Across the world, tax havens are under attack. Leading global organizations like the G20 and OECD have put cracking down on offshore tax avoidance at the top of their agendas. Ambitious plans for automatic sharing of tax data between countries are in the works.
But as ICIJ noted this week, reports of the demise of offshore tax havens have often been greatly exaggerated. Highly touted clampdowns in 2000 and 2009 yielded few results. In the last five years, two French presidents have vowed to wipe tax havens off the map entirely, but so far no one has come close to dealing a coup de grâce.
The resilience of offshore tax havens is not merely a result of clever financial tricks. Offshore havens and tax avoidance have influential defenders who have lobbied hard to maintain the status quo. Many of the world’s biggest corporations, accounting firms and law firms are pushing back against the latest efforts to curb the use of offshore.
Much of the lobbying is not done by corporations themselves, but by little-known business associations that represent them. Google, General Electric and Mitsubishi may be household names, but the U.S. Council for International Business and Japan Foreign Trade Council draw little attention from the public. “They want to have these arguments made on their behalf by others, because they have been in the spotlight and under fire for these things,” Nicholas Shaxson, the author of Treasure Islands, a book critical of offshore secrecy, said of the corporations that belong to these lobby groups.
ICIJ has consulted experts, reviewed media coverage and examined the comments made on proposed offshore reforms by the OECD in order to identify the groups that are standing in the way of the current round of offshore financial reforms. This roundup is far from complete, and we will update it based on news developments and suggestions from our readers.
Here is our rundown of nine of the groups resisting reforms to offshore finance:
· U.S. National Foreign Trade Council
The National Foreign Trade Council represents over 300 companies, and its Board of Directors includes Google, General Electric, JP Morgan Chase and Exxon Mobil. When the OECD outlined a package of reforms to prevent corporate tax avoidance, the Council took aim at a proposal to require companies to allocate their profits based on economic activity in each country. (Companies often prefer to allocate profits to low-tax offshore jurisdictions.) The Council questioned the "premise that the profits of a multinational enterprise ought to be allocated across jurisdictions in proportion to employees or tangible assets," according to Reuters.
This week, the Council voiced opposition to a U.S. proposal by Sen. Max Baucus that would reduce the overall corporate tax rate but close loopholes that allowed businesses to keep their profits offshore. It vowed to help shape the bill to better reflect its interests. "We are disappointed in the draft and look forward to a robust discussion with the Senate Finance Committee as the tax reform process continues," the council said.
· The Big 4 accounting firms
When the OECD presented its plan to prevent corporations from shifting profits offshore, it got an earful from each of the Big 4 accounting firms: Deloitte, KPMG, EY and PriceWaterhouseCoopers. The Big 4 said that they supported efforts to improve the global tax system in principle, but all expressed concerns about the how the reforms would work in practice. Some of their greatest objections were to proposals that would give national tax authorities greater powers to compel information on a global corporation’s overall activities, including those outside their borders.
“We are concerned by the comment in paragraph 61 that ‘it is therefore essential that the tax administration’s power to compel production of information during the course of an audit extend beyond the country’s borders,’” wrote PriceWaterhouseCoopers.
Reformers say this information is necessary to prevent abuse of tax havens, which operate by funneling money and assets across national borders.
· The International Financial Centers Forum
Update: Last week, ICIJ reported on a paper by the offshore services company Offshore Incorporations Limited (OIL) that considered how the industry should respond to negative publicity from ICIJ’s Offshore Leaks investigation. OIL’s conclusion was that more lobbying and public relations were the most important solutions, and that offshore financial centers should unite behind a single lobby group. OIL suggested that the International Financial Center Forum was the strongest candidate to assume this leadership role – and ICIJ will be keeping a close watch on its activities during the months to come.
The IFC Forum is a membership organization for businesses that operate in British offshore territories such as the British Virgin Islands, the Cayman Islands and Guernsey. As the UK has taken a leading role in the global crackdown on offshore financial secrecy, this group has tried to put the brakes on efforts to toughen standards for British territories, said Robert Palmer of Global Witness, an advocacy group that campaigns against offshore abuses. The IFC Forum is concerned about a plan to publicly list the flesh-and-blood owners of all UK shell corporations. UK Prime Minister David Cameron recently decided to approve the plan over the group’s objections, but its requirements did not extend to British overseas territories.
“A unilateral move to engage in centralised collection of beneficial ownership data – and particularly to make such data public – would damage UK competitive interests,” wrote the IFC Forum.
· U.S. Chamber of Commerce
The Chamber of Commerce is the U.S.’s largest and most vocal business lobby, and it hasn’t been shy about making its voice heard on proposals to crack down on offshore finance. In 2011, Sen. Carl Levin proposed legislation to identify real owners of companies in the U.S., where states such as Delaware and Nevada have become financial secrecy centers on par with any Caribbean paradise. The Chamber objected that any such law would hit “every form of business, particularly small businesses, with new, costly and complex regulatory burdens.”
