Corporate Tax Dodging – Transfer Policing

Go Lean Commentary

Bermuda, Bahama … come on pretty mama” – List of fun-spots from the lyrics of the song “Kokomo” by the Beach Boys. (See Appendix & VIDEO below).

“Bermuda, Luxembourg and Ireland” – List of countries from the foregoing article that facilitate tax dodging and evading schemes by corporations in Big Economy countries.

Somehow this just seems wrong!

It seems even worst to be on this latter list.

This is not the Caribbean that we want to bequeath to our children. (According to previous blog commentaries, the children have also voted to divorce themselves of their Caribbean heritage).

The following article depicts the great lengths that “tax dodgers” go through to avoid their social responsibilities…and then use the Caribbean as “partners in crime”.

Subtitle: Big Economies take aim at the firms running circles around their taxmen

POLITICIANS in the rich world like to splutter about the ever more elaborate dodges that big multinational firms undertake to minimise their tax bills. But doing something about them is trickier. America’s Congress is struggling to agree on ways to stop companies “inverting”—switching domicile to reduce tax bills (see article). The European Union is locked in a protracted debate about whether the favourable treatment that some of its members give to particular forms of corporate revenue are tantamount to illegal subsidies. So the news that the world’s biggest economies have agreed on a plan to limit “base erosion and profit shifting” in corporate tax is something of a watershed.

It has become the norm for multinationals to park themselves or large chunks of their assets—especially intangible ones, such as rights to royalties—in low- or no-tax places such as Bermuda, Luxembourg and Ireland. The wiliest, including Apple, have even discovered ways to re-route funds so as to render income stateless. These transactions are generally legal, or at least exploit grey areas in the tax codes of the countries concerned. But they appear unfair to many in these fiscally strained times, not least because they are beyond the reach of small, domestic firms.

CU Blog - Corporate Tax Dodging - Transfer policing - Photo 1It is only natural that companies take advantage of the gaps. They plough huge resources into doing so, viewing cutting-edge tax arbitrage as a competitive advantage. One study estimated that the resulting tax avoidance could amount to a quarter of total corporate profit-tax receipts in rich countries, and more in poor ones. In truth, the extent of the fleecing is unclear. Corporate tax receipts as a share of GDP, although volatile, do not appear to have declined markedly in the past decade. As a share of profits, however, they have fallen steeply (see chart), though that is partly due to declining rates.

In 2012 the G20, a club of the world’s biggest economies, called on the OECD*, a similar grouping which has long overseen international tax standards, to seek consensus on ways to close the loopholes. Its members have agreed on one set of proposals, released this week, and are working on another. The G20 will formally approve the OECD’s plan at a summit in Australia on September 20th. All told, 44 countries accounting for 90% of the world economy are on board.

The proposals aim to reduce the discrepancy, for many firms, between where they do most of their business and where they pay most of their taxes. One target is “transfer pricing”, the rates that subsidiaries of a single firm charge each other for goods and services. By setting these high, firms can spirit profits out of the countries where they do most of their business to tax havens where they locate their intangibles. The proposals would also clamp down on “treaty shopping”, arrangements through which firms obtain benefits from a tax treaty despite not being resident in either country that is party to it.

Another measure attempts to end the absurd practice of “hybrid mismatches”, whereby companies claim double deductions by classifying financial instruments as debt in some countries and equity in others. In a genuine coup, all members will share basic information about multinationals (such as assets, sales, profits and employees), giving authorities a better chance of spotting tax dodging.

In some areas, consensus could not be reached or is slow to emerge. There was, for instance, no agreement on restricting the use of “patent boxes”, favourable tax regimes for patented inventions and other innovations. In a win for America, the countries agreed not to treat e-commerce as a distinct sector, subject to special “Google taxes”, although they did undertake to study the digital economy’s impact on taxes further. The second set of proposals, expected late next year, is unlikely to include anything much more concrete on this. It will, however, tackle a number of other thorny issues, such as the rampant use of intra-group loans to “strip” earnings out of higher-tax countries.

The chief complaint against the OECD’s approach is that it eschews more radical reforms, such as divvying up taxing rights among countries according to the proportion of a firm’s sales or staff located there. Sol Picciotto of Lancaster University and the Tax Justice Network, an NGO, calls the reforms “a patch-up job” that maintains the “fiction” that subsidiaries charge each other market prices and does little for the poor African countries that are among the main victims of profit-shifting. Jeffrey Owens, a former head of the OECD’s tax division, applauds his former employer’s work but thinks policymakers could struggle to keep up as location becomes an ever-fuzzier concept in business.

