Uncovering the secrets of international finance: Tax Havens

Tax Havens - Investigating International Finance - Episode 1

This is the first in a series of 4 videos investigating different areas of the international finance system. Each is a short introduction to a major challenge we face if we want to reform global finance and make it work for people and the planet. Millions of individuals have been adversely affected by the risky practices of financial institutions, but their operations remain shrouded in mystery. This is one of the biggest barriers to reforming global finance – not enough people understand how it works. 

Today's first film focuses on tax havens. Used by wealthy individuals and comhttp://www.youtube.com/watch?v=3I-RVVa6mKcpanies to shift huge sums of money around the world in secret, they cost governments and ordinary taxpayers billions of pounds. International efforts to tackle tax havens to date have been feeble, but there is no reason why proper action can't be taken - watch the video to find out what can be done.

The last few years have shown what can happen when the finance system goes wrong - to ensure global financial stability, now is the time to expose the system's murky secrets.

Tricks of the global financial elite

Tricks of the global financial elitehttp://www.presstv.ir/detail/2012/12/05/276239/tricks-of-global-financial-elite/

There are no limits to the tricks of the global financial elite.

Bolstered by university academics who piously announce that whatever the elite does must be for the benefit of everybody else; toadied to by politicians who are but paid catamites; and secure in the knowledge that the public will never understand what it is not allowed to see, the elite is engaged in a gigantic rip-off. 

The rip-off starts with the academics claiming that an international corporation helps everybody because a corporation’s profits, in some mysterious way, ‘trickle down’ to the population in general. 

This is an egregious lie. 

The lie has three aspects. For a start, the rich never spend all their earnings. 

Secondly, the real benefit of an economic operation is the very considerable spending power which comes from the jobs of the workers. But what happens if these jobs have been exported by the international corporation, as has happened on a massive scale in the USA? The spending power then stays abroad and cannot be used to buy the admittedly cheaper goods being imported. The argument that the imported goods are cheaper is a cunning one because it ignores the destruction of the domestic spending power as well as the long-term effects of exporting all the skills and technology. Henry Ford, of motor car fame, understood that his workers had to be paid well if they were to be able to buy Ford cars. Unemployed people are not paid at all. 

Today’s elite, however, does not care if the USA’s millions of ex-workers have nothing with which to buy the cheap imported goods. If the American market can no longer buy, the international corporations cheerfully reflect that they have established themselves abroad and can take advantage of the expanding local markets. As far as the global elite is concerned, Americans can go hang themselves. 

But the third aspect of the lie is even more startling. Even when it is operating within, for example, the USA or the UK, the global elite is busily ripping off the economic wealth of a country into tax havens abroad (and so onwards into the pockets of the elite). It is able to do this in several ways particularly by setting up brass-plate corporations which are physically small, perhaps only a desk and computer, but through which millions of dollars can flow. The brass-plate corporation, owned by an international corporation, then buys and sells, or receives income, at any rate that its international corporation owner wants by a method called ‘transfer pricing.’

Transfer pricing refers to the usually completely false setting of charges made between related parties (such as brass-plate corporations and their international corporation owners) for goods, services, or use of property (including intangible property such as a trade mark or name). In short, transfer pricing is a fiddle on the global scale and, in this way, the economic wealth created by the corporation ends up in the brass-plate corporation in a tax haven or, more likely, in another brass-plate corporation in another tax haven where the local tax rate is even lower. 

Now consider some of the facts in the UK. In 2011, Starbucks, the chain of coffee shops, had profits of about £60 million but paid not one penny in tax. It also paid abroad a huge, unreasonable, amount for the use of the Starbuck name. 

Google paid £6 million in tax recorded turnover of about £400 million when the true figure was at least six times higher. Tax loss to the UK was about £240 million. 

Top criminal (of those who are known) was Amazon.uk which paid £1.8 million tax on a reported turnover of £207 million when the true turnover was £3.3 billion i.e., sixteen times higher. 

