WebJournal on International Taxation in Sweden, WITS, (no 8/2012 November)
25 October 2012
Dear
Robert,
As
you may recall, but it is a long while ago, I recommended that you
and the PSC should put international tax information exchange on the
agenda for an IFA congress. Not that I am suggesting that this
had any decisive influence but I am of course delighted that this
topic now has been chosen as a subject for next year's meeting in
Copenhagen.
I
think we can all agree that information exchange and the worldwide
rampant tax evasion it is trying to reverse is one of the most
pressing issues today in international taxation. The amounts of
capital and the income thereon which today is being hidden in the
multitude of secrecy jurisdictions around the world is now of
unbelievable and mindboggling proportions. Recent studies, see at
www.taxjustice.net
, estimate
that high net wealth individuals held between 21-32 trillion dollars
in offshore unreported accounts at the end of 2010. This sum is
equivalent to the size of the United States and Japanese economies
combined. A moderate rate of return of 3% hereon these sums subjected to
an income tax at 30% would generate income tax revenues of 190
– 280 billion dollars roughly twice the amount of what OECD
countries spend on all overseas assistance around the world.
Inheritance, capital gains and other taxes would boost this figure
considerably. The top 10 private banks, which include UBS and Credit
Suisse in Switzerland, as well as the US investment bank Goldman
Sachs, managed more than 12.1 trillion dollars 2010 in cross-border
invested assets for private clients at the end of 2010 a sharp rise
from 5.4 trillion in 2005. In Sweden the tax authorities, in an
official report (Skattefelskarta för Sverige, Rapport 2008:1), have
estimated the non-reported foreign holdings by Swedish residents at
500-600 billion SEK. The Confederation of Swedish Enterprise'
estimate is 900 billion SEK. If this latter figure is correct it
would mean that each and every Swedish resident would have a foreign
secret bank account of 100 000 SEK! About 75 000 swedes are suspected
of having bank accounts in Switzerland.
It
also turns out that this offshore sector which specializes in tax
dodging is basically designed and operated not by shady no-name banks
located in sultry islands but by the world's largest private banks,
law firms and accounting firms headquartered in First World capitals
like New York, London and Geneva. A
detailed analysis shows that many of these banks are the very same
ones that have figured so prominently in government bailouts and
other recent financial chicanery.
And
when at the same time debtridden countries around the world are
standing on the brink of economic disaster and where ordinary
citizens and loyal tax payers facing widespread redundancy are borne
down by ever growing tax bills and other charges and where secrecy
jurisdiction practices are giving rise to outright poverty in many
third world countries, it is shameful and completely unacceptable
that – and let the rhetoric be very clear in this respect – a
number of criminals in Sweden and around the world do not shoulder
their part of the tax burden for the common good of our societies. It
is also frustrating, that when everything is being done to promote
free trade, open markets and international investment opportunities,
so many states are throwing wrenches into the machinery to prevent
effective measures for information disclosure and transparancy in
these matters.
A
lot has been achieved regarding information exchange by the G 20
states and their executive arm The Global Forum of the OECD in the
last couple of years. Most importantly is the doing away with bank
secrecy which has been a formidable obstacle to information exchange.
But, as many agree, the bar has been set to low by the Global Forum
in prescribing information exchange only on request as the
internationally agreed standard and disallowing fishing expeditions.
The goal must be, as has been decided within the EU, to impose
automatic exchange in tax information exchange agreements. Only this
can have effect on the behaviour of all the tax criminals we are
dealing with.
IFA
consists of a body of the world's most experienced and influential
tax experts and tax policy makers and thus commands a strong voice
in international taxation affairs. Therefore the purpose of
the congress must be to suggest proposals to enhance the
effectiveness of information exchange and all
measures that can be considered that will counteract the enormous tax
evasion and other criminal activities we are witnessing today.
I
have recently read the final directives by the general reporter Mr.
Xavier Oberson1
to be observed by the national reporters to next year's congress and
I have recently also attended the annual meeting of the Swedish IFA
branch to discuss the draft Swedish national report. And this has
raised some doubts in my mind of what will be the scope and shape of
the subject and its treatment at the congress. The directives have
thus been limited to a rather technical investigation of the
interpretation of information exchange agreements at the national
level with particular emphasis on the limitations of their
application including such aspects of procedural guarantees and
taxpayers' protection under the European Convention of Human Rights
and the International Covenant on Civil and Political Rights. I am
not suggesting that such aspects are unimportant but they are not of
such general interest as to merit a full IFA congress treatment
thereof. The national reports may well serve as a comparative
study/handbook for achademic purposes of the application of
information exchange agreements but for the congress itself it is
more important to set these agreements into their socio-economic
context, which I have outlined above, underlining the urgency in
these matters and, as already mentioned above, suggesting proactive
measures of all kinds to stem the tsunami of tax evasion following
from the use of secrecy jurisdictions.
