Amid another leak of documents revealing large-scale international tax avoidance, the secretary-general of the Organisation for Economic Co-operation and Development (OECD) said Monday that tax avoidance was fast becoming a thing of the past. “When we’re talking about the ‘Panama Papers’ or ‘Paradise Papers’we’re talking about a legacy that is fast disappearing,” Angel Gurria said. Speaking at the Confederation of British Industry (CBI) conference in London, Gurria said governments were working hard to stop tax avoidance and evasion.
Tax avoidance is allegedly a ‘legacy issue,’ OECD’s Angel Gurria says
Gurria was Speaking at the Confederation of British Industry (CBI) conference in London
He said governments were working hard to stop tax avoidance and evasion
U.K. Prime Minister Theresa May said her government is continuing to work against tax evasion
CNBC.com
Photographer | Collection | Getty Images
Amid another leak of documents revealing large-scale international tax avoidance, the secretary-general of the Organisation for Economic Co-operation and Development (OECD) said Monday that tax avoidance was fast becoming a thing of the past.
“When we’re talking about the ‘Panama Papers’ or ‘Paradise Papers’we’re talking about a legacy that is fast disappearing,” Angel Gurria said.
Speaking at the Confederation of British Industry (CBI) conference in London, Gurria said governments were working hard to stop tax avoidance and evasion.
“When we talk about ‘Double Irish’ or ‘Double Dutch’ (tax avoidance schemes) we’re talking about structures which are no longer there,” she said, adding: “This will not be repeated because of the work you and your governments and the OECD have done in the last few years.”
“There is quite literally no place to hide,” he said, noting that 50 countries had implemented automatic information exchanges regarding tax and that more nations were planning to do the same.
Gurria’s comments come after a leak of millions of documents revealing large-scale tax avoidance by high-profile individuals and companies via offshore financial services companies. The latest tax avoidance leak has been dubbed the “Paradise Papers” and comes after a similar leak in 2016 called the “Panama Papers” that showed how a Panamanian law firm allegedly helped its clients to avoid taxes by using offshore tax havens.
Speaking at the same business conference on Monday, U.K. Prime Minister Theresa May said that her government had continued the work against tax evasion that her predecessor David Cameron had begun.
“He started this work, not only in the U.K. economy but on an international stage. So we have seen more revenues coming into HMRC (the U.K.’s tax-collecting department) over the last few years, with £160 billion extra since 2010,” she said.
More work was being done to ensure “greater transparency” in the U.K.’s dependencies and British overseas territories, May said, and HMRC was already able to access more information about so-called “shell” companies.
“We want people to pay the tax that is due,” she said. That sentiment was echoed by the leader of the opposition Labour party, Jeremy Corbyn, who said that society was “undermined” by anyone that did not pay the tax they owed.
Today’s long-expected announcement that the European Union has assessed that Apple owes €13 Billion ($14.5 Billion) in back taxes to Ireland and the EU, is only one part of a much larger story of multinational corporations global tax jurisdiction and tax avoidance, and a looming fight between the EU and US over which one gets the €13 Billion. There is not much disagreement whether Apple actually owes the money. It also reopens the as yet unresolved matter of multinational corporate taxation, most recently exposed by Pfizer’s announcement that it would move its HQ to Ireland to avoid U.S. taxation, which was later blocked by the U.S. government.
Apple is facing a major corporate crisis as public opinion is focused on corporate greed
Ireland operating like a “rogue state”
Today’s long-expected announcement that the European Union has assessed that Apple owes €13 Billion ($14.5 Billion) in back taxes to Ireland and the EU, is only one part of a much larger story of multinational corporations global tax jurisdiction and tax avoidance, and a looming fight between the EU and US over which one gets the €13 Billion. There is not much disagreement whether Apple actually owes the money. It also reopens the as yet unresolved matter of multinational corporate taxation, most recently exposed by Pfizer’s announcement that it would move its HQ to Ireland to avoid U.S. taxation, which was later blocked by the U.S. government.
