least forty days notice shall be given) and at a fixed place. In all letters of summons, the cause of the summons will be stated. When a summons has been issued, the business appointed for the day shall go forward in accordance with the resolution of those present, even if not all those who were summoned have appeared.

A little translation is needed. First the symbols. As the British Library says:

Clauses marked (+) are still valid under the charter of 1225, but with a few minor amendments. Clauses marked (*) were omitted in all later reissues of the charter.

Then there’s the matter of ‘scutage’ to deal with. Webster’s dictionary calls it:

a tax levied on a vassal or a knight in lieu of military service

I think tax is the word we are looking for there.

Then there’s aid, which Wikipedia helps out on:

The term originated in the late 11th century…… It was a payment made by the tenant or vassal to the lord on certain occasions, usually the knighting of the lord’s eldest son and the marriage of his eldest daughter. Occasionally it was collected when the lord needed to pay a ransom after being captured. Sometimes a fourth occasion was added to the customary list: when the lord went on Crusade. Other times when aids might be demanded were when the lord himself was being taxed by his own superiors. At those times, the lord might try to pass the demand on to his own vassals.

So let’s call that tax too.

Having now clearly understood that clauses 12 and 14 are about the right to tax, and that clause 12 requires taxation by general consent and that clause 14 defines how that consent will be given then note what clause 13 says – that the city of London shall enjoy its ancient privileges. Then note that this is the one clause still surviving. The rights of the City are still being heard over and above the rights of others. And the positioning is not, I suggest, chance, even when this was written. In effect the rights of the City come over and above the rights of others to be heard and to give consent. I am sure that clause 13 was positioned where it is precisely to give that message to all readers of Magna Carta.

Now of course you could argue that clauses 12 and 14 should have fallen by the wayside long ago, and I would agree. But what is really important is not that they have gone, to be replaced by far more appropriate bases for taxation and the granting of consent to be taxed, but that despite all that has changed in the meantime the City maintains its rights.

The independence referendum did in no small part come down to this issue at the end of the day. The financial services industry – all intimately linked to the City – said it would pull out of Scotland if it voted to leave the UK. And all the major political parties, bar the Greens and SNP, echoed their tune.

In 1215 the City was at the heart of the debate on the right to tax and consent. Whether that was right or wrong at the time is not an issue I am inclined to debate. What I know is that it is very wrong now and yet that the power remains intact, reinforced and unchallenged by most politicians and parties.

Until this changes there is no prospect for a fair constitutional settlement for this country.

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Thoughts on the OECD BEPS process: an NGO perspective

Sat, 09/20/2014 - 19:10

The following are detailed thoughts on the OECD BEPS year one outcomes prepared by friends and colleagues at Eurodad (the European Network on Debt and Development).

Our overall feeling is that we’re winning some minor victories in the battle against tax dodging, but we risk losing the war. We’ve gained a new template for country-by-country reporting, and some new anti-abuse provisions for tax treaties are emerging. But our political momentum to achieve a more fundamental change to the global tax system can be undermined by the fact that OECD sells these rather limited steps forward as a magic solution to tax dodging. Furthermore, some very concerning tendencies are developing:

- Transparency apparently no longer means “public access to information”. Large parts of the BEPS process has happened behind closed doors and we’ve not been able to see the negotiating documents before they were agreed. The information from country-by-country reporting should – according to the OECD outcome – be highly confidential.

- Global tax policies are being decided by 44 countries, many of which are a core part of the problem (Switzerland, Luxembourg, the Netherlands, Ireland, just to name a few). Meanwhile, more than 100 developing countries are not invited to participate in the decision making.

– All these BEPS solutions build on and reinforce the existing OECD system, including the arm’s length principle and a tax treaty system which gives preference to residency countries over source countries (roughly speaking: preference to OECD countries over poorer countries).

– Lastly, this OECD outcome can be abused by the business lobby to argue that the public country by country reporting, which has been adopted for banks in the EU, should be reconsidered. Of course, voluntary OECD guidelines cannot change an adopted EU directive. None the less, the business lobby have managed to get the OECD to agree with something they didn’t manage to get through the EU, and they will no doubt try to misuse this.

The atmosphere in the media

It’s been very surprising to see how this package is being sold to the media. Confidential CBCR reporting, which the public will not be allowed to see, is being called “a major step forward in transparency” (explanatory statement, page 6). A package of decisions de facto means that governments will aim to stick up the existing complicated tax regime by adding new complicated rules on top is being sold as “extremely ambitious”, “bold updates” which “kill” the problems, etc.

On the issue of developing country participation, the OECD line is that they have been “extensively consulted through numerous regional and global for a meetings and their input has been fed into the work” (explanatory statement, page 4). However, due to the lack of transparency in this process (see more on this below), it has been very difficult for everyone except the 44 governments that have been invited to the decision making table, to follow the discussions and participate in the real political debates, which have taken place behind closed doors.

What are these documents? Will they really be adopted?

The “explanatory statement” talks a lot about this, and it might sound a bit complicated but the bottom line is that ministers are very likely to sign off on this package, which means that a lot of things will be decided and it will be very difficult to reopen these issues again afterwards. Furthermore, as we saw from the OECD’s media launch earlier this week, it is likely to be sold as a monumental breakthrough in the fight against tax dodging.

Why are ministers likely to sign off on this package? Because BEPS has been an extremely political process and the 44 governments have been heavily involved from the very beginning. If you read the foreword of Action 13, it clearly says that “[all OECD members (…)  and G20 countries][have] adopted a first set of seven deliverables”. So, it’s already been agreed.

Then what’s so complicated about it? Firstly, the package contains some elements that are still in brackets because they’re not agreed yet. However, the issues that are most important to us are not in brackets.

Secondly, the package suggests that the documents should be “agreed but not formally finalized”, because the BEPS project continues for another year and the decisions “may be affected by some of the decisions to be taken with respect to the 2015 deliverables”.

And lastly, there will be a number of additional documents drafted. For example on CBCR, additional documentation on how CBCR information should be filed and disseminated will be drafted.

But bottom line: The ministers will adopt this package and it contains a number of important decisions – see below.

Action 13 – Country-by-country reporting

This seems to be where we find the most substantial outcome of year one.

