Events around the globe to check the tax havens
The Guardian, January 26, 2010
Large companies should reveal how much of their profits they pay in tax to developing nations to show they comply with local corporation tax regimes, Stephen Timms, the Treasury minister, will say tomorrow as part of a three-pronged effort to boost tax revenues in poor countries.
Developing nations must also be given access to secret tax agreements between western governments and other poor nations together with expensive technical support to help them rein in tax-dodging companies, he will tell the first meeting of a high-level tax committee at the Organisation for Economic Co-operation and Development, the Paris-based club for the world's 16 richest nations.
Timms wants the OECD to adopt the measures as part of a wider crackdown on tax avoidance by corporations. "The agenda reflects the concern that developing countries also need to benefit from the new co-operative tax environment the OECD is working towards," he said.
The government estimates that developing nations miss out on £30bn to £180bn in lost tax each year from thousands of western companies that operate across Africa, Asia and South America. The amount of lost tax dwarfs Britain's current aid budget which was £6.3bn last year.
Officials on the International Accounting Standards Board have faced calls to include country-by-country reporting in annual company reports and accounts.
Christian Aid lobbied the IASB in an effort to show how much tax was lost to the exchequers of developing nations when major corporations generated billions of pounds of profits from local manufacturing and mining.
Last year, the IASB agreed to investigate the impact of local tax disclosures on mining and oil companies. But politicians are known to have grown weary of the wrangling on the IASB, which is dominated by investors more concerned with disclosures that demonstrate the effective deployment of shareholder capital. Critics of the IASB also point out that the organisation, which is attempting to draft a set of reporting standards for all listed companies, is funded by banks, investor bodies and accounting firms that want to protect companies from further regulation.
A report by the Task Force on Financial Integrity & Economic Development, a Washington-based thinktank, argued that country-by-country reporting was needed to support developing world nations. "Country-by-country reporting would be of considerable benefit to developing countries by letting tax authorities and other regulatory agencies see just what multi- national corporations located there actually do, how their trade is undertaken and what profits and taxes they declare," it said. It is understood the report proved influential on Treasury thinking before the OECD meeting in Paris.
Last year Gordon Brown, the prime minister, and France's president Nicolas Sarkozy called for wider co-operation among OECD countries on tax-gathering to protect expensive welfare programmes that are funded through tax receipts. British corporation tax receipts were down by a third in 2008/09 on the previous year and are expected to remain low this year.
OECD guidelines are not binding, though the agreement of the 16 nations is seen as giving a strong message to companies. Timms said the efforts of western nations to prevent tax leakage to offshore havens should also benefit poorer nations.
However, one senior accountant, who asked to remain anonymous, said the government was taking potshots at the wrong target. He said most multinationals were keen to avoid double taxation from operating in more than one country and had little to gain from attempting to avoid tax altogether. "Big listed companies are well-known to tax collectors and, by and large, pay the tax due. Obviously there are exceptions. Businesses that avoid most or all of the tax they might otherwise pay are not listed; they are private equity firms, hedge funds and rich individuals based in offshore havens," he said.
UBS
Tax Analysts, January 28, 2010
On the heels of a court ruling that has cast doubt on the future of Switzerland's agreement with the U.S. government to resolve the UBS AG dispute, the Swiss Council on January 27 announced that it may seek parliamentary approval to permit disclosure of the Swiss bank's client data.
On the heels of a court ruling that has cast doubt on the future of Switzerland's agreement with the U.S. government to resolve the UBS AG dispute, the Swiss Council on January 27 announced that it may seek parliamentary approval to permit disclosure of the Swiss bank's client data.
On January 21 the Swiss Federal Administrative Court, in what was considered a pilot case for 25 similar appeals, ruled on an appeal by a U.S. account holder fighting the disclosure of account data under the August 19, 2009, agreement that the U.S. government end its John Doe summons enforcement action in exchange for Switzerland's commitment to process a treaty request for client data using a more expansive interpretation of the term "tax fraud and the like." It was estimated that the new interpretation would result in the disclosure of data on approximately 4,450 UBS clients. (For prior coverage, see Doc 2010-1817 or 2010 TNT 16-2 .)
