A Renewed Effort to Close Global Tax Loopholes Faces an Uphill Battle Post author By Philip Lane Post date November 14, 2014 NY Times article with interesting graphics here. Categories In Uncategorized 21 Comments on A Renewed Effort to Close Global Tax Loopholes Faces an Uphill Battle ← Networks and economic history → Central Bank event: Labour Markets over the Business Cycle 21 replies on “A Renewed Effort to Close Global Tax Loopholes Faces an Uphill Battle” “Many experts are skeptical about how much this can achieve” and this is understandable – to quote Upton Sinclair: “It is difficult to get a man to understand something when his salary depends upon his not understanding it.” Of course there will be problems but there has been remarkable progress in a short time in both tackling personal tax evasion and avoidance. Some Swiss bankers may cheat on the exchange of banking information but overall, the level of crime is likely to fall. The FDI data in respect of holding companies are misleading as overseas cash hoards are included, which may well be onshore in a US bank. What crucially matters is not only laws but their application and as has been seen in respect of Luxembourg, revenue authorities in Europe have traditionally had cosy relations with the tax advisers of the big multinationals in contrast with the way they treat their own citizens and indigenous companies. That is likely to change and the European Union’s decision this year to open tax investigations of large companies is likely to be extended. This week there was also a significant agreement between Germany and the UK on the taxation of intellectual property. This is the first overall report that I have seen which deals in a realistic way with the international political realities which have given rise to the present situation with regard to BEPS and which suggest that it will be a long time before any overall solution is found; if ever! One well-known French journalist’s blog puts it rather well in describing it as “le bal des hypocrites”. http://bruxelles.blogs.liberation.fr/coulisses/2014/11/luxleaks-le-bal-des-hypocrites.html Juncker is not shying away from the realities and putting it up to ALL the countries of the EU to agree some meaningful steps with, of course, matching action by the non-EU members of the G20. http://europa.eu/rapid/press-release_SPEECH-14-1800_en.htm?locale=en @ MH, Good points. In addition… Until all countries agree to have the same tax laws / tax rules / tax code…. there will always be ‘Jockeying for a position’ going on among them. Perhaps in 100 years time… individual countries will cease to exist, instead there will be just economic blocks, Eurasia, Asia, N.America, Africa etc. Perhaps the advantage then will be to the countries which are on the periphery of the block i.e. Ireland between Europe, UK and N.America? But that is a different argument for another time. The G20 text. 13. We are taking actions to ensure the fairness of the international tax system and to secure countries’ revenue bases. Profits should be taxed where economic activities deriving the profits are performed and where value is created. We welcome the significant progress on the G20/OECD Base Erosion and Profit Shifting (BEPS) Action Plan to modernise international tax rules. We are committed to finalising this work in 2015, including transparency of taxpayer-specific rulings found to constitute harmful tax practices. We welcome progress being made on taxation of patent boxes. To prevent cross-border tax evasion, we endorse the global Common Reporting Standard for the automatic exchange of tax information (AEOI) on a reciprocal basis. We will begin to exchange information automatically with each other and with other countries by 2017 or end-2018, subject to completing necessary legislative procedures. We welcome financial centres’ commitments to do the same and call on all to join us. We welcome deeper engagement of developing countries in the BEPS project to address their concerns. We will work with them to build their tax administration capacity and implement AEOI. We welcome further collaboration by our tax authorities on cross-border compliance activities.” There has been a lot of pushback from well-organised professional lobbies on tax evasion. Many of the players are also heavily involved in auditing, of course . A lot of attention was paid to the weaknesses in the auditing process back in 2010 but was anything ever followed up on ? http://ec.europa.eu/internal_market/consultations/docs/2010/audit/green_paper_audit_en.pdf Meanwhile Cameron is worried about El Gordo 2 http://www.theguardian.com/world/2014/nov/16/david-cameron-third-eurozone-recession-g20-warning “His warning comes days after the Bank of England governor, Mark Carney, claimed a spectre of stagnation was haunting Europe. ” Happened to watch PBS America last night, a excellent programme re FDR throughout 1930s. He also got loads of push back, but he took on the fight. “The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.” At least he was fighting for something. Asset quality and QE for the rich were not on his agenda. Off topic Everyone has gone completely silent on the apparent necessity for 50% of Irish water funding to come directly from Irish citizens. As we all know the contribution from citizens is to be much lower from the recent leaked costings. Have the government renegotiated this rule with the OECD/Eurostat or will the Irish water debts be moved on balance sheet? Isn’t it convenient that the Eurostat rules demand that lots of things should be privatized in the name of keeping them “off balance sheet”. @Joe Ryan I don’t think the multinationals or the super-rich need worry themselves much about the current flurry of complaints – all is linked – Ordinary Ireland has to pay new property taxes etc. to ensure the bondholders, that is the super-rich get paid. The super-rich set up a multinational, go tax resident in Monaco and pay much less percentage taxes than the rest of us. Handy as well if they get very friendly with a politician and recommend a