On the positive side, we now have a “CBCR template” for multinational corporations to report on a country-by-country basis. This template contains the elements we need, including information on the revenue of the multinational corporation, the profit before income tax, income tax paid and accrued, the location of the economic activity, all the constituent entities, and the nature of the main business activities.

On the negative side:

– The confidentiality requirements are more aggressive that we had expected. The fact that the secrecy doesn’t only cover information that is “commercially confidential”, but also everything that is “commercially sensitive” sets a very bad precedent. If everything “sensitive” has to be kept from the public, it can become hard to get any information which can be used to even question corporate levels of tax payment. The fact that the secrecy also explicitly covers court cases risks eliminating a source of information which has previously been important to CSOs. (see para 44. on page 24 of the Action 13 document under “confidentiality”). Please also note that the is OECD selling this as “a major step forward in transparency” (Explanatory Statement, page 6).

The discussion about how to file and disseminate this information among governments is still ongoing, but now that the high level of confidentiality has been decided, there is a very clear risk that many developing countries will in the end have great difficulties accessing the information. One proposal is that the company should only submit the CBCR report in the country where the headquarter is located, and then governments should exchange information through treaty mechanisms. We know from previous experience that developing countries are not likely to get much information through such a system.

Verification of CBCR information. The OECD document now allows the CBCR information to be outside of the statutory accounting (see page 40 of the Action 13 document under “Source of data”). In order words, the CBCR information does not have to be subject to the independent verification and the legal obligations relating to the statutory accounts of companies. This also seems to be something the OECD has snuck in to the documents at the last minute. Marlies de Ruiter, OECD Head of Tax Treaty, Transfer Pricing, and Financial Transactions said about this: “unlike the prior draft, there is no longer a requirement that statutory accounting be the sole source of data” (see here).

- Risk that not all multinational corporations will be covered: Marlies de Ruiter again: “Officials are considering whether to require reporting only for large companies”.

Complexity and the arm’s length principle

An important problem with the existing international tax system is that it assumes that multinational corporations are in reality separate entities which should be taxed independently, and that this can be achieved with the “arm’s length principle”. To make this work, the OECD has developed an extremely complex system of transfer pricing documentation.

With this new package, it seems the OECD is trying to solve the problem by sticking to the arm’s length principle, but adding more complexity.

On Action 2 (hybrid mismatches): They propose a complex set of provisions designed to be implemented independently by governments without any coordination between governments.

- On Action 8 (intangibles, phase 1 – this work will continue): They stick to old concepts of legal ownership and risk, and seem to be adding new levels of complexity to this system rather than developing alternative systems (such as the profit split method).

Lack of transparency

Generally: Even though this process have been going on for more than six months, we’ve only received very limited information about what the negotiating documents actually contained. Then two hours before the media launch, we receive over 500 pages of very technical text which according to the OECD is a major breakthrough in global taxation. Hidden in this pile is everything from very practical and technical discussions about details, to major political issues of crucial importance to taxation of multinationals globally – an issue which many people would have strong opinions on if the discussion wasn’t covered up in 500 pages of technical terms. To state the obvious, it’s very difficult for CSOs, developing countries, journalists and the broader public to participate in a meaningful debate on these terms.

Harmful tax practices

The OECD has tried to solve this since the 90s (see for example ) but not made much progress. The BEPS process has now reopened the discussion in OECD, but despite the fact that “transparency” is supposed to be a key element of the work, the group has worked in secrecy. Looking at the 65 page long document that has now been sent out about this work, they are engaging in a review of different practices, as well as the need for states to share administrative rulings with each other. This work will now continue – most likely in secrecy.

Action 6 – preventing treaty abuse

OECD are suggesting including references to preventing double non-taxation in the preamble of double-tax treaties. Furthermore, the report includes recommendations about inclusion of anti-abuse provisions, including limitation of benefit provisions. Work has been done to develop new domestic rules to prevent abuse. Lastly, OECD has identified considerations that countries should take into account before deciding whether they want to enter into a tax treaty.

One thing that has however not been part of the BEPS project is the discussion about allocation of taxing rights between source and residence countries, roughly speaking between OECD countries and poorer countries. As Michael Lennard from the UN Tax Committee has so clearly described here: this is one of the main differences between the OECD and the UN system, with the UN system being more accommodating to developing country interests.

Action 10 – A multilateral instrument

The OECD will be developing a mandate for negotiating a multilateral convention, in particular to promote implementation of BEPS outcomes through bilateral tax treaties.

One concern on this point is however whether the pressure will be stronger on developing countries to accept the OECD model tax treaty, including the disadvantages it has towards source countries (i.e. developing countries).

Other issues not included in the BEPS project

A number of issues which are important to developing countries have not been included in the BEPS process. For example:

– Tax incentives

– Extractive industries

– Allocation of taxing rights between source and residence countries

The BEPS project also excludes any work to explore real alternatives to the current system, including unitary taxation.

Risk of undermining the progress that’s already been made elsewhere

Not least a concern in relation to the public country-by-country reporting for banks, which was adopted under the Capital Requirements Directive last year, there is a risk that the OECD document will be abused by the business lobby to argue for dismantling this progress.

The victory under the capital requirements directive was possible because the European Parliament fought a brave battle against the business lobby and pushed it through. However, it seems the business lobbyist just took the train to Paris and now managed to get an OECD document saying CBCR should be highly confidential. It would be very surprising if they’re not already running around in the corridors in Brussels saying “OECD agrees with me!!!”.

Of course, a directive cannot be reopened by a piece of voluntary OECD guidance, and the EU governments deserve strong criticism for agreeing to this OECD document, which goes against an adopted EU directive. They were supposed to fix the problem, not sit and nod when the business lobby suggests rolling things backwards.

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Academics Stand Against Poverty

Sat, 09/20/2014 - 15:36

I have been pleased to support the call of Academics Stand Against Poverty (ASAP) in launching a petition campaign calling on UN Secretary General Ban Ki-moon to support the inclusion in the Sustainable Development Goals (SDGs) of robust targets for curbing tax dodging. Having published the results of a Delphi study examining the policies that would make the greatest impact on illicit financial flows if included in the SDGs, ASAP is calling on people to join in advocating the inclusion of these policies in the new development framework.

