USA/Africa: Rising Opposition to Tax Evasion

AfricaFocus Bulletin
February 29, 2016 (160229)
(Reposted from sources cited below)

Editor's Note

"We said we were advising an African minister who had accumulated millions of dollars, and we wanted to buy a Gulfstream Jet, a brownstone and a yacht. We said we needed to get the money into the U.S. without detection. ... the results were shocking; all but one of the the lawyers had suggestions on how to move the funds." Global Witness (see excerpts from report below, as well as link to full report and video documentation)

The global systems of tax evasion (and we should add tax avoidance, for cases in which such illicit maneuvers may be technically legal due to faulty laws and clever lawyers) are pervasive. Africa and other developing regions suffer the most, as highlighted by the Stop the Bleeding Africa campaign. But every country is affected, as resources that could be used the public good are drained into the pockets of the rich and powerful.

Before you read further, go to https://www.youtube.com/watch?v=_nDPKiWSTXI to check out the Stop the Bleeding Africa song, with audio, lyrics, and photos, and distribute widely in your networks. The song is expected to win the best activist anthem award in the Honesty Oscars ( http://www.honestyoscars.org/). Voting is now closed and the announcement will be made tomorrow.

This AfricaFocus contains several press releases and excerpts from recent reports, as well as links to other reports highlighting how the happens, from Nairobi to New York and throughout the global economy.

For previous AfricaFocus Bulletins on tax justice and illicit financial flows, visit http://www.africafocus.org/intro-iff.php

For ongoing coverage of these issues, AfricaFocus strongly recommends https://groups.google.com/forum/#!forum/fact-coalition (primary focus on U.S. policy and advocacy; sign-up requires contacting the owner) and https://groups.google.com/forum/#!forum/afritax (primary focus on Africa; open sign-up)

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Roundup of Recent News & Press Releases

"Treasury keen to evade Parliament in Mauritius tax row," Daily Nation, Nairobi, Feb. 4, 2016 http://tinyurl.com/zm4jtm3 [For background see Tax Justice Network-Africa press release from Nov. 2, 2015 http://tinyurl.com/zsglcd9]

Zambian civil society calls for beneficial ownership transparency in regulations for extractive industry, Publish What You Pay Zambia and Center for Trade Policy and Development, 14 Jan., 2016 http://tinyurl.com/zc44zl8

Former President Thabo Mbeki and delegation from UNECA High Level Panel on Illicit Financial Flow from Africa visit Washington, DC to urge action to curtail illicit flows from Africa See press release from Global Financial Integrity, Feb. 19, 2016 http://tinyurl.com/zwmn75a

Americans for Tax Fairness, "Pfizer: Price Gouger, Tax Dodger" Feb. 25, 2016 - on how Pfizer's "inversion" (selling itself to a foreign subsidiary) may allow it to dodge some $35 billion in taxes. Note that such inversions have been denounced by both Democratic candidates for president.
http://tinyurl.com/j29dzzu

Global Financial Integrity (GFI) update on illicit financial flows, covering 2004-2013 http://tinyurl.com/gq66oy6 - includes latest estimate of IFF from sub-Saharan Africa $74.6 billion in 2013; average of $67.5 billion a year over the 10-year period.

[Note from AfricaFocus editor: These numbers are estimates, and almost certainly underestimates, as both GFI and the Mbeki report acknowledge. But for those of you using figures from earlier reports such as "in excess of $50 billion to $60 billion a year," it's now time to update the numbers and start talking about at least $65 billion to $70 billion.]

Lowering The Bar: How American Lawyers Told Us How to Funnel Suspect Funds into The United States

Global Witness

January 2016

https://www.globalwitness.org/shadyinc/

Brief excerpts only. For videos and full report go to the link above.

Global Witness has previously looked at a whole range of crimes, and found they all had one thing in common. They were all carried out by anonymous company owners, who are able to skirt U.S. laws and launder money through our financial system. If these sham companies did not exist, those crimes would be far harder to commit.

Anonymous companies do great damage to society. Warlords and dictators use them to steal from their people and stash the loot in places like the U.S. A violent Mexican drug cartel called the Zetas used American companies to launder its profits. The Iranian government has used them to evade sanctions. Credit card scammers, mobsters, tax evaders and other criminals routinely use them to rip off innocent citizens or threaten U.S. interests and get away with it.

The crazy thing is, these companies are often set up in the U.S. - it is one of the easiest places in the world to do this legally.

To prove our point, we went undercover and approached 13 New York law firms. We deliberately posed as someone designed to raise red flags for money laundering.

