The tax lobbyists scored a few points in Europe this week when they succeeded in getting their brief into the hands of Dirk van der Maelen, a Belgian socialist and member of The Parliamentary Association of the Council of Europe (PACE).
Incidentally, PACE should not be confused with the European Parliament, but anyway, the essence of Mr van der Maelen’s report, which appears to be heavily based on the work of the Tax Justice Network and Tax Research, is that his fellow parliamentarians have a ‘moral duty’ to tackle what is described as ‘massive tax avoidance, evasion and fraud’ which he claims is facilitated by ‘secrecy jurisdictions, tax havens and offshore financial centres.’
So what actual evidence does he offer? Report highlights follow in red italics with my comments following;-
“Globally, 69% of speculative hedge funds were located in tax havens in 2007.”
So called tax havens are typically international financial centres that offer tax neutral platforms that allow the efficient pooling of international investment capital. It should be no surprise that such centres were, and remain, attractive for this type of business. The broader implication, of course, is that these centres and the funds they are home to were somehow at the root of the global financial crisis that followed, thus conveniently ignoring the mountain of evidence to the contrary, which points to a host of complex and interrelated issues ranging from inadequate regulation in the world’s biggest financial centres to over-borrowing on a grand scale at a Sovereign level.
“On tax havens and illicit financial flows, in 2005 the World Bank endorsed a global financial integrity study showing that illicit financial flows across borders ranged between $1 trillion and $1.6 trillion a year.”
While name-dropping the World Bank lends weight, what the report fails to acknowledge is that Global Financial Integrity is a lookalike lobbying organization in the US with strong links to TJN and Tax Research. It is not an academic institution and is headed by Raymond Baker, author of ‘Capitalism’s Achilles Heel and someone who is clearly anti-globalisation, anti-capitalism and shares a high taxation and wealth redistribution bent – hardly an objective source.
“Tax havens have been relevant to major corporate scandals such as Enron, Parmalat, Lehman Brothers, AIG and Northern Rock to mention just a few.”
A connection is promoted between failed organisations and small international finance centres or to use the pejorative label favoured by the tax lobbyists, 'tax havens'.
Interestingly Northern Rock's securitisation vehicle was domiciled in Jersey. However, the report fails to mention that its operations were examined by the UK inquiry into Northern Rock and no issues were raised. The vehicle prospectuses were advertised publicly in the UK and the vehicle was accepted as 100% transparent by the authorities.
The result of this debate included the following in a draft resolution from PACE:
"A study by Tax Research UK shows that the United Kingdom loses at least £18 billion a year in tax revenue as a result of activity related to tax havens; this sum is four times greater than the cost of eliminating child poverty in the United Kingdom."
Yet again the source quoted is Tax Research UK, so with a figure of £18 billion a year, what does the UK government, advised by the Treasury and HMRC, have to say about this so-called research?
David Gauke MP, Exchequer Secretary to the Treasury responsible for tax has specifically commented on this piece of tax lobbying work and had this to say:
“It must be accepted that in preparing estimates, organisations external to Government have access to much less data than HMRC…
…The Tax Research estimate of tax debt is… a snapshot figure of all tax owed to HMRC… which does not represent the actual losses to the Exchequer from non-payment. Almost all tax owed to HMRC is eventually paid, sometimes within days of becoming due…
…A proportion of debts outstanding are in staged repayment plans, such as those covered by the business payment support service. Only the tax debt written off as uncollectable by HMRC is an actual loss to the Exchequer from debt. That is therefore the amount that HMRC uses in its estimate of the tax gap, which in the 2007-08 tax gap figures was £3 billion…”
It is clear that after extensive examination, the Treasury and HMRC who have a clear motivation to collect as much tax as they reasonably can, regard the Tax Research UK work as inaccurate and exaggerated.
So what can we conclude? Well, on the positive side, the PACE resolution is not binding and is on a subject matter out with the remit of the Council of Europe. The reality is that this is political maneuvering inspired and fuelled by the tax lobbyists.
I wonder what the vote outcome would have been if there had been a real debate with a balanced presentation of real facts?