nice friendly accountant firm that will recommend that “the introduction of rent controls will mean that the super-rich are unlikely to get 6% plus ROI on their hard won income from government bonds, that you just gave us back, from rental properties and putting in jeopardy the plan of the top 1% to own everything by 2050 and are therefore unlikely to release property to the private rental market”, Handy as well if can buy a paper or two and get them to run stories on “Union fat cats” and how “Unions pay people to go on strike”. Nothing is changing the greed and power of the super-rich is growing and they even now have one of their own as the head of the EU. All this is a charade to pretend that they care. JR, FDR was running into trouble in 1938 if memory serves me as the New Deal was running out of momentum. The WW 2 re-armement boom neccessary to build an arsenal of democracy to fight German tyranny helped no end. @ JR There is some really funny stuff in the FT every so often regarding where equity markets are headed given the marvels under QE3 http://www.ft.com/intl/cms/s/0/24f206e8-33ae-11e4-ba62-00144feabdc0.html “Morgan Stanley argues that the S&P can reach 3,000, if the economic expansion has another five years left. It has already lasted a little longer than the average postwar expansion. But Morgan Stanley points out that consumer confidence is only now recovering with households only just having paid down their debt. A long “repair” phase to this cycle is finally complete. On that basis, there could be room for five more years’ growth before the cycle turns.” You can buy into this via Wealth Traded Funds , known as WTFs @Tull re: FDR in trouble in 1938. The PBS programme argued that the mini-recession (9 months approx) of 1937/8 was caused by premature withdrawal of social programme deficit spending, prompted by the financial and fiscal hawks amongst whom JP Morgan was prominent. The punch-point of the programme was that of a traveller entering the US through the New Deal built LaGuardia airport, traveling through the New Deal built tunnels and interstates to Chicago, riding on the New Deal built Chicago Loop and proceeding past New Deal power plants onto the west coast. It was an inspirational programme. It should be made compulsory viewing in both the EC Commission and ECB upper floors. Seafoid, How much has the SPX gone up since you put on the bear suit or put another way how much does it have to go down for you to be correct. Plenty of cheap stock around but they all in Europe now. @Seafoid re: Morgan Stanley predictions. I have been following your line of argument for some time and last week took the opportunity of putting whatever was in my meagre (private sector) pension into cash. I did not rely entirely on your forebodings but reflected as follows. 1 The hunt for yield i.e an extra 1% or so is meaningless to an investor or prospective retiree (about 7 years, insharla) requiring some kind of stability. 2. Bond prices are running close to par and can only go one way at this point .i.e down. 3. Equity markets depend on increased profits, which for the most part rely on reasonable growth, that in turn depends on consumers to spend money (which they do not have and will not have as a consequence of austerity). There is no growth in prospect and there will not be. Income and wealth concentration in the hands of people unable to spend it and unwilling to invest it in real productive investments has finished off growth prospects. The circular theory of money is running out of circles. 4. Property prices in the major capitals are flush with hot money, oil money, crooked money, you name it and have moved beyond the ability of many in western society to afford them. So unless we are to revert to tenants at will, either property prices will have to come down or banks will have to run the risk the risk of another almighty collapse. The same goes for asset prices generally. 5. There is too much rentier money worldwide looking for a home and profit on the backs and lives of people who have little. I doubt that it can continue for too long. There is already significant kick back in Europe and it will increase. As for Morgan Stanley, JP Morgan got a good mention on that FDR program. He did not come across as somebody out to make a decent life for a majority. He was firmly fixed on numero uno, as I suspect Morgan Stanley is today. No doubt they have a Chinese wall between the department that is forecasting S&P of 3000 and the one that is taking positions against a 30% market fall. @Jules And back to the topic of the thread. There is a bit of a push back happening on corporate tax evasion (call it avoidance if one must). The corporates who are very powerful will resist with all their might, but the pressure will be relentless. Populations will realise, as Ireland will have to, that all ‘competition’ based on corporate tax rate is robbing one country to pay another. All countries are culpable, none more so than the US, whose corporate shareholders seek to avoid taxes. I think Michael Hennigan is probably correct when he says (above) that; “…That is likely to change and the European Union’s decision this year to open tax investigations of large companies is likely to be extended.” 