The open letter, reproduced below, to the Secretary General has been signed by more than 50 experts in tax and development. To join us in calling for strong action on tax-related illicit financial flows would you visit ASAP’s petition page on

For questions about the campaign or the Delphi study, contact Global Coordinator Rachel Payne at

His Excellency Ban Ki-moon
United Nations Secretary-General
United Nations Secretariat
New York, NY 10017

Dear Mr. Secretary General:

We, members of Academics Stand Against Poverty (ASAP) and other poverty researchers, advocates, teachers, and students, urge you to support the inclusion in the Sustainable Development Goals (SDGs) of a robust goal to curb tax abuse by building transparency into the international financial system. We have held expert consultations to determine how the SDGs can best curtail tax abuse and now write to offer some expert-vetted proposals.

Tax abuse constitutes a massive headwind against development. One common form of it is trade misinvoicing, used by multinational corporations (MNCs) to shift funds to affiliates in other jurisdictions that tax profits at lower rates or not at all. The think tank Global Financial Integrity estimates that $4.7 trillion were thus siphoned out of developing countries during the 2002-2011 period, $760 billion in 2011 alone.[1] This is five or six times the sum total of all official development assistance flowing into these countries during the same periods.[2] These numbers have been increasing at a rate of 8.6% per year. And they don’t even include other important forms of MNC abusive transfer pricing that are difficult to quantify. Even so, Christian Aid calculates that governments of developing countries have lost tax revenues of around $160 billion annually — about $2.5 trillion for the 2000-2015 Millennium Development Goals (MDG) period.[3] “If that money was available to allocate according to current spending patterns, the amount going into health services could save the lives of 350,000 children under the age of five every year.”

Tax abuse is also practiced by wealthy citizens of developing countries. Boston Consulting Group estimates that 33% of all private financial wealth owned by people in Africa and the Middle East and 26% of such wealth owned by Latin Americans — some $2.6 trillion in total — is kept abroad. On conservative assumptions, this translates into revenue losses of $26 billion annually just for these two continents, and the problem is larger still for Asia.[4]

The SDGs have the potential to catalyze global action to stop tax abuse. We commend the Open Working Group on Sustainable Development Goals for including tax abuse in their SDG draft. However, because of the crucial role of tax abuse in perpetuating poverty, underdevelopment, and global inequality, we believe that their draft needs to be improved in this respect. As it is, tax abuse is barely mentioned. Target 16.4 says that illicit financial flows should be reduced and Target 17.1 calls on the world’s governments to: “Strengthen domestic resource mobilization, including through international support to developing countries to improve domestic capacity for tax and other revenue collection.” These vague wishes fail to address the structural roots of illicit financial flows and are therefore unlikely to deliver the dramatic reduction in tax abuse necessary for the achievement of the SDGs.

ASAP recently completed a Delphi study on how the SDGs can best address the problem of illicit financial flows.[5] Twenty-seven experts from various backgrounds – including academia, the private sector and national and international governmental and nongovernmental organizations – participated in the study, which revealed overwhelming expert support for policies to increase financial transparency at both the domestic and global levels. The experts agreed that the SDGs should call on all governments to mandate:

  • that each company, trust or foundation disclose the natural person(s) who own or control it,
  • that each MNC report profits and other tax-relevant information separately for each country so as to make apparent when tax havens account for a much larger share of its profits than of its operations,
  • that national tax authorities automatically exchange tax-relevant financial information worldwide to make it easier to detect and prosecute tax evasion by corporations and individuals,
  • that corporations publicly report on funds they pay to governments for the extraction of natural resources,
  • that tough sanctions, including jail time, be imposed on senior officers of global banks, accounting firms, law firms, insurance companies and hedge funds for facilitating tax evasion.

In addition, the experts agreed that governments themselves should commit to

  • harmonizing anti-money laundering regulations internationally and
  • carrying out clear, reliable, frequent and timely public fiscal reporting and opening up their fiscal policy-making process to public participation.

Including these objectives as targets or indicators in the final SDG document would boost the prospects of reforms that are essential to curtailing tax abuse as well as embezzlement, money laundering, and other criminal activities.

Curbing illicit financial outflows from developing countries is a human rights issue. Article 25 of the Universal Declaration of Human Rights guarantees the “right to a standard of living that is adequate for the health and well-being of oneself and one’s family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond one’s control.” These rights remain unfulfilled for much of the world’s population. About half of all human beings suffer serious deprivations of one such kind or another and lack access to the necessary social services that would protect them.

The first-line responsibility for these human rights deficits lies with the governments of the countries in which the poorer half live. But many of these lack the resources to meet those obligations. The envisioned reforms would help developing countries attain the revenues necessary to safeguard their citizens’ human rights. This effort would achieve much more than the foreign aid envisioned by the SDGs; and for many developing countries this step toward basic global justice would mean more than any amount of charity.

Curbing tax abuse would make a crucial contribution toward achieving the whole SDG agenda. We therefore urge you to work for strong targets on tax and illicit financial flows, in your Synthesis Report and throughout the coming year of intergovernmental negotiations. As an international network of academics, ASAP stands ready to support you in this important endeavor.

Never before has there been so much popular support and political will to end the scourge of tax abuse. In the face of massive lobbying efforts to prevent or dilute any reforms, the UN should seize this special opportunity to help build a more transparent financial system and thereby to diminish a crucial obstacle to development and poverty eradication.

Signed on 5-10 September 2014 by:

Robert Keohane, Professor of Public and International Affairs at the Woodrow Wilson School of Public and International Affairs at Princeton University

Martin Rees, Emeritus Professor of Cosmology and Astrophysics at the University of Cambridge

Peter Singer, Ira W. DeCamp Professor of Bioethics at Princeton University and member of the ASAP Advisory Board

Branko Milanovic, Presidential Fellow at the City University of New York and member of the ASAP Advisory Board

Henry Shue, Professor of Politics and International Relations at the University of Oxford and member of the ASAP Advisory Board

Susan Rose-Ackerman, Henry R. Luce Professor of Jurisprudence at Yale Law School

David Hulme, Director of the Brooks World Poverty Institute at the University of Manchester and member of the ASAP Advisory Board

Sonia Bhalotra, Professor of Economics at the University of Essex and member of the ASAP Advisory Board

John Roemer, Elizabeth S. and A. Varick Professor of Political Science and Economics at Yale University and member of the ASAP Advisory Board

Ernst von Weizsäcker, Co-President of the Club of Rome

Nicole Rippin, Senior Economist at the German Development Institute

Jean-Pierre Lehmann, Professor Emeritus of International Political Economy at IMD Business School