The multinational corporations use deceitful practices, and exploit the current legislation and lax atmosphere, to move off-shore profits which are clearly generated from economic activity in the UK. 

A UK House of Commons committee questioned executives from Starbucks, Amazon and Google and found them to be “evasive” and “completely lacking in transparency.” This is House of Commons-speak for lying about a colossal organised fraud. 

Yet the politicians are also complicit. For a start they have long welcomed the system of transfer pricing and off-shore tax havens from which, as individuals, they undoubtedly benefit. And that explains why the UK tax authorities have been lax in scrutinising and tightening the tax system and its detailed administration. 

But there’s an even bigger fraud behind all this, namely, present international banking practice which increases the frauds of the financial elite. People think that the international banks lend existing money e.g., the bank’s capital or the deposits of customers. Yet they do not. They create out of nothing (merely by pressing computer buttons) the money they lend and then add interest as well as administration cost. 

The interest (as distinct from the genuine administration cost) is in effect a colossal tax so that estimates are that 30-35% of the price of every good or service is the cost of interest. Some estimates are even higher. Governments are in ever-increasing debt because the global elite, assisted by compliant politicians, says that money (borrowed at compound interest) must always come from the commercial banks when, in reality, it could easily be borrowed, interest-free, from a national bank. 

Then, when the governments cannot pay, the elite insists that there be “austerity” thereby smashing jobs, pensions and lives, to pay back the loans. And please notice that even though the physical assets of land, factories, people and technology are still in existence, everybody’s standard of living is forced to collapse so that the elite can be paid back at interest something they created out of nothing. All the time, of course, there are vague, ever-receding promises that things will get better in the far-off future (when they are getting worse), and all this happens because the global elite has got a stranglehold over the thinking in the universities and easily slips money into the pockets of the politicians. 

Unless the general public wakes up and sets off an intellectual and political revolt, it will find that it has been tricked it into a deep, debt peonage (out of which it will never be able to break) accompanied by a vicious political and social repression. 

A Visiting Professor of Binary Economics at Trisakti University, Jakarta, Indonesia, Rodney Shakespeare is a Cambridge MA, a qualified UK Barrister, a co-founder of the Global Justice Movement www.globaljusticemovement.net, a member of the Christian Council for Monetary Justice. His main website is www.binaryeconomics.net. Shakespeare is also Chair of the Committee Against Torture in Bahrain. More articles by Rodney Shakespeare

Tax dodging is a 'moral issue' that hits those with least, says Christian Aid

Christian Aid has welcomed a House of Commons committee’s report on tax dodging by multinationals, which puts morality at the heart of the tax debate.

The UK-based development agency says the harm the practice of tax avoidance causes to developing countries and poor communities should be seen in the same light.

Parliamentary spending watchdog the Public Accounts Committee highlighted yseterday ( 3 December 2012) how multinationals minimised corporation tax on the profits made in the UK by exploiting national and international tax structures.

The committee said the evidence it heard from multinationals and HM Revenue & Customs about how successful companies "with huge operations" in the UK could pay so little tax "was unconvincing, and in some cases evasive."

Calling for reforms in the way multinationals are allowed to order their finances to minimise tax, the committee said: "there is a moral case on top of the basic economic case that taxation of economic activity should transparently reflect where that activity occurs."

Christian Aid’s senior economic justice adviser Joseph Stead said yesterday: "The report drew welcome attention to the impact of tax dodging by multinationals in the UK, where the picture is bad enough. It is, however, a great deal worse in developing countries."

Tax dodging is a 'moral issue' that hits those with least, says Christian Aidhttp://www.ekklesia.co.uk/node/17531

"Christian Aid estimates that tax dodging by multinationals and other businesses trading across borders in poorer countries which lack the expertise and revenue capacity to fight back costs the exchequers of those countries around US$160bn a year, nearly one and half times what they receive in aid," he continued.

