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1ª conferência - James S Henry

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James S Henry - Tax Justice Network - USA

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1ª conferência - James S Henry

  1. 1. The Trouble With Tax Havens James S. Henry Congresso Internacional de Educacao Fiscal Fortaleza, Brazil November 27, 2012 (c)JSH/ TJN 2012 1
  2. 2. The Trouble With Tax Havens¶ Background¶ Key Costs 1. Odious Debt/ Privatizations 2. “Pirate Banking” 3. Rampant TNC abuses 4. Global Corporate Tax Race¶ What is To Be Done? (c)JSH/ TJN 2012 2
  3. 3. Summary¶ Global tax haven industry is huge; hurts growth and development¶ Huge global stock of “missing wealth:” $21 - $32 trillion¶ Growing TNC abuses – transfer mispricing, corruption¶ Solutions require citizen pressure ¶ Transparency ¶ End “tax+rule competition” ¶ Crucial role of “Enablers”
  4. 4. Tax Justice Network• TJN–Intl Sec. (2002-)• TJN-US affiliate (2003-)• R. Murphy/J. Christensen – country X country reporting• J. Blum – Barclays case, unitary taxation• J. Henry – numerous articles, books on havens, debt, offshore• D. Spencer – numerous articles on Intl tax, TP standards• N. Shaxson: Treasure Islands (2010)• M. Meisner: Secrecy Index (2009 -• Key Partners: Oxfam, ChristianAid,LatinDad,EuroDad, CCFD,GFI, Global Witness, GFI, ActionAid, Save The Children, etc.• Emphasis on quantitative research+organization o “Mapping Financial Secrecy” (2009, 2011): secrecyjurisdictions.com o “Tax Loss” (Oxfam GB) (2009) o “Price of Offshore” (2005, 2012)• Founding member, Task Force on Financial Integrity & Economic Development (08-)• More info: o http://www.taxjustice.net o http://www.secrecyjurisdictions.com
  5. 5. 12/13/2012 (c) JSH/TJN 2012 5
  6. 6. If you cannot express it innumbers, your knowledge is of a meager and unsatisfactory kind. -- Lord Kelvin, 1889 (c)JSH/ TJN 2012 6
  7. 7. Why Do We Care? (c)JSH/ TJN 2012 7
  8. 8. (c)JSH/ TJN 2012 8
  9. 9. Government revenue + taxes by country/ group (Median % of official GDP, 2000-09) Per Capita Populatio Gov OtherCountry Income Income Sales Payroll Taxes on n (2009) Revenue Other Taxes Gov Grants Group (PPP- Taxes Taxes Taxes Intl Trade (Billions) X Grants Revenue Adjusted ’09) OECD 1.22 $33153 26.1% 6.6% 7.3% 8.9% .1% 1.0% 2.2% 0% EU .500 $31384 35.2% 7.4% 11.3% 12.%2 .02% 1.2% 3.1% 0% US .310 $45989 17.9% 9.5% .6% 6.8% .2% .3% .5% 0% China 1.331 $6828 9.5% 2.1% 6.2% 0% .3% .1% .8% .1% Other 3.481 $6245 21.%3 4.%6 6.1% 4.5% 1.3% .4% 3.2% .8%MiddleIncome Low .846 $1205 11.5% .1% 2.3% 0% 7.0% 1.5% .6% 9.6%IncomeWorld 6.775 $10686 25.0% 5.1% 8.1 7.1 1.31% .59% 2.57% .23% Source: World Bank data (2011) , JSH analysis © JSH 2011
  10. 10. More capital than ever before for developing countries…..(including poor ones, the subprime equivalent…)The Supply of Foreign Debt, Equity and Aid to Developing Countries**, 1971-2003 Period Totals by Type, in $1995 $Billions 1971-82 1983-92 1993-2003 1971-2003 Foregin Debt $1,022 67% $977 54% $971 28% $2,970 44% >Comm. bank loans $439 29% $212 12% $119 3% $770 11% .>Multilateral bk loans $559 36% $730 40% $525 15% $1,814 27% >Bonds $24 2% $35 2% $326 9% $385 6% Foreign Equity $143 9% $283 16% $1,806 52% $2,232 33% >Direct investment $143 9% $251 14% $1,591 46% $1,985 29% >Portfolio equity $0 0% $32 2% $215 6% $247 4% Official Aid $369 24% $544 30% $705 20% $1,618 24% Total $1,534 $1,804 $3,482 $6,820 **All 154 "middle- and low-income" countries, by World Bank category Source: World Bank data (2005), JSH analysis (c)JSH/ TJN 2012 10