The Chamber spoke out again this week against the proposal by Sen. Baucus to reduce corporate tax rates but close offshore loopholes (the same bill opposed by the U.S. National Foreign Trade Council). The proposed changes would “increase complexity and move our antiquated tax system even further from international norms,” Bruce Jostens, the Chamber’s top lobbyist, said.
· Japan Foreign Trade Council
The Japan Foreign Trade Council is a trade group made up of leading Japanese companies such as Toyota, Mitsubishi and Mitsui. It has raised its concerns about the OECD’s plan to combat offshore profit shifting by multinational corporations. Like the Big 4, they objected to proposals to grant tax authorities the power to compel information on activities outside their borders and for multinational companies to disclose information about their overall global business.
“We believe that it is not always helpful for tax administrations to obtain the overall information of the multinational enterprise for their understanding of the individual business,” the council wrote. It added later in its comments: “We believe that, as a general rule, a tax administration’s rights under a tax audit should be effective only within that tax jurisdiction.”
· U.S. Council for International Business
The U.S. Council for International Business includes dozens of the world’s most powerful corporations, including Google, Coca-Cola, Apple and Citigroup. In its comments on the OECD’s offshore reform package, it objected sharply to a proposal requiring countries to report economic activities on country-by-country basis, instead of the common current practice of reporting by region or by continent. It said disclosing these activities could compromise confidential business information and that compliance would be costly and burdensome. "Because of these concerns, we suggest that the OECD ought to consider alternatives to country-by-country reporting," William Sample, the chair of the Council’s Taxation Committee, wrote.
Shaxson argues that since tax authorities are national in scope, it is impossible for them to enforce the law without country-level data. “A tax authority basically can’t work out what a multinational is up to unless they get this information,” he said.
· Swiss Bankers Association (suggested by reader Nicholas Shaxson, @nickshaxson)
The Swiss Bankers Association is a professional organization that promotes the interests of Swiss banks. It has long defended the secrecy that its members are famous for providing, and was a bulwark of opposition to proposals for automatic exchange of tax data between national authorities. Earlier this year, as the momentum for automatic data exchanges grew and the idea was eventually adopted by the G20, the association seemed to relax its position. “[We] came to the conclusion at the end of March that we should no longer categorically reject an automatic exchange of information," Patrick Odier, the Swiss Banking Association’s chairman, said in May. "But it should be introduced globally."
Shaxson, the author and critic of financial secrecy, was skeptical. He argued in a blog post that Odier’s sentence about requiring a global solution was by far the more significant one. “In other words, we won't do anything until everyone else has,” Shaxson interpreted. “This is the classic 'level playing field argument' that we at Tax Justice Network have seen time and time again, as justification for inaction.”
· Center for Freedom and Prosperity (suggested by Citizens for Tax Justice, @taxjustice)
The Center for Freedom and Prosperity is a U.S. nonprofit group that lobbies in support of unfettered free markets. It is a strong opponent of legislation that cracks down on offshore tax havens, such as the Foreign Account Tax Compliance Act (FATCA), a 2010 law that requires American citizens and foreign financial institutions that serve them to report Americans’ overseas assets to the IRS. “In addition to the unjustified and unconstitutional invasion of the privacy of millions of Americans suspected of no wrongdoing, the practical consequences of the law include a growing refusal of many financial institutions to accept American clients or invest in the U.S. economy,” argued a letter to the Senate this June, in which the Center and other groups called for FATCA to be repealed.
The Center has also spearheaded the recent creation of an alliance called the Coalition for Tax Competition. The Coalition’s webpage lists 38 members, which include influential conservative advocacy groups such as the American Legislative Exchange Council, The Club for Growth and The Heritage Foundation. “The OECD not only is trying to bully ‘tax havens’ into raising their tax rates and eliminating financial privacy, but also asserts the right to interfere with American tax laws,” says the Coalition’s webpage. “Sovereign nations should be able to determine their own tax policies.”
· British overseas territories and dependencies
While the IFC Forum represents businesses in British overseas territories, the governments of these islands have been beefing up their own lobbying. As The Bureau of Investigative Journalism reported last April, the governments of the Cayman Islands, Bermuda, Jersey and Guernsey have all hired lobbying and public relations firms to counter British efforts to crack down on financial secrecy.
When it comes to lobbying London on tax havens, the way to go is apparently to hire an English lord. The Cayman Islands hired Lord Blencathra, also known as David Maclean, to lobby in England and the European Union to ward off attacks on ‘tax neutral jurisdictions.’ The government of Guernsey, for its part, hired the PR firm Grayling of the Huntsworth Group. The Huntsworth Group’s Chief Executive is the Lord Chadlington, also known as Peter Gummer.
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