We said we were advising an African minister who had accumulated millions of dollars, and we wanted to buy a Gulfstream Jet, a brownstone and a yacht. We said we needed to get the money into the U.S. without detection.

To be clear, the meetings with the lawyers were all preliminary. None of the law firms took our investigator on as a client, and no money was moved.

Nonetheless, the results were shocking; all but one of the the lawyers had suggestions on how to move the funds. To see what some of them said, watch the video below https://www.youtube.com/watch?v=j8pgI60GrvU

...

he key findings from the investigation are:

Lawyers from 12 of the 13 firms we visited suggested using anonymous companies or trusts to hide the minister's assets. All but one of these firms recommended using American companies.

One of the lawyers who provided suggestions on how to move the funds was James Silkenat, the President of the American Bar Association at the time.

Several lawyers suggested using their law firms' own bank accounts to help prevent U.S. banks realizing whose money it really was, or to have the lawyer act as a trustee of an offshore trust and use this position to open a bank account.

While most of the lawyers asked for some information about the minister, and his source of funds, only one lawyer refused to provide assistance during the meeting itself.

A number, including Mr. Silkenat, indicated they would need to carry out more checks before they could take our investigator on as a client. Mr. Silkenat also indicated that he had to make sure that no crimes had been committed and, if so, would have to report them.

None of the lawyers broke the law. To find out more about the investigation, including the responses we received from the lawyers featured read our briefing paper.

...

Ultimately, this is not about individual lawyers - it's about what is wrong with the law. The tactics described in the film are commonplace. It is simply too easy to hide who you you are and what you are doing behind companies.

This has to change. You can help fix this problem, and help cut off some of today's worst crimes at the source.

...

This is what is needed to fix the problem:

• The U.S. should put information about who ultimately owns and controls American companies into the public domain for all to see. At present, the lack of information available on the people behind American companies is a gift to individuals who want to use them to hide their identity and move their loot.
• The people who set up companies and trusts - lawyers, accountants and company service providers - should be required to be on the lookout for money laundering. At present none of these people are required to carry out anti-money laundering checks on their customers. They should be, especially when they are carrying out activities such as setting up companies and managing clients' money.

Mistreated: How shady tax treaties are fuelling inequality and poverty

ActionAid International

February 23, 2016

http://www.actionaid.org - direct URL: http://tinyurl.com/zwlyynl

For more information, contact Savior Mwambwa, Tax Power Campaign Manager, in Johannesburg. Email: savior.mwambwa@actionaid.org

Executive Summary

Women and girls in the world's poorest countries need good schools and hospitals. To pay for this, these countries urgently need more tax revenue. A little-known mechanism by which countries lose corporate tax revenue is a global network of binding tax treaties between countries. This report marks the release of the ActionAid tax treaties dataset - original research that makes these tax deals made with some of the world's poorest countries easily comparable and open to public scrutiny.

Tax avoidance strategies used by some multinational corporations deprive the world's most impoverished communities of vital revenues. Tax revenue is one of the most important, sustainable and predictable sources of public finance there is. It is a crucial part of the journey towards a world free from poverty - funding lasting improvements in public services such as health and education. The communities that ActionAid works with around the world are demanding increased public funds to promote development - particularly for the realisation of women and girls' human rights.

Tax treaties - agreements between countries that carve up tax rights - play a facilitating role in many of these tax avoidance schemes. Tax treaties have played a part in most well-known cases of aggressive tax planning, such as in Google's and Amazon's tax schemes. Many of the tax treaties that ActionAid has scrutinised are ensuring that money flows untaxed from poor to rich countries, making the world more unequal and exacerbating poverty.

Tax treaties have so far received little public scrutiny - but this is changing. ActionAid has commissioned original research that makes the content of more than 500 binding treaties signed by lower-income countries (those classified as low and lower-middle income by the World Bank) in Asia and sub-Saharan Africa available to the public and open to scrutiny for the first time. These important tax agreements decide when, how and even if some of the world's poorest countries can tax foreign-owned corporations that are making money within their borders.

Global corporations use tax treaties to limit their tax contributions in the lower-income countries where they generate profits. Tax treaties that aggressively lower tax contributions in lower-income countries are harming revenue collection in these countries and the rights of the world's most vulnerable people. They have no place in the 21st century. The era of outdated and unscrutinised tax treaties that create opportunities for multinational tax avoidance must come to an end. It's time to ensure that all investors pay their fair share and put an end to aggressively lowered taxes and double non-taxation on investment income.

Developing countries lose billions

Bangladesh is losing approximately US$85 million every year from just one clause in its tax treaties that severely restricts its right to tax dividends. With an annual total health expenditure of approximately US$25 per capita, remedying this alone could pay for health services for 3.4 million people.