The problem with this is that Ireland has become a focal point for global corporate tax evasion by numerous foreign corporations. Ireland has suffered through a cycle of boom and bust, culminating in the 2008 global financial meltdown, which left Ireland’s economy in shambles. The upshot is that since that time, Ireland has become the poster child for tax evasion schemes, which has led to numerous EU investigations of Ireland’s tax laws. Ironically, it also led KPMG Canada to establish its own similar scheme in The Isle of Man, now under investigation by the CRA.
The bottom line is that this could not be happening at a worse time for Apple. The company is very likely facing a major corporate black-eye, at a time when public opinion is focused on corporate greed, income inequality and the decline of the middle class.
The opening salvo in a much larger global issue
“U.S. companies are the grand-masters of tax avoidance. I see it (U.S. objections to the EU ruling) as the United States digging in its heels, that it is protecting its corporate champions when in fact it’s claim jumping on what is really European income,” said Edward D. Kleinbard, professor at the Gould School of Law at the University of Southern California and a former chief of staff to the congressional Joint Committee on Taxation.
Margrethe Vestager, European Union Commissioner on Competition
The EU charges against Apple:
Apple’s effective European tax rate was 1% on sales of 16 billion euros or more per year.
It sank as low as 0.005% in 2014.
Apple created a head office that did not exist: “This ‘head office’ had no operating capacity to handle and manage the distribution business, or any other substantive business for that matter … The ‘head office’ did not have any employees or own premises.”
The pact deprived other European countries of billions of euros in unpaid taxes.
Reblogged from The New York Times:
Apple Must Pay Billions for Tax Breaks in Ireland, E.U. Orders
Europe’s antitrust enforcer ordered Ireland to collect billions in back taxes from Apple, a move that will ramp up trans-Atlantic tensions over what global companies pay in the countries where they do business.
The decision, part of a broader crackdown on tax avoidance by the European Union commissioner for competition, slammed Ireland for providing illegal incentives that allowed Apple to cut its tax bill in the region to virtually nothing some years. The clawback of taxes — 13 billion euros, or about $14.5 billion, plus interest — is a record penalty by the union for such activities.
The ruling adds to a strained relationship between the United States and the European Union over who has the right to regulate tax payments by some of the world’s largest companies.
But American officials have warned that the commission is overstepping its power given that taxes are typically left to national governments to oversee and that European officials should not retroactively issue penalties in past tax rulings. They also emphasized that such cases undermine continuing efforts to overhaul global policies and create measures to curtail tax avoidance.
“U.S. companies are the grandmasters of tax avoidance,” said Edward D. Kleinbard, professor at the Gould School of Law at the University of Southern California and a former chief of staff to the congressional Joint Committee on Taxation.
“Nevertheless, because of the nature of U.S. politics,” he said, the Apple case “will be framed by the U.S. as Europe overreaching and discriminating against ‘our team.’ ”
Since early this year, Ms. Vestager and Jacob J. Lew, the United States Treasury secretary, and their teams have met regularly to discuss Europe’s state-aid tax investigations. Mr. Lew visited Brussels in July to put forward the American perspective.
EUROPEBy E.B.S. VIA ASSOCIATED PRESS1:01Apple to Pay $14.5 Billion in Back Taxes
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Apple to Pay $14.5 Billion in Back Taxes
On Tuesday, Europe’s antitrust enforcer ordered Ireland to claw back billions from Apple over illegal tax breaks.
By E.B.S. VIA ASSOCIATED PRESS on Publish DateAugust 30, 2016.Photo by Andrew Testa for The New York Times. Watch in Times Video »
Just last week, the Treasury Department released a report criticizing any efforts to claw back taxes from American companies. The document repeatedly claimed that the European Commission did not have the right to undertake the clawbacks and that they could harm America’s efforts to collect taxes from domestic companies with vast international operations.
“That outcome is deeply troubling as it would effectively constitute a transfer of revenue to the E.U. from the U.S. government and its taxpayers,” Robert B. Stack, a senior Treasury official, said in the report.
The European Commission denies these claims, saying that it is relying on a history of using state-aid rules related to corporate tax issues. The Brussels-based agency also says that it has the right to act when certain companies are provided with an unfair advantage — either through tax breaks or other incentives — and that Apple’s operations are based in Ireland, therefore falling under its jurisdiction.