Richard Murphy, Director of Tax Research UK

Sol Picciotto, Emeritus Professor of Law at Lancaster University Law School

Reuven Avi-Yonah, the Irwin I. Cohn Professor of Law at the University of Michigan Law School

Debapriya Bhattacharya, Distinguished Fellow at the Center for Policy Dialogue

Eleni Tsingou, Assistant Professor of Business and Politics at the Copenhagen Business School

Ronen Palan, Professor of International Political Economy at City University London

Lorraine Eden, Professor of Management at Texas A & M University

Martin Hearson, PhD candidate in International Relations at the London School of Economics and Political Science

Raymond Baker, President of Global Financial Integrity and member of the ASAP Advisory Board

Tom Cardamone, Managing Director of Global Financial Integrity

Dev Kar, Chief Economist at Global Financial Integrity

Heather Lowe, Legal Counsel and Director of Government Affairs at Global Financial Integrity

Krishen Mehta, Founding Director of Asia Initiatives

Vito Tanzi, Former Director of the Fiscal Affairs Division of the International Monetary Fund

John Christensen, Director of Tax Justice Network International

Jack Blum, Chair of Tax Justice Network USA

Daniel Reeves, Board Member of Tax Justice Network USA

Robin Hodess, USA Group Director–Research and Knowledge at Transparency International

Ignacio Saiz, Executive Director of the Center for Economic and Social Rights

Niko Lusiani, Director of the Human Rights in Economic Policy program at the Center for Economic and Social Rights

Alnoor Ladha, Executive Director of /The Rules and member of the ASAP Advisory Board

Peter Wahl, Researcher at WEED — Weltwirtschaft, Ökologie & Entwicklung

Stefano Prato, Managing Director at the Society for International Development

Caitlin Blaser, Director of Communications at Global Call to Action Against Poverty

Andrea Ordóñez, Research Coordinator for Southern Voice

Shaazka Beyerle, Author of “Curtailing Corruption: People Power for Accountability and Justice”

Paul Slovic, Professor of Psychology at the University of Oregon and member of the ASAP Advisory Board

Alberto Cimadamore, Scientific Director of CROP Secretariat and member of the ASAP Advisory Board

Des Gasper, Professor of States, Societies, and World Development at the International Institute of Social Studies and member of the ASAP Advisory Board

Paul Kingston, Director of the Centre for Critical Development Studies and Associate Professor of Political Science and International Development Studies at the University of Toronto Scarborough

Richard Sandbrook, Emeritus Professor of Political Science at the University of Toronto

Thomas Pogge, Leitner Professor of Philosophy and International Affairs and President of ASAP

Mitu Sengupta, Associate Professor of Politics and Public Administration at Ryerson University and member of the ASAP Board of Directors

Jason Hickel, Lecturer in Anthropology at the London School of Economics and member of the ASAP Board of Directors

Luis Cabrera, Associate Professor of Government and International Relations at Griffith University and member of the ASAP Board of Directors

Keith Horton, Lecturer in Philosophy at the University of Wollongong and member of the ASAP Board of Directors

Helen Yanacopulos, Senior Lecturer in International Politics and Development at the Open University and member of the ASAP Board of Directors

Ashok Acharya, Associate Professor of Political Science at the University of Delhi and member of the ASAP Board of Directors

Ellen Szarleta, Assistant Professor of Public and Environmental Affairs at Indiana University Northwest and ASAP Director of Communications

Catarina Tully, Director of FromOverHere and member of the ASAP Board of Directors


[1] Dev Kar and Brian LeBlanc, Illicit Financial Flows from Developing Countries: 2002-2011(Washington, Global Financial Integrity, December 2013), pp. iii, vii, x. Also available at

[2] See

[3]Christian Aid, False Profits: Robbing the Poor to Keep the Rich Tax-Free (Christian Aid, March 2009), p. 3, also available at

[4]Boston Consulting Group, “Global Wealth 2013: Maintaining Momentum in a Complex World,” 4 and 11, available at Asia-Pacific wealth kept offshore is estimated at $2.1 trillion.


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What is devolved government for? The practical questions need to be asked

Fri, 09/19/2014 - 05:40

The Scots have decided. Now the real debate begins there and elsewhere.

One demand we are going to hear time and again now is that England, and maybe its regions, should have devolved responsibility to govern. It’s an interesting idea, but power without responsibility is meaningless and taxing power without the requirement to spend would be as pointless, so before going further, what precisely are we talking about existing and new local governments having responsibility for?

I am guessing that defence, foreign affairs and international development are all going to be central functions? I would also presume a lot of justice would be as well. I am rather hoping criminal law is fairly consistently applied whilst responsibility for policing has already been devolved. What is left of the probation service is vital, but not much to argue over, although I would agree that on this issue local delivery is vital, as it can be on others. But, delivery, whilst important, has to be undertaken within established frameworks set nationally. That won’t excite passions.

Education and health would do that, but in England they’ve moved a very long way from local control. I would very strongly argue that these should be under local government management subject to minimum service standards , but is anyone going to really deliver that? If not, what is this debate about?

Once upon a time a great deal of transport and energy policy was also established locally. But now we’re pretty much down to minor roads and bus route subsidies being in this domain. They’re important, but a residual. And only so many places need a tram.

So what else us there? Well housing, obviously, and planning, which is already devolved. Of these two housing policy would be enough to revive local government. We need more housing and there is possibly no issue of more importance in many localities But will decades of centralisation and dogmatic control on this issue be changed by central government and will the control of the necessary finances be given? Without courage nothing might happen – especially if localism equates to nimbyism.

And finance? What does all this mean for fiscal control? Can the Treasury accept that the democratic demand requires that they pass over control? This would require an unprecedented change of view in Westminster.

The semantics of the day matter.

The proposals for democratic reform matter.

But what I also want to know is what will actually change.

And that’s hard to see without enormous changes on issues – not least those addressing the existing de facto privatised control of education and health – how the demand for democratic accountability can be delivered.

And that to me is now core to this debate, because the question will be what is government for? And not many people have a coherent answer right now.

