How to stop the Panama Papers & clean up tax havens

With greater mobility comes greater promise and greater potential for dodgy dealing. None of these off shore tax haven systems are new. What is newish is speed at which transactions and structures can be “managed” for good or for the few. The beneficiaries are the usual suspects

We need more transparency and global rules need to protect nations against breaches of trust but instead we get TTP and TTIP which if they are both ratified will make it easier for ratbags, robber barons and common garden criminals to hide the loot and not pay taxes anywhere. And the worst part is that NZ tax laws around trusts facilitate that.

There are any number of legal justifications for such behaviour but it is really all just a variation of “looking the other way” when profits are moved through shell companies to evade tax. That is sophistry and while it might be technically permissable it is clearly not morally defensible.

This is of course exactly how the large multinationals pay almost no tax in New Zealand despite booking more than $10b of revenue from the top 20. See Top multinationals pay almost no tax in New Zealand by Matt Nippert.

“Dunne, who is now Internal Affairs Minister, said the focus needed to be on international solutions, negotiated as part of free trade agreements and focused on businesses paying their fair share of tax in each of the countries that they operate.

“The problem is becoming more and more urgent and needs to be at the centre of work by organisations such as the OECD.”

 
This statement by Dunne is only a few weeks ago and betrays no awareness or even understanding of the problem. It is precisely the same faulty logic that allows tax shifting manipulation on an enormous scale. It is the NZ tax rules around trusts that allow some of this that has led to other “tax haven” behaviour around the world.

Fast forward a couple of weeks and then this happened > Panama Papers – The Secrets of Dirty Money

The same crappy accounting an legal rules that allow multinational companies to not be good citizens and not pay their fair share are the same rule that also allows the #PanamaPapers to happen. For goodness sake – the good guys here are the multinationals making $10b and then not paying taxes. What do you think the bad guys are doing?

So is New Zealand a tax haven? Last week the PM said no. But the experts say otherwise. In Panama Papers: Leak leaves stain on New Zealand’s name

“But according to University of Auckland tax law specialist Michael Littlewood, New Zealand “plainly” fits his definition of one.

“Every Government in the world denies it is a tax haven,” he told the Weekend Herald.

“If you define ‘tax haven’ in a contrived fashion, it’s easy to come up with the conclusion that New Zealand is not a tax haven.

“For practical purposes, the useful definition of ‘tax haven’ is a country that allows itself to be used by non-residents to avoid the tax they’d otherwise have to pay in their home country. On that definition New Zealand is plainly a tax haven,” he said.

New Zealand’s treatment of foreign trusts seemed to be the only instance where the country was “right out of step with OECD norms”.

“It appears to be the case that New Zealand is the only one that neither taxes the income nor requires any meaningful disclosure,” he said.

A “tax haven” was also what New Zealand was called by accountant Geoffrey Taylor, whose GT Group was linked to more than 1000 shell companies in this country.

One of those companies, Auckland-based SP Trading, caused an international scandal in 2009 after it was linked to a plane seized in Thailand carrying 35 tonnes of North Korean weapons.”

 

What to do about this? If only someone could think of some way to stop accountants and lawyers enabling multinationals and crooks to stop taking advantage of nation states tax systems?

So what does the NZ government do? We appoint an independent tax expert. Just announced. NZ foreign trusts to be reviewed by independent

“New Zealand’s foreign trust laws will be reviewed by an independent expert after a back-down by Prime Minister John Key amidst continuing fallout from the “Panama papers”.

The review will be headed by highly regarded tax expert John Shewan, the former head of PricewaterhouseCoopers and a past member of the Tax Working Group.”

 

Except that this independent tax expert is anything but independent. Back in 2009 John Shewan was advising Westpas bank on how to not pay the $918m that it owed at the time. Westpac owes $918m tax bill says High Court In that case Shewan may have been doing his job but you could argue he was caught red handed trying to help Westpac evade hundreds of millions of tax that was owing.

“The IRD introduced evidence in the Westpac case quoting PricewaterhouseCoopers chairman John Shewan advising the bank earlier this decade that it should try to declare a tax rate close to that of its competitors, and that actual tax paid should be at least 6 per cent, compared to the corporate tax rate of 30 per cent.”

 
Appointing a tax expert like Shewan is like putting a fox in charge of the chickens. Unless the New Zealand public wise up we will all continue to be victims of unethical behaviour by both multinationals and dodgy trusts as in the Panama Papers example.

What does Thomas Piketty think about this?

Panama Papers: Act now. Don’t wait for another crisis Thomas Piketty says “Financial secrecy represents a huge threat to the fragile global system, and we won’t solve the problem by politely asking tax havens to stop behaving badly”

 
…..

“If four countries, France, Germany, Italy and Spain, who together account for over 75% of the GDP and the population in the eurozone put forward a new treaty based on democracy and fiscal justice, with as a strong measure the adoption of a common tax system for large corporations, then the other countries would be forced to follow them. If they did not do so they would not be in compliance with the improvement in transparency which public opinions have been demanding for years and would be open to sanctions.

There is still a complete lack of transparency as far as private assets held in tax havens are concerned. In many areas of the world, the biggest fortunes have continued to grow since 2008 much more quickly than the size of the economy, partly because they pay less tax than the others.”

 
What can be done? Well Obama managed to stop the tax inversion of Pfizer so maybe there is some hope.

We Stopped Pfizer’s Tax Dodge, Now Let’s End the Buybacks