In 2004, Uganda signed a tax treaty with the Netherlands that completely takes away Uganda's right to tax certain earnings paid to owners of Ugandan corporations, if the owners are resident in the Netherlands. A decade later, as much as half of Uganda's foreign investment is owned from the Netherlands, at least on paper. The result of the current treaty is lost tax revenue in Uganda, which could have paid for essential public services for the Ugandan people.

...

ActionAid has identified the most restrictive treaties

All tax treaties restrict the right to levy tax, but some treaties take away far more tax power than others. The ActionAid tax treaties dataset shows that the overall number of tax rights that lowerincome countries give up varies widely from treaty to treaty. ActionAid's new research identifies the treaties that remove more tax rights than most - which we call very restrictive treaties. It finds that the United Kingdom and Italy are tied as the countries with the largest number of very restrictive treaties with lowerincome Asian and sub-Saharan African countries, followed by Germany. China, Kuwait and Mauritius also have a rapidly growing number of very restrictive treaties with some of the world's poorest countries.

Treaties that lower-income countries have with OECD countries (a club of rich, industrialised countries) take away more rights to tax than those with non-OECD countries. Worryingly, the deals struck with OECD countries are getting worse over time.

Tax treaties with tax havens such as Mauritius can come at a particularly high cost. Money is often routed through tax havens as part of tax avoidance strategies that rely on tax cuts contained in treaties signed by those havens.

...

Tax treaties limit poor countries the most

ActionAid is deeply concerned that the balance of tax rights created by tax treaties is not fair. In practice, the taxing restrictions within tax treaties impose an unfair burden on lower-income countries compared to wealthier countries. While both parties to a tax treaty give up some tax rights, the dominant model treaty squeezes the tax rights of the capital-importing (lower-income) country more than the capital-exporting (wealthier) country.

In 2015-16, the OECD, the European Parliament and the European Commission have acknowledged that the balance of tax rights in tax treaties is a problem for developing countries.

Some treaties result in multinational corporations not paying certain types of taxes either in the lower-income country where they operate, or in the country where they are based, so called double non-taxation. This practice cuts urgently needed tax contributions in some of the world's poorest communities. Uganda's tax deal with the Netherlands blocks Uganda from taxing income that investors bring home from Uganda and the income is routinely not taxed in the Netherlands either. These investors enjoy double non-taxation while Uganda misses out on vital tax contributions.

Political action is needed

Tax treaties are voluntary; they can be renegotiated and cancelled. Rwanda's successful renegotiation with Mauritius in 2013 is a strong example, and included five important triumphs that re-established Rwanda's rights to tax construction sites, business services, interest and royalty payments. Mr Moses Kaggwa, Commissioner for tax policy at the Ugandan Ministry of Finance, Planning and Economic Development said in 2014: "We have stopped negotiations of any new agreement until we have a policy in place that will not only offer guidelines but give clear priorities of what our interests and objectives are."

Lower-income countries should not sign bad tax deals with other governments that take away their taxing power. Wealthier countries can act to align the rules of their tax treaties with development objectives.

ActionAid is calling for governments to:

• Urgently reconsider the treaties that restrict the tax rights of low and lower-middle income countries most.
• Subject treaty negotiation, ratification and impact assessments to far greater public scrutiny.
• Take a pro-development approach to the negotiation of tax treaties by adopting the UN model tax treaty as the minimum standard.

ActionAid is calling for multinational corporations to:

• Be transparent about their interactions with developing country governments regarding treaty terms and refrain from lobbying governments to conclude tax treaties that are particularly advantageous to their own business interests, but of limited or unclear benefit to the developing country concerned.

OECD invites developing countries to join anti-tax avoidance plan, but only after the rules have been written

The OECD's plan to open BEPS system after it has already been designed highlights the need for a truly universal tax body

February 23, 2016

Financial Transparency Coalition (http://www.financialtransparency.org)

Ahead of this week's G20 Finance Ministers meeting, the Organization for Economic Cooperation and Development announced plans to invite non-member countries to join in its anti-tax avoidance system ( http://tinyurl.com/j7o8vdf). The Base Erosion and Profit Shifting (BEPS) project aims to tackle the problem of corporate tax dodging. Although the invitation for inclusion comes as the global discussion about tax dodging reaches new heights, the bones of the plan have been in place for years, leaving no room for substantive input.

"Inclusion after the fact is a poor substitute for a voice in how the standards are designed," said Oriana Suárez of the Latin American Network on Debt, Development, and Rights. "Developing countries now being invited into the BEPS system did not have a say while the rules were being set."