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A message for next week: it’s time to end the talk of austerity

Fri, 09/19/2014 - 05:20

This letter is in the Guardian this morning:

The coalition’s spending plans for the next parliament are an intensification of austerity, demanding what even the Institute for Fiscal Studies calls unsustainable cuts to public services. Under the coalition, poverty has increased, living standards have fallen dramatically, and homelessness and dependence on food banks is rising. In contrast, corporate profits and reserves are holding up nicely and executive pay is increasing at more than 10 times the average wage.

Given that the Labour party started this parliament saying government austerity was “too far, too fast” it is extremely disappointing that the party leadership has said it will adhere to the coalition’s reintensified austerity for 2015-16. This commitment, including to the 1% pay cap policy, will only intensify the economic and social damage caused by austerity policies, and by reducing demand could easily see the UK slip back into recession. Labour must also end the race to the bottom on tax and regulation.

We urge Labour members, MPs, and trade unionists attending Labour party conference to demand an economic policy that boosts living standards and invests in the economy – and to save their party from a calamitous mistake.

John Christensen Tax Justice Network

Andrew Fisher LEAP economics

John Hilary War on Want

Richard Murphy Tax Research LLP

Ann Pettifor Prime Economics

Professor Prem Sikka

Mick Brooks

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Ten thoughts on No

Fri, 09/19/2014 - 05:12

No has won the day. Politics takes on a new direction. Some immediate thoughts.

1. Politics is important

People have realised politics can make a difference.

2. The failure of the parties to get this turnout in most elections is a lesson

Most of the time the mainstream parties fail to motivate people to vote in the way this election has. That is because, I am sure, people think they are not offering them a real choice.

3. The Irish question took more than 40 years to resolve

The Irish question and related constitutional questions dominated the UK parliament from 1880 to the time of independence. The Scottish question has the same power to continue to disrupt.

4. Westminster is a very long way from most people

I have some access to Westminster and know my way around it and it can still feel alien. To most people it is so far away from their lives that I am wholly unsurprised people wanted to kick it. Those who do will play a big role in UK politics for some time to come.

5. Devolution of Housing Benefit is not enough to keep people feeling empowered

This is an issue I will return to today, but if we’re talking of devolved powers what are they going to control? In England the NHS and education have already left almost all local control, and these are the big issues for most people, so what powers are going to be given to devolved authorities. There’s talk of Scotland getting power to control Housing Benefit. That’s not going to resolve anything.

6. Labour has all sorts of problems

Labour has not answered questions in this campaign. What is its position to be on devolved power? And how would it manage an English parliament? It would be hard to control it and yet such a ‘rump parliament’ (I choose the word with care) would be responsible for 85% of the UK. How can it be that the control of this ‘rump’ could in fact control whatever still happens in other ares by default?

7. There is no way the House of Lords can survive this

The only way to get round this whole conundrum is to rethink the whole structure of our Westminster parliament. An unelected tier looks more like an anachronism than ever. A second elected tier that is federal in nature is absolutely essential if the cohesion of the UK – which is what the No vote wanted, after all – is to be retained. It will be very easy to forget this point.

8. A lot of people will now doubt that the existing factional interests will be up to this issue

A lot of existing politicians are steeped in the status quo. Too many are very small minded. Vested interests will be powerful. And many are very petty. It will require leadership that is not readily apparently available to lead these die hard conservative thinkers (small c) into any process of change.

9. UKIP is not the same as the SNP

The SNP tried a positive image and eventually sold itself short. UKIP is selling a negative image and will sell everyone short.

10. The elite won. Now, what about everyone else?

Fear that the elite might lose control was the undercurrent of this campaign, and No played it for all it was worth, and won. Many will now feel smug. But what now for the people of the UK who so badly need a well functioning state? Can we have that debate now, please?

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Voters want politicians to talk about more than money

Thu, 09/18/2014 - 18:53

In my book The Courageous State I argue that all people have material, emotional and intellectual needs, all of which combine into their need for a sense of purpose.

If the Scottish independence referendum has tackled anything it is that sense of purpose. That sense is, in my book, placed furthest from material need, because I think that it probably is.

Politicians of all parties put most of their campaigning focus on material well being, and have done so for several decades. Voter participation has fallen steadily.

In the Scottish referendum where the emphasis is on the other end of the scale voter participation is expected to be very high.

Surely some politicians are going to notice?



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I’ve never been a federalist – and No kept me awake last night

Thu, 09/18/2014 - 06:31

I am nervous this morning and lost sleep last night, which is relatively rare for me. I can do stress, but it usually leaves me alone at night. So I had to ask myself what I was worried about.

I am not worried about Scotland voting Yes. I think its economy is sufficient for it to survive as a state. I think there is sufficient self identity for it to be a nation. I guarantee problems. But potentially only a few more, for a a while, than would have happened anyway. That, of course, is a best guess.

What is not a guess is that a No vote could be very much worse. Tory MPs are queuing up to wreak havoc on Scotland – which they already consider a Scottish country only of use for grouse shooting. There is, as a result, no certainty that the promises of the No campaign will be delivered. And if they are separate taxation and major independent borrowing powers within a monetary union are problematic, to say the least.

But more problematic will be the calls for federalism. London will demand the power to tax. That power will be granted to Wales and Northern Ireland and maybe the North. Labour thinks it’s down to big City states. And in every scenario three things follow.

The first is a race to the bottom on corporate and business taxes to supposedly lure business to relocate. Internal tax haven UK will have its foundations in a No vote. No wonder business wants it. The tax burden will shift still further from business to labour.

Second, there will be increasing inequality as take yields are steadily localised so that wealthy areas reduce tax by in turn reducing their cross subsidy to poorer areas of the UK. Inequality will increase.

And third? As the idea of the UK – and most especially England and Wales – working as a whole falls apart so will national infrastructure and with it the cohesion of the economy. We will all pay for that. GDP will fall. The green agenda will suffer. And social tension will rise with the variation in regional supplies of essential services.

There are good reasons for devolving some more powers in the UK. And there are incredibly good reasons for reforming local taxation – because what we have is deeply regressive. But the deliberate construction of a state built on the theory of the firm where each area competes when what we need is a nation that pulls together with the strongest helping the rest, and each feeling they are part of a whole, is the last thing we want.

But that is what I fear we will get.

And that is enough to keep me awake at night.

No might be very much worse than you feared.