"In recent years the opportunities for companies to be legally compliant while contravening the spirit of the law have proliferated. We are extremely pleased that the committee has agreed that such behaviour, while it might be legal, contravenes the spirit of the law, is immoral and needs to be countered," said the Christian Aid spokesperson.

The report, Mr Stead added, came only weeks after the House of Commons International Development Committee called on the UK to lead the global fight against tax dodging by multinationals in the developing world.

That committee highlighted effective tax collection as vital in helping poor countries escape aid dependency and poverty, and said requiring multinationals to report their accounts on a country-by-country basis would make it easier to spot anomalies.

At present multinationals can hide their activities in particular jurisdictions as they are only required to submit consolidated global accounts, not individual accounts for their subsidiaries.

Mr Stead added: "Chair of the Public Accounts Committee Margaret Hodge called today for multinationals to report their tax practices transparently, and pay an appropriate amount where they make their profits to reflect those profits. The way to make that happen is to introduce country by country reporting.

"In responding last month to the International Development Committee’s report, the Government ignored that key recommendation. We urge it now to abandon that stance.

"The Prime Minister has said that the G8 will address tax and transparency, with these two committees showing how important this is for developed and developing countries alike.

"The G8 needs to fight the secrecy inherent tax havens, which allows tax-dodging multinationals to hide profits away from public scrutiny. We urge the UK to use its influence when chairing the G8 next year to reform the rules that allow tax havens to facilitate tax dodging on a vast scale," he concluded.

IMF Halts Congo Loans Over Failure to Publish Mine Contract

IMF Halts Congo Loans Over Failure to Publish Mine Contract

The International Monetary Fund said it halted the Democratic Republic of Congo’s $532 million, three-year loan program after the government failed to publish details of a 2011 mining deal.

The lender, based in Washington, had asked the government make public the contract for the June 2011 sale by state-owned copper miner Gecamines of its 25 percent in the Comide Sprl copper project to a British Virgin Islands company called Straker International Corp. The government only published notes on the sale, which the IMF deemed insufficient, Oscar Melhado, the IMF’s resident representative in Congo, said in a phone interview today from the capital, Kinshasa.

“We applied the concept of strict conditionality because we believe that transparency in the mining sector is key for the country,” he said. Congo will lose out on three loan disbursements worth a total of about $225 million, he said.

Congo, a Central African nation the size of Western Europe with a population of about 68 million people, is the world’s poorest country with per capita gross domestic product of $349, according to IMF data. The United Nations Development Programme ranked Congo the least-developed country in the world last year and it remains near the bottom of Transparency International’s Corruption Perceptions Index.

Dan Gertler

Eurasian Natural Resources Corp. (ENRC), listed in London, became Comide’s biggest shareholder in 2010, when it purchased 50.5 percent of Camrose Resources Ltd. from Dan Gertler, an Israeli mining investor who still owns part of the project.

Mining began in November 2011 at the site, which has reserves of 10 million metric tons of copper at a grade of 1.77 percent, and total resources of 34.7 million tons of copper with an average grade of 2.02 percent copper and 0.23 percent cobalt, according to ENRC.

Mines Minister Martin Kabwelulu said the government had published all the information the IMF requested about the project and called its decision to halt the loan program “unconsidered.” The Comide deal resolved “old litigation” between Comide’s partners and the government had no part in it, he said in a mobile-phone text message today.

“It’s regrettable that this program was canceled in this manner,” Kabwelulu said.

The funds from the IMF loan were to be used to shore up Congo’s foreign-exchange reserves. Under the terms of its accord with the IMF, the government agreed to publish all contracts related to oil, mining and forestry to improve transparency in its revenue collection from those industries.

Request for Extension

According to the note on the sale published on the Mines Ministry’s website on Nov. 21, Gecamines undertook the Comide deal to resolve “a technical litigation,” the ministries said, without explaining the term. Straker didn’t pay Gecamines for the stake, according to the note.