"The OECD is certainly one part of the global fight against tax evasion and tax avoidance, but it's not well-positioned to be the sole standard bearer for the globe," added Porter McConnell of the Financial Transparency Coalition. "Having its members speak on behalf of the rest of the world's countries is patronizing and it's ultimately ineffective."

"Again, we're seeing an attempt by the OECD to get global buy-in for a system that was designed by the few," said Alvin Mosioma of the Tax Justice Network-Africa. "G77, a group of 134 developing countries, have for years been demanding a stronger voice and a true seat at the table, but the latest OECD proposal fails to respond to this demand."

"The frustrating reality is that we've already seen proposals to create an inclusive intergovernmental UN body for setting global standards, but it has repeatedly been blocked by the same OECD countries that are asking others to join their system," added Pooja Rangaprasad of the Financial Transparency Coalition. "Despite the latest announcement by the OECD, a UN body continues to be the most effective and inclusive global solution."

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Notes to Editors:

[1] The OECD proposal will be presented to G20 Finance Ministers at their next meeting on 26-27 February in Shanghai, China.

[2] The issue of a UN tax body was subject of negotiations at the 3rd Financing for Development Conference in Addis Ababa, Ethiopia in July 2015 (http://tinyurl.com/h3969sd).

[3] The BEPS Project, agreed to by G20 Leaders at the 2015 G20 Summit in Turkey, aims to tackle corporate tax avoidance and tax evasion. The plan was developed by members of the Organization for Economic Cooperation and Development, a group of 34 wealthy countries.

Contact: Christian Freymeyer , Financial Transparency Coalition +1.410.490.6850 cfreymeyer@financialtransparency.org

Tax Reform Should Close Offshore Loopholes, End Tax Haven Abuse

February 24, 2016

FACT Coalition Submits Comments to House Ways and Means Committee Ahead of International Tax Reform Hearing

http://www.thefactcoalition.org / direct URL: http://tinyurl.com/hpnc2hl

Washington, D.C. - Ahead of a planned hearing on international tax reform, the FACT (Financial Accountability and Corporate Transparency) Coalition today submitted comments to the U.S. House Committee on Ways and Means urging lawmakers to focus reform efforts on closing offshore loopholes and ending tax haven abuse.

"Offshore loopholes and tax haven abuse cost U.S. taxpayers $150 billion per year," said Clark Gascoigne, Interim Director of the FACT Coalition, upon submitting the comments to the Committee. "It's an enormous amount of lost revenue that must instead be shouldered by small businesses, domestic corporations, and ordinary individuals."

"At the same time, tax haven abuse facilitates the outflow of trillions of dollars from developing countries—exacerbating global poverty and inequality and increasing our national security risks," continued Mr. Gascoigne. "It's high time that Congress reform our tax code to close these loopholes—protecting the most vulnerable among us and evening the playing field for domestic businesses to compete fairly with multinational corporations. We hope that the Committee chooses to move in this direction."

The FACT Coalition's submission to the Ways and Means Committee—which is co-signed by 12 of the coalition's members—specifically highlights a number of issues, including:

• How the tax code is riddled with loopholes inserted by special interests resulting in the ability for large, multinational corporations to shift their tax responsibilities to small businesses and average taxpayers.
• How companies use the current system of deferral to indefinitely put off paying taxes until the profits are "brought back" to the U.S.
• The practices of inversions and earnings stripping, where a domestic company purchases a foreign firm that's usually much smaller and reincorporates overseas in a low or no tax jurisdiction. The company then loads down the domestic entity with so much debt as to obviate any potential tax payments.
• How Congress should avoid embracing changes to the tax code that provide false "solutions" like a shift to a territorial tax system or proposals to create patent or innovation boxes.

The Coalition proposes policy solutions along the lines of the Stop Tax Haven Abuse Act (S. 174, H.R. 297), the Stop Corporate Inversions Act (S. 198, H.R. 415), and ending the ability of multinational corporations to indefinitely defer paying taxes on offshore profits.

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Notes to Editors:

Download a PDF of the FACT Coalition's submission ( http://tinyurl.com/gskfqqz).

Full signatories of the submission include: American Sustainable Business Council, Americans for Tax Fairness, Citizens for Tax Justice, FACT Coalition, Fair Share, Global Financial Integrity, Jubilee USA Network, Main Street Alliance, New Rules for Global Finance, Oxfam America, Public Citizen, Tax Justice Network USA, and U.S. Public Interest Research Group (PIRG).

Learn more about the hearing on the website of the House Ways and Means Committee (http://tinyurl.com/gskfqqz).

Journalist Contact: Clark Gascoigne, FACT Coalition cgascoigne@thefactcoalition.org +1 202.813.0290

AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

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