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Venn diagrams for our times: Scotland

Thu, 09/18/2014 - 06:15




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Sometimes you just have to hope – and this is one of them

Wed, 09/17/2014 - 05:49

The OECD has issued a short video on its Base Erosion and Profit Shifting announcements, made yesterday, presented by Pascal St Aman, its tax director:

Because I’ve known Pascal for some time, and think he’s a pretty decent human being, I am inclined to believe his optimism on the issues he refers to.

I’m pleased country-by-country reporting gets a mention, of course.

But let me also flag concerns. Desperate the reference to developing countries the OECD remains the rich countries’ club and it is not clear how this problem is overcome by the BEPS process.

And at the other end of the extreme there is the problem of how to sell some of this to the deeply partisan US Congress, which is inclined to think the OECD a profoundly socialists body, largely because it is based in Paris, I think.

But let’s for now have a moment where we hope this is a move in the right direction. There are times when you just have to believe.



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I deal with reality, possibility and what is desirable and free markets fit into none of those categories

Wed, 09/17/2014 - 05:47

People sometimes wonder why I get so frustrated with some of the commentators on this blog who usually start off appearing reasonable, gradually disclose a free market, and often Hayekian bias, and end up effectively taunting on the basis that I will not accept their free market view of the world, which by their definition means that I am necessarily wrong. At this point I get bored and break off engagement as a complete waste of time and the rest is, I am sure, familiar to those who sacrifice their time to read such comments.

In that case then I think it worth explaining just why I find free market economics so frustrating. Fundamentally this is because of the absurd assumptions that underpin the logic of those who adhere to these beliefs. Saying that, many of those who do so will, I am sure, say that what follows represents beliefs they do not personally recognise. I hate to disillusion them, because the reality is that all this will reveal is that they are the unwitting slaves of some far from defunct economists because what I will describe are the assumptions that underpin the vast majority of economics journal papers in the UK, including those that result in the policy prescriptions of almost all free marketeers (including, depressingly, on tax).

So what are these assumptions? You can give and take a little on these, because once you get above about eight there is some overlap or substituitability between them, but each is common and worth noting. I should, in fairness, add I started with a list from here, but expanded a little as I thought appropriate. Free markets to work require that there be:

  • Many sellers each of whom produce a low percentage of market output and cannot influence the prevailing market price.
  • Many individual buyers, none has any control over the market price
  • Perfect freedom of entry and exit from the industry. Firms face no sunk costs and entry and exit from the market is feasible in the long run. This assumption means that all firms in a perfectly competitive market make normal profits in the long run.
  • Homogeneous products are supplied to the markets that are perfect substitutes. This leads to each firms being “price takers” with a perfectly elastic demand curve for their product.
  • Perfect knowledge – consumers have all readily available information about prices and products from competing suppliers and can access this at zero cost – in other words, there are few transactions costs involved in searching for the required information about prices. Likewise sellers have perfect knowledge about their competitors.
  • Perfectly mobile factors of production – land, labour and capital can be switched in response to changing market conditions, prices and incentives.
  • No externalities arising from production and/or consumption.
  • Markets that clear, which requires that for all sellers there is a buyer.
  • Markets that reach a state of equilibrium i.e. there is an optimal outcome to economic activity.
  • Rational expectations, which means that people accurately forecast statistical expectations and all errors are random.

As I have said, you can argue that one or two extra conditions can be added to this list and that a couple may overlap. It does not make a lot of difference to the outcome because the fact is that all these conditions need to exist simultaneously if markets are to provide optimal outcomes for the economic organisation of society. If any one of them fails then because of the simple application of chaos theory and the power of small numbers the outcome from leaving markets to themselves are wholly unpredictable.

So what is the chance that these conditions exist? This is a question Prof Richard Werner asked last week at the meeting I was at in Glasgow. Let’s be generous and suggest that each of these conditions has a more than evens chance of existing – call it 55%. But remember, they all must. In that case them all existing is 0.55 to the power 10. That is about 0.25%. But that’s incredibly generous: ludicrously so when the assumptions made are looked at by any sane person. Apply a more likely probability of these things existing of 5% (which I still think absurdly high) and the chance that free markets exists falls to 0.00000000001%. Let’s call that a cat’s chance in hell.

This is why I find free marketeers so absurd. They demand that markets be given freedom to deliver when there is quite simply no chance at all that they can deliver because the requirements that must exist for them to do so not only do not exist, but cannot do so.

There is no chance of there being multiple sellers in many markets. Monopolies are a reality. And so too are monopsonists (sole buyers).

Perfect freedom of entry to markets will never happen: it depends a socialists utopia of everyone having equal capital for a start.

Third, no one has perfect knowledge, or rational expectations come to that.

And the idea that markets are in equilibrium is absurd: we only ever progress towards a goal. We have never yet reached it.

I could go on, but the fact is that all these assumptions can only be held by someone wholly out of touch with reality or an economist (and there’s a Venn diagram in there, with a massive overlap, of course).

So the reason why I can’t be bothered to engage with those who persist in arguing that free market outcomes are possible is that it’s absurd to do so. The premise of their arguments is false. Why move  engage in debate on that basis?

The fact is that we cannot have markets without regulation.

And we cannot have markets without the state playing a significant role in determining what they can and cannot do.

And free markets cannot ever be free then, as a matter of fact. We can only talk about constrained markets where foreseeable outcomes must be within a limited range of potential outcomes to protect all those who might otherwise be harmed. Nothing less than that is ever going to be acceptable in a modern economy. But don’t get me wrong: the outcome of those constrained markets is invaluable. I believe, very strongly, in a mixed economy. But free market thinking is a ong way removed from that an is absurd, wholly unrealistic and, bluntly, a rather sorry fantasy.

People can argue otherwise, but they can do it elsewhere. I deal with reality, possibility and what is desirable and free markets fit into none of those categories.

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So which way would I vote? Yes or No?

Wed, 09/17/2014 - 05:33

Rupert Murdich's Sun has prevaricated on the issue of Yes or No in Scotland. I suspect it's doing so as a threat to Scottish politicians whatever the outcome of tomorrow's vote. That's the Murdoch style. But I cannot and would not ever want to oose such a threat. So what would I do tomorrow if I could vote, bearing in mind that I can't?

I admit this is a tougher question to answer than I expected. I am sure it is for many more than me.