Moreover, much of what has been agreed requires the amending of laws and treaties. The risk is that countries implement only the bits that suit them. It remains to be seen how Britain, for instance, will square its official support for the project with its desire to be the most tax-competitive nation in the G20. It offers an alluring patent box and generous treatment of interest and has enthusiastically cut its corporate tax rate, to 20%. America often drops multilateral initiatives in favour of its own preferences.

Small wonder, then, that only 23% of the 3,000 firms surveyed recently by Grant Thornton, an accountancy, expect the proposals to win global approval. And even if they do, the next step is even harder: making sure the multinationals’ supremely inventive lawyers and accountants do not find a way around them.
The Economist Magazine (Posted 09-20-2014) –
http://www.economist.com/news/finance-and-economics/21618911-big-economies-take-aim-firms-running-circles-around-their-taxmen-transfer?fsrc=nlw|hig|18-09-2014|53552127899249e1cc9ea210|NA

*OECD = Organization of Economic Cooperation & Development

The book Go Lean…Caribbean asserts that governments need to collect their taxes, plain and simple. The Social Contract with their citizens requires that they collect revenues so as to render services on behalf of their people. The less tax revenues, the less services that can be rendered. When this trending continues, the destination takes on a “failed-state status”. Unfortunately, the Caribbean region is far too familiar with this “failed-state status”. So  cooperating with foreign companies looking to continue tax dodging practices would be counter-productive – a negative community ethos that we would want to avoid.

The Go Lean book purports that the Caribbean can – and must – do better.

This book, Go Lean… Caribbean, serves as a roadmap for the introduction and implementation of the technocratic Caribbean Union Trade Federation (CU), which represents change for the region. The CU/Go Lean roadmap has 3 prime directives:

  • Optimization of the economic engines in order to grow the regional economy.
  • Establishment of a security apparatus to protect the resultant economic engines against “bad actors”.
  • Improve Caribbean governance to support these engines.

The Go Lean roadmap provides turn-by-turn directions on how to forge a change in the region’s community ethos to encourage honest/moral business practices and a level-playing field.  There is this established business axiom: “there are two certainties: Death and Taxes”. This roadmap thusly views the moral obligation to facilitate government tax deliverables, pronouncing this point early in the Declaration of Interdependence (Page 12) with these statements:

xiv.      Whereas government services cannot be delivered without the appropriate funding mechanisms, “new guards” must be incorporated to assess, accrue, calculate and collect revenues, fees and other income sources for the Federation and member-states. The Federation can spur government revenues directly through cross-border services and indirectly by fostering industries and economic activities not possible without this Union.

The Caribbean have for far too long looked for opportunities on the grey-side of international laws. The foregoing article relates the business historicity of booking Intellectual Property rights royalties and other intangible assets in off-shore locales:

“These transactions are generally legal, or at least exploit grey areas in the tax codes of the countries concerned. But they appear unfair …”

Rather than being complicit in these “grey” activities, indicative of a “parasite” mentality, this roadmap now projects that it is past the time to “straighten up and fly right”. The Go Lean book, and accompanying blog commentaries, go even deeper in describing a “parasite” status that proliferates the Caribbean disposition.

Change has now come to the Caribbean. Rather than a “parasite” ethos, the Go Lean movement calls for a protégé ethos. This shift is now in progress. The Go Lean book (Pages 199, 321 – 326) describes the reform developments in the Offshore Tax & Financial Services industries, in moving the industries from Black List to White List status.

There are many Go Lean blog commentaries that have echoed this point, addressing the change for the Caribbean to shift from “parasite” to protégé:

http://www.goleancaribbean.com/blog/?p=2207 Hotels Parasite Policies are making billions from added fees
http://www.goleancaribbean.com/blog/?p=1984 Casinos Failing Business Model
http://www.goleancaribbean.com/blog/?p=1869 Senate Bill targets cowardly companies that move overseas
http://www.goleancaribbean.com/blog/?p=623 Only at the precipice, do they change
http://www.goleancaribbean.com/blog/?p=451 CARICOM Chairman to deliver address on reparations – Parasitical
http://www.goleancaribbean.com/blog/?p=273 10 Things We Want from the US – Free Market

Change is coming throughout the world, a by-product of globalization. It will not be tolerated for one country to exploit tax loopholes in other countries. This intolerance for “parasites” is not just among the publishers of Go Lean. While this movement anticipates change and then prepares the Caribbean for it, there is an international parallel effort. The G20, a club of the world’s biggest economies, has called on the OECD to oversee international tax standards, to seek consensus on ways to close the tax loopholes. The foregoing article relates that its members have agreed on one set of proposals; so far  44 countries, accounting for 90% of the world economy, are on board for the proposals.

How about for the Caribbean? It is only a matter of time for some international corporate tax reforms to take root. How will those changes affect the Offshore Financial industries and the practice of allowing companies to run circles around tax rules by using “Black List” countries?  The fact that these questions have to be considered demonstrate the need for a more “White List” community/business ethos. These questions should be moot! Never mind the answers.

