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Richard Murphy on tax and economics

Transparent company ownership: how does the UK government’s proposed action live up to its rhetoric?

Wed, 07/16/2014 - 15:18

This has been reposted from the Global Witness blog, with permission and is the work of Robert Palmer and  Rosie Sharpe:


For too long a small minority have hidden their business dealings behind a complicated web of shell companies, and this cloak of secrecy has fuelled all manners of questionable practice and downright illegality.” David Cameron, 1 November 2013

Late last year, David Cameron announced that the UK would put the names of the people who own and control British companies into the public domain – something that we at Global Witness have long been campaigning for, alongside other NGOs such as ONE and Christian Aid. Such transparency is important because it’s well known that people who want to hide dirty money use the anonymity provided by companies to do so. There are plenty of examples of British companies being abused in this way. For example:

  • The palace compound of Ukraine’s ex-president, Viktor Yanukovych, was until recently part-owned by an anonymous UK shell company.[1] The Yanukovich Info website claims that other assets belonging to the ex-Ukraine president, such as the presidential plane, hunting forests and villas in Crimea, were owned by anonymous UK companies.[2]
  • According to the UN, Ukrainian arms licences have been given to UK shell companies involved in supplying helicopter parts to Syria, military kit to Gaddafi’s Libya and nuclear technology to Lithuania.[4]
  • A Global Witness investigation found multiple UK-registered companies appear to have helped facilitate a major money laundering scandal centred on a bank in Central Asia.[3]
  • The British arms firm BAE Systems paid $400m to settle charges that it bribed Saudi officials responsible for approving a massive arms purchase, including by using UK shell companies.[5]

Tomorrow will be the first chance that UK MPs get to debate the government’s plans on how to implement this promise: the Small Business, Enterprise and Employment Bill will go for its second reading in parliament.

So how has the government done? Does the detail of what they propose live up to the promise that was made? Does it go far enough to counter the ‘questionable practices and downright illegality’ that the Prime Minister pointed to when announcing the register?

The new legislation is very welcome. In particular, we have repeatedly applauded the UK government for showing the leadership required to be the first in the world to propose putting the names of the people behind companies out into the open. Doing so will be a big step forward in preventing people hiding criminal activities such as tax evasion behind anonymous companies. It is also strongly supported by the public: in polling only 9% of the British public said that company ownership should be allowed to be secret.[6]

However, there are ways that the legislation could be improved. In particular, the following things need tightening up, and we call upon MPs tomorrow to raise these points in the debate:

  • Verification. We need to ensure that people who lie about who owns and controls companies stand a reasonable chance of being caught. To do this, there needs to be some degree of verification of the information collected. The government should present a clear plan on how verification will be undertaken, especially in the case of high risk companies.
  • Updating. We need to ensure the data is not too old. In the proposed legislation there is only a requirement to update the central register once a year; this provides the potential for the information to become significantly out of date. There should be a requirement to ensure that the register is updated within 14 days of beneficial ownership changing, as is the case for changes in directors.
  • Sanctions. The amount of money that can be made through tax evasion or other forms of money laundering is potentially high and therefore any sanctions need to be correspondingly high. At present, the proposed sanctions for not providing information on who owns a company to the public register are too low (a maximum of £250 a day).
  • Exemptions. Who is to be allowed to keep information on the ownership of a company out of view of the public? Any exemptions granted should be only made in exceptional circumstances; the reasons for the exemption should be given on the register, and should be able to be challenged by others.

Without these improvements, it’s not too difficult to imagine a wannabe tax evader or corrupt government official finding loopholes that still enable them to misuse UK companies to hide their dirty money. For example, they could lie about who owns their company, safe in the knowledge that there’s not a big chance of them being found out, and if worst comes to worst, not too big a penalty to pay. Let’s tighten up these loopholes and show the world how the UK is leading the way in being open for good, well-regulated business (and closed to the dodgy, money-laundering, criminal sort). And then let’s make sure the UK’s Crown Dependencies, like Jersey and Guernsey, and its Overseas Territories, like the British Virgin Islands, do the same thing.

[1] Rosie Sharpe, Anonymous UK company owned Viktor Yanukovych’s presidential palace compound, 1 March 2014, http://www.globalwitness.org/blog/anonymous-uk-company-owned-viktor-yanukovychs-presidential-palace-compound/

[2] http://yanukovich.info/dr-reinhard-proksch/ The website is produced by Ukrainian journalists investigating the wealth of the former regime.

[3] Global Witness, Grave Secrecy, June 2012. http://www.globalwitness.org/library/grave-secrecy.

[4] Business News Europe, ‘Ukraine defence exporters under fire for UN arms embargo breach’, 18 July 2012, quoting a list provided by Ukrainian diplomats to the UK’s arms export licenses parliamentary committee.http://www.bne.eu/storyf3813/Ukraine_defence_exporters_under_fire_for_UN_arms_embargo_breach.