I am to some degree a nationalist. I am pleased to have Irish heritage. But I love a great deal of what is good about England too. Yet when it comes to filling in my nationality on a form I never hesitate to write British. I am all three at once. As far as I know I have not an ounce of Scottish in me. But if I had, would it matter? Yes, I think so, and very much. In a minority situation- and Scotland is in a minority situation – identity becomes a bigger and more important issue, and even one of enormous significance. By itself it would incline me strongly to vote Yes. That may not be rational, but we are not rational beings and we should celebrate that. Identity is of enormous significance.

And I would also be inclined, very heavily, to vote Yes because this would be a chance to break the stranglehold of neoliberalism. That has to happen in the UK if we are to, quite literally, have a future. Neoliberalism is, after all, burning the hopes of future generations right now by its failure to embrace the green agenda and why it matters. In that sense this is the biggest issue of all in this vote.

So the downside is? The first is that Scotland may not get independence. The SNP say they want the Crown, sterling and the EU. It's a bad combination that will take away almost all choice from a new state. I simply do not get that. But then, I have to also remember that the SNP and an independent Scotland are not synonymous.

The second is that if mainstream politics is only adapted for Scotland then there would still be neoliberalism. The No campaign is a depressing example of that. The SNP commitment to tax competition is another. The battle for real independence based on new political thinking to turn Scotland into a Courageous State would have to be fought as strongly in an independent Scotland as it has to be now.

And third, the fact is that this campaign has been a depressing tale of far too many truths untold and misinformation spread, especially on economics.

Those three factors would all leave me with doubt about the virtues of independence. But, and I stress, the important point is not to view this from an English perspective when considering how I would vote. If I was able to vote I could and would only view it from a Scottish perspective and then the question is how to balance these issues. It's easy to say nothing would change when viewed from England, because to some extent we can only pick up the down side from all this knowing as a result we may have an even bigger problem on our hands on Friday (and we might). But from a Scottish perspective there would be an upside. There would be a new opportunity to create a new vision for what will be an existing nation but in a new era of its history and that, I suspect, would be enough to make me have that esential missing ingredient that is absent, come what may, from the rest of the UK perspective on so many of these issues, which is hope.

And that's why I think I would vote Yes.

But I would do so with fingers crossed, because right now there is no guarantee Scotland will get what it wants or deserves post independence. Having said which, No would offer no better chance of change, and that is why the risk would be worth taking.

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If the finance profession says No I think a lot of people might decide to vote Yes

Tue, 09/16/2014 - 14:46

I just noticed this as a headline in an email from Financial Director magazine:


I wonder if they realise that for many people that would be all the evidence that they need that it might make sense for them? After all, this is the profession that took us to the brink of destruction on the basis of assumptions as to the way that the economy worked that nearly ruined us, despite which they have shown no sign of any greater wisdom since then.

In that case if I was undecided I might decide to vote the exact opposite way that any professional adviser suggested and think I’d probably got it right.


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The era of country-by-country reporting is arriving

Tue, 09/16/2014 - 12:14

The OECD has announced its 2014 outcomes from the Base Erosion and Profits Shifting process this afternoon. As far as I am concerned the key issue is country-by-country reporting, which is the subject of BEPS Action Plan 13. The summary on this issue, just published (sent to me by mail, a link will follow) is:

This document contains revised standards for transfer pricing documentation and a template for country-by-country reporting of income, earnings, taxes paid and certain measures of economic activity.

The country-by-country report requires multinational enterprises (MNEs) to report annually and for each tax jurisdiction in which they do business the amount of revenue, profit before income tax and income tax paid and accrued. It also requires MNEs to report their total employment, capital, retained earnings and tangible assets in each tax jurisdiction. Finally, it requires MNEs to identify each entity within the group doing business in a particular tax jurisdiction and to provide an indication of the business activities each entity engages in.

As the OECD say:

Taken together, these three documents (country-by-country report, master file and local file) will require taxpayers to articulate consistent transfer pricing positions, will provide tax administrations with useful information to assess transfer pricing risks, make determinations about where audit resources can most effectively be deployed, and, in the event audits are called for, provide information to commence and target audit enquiries.

In October 2002 this is what I told John Christensen country-by-country reporting could do when we first discussed how to tackle transfer pricing abuse. No one ever discussed it before we did. The first proposal for it followed soon afterwards. Twelve years later it’s now to be part of the official armoury for tackling the issue. I am, of course, pleased that we’ve got this far.

That does not mean we have all we want on country-by-country reporting. The OECD requirement is vague on some issues, like the approach to consolidation, but equally it is robust on others where we made very strong representations to it. So, for example, every jurisdiction has to be included in the country-by-country reporting template (copy below, taken from pre-release document – confidentiality restrictions have now been lifted; I am not leaking): there is no let out for supposedly immaterial places – which many tax havens might otherwise be claimed to be. And vitally, sales from a jurisdiction have to be split between those to third parties and related parties – so highlighting the impact of potential transfer pricing issues on the profit declared in the location. This data, plus that on employee numbers, tax accrued and paid (something I insisted on in debate in Paris, and which I am glad to see has been agreed) and estimates of capital do now allow any tax authority to undertake a unitary apportionment calculation for any group.



This calculation reallocates profits on the basis of where sales are (unfortunately sales by destination is not available in the OECD data, but that will come, I am sure), where employees are and where assets are. Total group profit is apportioned on this basis to see whether declared profits are allocated in a manner broadly consistent with this estimate based on underlying economic activity. If they’re close the group is not worth transfer pricing attention and if they are far apart then it is. It’s as simple as that. That’s exactly what I wanted tax authorities to be able to do, and now they can, which is great news.

There is more good news in here though. The first good news is that because profit has to be declared on a country-by-country reporting basis for tax purposes a full set of country-by-country reporting accounts will have to be prepared by every multinational corporation for every jurisdiction in which it operates. There is no other way to get this data. Profit is, after all, a residual measure after every other allocation has been made. So, we now know that full country-by-country reporting accounts will be prepared in the future.

And that means something else, which is that no multinational corporation can ever argue ever again that it does not have this data or that it would be too costly to publish it.  The time has come for that sham to be dropped. We need country-by-country reporting data on public record and we now know we can have it. The time to conclude the debate on this issue really has arrived.

Multinational corporations have a duty to account to each and every jurisdiction where they operate for what they do in that place. The data in this table would be a great start as a basis for published country-by-country reporting data, although ideally some more detail, such as sales by destination as well as source would be added, and a consistent approach to consolidation would be required, but a process has begun and the outcome is, I think, inevitable. The era of country-by-country reporting is arriving.

