I was asked to join the panel on Global Capital Flows and Taxation at the second Gateway Dialogue hosted by the Gateway House with the Ministry of External Affairs of the Government of India as the key sponsor. I spent three days in Mumbai on account of that. Just returned this morning. It was a very well attended event. Met some very interesting people and made some good acquaintances.
In the process of preparing for this panel discussion, I learnt a lot. Hence, I am grateful for the opportunity. The judgement by the Supreme Court on the tax demand made by the Indian tax authorities in 2012 prompted China to come out with their own circular no. 698 which they amended in 2015 through ‘Announcement 7. Read the Deloitte briefing on that here. The original appears to be well drafted. Otherwise, the English translation won’t be clear. It appears that the Chinese government had well anticipated the tangle that Indian tax authorities got into recently with their proposal to tax sale and purchase of Indian stocks between two foreign funds. I am not even sure if I got it correct. It was that complicated.
Unlike India which got socked in the eye for its retrospective amendment, China cleverly wrote that past cases that had not been adjudicated or resolved would be subject to the new anti-avoidance rules. Very neat. Retrospective and yet, not. Much to learn.
This article by the European Network on Debt and Development is a good read. The issues are familiar. Big boys making the rules and thrusting them down on smaller ones. There is also the issue of the rules being made inapplicable if you are ‘one of them’:
The EU blacklist will only include ‘third countries’, i.e. not EU Member States. Furthermore, countries that are found to be cooperative with the EU will be exempted, despite the fact that these countries might still be acting as tax havens towards, for example, developing countries. (European Commission, (2016). Communication from the Commission to the European Parliament and the Council on an External Strategy
for Effective Taxation. http://eur-lex.europa.eu/legal-content/EN/ TXT/?qid=1454056581340&uri=COM:2016:24:FIN)
This is footnote no. 2 in the aforementioned paper.
At the same time, there is also the usual problem of the hypocrisy of the developed nations. Cue Jeffrey Sachs to point that out:
Jeff Sachs said: “Tax havens do not just happen. The British Virgin Islands did not become a tax and secrecy haven through its own efforts. These havens are the deliberate choice of major governments, especially the United Kingdom and the United States, in partnership with major financial, accounting, and legal institutions that move the money.
“The abuses are not only shocking, but staring us directly in the face. We didn’t need the Panama Papers to know that global tax corruption through the havens is rampant, but we can say that this abusive global system needs to be brought to a rapid end.
That is what is meant by good governance under the global commitment to sustainable development.” [Link]
These observations lead us straight into the work of the Tax Justice Network and their secrecy index of different tax jurisdictions. Dubai, Singapore, UK and the US are all there – high on one or some or all indicators that facilitate secrecy, avoidance and even evasion in some cases.
This is the remark on the USA:
Tax Haven USA remains wide open, at both the Federal and the state levels. [Link]
On the financial secrecy index ,US scores 60 and Singapore scores 69. The report released in September 2015 are quite critical of Singapore. It said that Singapore had not signed the Common Reporting Standard agreement.
But, Singapore has become a signatory to the Common Reporting Standard facilitating automatic exchange of information between sovereigns on respective countries’ nationals holding assets and receiving incomes in other countries, with effect from 1st January 2017. The United Kingdom scored 41 and the UAE scored 77. The higher the number, the more damning the reputation as a ‘tax haven’. Apparently, OECD has stopped referring to them as tax havens but as offshore financial centres.
This article is interesting for its analysis of how Tax Justice Network has succeeded in its work in persuading policymakers. It is not just a typical activist-NGO. It has suffused its moral claims with expert competence. Somehow, I felt that the article failed to tease out the relevant lessons from the success of TJN for other civil society organisations and for policymakers too. May be, it is my problem.
Few institutions came together and produced an interesting report in December 2015 titled, ‘Financial Flows and Tax Havens Combining to Limit the Lives of Billions of People’. The institutions were the Centre for Applied Research, Norwegian School of Economics
Global Financial Integrity, Jawaharlal Nehru University, Instituto de Estudos Socioeconômicos and Nigerian Institute of Social and Economic Research. It is a useful report. I had only cursorily glanced through it. It is full of useful data. But, before one used it, one should spend some time understanding and accepting their methodologies. I have not done that.
So, as you can see, it has been a great learning curve for me.
Overall, my sense is that warts and wrinkles notwithstanding, sovereigns have made progress in limiting and getting a grip on tax avoidance and tax evasion. But, they have come a long way forward from the starting block.