[5] Jason Sharman, The Money Laundry: Regulating Criminal Finance in the Global Economy, 2011, p. 76.

[6] http://www.comres.co.uk/polls/Christian_Aid___Beneficial_Ownership.pdf

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The process of change

Wed, 07/16/2014 - 06:03

I wrote a blog in about 7 minutes yesterday which included a minor error inconsequential to the argument I presented ( although you would not think that from the reaction of those who had clearly never actually read or understood what I was saying) and over 100 comments followed, most dismissive of my position, if I put the kindest spin on what was said.

I found it all rather bemusing. For one reason, I certainly never expect such reactions. But more intriguingly because those reactions show just how little most commentators here understand the process of change.

My argument, if I précis it, is that most patents and trademarks serve no real pupose in protecting property law. That, I suggested was the case with regard to the Apple trademark to which the blog referred. Instead I suggested that those intellectual property rights are created for at least three quite different reasons.

The first is to create an artificial ‘asset’ whose ownership is then very often located in a low tax jurisdiction for the use of which a charge is then made and a deduction claimed in a high tax jurisdiction. I would have thought I hardly need have presented evidence in support of this claim since it is one of the key issues of concern in the OECD BEPS process and the EU Competition Commission enquiry into IT and other companies, but apparently such common knowledge was a complete revelation to many commentators who claimed considerable expertise for themselves.

The second is that this intellectual property can be used to prevent powerful barriers to entry to new competitors into a market and so preserve monopoly profits. This is hardly a radical suggestion, it being a widely shared concern (I thought) but again it was apparently shocking news to many commentators.

And third, this intellectual property can be used to warn off innovation. Because of the imbalance in many markets IP once granted to a company commanding significant resources (and I think there is agreement that this might describe Apple) can be used to threaten legal action that purely pragmatically a smaller company could not challenge, and so will not take risk upon. Now, as a matter of fact it is obvious that Apple does pursue IP litigation, as is its legal right, but which I think could result in real risk that developments on its thinking ( which is how all innovation happens) can only occur within its metaphorical four walls. Since large companies have generally poor records of major innovation, usually relying instead on incremental change or government subsidy (in which case their claim to ownership of the resulting IP should be questionable) this is likely, in my opinion, to be harmful to the overall rate of innovation, although others clearly disagree.

Now I offered these three, connected, ideas in a deliberately disruptive way, I admit; setting them in the economic environment of what I think can fairly be called rentier capitalism, whose risks I described in an audio blog. The reason for the disruptive presentation – by which I mean a deliberately provocative whilst nonetheless wholly genuine approach is used – was that without disruption change does not occur and so the status quo – which almost every commentator on the issue clearly sought to uphold – is preserved.

Change is then predicated on the existence of disruptive thinking and, as Schopenhauer suggested, it usually provokes a three or four fold response. At first it can be ignored. That clearly did not happen in this case. Second it is ridiculed, which most certainly occurred. Then it is violently opposed. It may be fair to say that happened, although I mean in terms of the argument, and no more. Last it is accepted as being glaringly obviously appropriate and the right thing to do, with the idea then being adopted by those who usually have no idea how it might have emerged.

So, the blog I wrote demonstrated how a process of change might begin. I would like to see a change in IP law. I do think much of it deeply abusive of society at large. And predictably that suggestion was rejected out of hand by most who responded.

But so have other changes i have proposed been rejected in that way and yet change has happened or is underway as a result of them. So, I can assure you, I am not deterred. Indeed, the immediate vehemence of the reaction suggests how important change in this area might be. It was a worthwhile day.

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Comments today

Wed, 07/16/2014 - 06:03

There were well over 100 comments on this blog yesterday, every one of which I read before posting (or not, in a few cases). That took a little time. Between doing that I also had to do some work, have meetings and so on. Despite appearances, this blog is very far from being my full time job, which is why blogs sometimes get written at railway stations over a coffee and the odd mistake creeps in. It's also why most get written very early in the day.

Some complained yesterday that I was not moderating their comments quickly enough. I'm sorry for the dissatisfaction. I do my best.

Today my best will not be good enough for many. I am having hospital tests and will be sedated. This may mean I may be out of blogging action for a few hours and I'm sorry, but that may mean your comment will just have to wait. I apologise in advance, but I am also confident that the world won't end as a result.

It may also mean comments requiring a response will take even longer to post. Again, that's just the way it's going to have to be. Please accept my apology now. Or wait for another day.

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Fallibility

Wed, 07/16/2014 - 05:22

I am fallible.

I just thought I should mention it as it seemed to come as a terrible shock to some right wing commentators yesterday, who appeared inclined to think before this shocking revelation that I shared a status otherwise only ascribed to the Pope.

I assure you, that, whether he agrees or not, he and I can and do make mistakes. And as I proved yesterday, I acknowledge them when I do.