Gecamines may receive 25 percent in another mining company, Goma Mining Sprl, in return for its shareholding in Comide. As part of the arrangement, Goma Mining took over part of a Comide mining permit as well, according to the note. Goma Mining already has another permit adjacent to Comide.

The note didn’t say who owns Straker International or Goma Mining. ENRC said Goma Mining wasn’t related to Comide, according to a statement e-mailed by the company’s external communications agency Nov. 29.

130 Contracts

Melhado said Congo previously published more than 130 contracts under agreements with the IMF and World Bank. In May 2011, the government also signed a decree requiring that contracts for any cession, sale, or rental of the state’s natural resources to be made public within 60 days of their execution.

Congo had asked the IMF for a sixth-month extension to complete the program, which was set to expire Dec. 10, according to Melhado. The fund denied the request because of the problems with the Comide contract and because it wouldn’t provide enough time to reform Congo’s state-owned companies, he said.

“The extension for six months was not enough for all the reforms that we’d like to support the government to implement, particularly in the domain of reform of key public enterprises, and in particular Gecamines,” he said. “On the side of the IMF we are ready to re-engage immediately if we are requested by the DRC’s government.”

Gecamines’ sale to Straker came to light in May through a copy of Comide’s board minutes obtained by Bloomberg.

To contact the reporter on this story: Michael J. Kavanagh in Goma atmkavanagh9@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.nethttp://www.bloomberg.com/news/2012-12-03/imf-halts-congo-loans-over-failure-to-publish-mine-contract-2-.html

Ernst & Young, Tax Focus Issue 6 | 2012, News and updates across the African continent

Ernst & Young, Tax Focus Issue 6 | 2012, News and updates across the African continent


Dear readers,
The year 2012 has begun with a lot of activity and change in Africa.
Many African countries had a tax year ending 31 December and therefore we have seen a lot of
changes in the tax legislation in Africa. We also continue seeing an increased focus on Africa, with
authors of various publications describing it as a continent abound with natural resources, untapped
markets and more relevant than ever - one of the last frontiers in a stagnating economy.
It is in this milieu that we give you a glance of the current tax landscape across the continent.
We have included recent changes emanating from budget events in Ghana, Zambia and Zimbabwe.
We take a closer look at Seychelles where social security has been replaced with Non-Monetary
Benefits Tax. VAT will also be introduced from July 2012. Another noteworthy change is that
Swaziland has introduced a reverse charge system which commenced on 1 December 2011.
We also gain a better understanding of transfer pricing, policy and mining tax practices on the
continent.
Ernst & Young opened a new office in Cameroon  recently and it is therefore fitting to include an
interesting read on corporate taxation in that country.
We also feature Congo, as we know how many of you are expanding into this country and would find
benefit in examining the practical tax considerations.
Our Nigerian counterparts update us on the need to obtain tax clearance certificates early in the
year and also inform us about the new Financial Reporting Council set up recently.
Shifting our paradigm from the present to the future, we would like to notify our readers of the
upcoming Africa Mobility Conference (AMC) and Africa Tax Conference (ATC) taking place on 6-8
June and 16-19 September respectively in Cape Town.
We look forward to seeing you there. We also encourage you to follow us on twitter at EY_Africa.
Happy reading...
Regards
Natasha Meint

http://www.ey.com/Publication/vwLUAssets/Tax_South_Africa_-_Tax_Focus_issue_6/$FILE/Tax%20focus%20Issue%206%202012%20V1%20email%20version.pdfhttp:/

The billion-dollar question: Where is Angola's oil money?

The billion-dollar question: Where is Angola's oil money?

http://edition.cnn.com/2012/11/28/business/angola-oil-revenues/

(CNN) -- Oil has driven Angola's booming economy over the last decade, helping the resource-rich country emerge from the wreckage of a long, vicious war to become one Africa's major economic players.