It
could thus be worthwhile exploring what other methods beside
information exchange, that have been been adopted unilatterally by
governments and tax administrations to obtain information about
hidden assets around the world? In the US, I am told, there is a
whistle-blower program where anyone that reports evidence that leads
to the disclosure of tax evasion will be compensated from the tax
collected thereof. In the U.K. the tax administration is using
special internet spiders that can sift vast amounts of information -
like tracing a property owner from foreign tax authority data to
match with information about property to let on holiday web sites.The
experiences of various offshore voluntary disclosure programs could
be worth while discussing. In Sweden the tax administration has had
some success checking credit cards geared to foreign bank holdings.
And with regard again to information exchange agreements, what's
wrong with a fishing expedition providing it is sensibly construed
and paid for by the requesting state? And why should, by the way,
always the requested state that has no fiscal interest in the matter,
bear the costs for its efforts to provide information? It would make
more sense that the requesting state should foot the bill and - why
not - to share some of the tax collected from the information
provided with the requested state! In this regard one should also
consider, especially between high tax and secrecy jurisdictions, that
requests for information will allways be running a 'one way street'
meaning that the low tax secrecy jurisdiction will constantly be the
requested state. Other secrecy barriers such as nominee shares etc.
could be dealt with. Further lines of thought to follow up to
improve tax payer compliance could be to increase tax penalties and
jail sentences on international tax evasion and to lengten the
periods of limitations for such criminal acts.
In
his final directives Mr. Oberson has, it shall be admitted, raised an
interesting issue of a tax policy nature regarding information
exchange (which, considering his nationality, is not surprising).
Namely the approach taken by Switzerland in agreements with the U.K.
ad Germany where a withholding tax is levied on certain incomes
deriving from holdings by U.K. and German residents instead of
exchange of information and disclosure of the client's identity. The
lump sum of the withholding tax thus collected is subsequently passed
on to the first mentioned countries. This approach has been heavily
contested by other states which could make this issue interesting to
debate at the congress.
In
summary I am thus suggesting that the discussion that will take place
in Copenhagen on this subject should not limit the scope thereof to
only the application of information agreements but to include also
all conceivable aspects and proposals that can counteract the tax
evasion that results from the use of secrecy jurisdictions.
The
congress in itself offers an exellent opportunity to rouse public
opinion in these matters and to inform about the vast amounts of tax
revenue which is at stake. All efforts should be made and all
opportunities taken to raise public opinion against tax evasion of
the kind the congress is facing. (It is thus not helpful when the
chief economist of the Skandinaviska Enskilda Banken Klas Eklund a
wellknown public figure, in his book a couple of years ago ”The
chase for the vanishing taxes” describes his bank clients who
loyally declare their foreign assets in their Swedish tax returns as
being naive.)
As
you may have gleaned from the above I have a passionate interest in
exchange of information matters and other aspects of counteracting
international tax evasion something about which I have recently also
posted my thoughts on my blog (in Swedish). My interest and knowledge
in these matters, I would humbly suggest, is such that I would
appreciate being considered to participate in the discussion panel in
Copenhagen. If you also put an IFA member representing the banking
community from Switzerland on the panel I believe we can look forward
to a lively debate!
As
I have a lot of IFA friends around the world who are 'subscribers' to
my ”WebJournal on International Taxation in Sweden” (including
yourself), which may have an interest in my views about the upcoming
congress I intend to post this letter on my blog in the near future.
I am also copying it to Mr. Anders Erasmie who is chairman of the
board of Swedish IFA.
Best
regards
Peter
30 October 2012
| Peter -
Thank you for your note. Good to hear from you. The subject for the Copenhagen congress is meant to broadly consider exchange of information and related matters. The branch reports, and the directives, are meant to elicit national practices rather than commentary or personal views. Therefore they could not easily accommodate many of your issues. However I assume that some of these questions will come up in the panel discussion at the Congress. That depends largely on the approach taken by the chair and the general reporter, in consultation with the PSC. The composition of the panel has not yet been finalized. Our process is to develop a long list of persons proposed and choose from that list in trying to achieve balanced overall representation (not just on this panel but all the panels) taking into account professional backgrounds, regions, countries, etc. While we can put your name on the list as a "volunteer" that is somewhat unusual. Generally, the names are proposed by PSC members or the various branches. Perhaps you should consider asking the Swedish branch to propose you. This should be done soon as the panel will be settled shortly. Regards, Robert Couzin Chair, Permanent Scientific Committee International Fiscal Association |
1Partner
Oberson Avocats, Geneva, member of the PSC of IFAand author of
several recent articles on bank secrecy, tax fraud and international
exchange of tax information.
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