1 chart http://www.nakedcapitalism.com/2014/11/corporate-profit-margins-vs-wages-in-one-disturbing-chart.html @ Tull The SPX could well go to 2500 but buy and hold is dead and I wouldn’t go near it. The bigger it gets the harder the fall. Would you recommend it to a pension fund given the likelihood of deflation in Europe, the knock on effect on US international earnings and the flakiness of the US “recovery” ? Or the general inability of the market to price deflation in Europe. Or even just the lack of any power in each additional dollar of debt used to prop up the system. The last few years of relative stability have been brought to you by the letter D and the expansion of China’s debt load , as well as Fed generosity and Mario doing his bit. http://www.ft.com/cms/s/0/4df99d28-4590-11e4-ab10-00144feabdc0.html If you do see a growth driver out there other than “I believe I can fly” can you please post it ? QE and low interest rates have kept a lot of dead companies alive,Schrodinger’s cat style, both in the EZ and in the US. Corporate default rates are very low at the moment but there’s a lot of crap risk being taken on credit. All that new money backing the new debt has to go somewhere. It looks great on the surface alright. BTW if something awful happens and one of those big Wall St behemoths gets into trouble bailing in is going to be carnage http://www.ft.com/intl/cms/s/0/25d98538-2fa6-11e4-83e4-00144feabdc0.html “A paradox at the heart of this new approach to systemic crises is that bailing in creditors is likely to have far-reaching effects because, unlike a bailout, it will inflict losses on other systemically important financial institutions. The Dodd-Frank Act looks to the banking industry to meet any losses in excess of what equity and debt are capable of absorbing. This is a recipe for panic.” @Joe Ryan Do you really think that the corner has been turned. Neo-con republicans have taken over the senate, Australia has elected a climate change denyier as PM. Support for the conservatives in the U.K. is growing. The ability of the general public to vote against their own best interest and for the 1% is astounding. The ability of the multinationals to “avoid” tax had been well known for years, all you have to is examine their annual accounts to see how much globally they are paying in tax to conclude that they are clearly not paying their fare share towards the infrastructure and educational systems in their chosen countries. It didn’t take Pickerty to point out that the huge reductions in tax started by Regan and Thatcher have led to declining government services, reduced social mobility, reductions in the median wage in the U.K. and U.S, declining infrastructure such as highways and bridges. These trends have been clear for sometime and yet a large amount of people in U.K and U.S still vote and support the parties that have bought us to this. Why do you think this flurry of words about taxation will yield anything. The advantages of a small country to offer close to zero tax rates to multinationals and the super rich is immense and they even bend over backwards to subsidize them allowing them a rebate on interest on loans they have given themselves or QE subsidies ensuring that their investments are “no risk”. In the EU predatory tax law has been enshrined and the EU is used as host for parasitic activity of the highest order. The GDP per capita of Lux is 150k, are they some super-race with a productivity three or four times higher than the rest of world? what has changed, what will change. Why did the center-right pick the head of Lux to lead the EU? The answer is obvious. The super-rich and the multinationals are also obsessed with the minimum wage – that is reducing or preventing it increasing in line with inflation, interesting as you pointed out the capitals are awash with super-rich cash with no where to go that is pushing up house prices and rents to an unsustainable levels. Basically the coffee house mulitinationals are now getting another family subsidy to help them, people on such low wages in the capital work for them but they could not afford to live there and are depending on other family members or the family home to subside them so they can pay low wages and boost their profits on which they pay little or no tax! Other themes of the Regan/Thatcher were privatization and unions. The mantra that privatization is a good thing is part of the EU DNA and quoted as a scientific fact. Without doubt there are cases that privatization was and remain a good thing, however on balance there is no evidence whatsoever that it is generally a good thing and lots of evidence to the contrary. Are we trying to tell the motorists on the M50 that their daily fleecing by the wonderful private rich who built their bridge is a “good thing” and competition in building bridges is a “good thing”. @jules Precisely. Plus the neocons want more war …. http://consortiumnews.com/2014/11/11/the-neocon-plan-for-war-and-more-war/ @Jules “Why do you think this flurry of words about taxation will yield anything.” What can I say? Dum vivo spero, but I am not that hopeful. But I think the pendulum has started to turn. But the chart produced above by David O’Donnell could lead anybody to despair. http://www.nakedcapitalism.com/2014/11/corporate-profit-margins-vs-wages-in-one-disturbing-chart.html @ JR Smithers had a piece on profit margins and savings a while back http://blogs.ft.com/andrew-smithers/2014/09/what-will-bring-down-us-equity-prices/ http://www.ft.com/intl/cms/s/0/677aacee-3cc9-11e4-871d-00144feabdc0.html has a chart on real wages and labour productivity, also related Over in the UK Tesco and the other 3 big grocery chains have been told by the squid that they need to cut 20% of stores to get back to profit and deal with the threat of aldi etc- this is linked to deflationary salaries for the middle classes…. @JR David O’Donnell chart is indeed very scary. If you applied the numbers to Ireland to end of September tax figures we get the following Personal taxes (income tax + VAT(most of) + Excise(most of) + LPT + Stamp(most of)) = 25 bn paid out of employee compensation of 40% of GNP of 120 bn (from DODs chart on employee compensation of 120 bn and rough guess of GNP to end of september) = 48 bn effective tax rate = 62%. Corporate taxes of 2.7 bn paid out of corporate taxes of 10% of GNP of 12 bn (same assumptions as above) = effective tax rate of of 22%, this is much higher than OECD estimates of 7% effective rate as Irish based are probably much more profitable than DO’Ds average rate because of higher Irish real productivity and Irish predatory taxes, that is booking income to Ireland that is earned elsewhere. In any event it is worse than I said so basically we are cutting back on education, legal and infrastructural changes all of which benefit the multinationals and they are not paying their fare share Comments are closed.