Debate Over!

The Go Lean book purports that the Caribbean can – and must – do better. The roadmap for the CU is a confederation of the 30 member-states of the Caribbean to do the heavy-lifting of optimizing economic-security-governing engines. The Go Lean book details the community ethos to adopt, plus the executions of the following strategies, tactics, implementations and advocacies to change Caribbean society:

Community Ethos – Deferred Gratification Page 21
Community Ethos – Consequences of Choices Lie in the Future Page 21
Community Ethos – Whistleblower Protection Page 23
Community Ethos – Intelligence Gathering Page 23
Community Ethos – Lean Operations Page 24
Community Ethos – Ways to Help Entrepreneurship Page 28
Community Ethos – Ways to Promote Intellectual Property Page 29
Community Ethos – Ways to Impact Research & Development Page 30
Community Ethos – Ways to Impact the Greater Good Page 37
Strategy – Agents of Change – Technology Page 57
Strategy – Agents of Change – Globalization Page 57
Tactical – How to Grow to a $800 Economy – Trade and Globalization Page 70
Tactical – Separation of Powers – Securities Exchange Regulatory Agency Page 74
Tactical – Separation of Powers – Trade Anti-Trust Regulatory Commission Page 77
Tactical – Separation of Powers – Patent, Standards, and Copyrights Office Page 78
Implementation – Trade Mission Offices Objectives Page 117
Implementation – Ways to Benefit from Globalization Page 119
Planning – Ways to Improve Trade Page 128
Planning – Ways to Make the Caribbean Better Page 131
Advocacy – Ways to Grow the Economy Page 151
Advocacy – Ways to Create Jobs Page 152
Advocacy – Ways to Improve Governance Page 169
Advocacy – Ways to Better Manage the Social Contract Page 171
Advocacy – Ways to Impact Justice Page 177
Advocacy – Ways to Improve Intelligence Gathering & Analysis Page 182
Advocacy – Reforms for Banking Regulations Page 199
Advocacy – Ways to Impact Wall Street Page 200
Advocacy – Ways to Impact Main Street Page 201
Advocacy – Ways to Impact the One Percent Page 224
Advocacy – Ways to Impact … – Bottom Line on the OECD Page 240
Appendix – Offshore Tax & Financial Services Industry Developments Page 321
Appendix – Offshore Tax & Financial Services Industry – Bahamas Example Page 322

The book Go Lean…Caribbean posits that many problems of the region are too big for any one member-state to solve alone, that there is the need for the technocracy of the Caribbean Union Trade Federation. The purpose of this Go Lean/CU roadmap is to make the Caribbean homeland, a better place to live, work and play. We want to be on the list of fun places to PLAY, as conveyed by the below Beach Boys song, not on the list of the “grey”/shady places to WORK.

We do want to be on the consciousness of the rest of the world. We want them envious of our lifestyle and desirous to sample this imagery:

That’s where you wanna go
to get away from it all
Bodies in the sand,
tropical drink melting in your hand
We’ll be falling in love
to the rhythm of a steel drum band

Now is the time for all of the Caribbean, the people and governing institutions, to lean-in for the changes described in the book Go Lean … Caribbean.

Download the e-Book of Go Lean … Caribbean – free … now!

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Appendix – Song Lyrics for “Kokomo” by the Beach Boys

Aruba, Jamaica, ooh I wanna take ya
Bermuda, Bahama, come on pretty mama
Key Largo, Montego,
baby why don’t we go,
Jamaica

Off the Florida Keys
there’s a place called Kokomo
That’s where you wanna go
to get away from it all
Bodies in the sand,
tropical drink melting in your hand
We’ll be falling in love
to the rhythm of a steel drum band
Down in Kokomo

[Chorus:]
Aruba, Jamaica, ooh I wanna take you to
Bermuda, Bahama, come on pretty mama
Key Largo Montego,
baby why don’t we go
Ooh I wanna take you down to Kokomo,
we’ll get there fast
and then we’ll take it slow
That’s where we wanna go,
way down in Kokomo.

Martinique, that Monserrat mystique…

We’ll put out to sea
and we’ll perfect our chemistry
By and by we’ll defy
a little bit of gravity
Afternoon delight,
cocktails and moonlit nights
That dreamy look in your eye,
give me a tropical contact high
Way down in Kokomo

[Chorus]

Port au Prince, I wanna catch a glimpse…

Everybody knows a little place like Kokomo Now if you wanna go to get away from it all
Go down to Kokomo

[Chorus]

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YouTube Video: https://www.youtube.com/embed/_wHiliL4He4

 

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