In its ruling, the court held that the broader interpretation is invalid and that the mere failure to disclose income or to file a W-9 is not sufficient to breach bank secrecy under the information disclosure provisions of the 1996 Switzerland-U.S. income tax treaty.
The ruling puts in doubt 4,200 of the disclosures that were to be made under the agreement, with the remaining 250 involving fraud as defined by Swiss law still subject to disclosure under the information request. The Federal Council warned that the decision puts the entire agreement in jeopardy and could result in the resumption of the U.S. case against UBS if the "problem cannot be resolved through consultations or negotiations."
In its statement, the Federal Council reaffirmed its support for the agreement. "The Swiss Federal Council firmly believes that the ongoing threat of a conflict with the USA over legal and sovereignty matters -- with all of its negative impacts on Switzerland as a center of finance and business -- can be eliminated for good only by executing the UBS Agreement," the council wrote. (For the Swiss Federal Council statement, see Doc 2010-1992 .)
The Federal Council also said that it will open talks with the United States but that it is prepared to ask the Swiss parliament to address the legal issues preventing the disclosures. According to the statement, if negotiations don't successfully resolve the issue, the council could put the August 19 agreement to a vote in the parliament. If approved, the agreement would receive the same legal status as a treaty and its terms would supersede the current treaty.
In a January 27 statement responding to the Federal Council's announcement, the IRS made it clear that it expects the Swiss government to follow through on the agreement.
"The United States has an agreement with the Swiss government to produce information on US account holders at UBS. We expect the Swiss government to continue to honor the terms of the agreement," the IRS said.
Thierry Boitelle, a partner with the Swiss firm Altenburger Attorneys-at-Law, said that the court decision leaves the Federal Council with few options. Its announcement further limits its options by eliminating the possibility of issuing an "urgency resolution."
"The problem with the route now taken by the government is that this will set an important precedent: applying retroactivity to a tax treaty and particularly in the case of information exchange," Boitelle said.
Parliamentary approval would effectively convert the August 19 agreement into a protocol to the Switzerland-U.S. income tax treaty, Boitelle told Tax Analysts. Until now, the Swiss government has tried to avoid treaty provisions with retroactive effect. Should the U.S. receive a retroactive treaty protocol, other jurisdictions such as France, Germany, and Italy would likely seek the same treatment, Boitelle said.
Boitelle foresees a difficult route for parliamentary approval of the agreement, as some members of parliament have already announced their opposition and their intention to call for the issue to be put to a referendum. Should the agreement be put to a referendum, its prospects for survival are unclear.
In an interview with the German-language newspaper Tages-Anzeiger published January 27, UBS President Kaspar Villiger echoed Boitelle's sentiment. By breaking the compromise reached by the parties, Villiger said, the Federal Administrative Court has put the bank and the Swiss government in an "extremely difficult position." Villiger offered his cooperation but said it is up to the government to find a way forward.
"The United States has an agreement with the Swiss government to produce information on US account holders at UBS. We expect the Swiss government to continue to honor the terms of the agreement," the IRS said.
Since the agreement was signed, Switzerland has turned over information in six cases. Those account holders consented, Swiss Justice Ministry spokesman Folco Galli said.
The latest developments reopen a long-running legal and diplomatic battle over UBS, which admitted last year that it defrauded the U.S. government by helping Americans dodge taxes. Under a February "deferred prosecution" agreement, UBS agreed to pay the United States $780 million, and the United States agreed to not pursue a potentially crippling criminal case against the bank -- at least temporarily. The U.S. government later ratcheted up a civil suit against UBS, trying to force it to divulge details about 52,000 accounts that had not been declared to the IRS. The Swiss government said it would block UBS from complying with any such court order.
The two governments reached a compromise in August that called for the Swiss to review 4,450 accounts for potential disclosure. The agreement included no explicit guarantee that at the end of the process Switzerland would turn over the names, but the U.S. government seemed to take that for granted.
"I have every reason to trust the Swiss government and expect that we will get these accounts," IRS Commissioner Douglas Shulman said at the time.
