Tag Archives: tax havens

Why Russian Oligarchs Will Be First to Leave Their Offshore Paradise (Op-ed)

The Paradise Papers could help Putin’s efforts to return capital onshore

The release of the Paradise Papers has highlighted a well-known and unpleasant fact: The rich and powerful have a tendency to hide their wealth offshore, away from the public eye.

Tax havens unite people of different molds into a single caste — from dictators to democrats, and prime ministers to queens. They also don’t discriminate between Americans or Angolans — status is more important than nationality. And they stretch across political divides, from liberal democrats to conservatives.

Continue reading Why Russian Oligarchs Will Be First to Leave Their Offshore Paradise (Op-ed)

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G20 governments agree to crackdown on tax avoidance

Governments have thrown their weight behind sweeping rules to crack down on corporate tax avoidance, including steps to increase transparency, close loopholes and limit the use of tax havens.

However, countries could not agree on the design of a measure aimed at curbing unfair competition for patent income, which is widely viewed as contributing to the problem of tax avoidance.

Four countries – thought to be the UK, Luxembourg, the Netherlands and Spain – disagreed with 40 other states over how to stop governments poaching other countries’ tax revenues by offering reduced rates on the income generated by intellectual property.

 

These “patent box” schemes include Britain’s flagship tax break for intellectual property, forecast to cost nearly £1bn a year.

The rules unveiled ahead of this week’s G20 meeting of finance ministers in Australia are the first concrete result of a concerted push to stop the aggressive corporate tax planning that caused widespread public outrage in the wake of the financial crisis.

Pascal Saint-Amans, the top tax official at the Organisation for Economic Co-operation and Development which is overseeing the clampdown on “base erosion and profit shifting” said:

“The ambition of the G20 leaders has not been watered down in spite of the difficulties of the exercise. The only area where consensus has not been reached is one part of harmful tax competition.”

The bid to crack down on patent boxes follows fears they would lead to a “race to the bottom” and poach revenue from other countries. Germany last year described them as being at odds with the “European spirit”.

The UK and other opponents of this plan argue that the proposal, which would stop companies claiming the tax break if they outsource research to other parts of their group, breaches European law. They pushed for an alternative approach but this was rejected.

The rest of the measures – tackling opacity, arbitrage and treaty abuse – have been agreed by 44 countries representing 90 per cent of the world’s economy.

In the highest profile of the new rules, multinationals will be forced to reveal to tax authorities where they make their money and pay their taxes, in a bid to expose corporations shifting profits to low tax countries.

Another far-reaching measure lays out new standards designed to put an end to the abuse of tax treaties through treaty “shopping”. The move is likely to force multinationals to disband “letterbox” companies – with no real activities – that are used to route profits through countries such as the Netherlands and Luxembourg to take advantage of favourable tax treaties.

The measures also include a concerted attack on “hybrid” structures, widely-used schemes that rely on arbitrage to minimise tax bills by exploiting differences between countries’ tax rules.

The OECD also published on Tuesday a detailed report on how to tax digital companies. It ruled out specific measures on the grounds that the pervasive nature of internet technology made it impossible to ring fence the industry.

But the report said that the problems in taxing digital companies would be addressed by broader-brush measures that are due to be unveiled next year, along with new recommendations on value added tax.

Mr Saint-Amans said the crackdown on base erosion and profit shifting (Beps) had already started to have an impact. He said: “A large number of companies are reflecting on how to restructure their schemes to comply with Beps.”

Businesses have been broadly supportive of the initiative so long as it creates greater certainty and reduces the risk of an escalation of disputes. But some fear that the proposals will lead to ambiguities and open the door to double taxation.

The political momentum behind the G20-led crackdown remains strong but there are still concerns that countries will break ranks by acting unilaterally. John Wonfor, head of tax at BDO, an international advisory group said:

“I am very concerned we are entering turbulent times. Countries have tendency to cherry pick what they are like and not to take what they don’t like.”

The final and biggest part of the project is set to be completed next year but most of the rules will not come into force until they are translated into domestic law and tax treaties.

A proposal to implement the treaty changes with a single multilateral agreement has been judged feasible by governments. The US is heavily involved in the Beps project but tax experts think it is likely to make changes to its tax rules only in the context of wider corporate tax reform.