“No rules have been changed — not one rule,” Ms. Vestager said at a news conference in Brussels on Tuesday. “This is a question of paying unpaid taxes.”
In the Apple case, the antitrust commission said that the deals with Ireland allowed the company to allocate profits from two Irish subsidiaries to a “head office,” but that it could not have generated such profits since it had few operations and little distribution or substantive business.
By doing so, the commission said that Apple could effectively lower its tax rate on European profit to just 0.005 percent in 2014. Ms. Vestager said at a news conference on Tuesday that amounted to roughly €50 for every €1 million in Apple’s European profit.
“The so-called head office had no employees, no premises, no real activities,” Ms. Vestager said.
Apple defends its tax practices, saying it follows the law and pays all of its taxes.
“The commission’s case is not about how much Apple pays in taxes, it’s about which government collects the money,” the company said in a statement. “It will have a profound and harmful effect on investment and job creation in Europe.”
Ireland has broadly faced scrutiny for its tax strategies to attract large multinationals.
Its corporate tax rate, at 12.5 percent, is one of the lowest in the developed world. Other incentives and breaks allow companies to cut their bill even further. While it is phasing out some of the more contentious loopholes, Ireland just introduced a new break for revenues on intellectual property, a potentially huge benefit to large technology companies with troves of patents.
How Europe Is Going After Apple, Google and Other U.S. Tech Giants
The biggest American tech companies face intensifying scrutiny by European regulators, with — pressure that could potentially curb their sizable profits in the region and affect how they operate around the world.
The United States has a complicated view on Apple’s dealings in Ireland. The European inquiry was spurred in 2013 when a United States Senate committee said that Apple had negotiated a special corporate tax rate of 2 percent or less in Ireland.
The Treasury has also taken steps to curtail so-called inversions, in which an American company buys an overseas counterpart and shifts its headquarters overseas to lower its taxes. Ireland, with its low corporate tax rate, has been an especially big beneficiary of such deals, which helpedplump up the country’s economy last year.
Ireland stands by its approach to taxes, saying it did not give preferential treatment to Apple or other companies. The country’s Finance Ministry, in a statement, said that the commission’s decision would undermine continuing global tax overhaul and create uncertainty for business in Europe.
The finance minister, Michael Noonan, said he would move to appeal the Apple decision, adding it was “necessary to defend the integrity of our tax system.”
“It is important that we send a strong message that Ireland remains an attractive and stable location of choice for substantive investment,” he said.
Apple also said it would look to overturn the decision, although any appeals process could take years.
“The European Commission has launched an effort to rewrite Apple’s history in Europe, ignore Ireland’s tax laws and upend the international tax system in the process,” the company said in a statement.
The commission said the amount due in Ireland could be lowered if the American authorities decided that Apple should have paid more tax in the United States.
The commission also said that other countries in the European Union could take a share of the money if Apple conducted more taxable business in those nations than the company had previously declared. That could reduce the amount Ireland collects and give additional revenue to other countries.
Apple is also expected to have to pay interest on the €13 billion, but the commission did not disclose how much that would be.
Pfizer’s announcement this week of its intricate $160 Billion merger/acquisition with Irish pharmaceutical company Allergan, revealed that Pfizer will be moving the new corporate headquarters to Dublin. Essentially, Pfizer, the much larger company, is providing a bridging loan to Allergan to purchase Pfizer so that it may move to Ireland. This enables Pfizer to avoid paying U.S. taxes, even after receiving massive support for R&D from U.S. government programs.
Pfizer CEO Ian Read
Pfizer’s announcement this week of its intricate $160 Billion merger/acquisition with Irish pharmaceutical company Allergan, revealed that Pfizer will be moving the new corporate headquarters to Dublin. Essentially, Pfizer, the much larger company, is providing a bridging loan to Allergan to purchase Pfizer so that it may move to Ireland. This enables Pfizer to avoid paying U.S. taxes, even after receiving massive support for R&D from U.S. government programs. Pfizer CEO, Ian Read, has deflected questioning about the apparent tax avoidance scheme by simply saying that the price of the deal would have been different had Pfizer bought Allergan and remained in New York. Needless to say, the reaction to this has been swift and harsh from many quarters.