If Switzerland fails to deliver the information, the IRS could resume the civil suit against UBS. What's more, following through on the criminal prosecution of the bank "cannot be excluded," the Swiss Justice spokesman said.
In a statement Wednesday, UBS said it "welcomes the fact that the Swiss Federal Council is pursuing a dialog with the US authorities."
Tax Analysts, January 28, 2010
The Swiss Council, after meeting to discuss a court ruling that has put the future of its agreement with the U.S. government to resolve the UBS dispute in doubt, has announced that it may seek parliamentary approval to permit client data disclosures.
The Swiss Council, after meeting to discuss a court ruling that has put the future of its agreement with the U.S. government to resolve the UBS dispute in doubt, has announced that it may seek parliamentary approval to permit client data disclosures.
In a January 27 statement, the Federal Council reaffirmed its support for the August 19, 2009, agreement that the U.S. government end the enforcement action on its John Doe summons in exchange for Switzerland's commitment to process a treaty request for client data using a more expansive interpretation of the term "tax fraud and the like." The agreement estimated that the new interpretation would result in the disclosure of data on approximately 4,450 UBS clients. (For prior coverage, see Doc 2010-1817 or 2010 WTD 16-1 ; for the Swiss Federal Council statement, see Doc 2010-1992 .)
"The Swiss Federal Council firmly believes that the ongoing threat of a conflict with the USA over legal and sovereignty matters -- with all of its negative impacts on Switzerland as a center of finance and business -- can be eliminated for good only by executing the UBS Agreement," the council wrote.
On January 21 the Swiss Federal Administrative Court, in what was considered a pilot case for 25 similar appeals, ruled on an appeal by a U.S. account holder fighting the disclosure of account data. In its ruling, the court held that the Swiss government's expansive interpretation of the term "tax fraud and the like" was invalid and that the mere failure to disclose income or to file a W-9 was not sufficient to breach bank secrecy under the information disclosure provisions of the 1996 Switzerland-U.S. income tax treaty.
The ruling puts in doubt 4,200 of the disclosures that were to be made under the agreement, with the remaining 250 involving fraud as defined by Swiss law still subject to disclosure under the information request. The Federal Council warned that the decision puts the entire agreement in jeopardy and could result in the resumption of the U.S. case against UBS if the "problem cannot be resolved through consultations or negotiations."
In an interview with the German-language newspaper Tages-Anzeiger published January 27, UBS President Kaspar Villiger said that by breaking the compromise reached by the parties, the Federal Administrative Court has put the bank and the Swiss government in an "extremely difficult position." Villiger offered his cooperation but said it would be up to the government to find a way forward.
In its statement, the Federal Council said that it would open talks with the United States but that it was also prepared to ask the Swiss parliament to address the legal issues preventing the disclosures. According to the council, it could put the August 19 agreement to a vote in the parliament. If approved, the agreement would receive the same legal status as a treaty and its terms would supersede the current treaty.
In a statement responding to the Federal Council's announcement, the IRS made it clear that it expects the Swiss government to follow through on the agreement.
"The United States has an agreement with the Swiss government to produce information on US account holders at UBS. We expect the Swiss government to continue to honor the terms of the agreement," the IRS said in a January 27 statement.
Thierry Boitelle, a partner with the Swiss firm Altenburger Attorneys-at-Law, said that the court decision left the Federal Council with few options but that the January 27 announcement further limits its options by eliminating the possibility of issuing an "urgency resolution."
"The problem with the route now taken by the government is that this will set an important precedent: applying retroactivity to a tax treaty and particularly in the case of information exchange," Boitelle said.
Parliamentary approval would effectively convert the August 19 agreement into a protocol to the Switzerland-U.S. income tax treaty, Boitelle told Tax Analysts, but until now the Swiss government has tried to avoid treaty provisions with retroactive effect. Should the U.S. receive a retroactive treaty protocol, other jurisdictions such as France, Germany, and Italy would likely seek the same treatment, Boitelle said.
Boitelle foresees a difficult route for parliamentary approval of the agreement, as some members of parliament have already announced their opposition and their intention to call for the issue to be put to a referendum. Should the agreement be put to a referendum, its prospects for survival are unclear.
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