One of the biggest producers of black gold in the continent, the southwestern African country has seen its GDP surge by several hundred percent in recent years as the hangover from long conflicts turned into a hunger for profits.

More than 90% of Angola's revenue comes from oil production, but despite its oil wealth, Angola remains largely impoverished.

In Luanda, the vibrant capital of Angola, shiny new boardwalks, luxury properties and an influx of Portuguese expats are all signs of oil money in a city that was last year named as the world's most expensive for expats.

But despite the numerous new developments and Luanda's shiny facade, inequality prevails

Read related: Is oil-rich Angola a development success?

Next to the sleek skyscrapers and luxury apartments, ramshackle shantytowns and crowded slums spread for miles in every direction, housing millions of people living on less than $2 a day.

In many cases, even basic necessities like water and electricity are lacking.

Activists like Elias Isaac say the much-vaunted oil wealth bypasses ordinary people in the country, run by President Jose Eduardo dos Santos since 1979.

"We don't see the money that is being generated from oil having direct impact on people's livelihoods," said Isaac, Angola program manager of the Open Society Initiative for Southern Africa.

"Angola makes a lot of money out of oil, there is no doubt about this," he added. "Angola is one of the few countries that can really pay its national budget without any donor funding, which is great. But where this money goes, that's the biggest issue."

Oil deals are shrouded by confidentiality agreements, making it almost impossible to gauge how much money goes into Sonangol, Angola's state oil company.

In an exclusive interview with CNN, Sebastiao Gaspar Martins, Sonangol's executive manager, admitted that Angola is making "a huge amount" from its oil.

He said Sonangol produces "1.75 million barrels a day, which of course, if we multiply at the end of the year we make billions."

Inside Angola's flagship oil development

When asked about Sonangol's closed books and the flow of industry revenues, Martins was quick to suggest that the oil money is being used for Angola's rebuilding efforts.

Read related: Angola's post-war generation

But advocacy group Human Rights Watch has contended that tens of billions of dollars of oil money has skipped Angola's central bank entirely and disappeared. The International Monetary Fund says Sonangol spends billions off the books.

Isaac said oil revenues have created an enormous slush fund for the country's elite.

And when asked whether the oil money is being stolen, Isaac replied: "To say that it's not being stolen would not be true to the situation, because if the oil money was not being stolen, we could have better social services in this country."

He added: "Someone is taking it."

Critics have also accused Sonangol -- which is both concession-granter and regulator of the industry -- of acting as a way to funnel part of the oil revenues to the political elite.

Martins responded to the criticisms by saying that "most" of Sonangol's revenues "are used to the wealth of our country and our people."

He added: "I would say all, depending on how you interpret it. Because what is our role? We have a production revenue, we put the production revenues on the hands of the minister of finance ... [it] goes through the hands of the government."

The Angolan government denies corruption in the oil sector. And recently, it announced a $5 billion sovereign wealth fund in a bid to diversify its economy, a move welcomed by lenders for its transparency. The state-owned investment fund, known as the Fundo Soberano de Angola, will invest domestically and internationally, focusing on infrastructure development and the hospitality industry.

At the same time, oil companies will soon be opening up new oil fields off Angola and the country hopes to become the largest producer of crude in Africa.

But with a history of corruption and problems of transparency, the biggest challenge will be ensuring that the profits filter down to ordinary Angolans.

Until then, many in the country say that only a tiny sliver of elites will truly benefit from Angola's oil.

The Tax Justice Network's November Taxcast

The Tax Justice Network's November Taxcast
In November's Taxcast: is it the beginning of the end of tax avoidance for multi-national corporations? Some countries fight back. And the Finance Curse - why an oversized finance sector's bad for an economy. A special extended edition.http://taxjustice.blogspot.co.uk/2012/11/the-tax-justice-networks-november.html