Colorfully named offshore tax avoidance strategies like the “Dutch Sandwich” and the “Double Irish” have been superseded by wholesale corporate uprooting and transplantation in foreign jurisdictions. Ireland is particularly notable for its favorable tax treatment of foreign companies, which has attracted the attention of the EU and U.S. tax authorities. Burger King’s merger with Tim Horton’s and corporate move to Canada is a recent case. KPMG Canada’s Isle of Man scheme, while designed for high wealth individuals, is another example. The Pfizer/Allergan merger is a barely disguised form of corporate tax evasion that is for the moment legal, and evidence of the return of a Gilded Age of corporate excess and plutocracy. It is a social and political issue of the highest order, not to mention business ethics.
Included here is today’s editorial from the New York Times.
Pfizer’s Big Breakthrough: Global Tax Avoidance
The $160 billion deal to combine Pfizer and Allergan, the maker of Botox, does not appear to be illegal. But it should be. This merger is a tax-dodging maneuver that enriches shareholders and executives while shortchanging the public and robbing the Treasury of money that would pay for a host of government programs — including education, scientific research and other services that also benefit corporations.
Pfizer, with a market value of nearly $200 billion, will be acquired by the smaller Allergan, which is run from New Jersey but technically headquartered in Ireland. This will allow Pfizer, which is based in New York, to pass itself off as Irish as well. Once the paper shuffling is complete, much if not most of Pfizer’s earnings — including those that are made in the United States — will be taxed at global tax rates that are generally lower than American tax rates.
In recent years, dozens of American companies have used similar tactics, known as inversions, to reincorporate in Ireland, Britain and other countries with lower corporate tax rates than those in the United States — at a cost to the Treasury conservatively estimated at $20 billion over 10 years. Pfizer’s merger is by far the largest such move.
But if it’s a loss for taxpayers, it’s a great deal for Pfizer. As with other companies that have “inverted,” the only thing it has to lose is its tax obligations. Inverted companies almost invariably keep their headquarters and top executives in the United States. They remain listed on United States-based stock exchanges, where they raise capital under the protection of American securities’ laws. The newly combined Pfizer Inc. and Allergan P.L.C., for instance, will be renamed Pfizer P.L.C. and trade under the ticker symbol PFE, Pfizer’s current symbol, on the New York Stock Exchange, according to The Wall Street Journal.
In addition, inverted companies continue to enjoy the protection of patent laws in the United States, as well as their connections, official and unofficial, with federal research agencies — all of which are crucial to drug-company profits. Contrary to popular belief, much high-risk, pathbreaking research and development can be traced not to the big drug companies but to taxpayer-funded research at the National Institutes of Health.
Traditionally, corporate taxation was a way to repay the public for benefits companies received from federal support. But in recent decades, corporate taxes as a share of federal revenue have shriveled. Inversions will only worsen that trend, effectively bolstering corporate profits at the expense of the public.
Pfizer executives, and the executives of inverted companies, don’t put it that way. They say they cannot remain competitive if they have to pay tax on profits at the relatively high United States top rate of 35 percent.
That claim does not stand up. American multinationals routinely take advantage of write-offs that reduce the top rate to a much lower level. Moreover, even an inverted company is supposed to pay tax on earnings generated in the United States at American rates. But by having a foreign parent company in one country — Ireland in this case — while remaining headquartered in the United States, a company can lower its tax bill through an accounting gimmick known as “earnings stripping,” in which profits from the United States are shifted to the foreign parent in the lower-taxed country, thus reducing the American tax bill.
It is not hard to write legislation and draw up rules outlawing inversions, and bills currently in Congress could put a stop to them quickly. What is lacking is political will to tell powerful corporate interests to stop. The Treasury Department under President Obama has issued rules to curb the practice. But the Pfizer and Allergan hookup is expected to get around these constraints. The administration could do more, but even more aggressive executive action would not be as effective as robust legislation.
Reincorporating abroad is a sophisticated variation on the old practice of avoiding corporate taxes by renting a post office box in the Caribbean and calling it corporate headquarters. Congress put a stop to those tactics in 2004. It is past time to shut down inversions as well.