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The time for a multinational corporation to publish where it is has arrived

Tue, 09/16/2014 - 12:13

One of the things that the Fair Tax Mark asks a multinational corporation who wants its accreditation to do is to disclose where each of its operations is located and what each does.

I am delighted to note that the OECD has today adopted this idea as an international tax standard in the announcement made on Action Plan 13 of the Base Erosion and Profits Shifting process. That requires the following template to be completed by every multinational corporation in future:


I stress: I worked took this from an embargoed copy of the report: the embargo has now been lifted and I am not leaking anything.

I warmly welcome this requirement. It has always been a key demand of my proposal for country-by-country reporting and it seems ludicrous that this data has never been properly put in the public domain before now.

There is now no excuse. The time for a multinational corporation to publish where it is on public record as well a for tax purposes has arrived.

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Three Illicit Financial Flows Targets

Tue, 09/16/2014 - 08:41

The following blog has been reproduced from the website of the Center for Global Development, with permission. It is authored by Alex Cobham, a long time friend and colleague on tax justice issues, who is a Research Fellow at the Center. I thought the suggestions important and worth sharing:

There is broad consensus on the need for the post-2015 successor framework to the Millennium Development Goals to respond to the challenge of illicit financial flows (IFF). Typically IFF involve the hidden movement of profits, hidden transfers of ownership, or hidden income streams. The main motivations are tax evasion (corporate and individual); laundering the proceeds of crime (largely human trafficking and drug trafficking); and corruption (including the theft of state assets and the bribery of public officials).

Current proposals reflect the need for international action to counter IFF, since the damage done by IFF in one jurisdiction is typically dependent upon the financial secrecy provided by another. But they are framed only at the most general level in terms of reducing IFF (without saying who should do this, or how), or of “international support to improve domestic capacity for tax collection” (without outlining the international obstacles that prevent domestic progress).

What is lacking, above all, is the specificity to hold policymakers accountable, globally and in individual jurisdictions, for meeting the responsibilities that these broad commitments entail. To have a chance of being effective, the targets must make explicit that which is currently implicit only. For the many jurisdictions that provide financial secrecy that damages others, from Switzerland and Delaware to Jersey and Singapore, that means specific, measurable commitments to the emerging norms of transparency. For those countries that suffer as a result, it means an empowering measure of progress in the transparency of trade and investment partners – and the opportunity to challenge those partners which fail to show progress.

In a new paper for the Copenhagen Consensus, I propose three post-2015 targets to curtail illicit financial flows. Not only do these targets offer a level of policy accountability that current proposals simply do not, they are also characterised by high benefit-cost ratios — even allowing for the inevitable uncertainty. In net present value terms, over the framework’s likely period of 2016–2030, the potential net benefits are in the very high billions or low trillions of dollars.

New targets

The three targets I propose:

  1. To eliminate anonymous ownership of companies, trusts, and foundations.
  2. To ensure all bilateral trade and investment flows occur between jurisdictions which exchange tax information on an automatic basis.
  3. To ensure all multinational corporations publish data about their economic activity and taxation on a country-by-country basis.

Each of these is already part of its own well-established process. The G-8 meeting of 2013 saw high-level rhetoric, and some country progress, around the need to end anonymous ownership. Sixty-four countries and jurisdictions are now committed to the OECD’s new standard for automatic information exchange, starting multilaterally from 2017. And country-by-country reporting is increasingly required for a range of industries in the European Union and US, while the OECD is drafting a reporting template for all multinationals to report to all tax authorities; the remaining issue relates only to publication of the resulting data.

Cost-benefit analysis

The basis for the specific proposals and their potential to contribute to reductions in illicit financial flows is detailed in the full paper. The additional contribution is to use available cost and benefit data to estimate overall benefit-cost ratios.

As the table shows, the ranges are either very wide or unknown. It should be made a priority in each of the processes discussed for better data on costs and benefits to be collected on an on-going basis. Even with the existing data, however, and making broadly conservative assumptions throughout, it is evident from the analysis that the potential benefits are likely to exceed the costs many times over.

Full details of the calculations are provided in the paper, and as part of the process the Copenhagen Consensus has also commissioned valuable, critical commentaries from Prof. Peter Reuter, from Global Financial Integrity, from UNODC, and from Policy Forum (Tanzania). [The Copenhagen Consensus is in the process of putting together equivalent work across the range of post-2015 themes; equivalent proposals and critical commentary are already available for education.]

There is scope to improve significantly the evidence base over the next two years, as initiatives in each area go forward — and those involved, not least the OECD, should ensure that the collation of performance data is prioritised so that these gains do indeed crystallise. But the evidence already points towards what are likely to be very large net benefits indeed from global measures to address illicit flows that include the specific, accountable targets detailed in the paper.

Range of benefit-cost ratios for proposed targets

See also: Bjorn Lomborg’s op-ed in Graphic Online (Ghana) and a piece from the WSJ’s Matina Stevis


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Who paid for the banking crisis? An answer in one graph

Tue, 09/16/2014 - 06:44

I have already referred to the new Office for Budget Responsibility report on the 2008 financial crisis and its aftermath. This table from it is telling:

Of the measures taken to achieve “one of the biggest deficit reduction programmes seen in any advanced economy since World War II” (their words, I stress) the vast majority have impacted on government spending, and that will also to be the case over the next four years.

This has, of course, resulted in the loss of hundreds of thousands of jobs, and the skills that went with them as the public sector has been decimated. And increasing tax gap has been on consequence.

And those who have kept their jobs in the public sector have seen their real earnings fall, dramatically.

But most tellingly the impact has been on those who depend on the public sector, and these are of course those who are worse off in society including many who are vulnerable through no fault of their own.

The result is obvious. First we are not all in this together. Those who are not heavily dependent on the state are having a good recession, especially now house prices have increased. Many will hardly realise anything has happened,

Those who have real needs have paid and will pay an enormous price for deficit reduction. In fact, they have paid most of it. The table makes that very, very clear.

And what is really galling is that there is no need for this deficit reduction programme. The world is queueing up to buy UK government debt. It’s an asset they want to own, but we’re trying to deny them the chance to do so by punishing people in our economy and at the same time seeking to crush GDP growth, which is the inevitable consequence of this policy. A more callously inane economic policy would be hard to imagine.

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