But I also do not agree I have erred just because someone else claims that to be the case. I may be fallible, but I require evidence before agreeing. There is good reason for that. According to some everything I do and say is wrong. That’s an interesting idea, but there is no evidence to support it. What is more, its repetition wastes a great deal if time and effort.

 

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Apple’s trademarks are part of rentier capitalism

Tue, 07/15/2014 - 08:07

Apple has trademrked the layout of its stores. So now, if you want to open a shop with tables in it where people like at IT products I suspect you can't.

Why does this matter? First, because that seems, at the very least to be absurd. How can you trademark where you put a table?

Second, because you can apparently trademark where you put a table you do as a result create an entirely artificial property right that means that Apple can now extract a rent from ownership of that right.

And if you want to know where that leads, listen to this. This is the direction in which capitalism is moving by seeking to control all aspects of our lives, and in the process are seeking to control all we do.

Please do not think we live in a world of benevolent corporations. We most definitely do not.

 

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Fossil fuels: the next sub-prime crisis in the making

Tue, 07/15/2014 - 07:25

The Telegraph (of all papers) ran an article recently headlined as follows:

Fossil industry is the subprime danger of this cycle

The cumulative blitz on energy exploration and production over the past six years has been $5.4 trillion, yet little has come of it

The nub of the article was that this investment was wasted money. If there was oil to be found it could not be extracted anyway without burning the planet. In other words, this is money being wasted in an investment boom that is bound to crash. I think that is right.

The FT has not noticed, saying this morning:

Those tasked with overhauling Britain’s fiendishly complicated North Sea tax regime could do far worse than look at Norway.

About a decade ago, it was facing a similar problem to the UK – a worrying slowdown in oil exploration.

For a country so reliant on oil and gas revenues, that had troubling implications for its state finances.

So with attention focussed on the minutiae and not the big picture the wrong policy is pursued without any apparent understanding that that hope that underpins it is forlorn.

When will the world realise we cannot burn our way out of global warming? The future is renewable energy and the investment in it, and not oil, is what is needed now, especially when state money is involved.

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The Quick Take: the dangers of Luxembourg’s rentier capitalism

Tue, 07/15/2014 - 06:12

Luxembourg promotes a particularly abusive form of capitalism that is a threat to us all. This isn’t the quickest Quick Take but the issue is massive and at the heart of tax justice so I hope you’ll listen.

Listen to ‘The Quick Take: The danger of Luxembourg’s capitalism’ on Audioboo

//

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If in doubt Tim Worstall resorts to misrepresenting the truth

Mon, 07/14/2014 - 20:33

I posted an audio blog this morning explaining why and how Amazon, amongst other companies, avoid tax, making quite clear what the processes involved are and that despite avoiding they might still on occasion pay tax, which is blatantly obviously true.

In response Tim Worstall has published a blog on Forbes under the title

Britain’s Leading Tax Expert Insists That Amazon Is Not Avoiding UK Tax

In it he says:

After many years of insisting exactly the opposite Britain’s leading tax expert, Richard Murphy, today announced that Amazon does not in fact avoid (and most certainly does not evade) UK corporation tax. He now actually agrees with me, that in the most recent year we have the numbers for Amazon overpaid UK corporation tax.

Now I have never said Amazon has evaded tax, so that is not news. As for the rest, it’s just straightforwardly untrue and a total misrepresentation of anything I have said both today and previously, all of which I stand by. Forbes really should take care when publishing blatant misrepresentations of the truth, including (but not limited to) the suggestion that I am the UK’s leading tax expert, which I simply do not and never would remotely agree with.

I can assure you that Tim Worstall will never appear anywhere on this blog again. Not only is he a lousy economist he simply cannot tell the truth. In combination that is enough to resolve the issue for good.

Addition at 7am on 15 July:

The following exchange in the comments section may elaborate this issue:

Andrew Jackson:

In your audio blog, you did indeed say that they are paying the right amount of tax at the moment – indeed, more than one might expect. The issue you mentioned there was that you consider that they have set up structures such that they will pay too little in the future.

I can see how you get to that conclusion, but to say that a company is a tax avoider when it is not actually avoiding tax as yet – in essence, conflating “in my view there will be” with “there is now” – does seem to be a little bit premature.

My response:

Oh come on – that is a comment taken wholly out of context.

I suggested that because of what might be considered the fixed margin tax planning arrangement they are using for the long run they might, because of their current decision to reduce profit in a race for global domination in which tax avoidance plays a key part, have temporarily paid more pro rata tax in the UK than might be expected but that this did not in any way mean that they were not a tax avoider.

They have underpaid in the past.

It is likely they will again.

Saying they’re not now is as absurd as claiming that a person engaged in another form of abuse is not guilty of it because by chance they did not do it today.

For heaven’s sake; if your analytical abilities are as weak as this then you really are in trouble, desperate or just hopelessly inept.

The comment does not just apply to Andrew but all others who have apparently made similar comments elsewhere on the net.

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