Canada is routinely cited as a boring backwater in financial services that has none of the scandals plaguing the rest of the industry. But in an extraordinary investigative report on The National, CBC’s Ian Hanomansing revealed an ongoing Canada Revenue Agency investigation, and a looming criminal investigation into KPMG Canada’s Isle of Man tax “haven” scheme reserved for its wealthiest clients. The report names names. Current Canadian government ministers are also implicated in apparent conflicts of interest.
Canada is routinely cited as a boring backwater in financial services that has none of the scandals plaguing the rest of the industry. But in an extraordinary investigative report on The National, CBC’s Ian Hanomansing revealed an ongoing Canada Revenue Agency investigation, and a looming criminal investigation into KPMG Canada’s Isle of Man tax “haven” scheme reserved for its wealthiest clients. The report names names, one particular Vancouver Island KPMG client family, and shady shell companies. Current Canadian government ministers are also implicated in apparent conflicts of interest. I was particularly struck by the similarity of the KPMG Canada scheme to similar tax evasion schemes in both the European Union and the United States which have been the subject of criminal investigations, admissions of guilt, and substantial fines. Of particular note is the UBS tax evasion scheme which has led Swiss and U.S. authorities to prosecute senior UBS executives. The key similarity between the Swiss tax evasion fraud, and the Canadian KPMG situation is the attempt to stand on professional-client privilege, essentially secrecy.
It is the refusal of KPMG, backed by CPA, to reveal client information in the government inquiry. In the case of the Swiss, this defense collapsed ignominiously and led to the wave of prosecutions of Swiss financial institutions, the closure of at least one Swiss banking institution, and the end of Swiss banking secrecy.
IMHO, blatant and flagrant tax evasion by high worth individuals and corporations have reached an epidemic level. Colorfully named offshore tax avoidance strategies like the “Dutch Sandwich” and the “Double Irish” have been superseded by wholesale corporate uprooting and transplantation in foreign jurisdictions. Ireland is particularly notable for its favorable tax treatment of foreign companies, which has attracted the attention of the EU and U.S. tax authorities. Burger King’s merger with Tim Horton’s and establishing corporate headquarters in Canada is only a more recent case. KPMG Canada’s Isle of Man scheme, while designed for high wealth individuals, is another example. The Pfizer/Allergan merger is the latest barely disguised form of corporate tax evasion that is for the moment legal, and evidence of the return of a Gilded Age of corporate excess and plutocracy. It is a social and political issue of the highest order, not to mention business ethics.
A larger question now looms. Which other Canadian firms and financial institutions may have similar tax evasion schemes?
KPMG tax ‘sham’ could lead to criminal investigation, experts say
CBC News travels to Isle of Man to find denials, secrecy around alleged ‘sham’ company
By Harvey Cashore, Dave Seglins and Frederic Zalac, CBC NewsPosted: Sep 10, 2015 5:50 PM ET Last Updated: Sep 11, 2015 1:59 PM ET
KPMG tax ‘sham’ could lead to criminal investigation
A KPMG tax avoidance scheme in the Isle of Man could lead to a criminal investigation if the Canada Revenue Agency can support allegations that the accounting firm’s offshore structure intended to deceive authorities, two tax experts have told CBC News.
“It is clearly a case where it could lead to a criminal investigation, because obviously there were things that were done here that were not in line with reality,” Laval University tax professor Andre Lareau told CBC News during a trip to the Isle of Man this summer.
CBC asked Lareau, an internationally recognized expert on tax law, to visit the renowned offshore haven in the Irish Sea in a bid to track down answers about a KPMG tax scheme that the CRA is alleging was “intended to deceive” authorities.
“It really is a textbook case of a sham, when you look at the documents,” Lareau concluded.
But he also cautioned that a criminal investigation would require a higher burden of proof, both to collect evidence in the first place and to obtain a conviction.
And that the CRA would need to show that KPMG and its clients knowingly deceived tax authorities.
“They have to prove the intention to defraud the system,” he said.
Shroud of secrecy
CBC News and Lareau arrived in the Isle of Man on Tynwald Day, the national holiday, and spoke directly to Steve Rodan, the speaker of the legislature who insisted the Isle of Man was not a tax haven.
“It’s a tax-efficient jurisdiction,” he said.
“‘Tax haven’ is a term of abuse these days. We are open and transparent, anyone can come in and look at the books. There’s no secrecy here, no banking secrecy,” Rodan told CBC News.
But when CBC and Lareau went looking for the offices, shareholders and directors of the Ogral corporation — which was set up more than a decade ago by the Cooper family of Victoria, B.C. on advice from KPMG Canada — the reporters were stonewalled.
Anne Couper Woods, a “nominee director” of Ogral Corporation — and dozens of other Isle of Man companies — based in Douglas, the capital, refused to discuss the KPMG case with CBC News.
“We wouldn’t comment at all,” she told CBC reporters. She declined to answer questions about how KPMG Canada first got in touch with her to set up the shell companies. “I have no further comments,” she said.
Sandra Georgeson, another Isle of Man director of Ogral Corporation was a little more forthcoming. She admitted that one of the shareholders — another company called Korderry — was simply a “nominee service” used to protect the identity of the true owners of Ogral.
Steve Rodan, the Speaker of the House on the Isle of man insists his homeland has no tax or banking secrecy. (CBC News)
“It’s just so that you can provide a shareholder,” she told CBC News in an interview from her office on Athol Street. When CBC producer Harvey Cashore asked her the reason behind providing a nominee shareholder, she replied simply, “confidentiality.”
She also declined to say who were the real owners of the company.
When Lareau went to the offices of KPMG in downtown Douglas, he says he was told that KPMG would never get involved in an alleged scheme that would have clients pretend to give away their money to an Isle of Man corporation.
Back in Canada, KPMG lawyers don’t dispute they advised the Cooper family to set up the Ogral company.
They claim, however, that the money in Ogral did not belong to the Coopers. Court documents show that KPMG was rewarded with hundreds of thousands of dollars in commissions, and was promoting the Isle of Man scheme to other multi-millionaire clients.
Internal KPMG memos told tax advisers the firm was promoting a “no tax” plan and could charge fees “in the range of 15 per cent of annual savings.”
CRA alleges ‘sham’
In civil court documents, CRA alleges that KPMG, as well as some of its wealthy clients, knowingly participated in a “grossly negligent” tax avoidance scheme that deliberately deprived the federal treasury of millions in unpaid taxes.
B.C. resident Marshall Cooper said he was unaware of Canadian tax laws when he emigrated from South Africa in the mid-1990s. (Facebook)
The tax planning product “is a sham and was intended to deceive the minister,” the CRA court filings allege.
Still, the CRA’s current court action against KPMG and its clients remains strictly in the civil arena.
The CRA has required at least three of the known KPMG clients — i.e. the Cooper family — to pay substantial penalties as well as the taxes owed. The Coopers are appealing the case.
The CRA has also launched civil court action against KPMG, demanding that it hand over the names of all the multi-millionaire Canadian residents who set up offshore companies in the Isle of Man.
KPMG is appealing a judge’s order to hand over the names and that case has been stalled for more than two and a half years.
KPMG prosecuted in U.S.
Michael Hamersley, a former KPMG lawyer turned whistleblower in the U.S., also reviewed the documents filed in court in Canada.
His testimony helped the Internal Revenue Service convict three KPMG U.S. executives in a different tax shelter scheme in the mid-2000s. In that case, KPMG U.S. also agreed to pay a fine of nearly half a billion dollars.
The KPMG Canada case “resonates plenty,” Hamersley said. “It’s exactly the type of behaviour that I saw in the U.S. at the time.”
“When your transaction and the tax results are dependent upon hiding the true facts, you start to cross into potential criminal liability,” Hamersley told CBC News.
KPMG Canada declined to speak with CBC News about the Isle of Man offshore scheme.
“Professional standards and obligations preclude us from disclosing, responding to, or discussing any matters that involve clients,” Kira Froese, KPMG Canada’s director of communications, wrote in an email. “It is inappropriate for us to comment on matters that may be before the courts.”
Canada’s Department of Justice did not return an email or phone calls by the time of publication asking about the delay in the case.
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