  11. 11. Disappointing Real Growth (1980 - 2005) China India Poorest All Other High World (UN) Developing Countries IncomeCountries (n) 1 1 49 105 54 210 % of Pop 22.1% 14.4% 8.1% 33.0% 22.5% 100% --1980 -- 2005 11.4% 35.8% 20.3% 17.1% 15.3% 100% % of Real 3.2% 3.5% 1.9% 29.3% 62% 100% Income ($95 PPP) 13.6% 6.3% 1.9% 24.5% 54% 100%Real Income Per Capita2005 ($95 PPP) $4,972 $2,752 $1,249 $5,123 $26,191 $7,428 1980-2005 RAAGR (%) 8.1% 3.8% .7% .8% 1.9% 1.6% 2005Population (B) 1.3 1.1 .74 2.3 .98 6.43 (c)JSH/ TJN 2012 11 Source: World Bank data (2008), JSH analysis
  12. 12. Insider Recipients - Philippine Central Bank loans ($mmoutstanding, 1986) •Roberto Benedicto $747.6 million •Marcos family members $726.5 •Roberto Cuenca $676.9 •Herminio Disini $258.4 •Eduardo Cojuangco $201.2 •Jobo Fernandez $180.0 •“Kokoy” Romualdez $150.4 •Manual Elizalde Jr. $104.1 •Jose de Venecia $71.4 •Lucio C. Tan $51.8 •Placido Mapa Jr. $50.6 •Ramon Cojuangco $30.9 •Ricardo Silverio $30.6 •Juan Ponce Enrile $28.6 •Vicente Chiudian $15.6 •Roberto Villafuerte $15.2 •Bienvenido Tantoco $6.0 •Salvador Laurel $5.8 •Other Marcos allies: $134.4 TOTAL: $3.58 billion OTHER (not identifiable:) $3.4 billion Source: JS Henry, The Blood Bankers (2003) (c)JSH/ TJN 2012 12
  13. 13. (c)JSH/ TJN 2012 13
  14. 14. Chart 4 Debt Relief Metrics $2005 NPV Billions Low Income Middle Income TotalPre-Relief Total $574 $3,426 $4,000 Debt Relief $161 $149 $310 Post-Relief Debt $413 $3,277 $3,690 % Relieved 28.1% 4.3% 7.8%Source: World Bank (2006) data, my analysis © JS Henry, 2006 Compare current $700 billion+ US bank bailout, 500 billion UK $135 billion (so far) AIG bailout, $200 billion Fannie/Freddie bail (c)JSH/ TJN 2012 14
  15. 15. Privatization Abuses• Brazil case, 1995 – 1999:• Companhia Siderurgica Nacional: $1 b in “moeda podres”• Ferrovia Paulista S.A., Banerj, Rio Light, Embraer, Usiminas, Copesul, Acesita, CVRD, etc.• Brazil received R$85.2b, paid $87.6b: net –R$2.4b o -- Biondi, Brasil Privatizado• Similar results all over the world
  16. 16. (c)JSH/ TJN 2012 16
  17. 17. 12/13/2012 (c) JSH/TJN 2012 17
  18. 18. What a difference leadership makes is …*1990-99 (c)JSH/ TJN 2012 18
  19. 19. (c)JSH/ TJN 2012 19
  20. 20. Heavily Indebted Rich Countries(HIRCs) (c)JSH/ TJN 2012 20
  21. 21. Thirty Years of Globalization “ The Globalization of Crisis”1980s 2010s• Heavily-indebted developing • Heavily indebted rich countries countries • First World capital flight (France,• 3W capital flight, private banking Spain, US, etc.)• MNC, bank abuses concentrated • 3W private banking (Singapore, in 3W Brazil)• Inequality, poverty: • MNC/ bank abuses everywhere “development” problems • Growing inequality everywhere• Debt cancellation, Fx • New interest in intervention controls, protection, nationalizati everywhere on: 3W policy instruments (c)JSH/ TJN 2012 21
  22. 22. Triangulating on the offshore hole in the global economy…. (c)JSH/ TJN 2012 22
  23. 23. Source: bank financials, private banking industryinterviews, JSH analysis (c)JSH/ TJN 2012 23
  24. 24. (c)JSH/ TJN 2012 24
  25. 25. Capital Flight Estimation - Russia Example Debt Net Foreign Total Reported Ch in Total Annual CF Annual CF Flows Investment Sources CA Deficit Reserves Observed Estimate Estimate ($B) ($B) ($B) Uses ($B current) ($B US 95) ($B)1994 -5.8 0.4 -5.4 7.8 3.4 11.3 5.9 6.01995 2.1 1.5 3.5 7.0 -4.9 2.1 5.6 5.61996 7.1 3.7 10.8 10.8 6.1 16.9 27.7 27.21997 5.4 3.0 8.4 -0.1 -0.4 -0.5 7.9 7.61998 46.3 2.2 48.5 0.2 10.5 10.7 59.2 56.31999 0.7 0.8 1.5 24.6 -5.4 19.2 20.7 19.42000 -12.6 -0.4 -13.0 46.8 -18.9 27.9 14.9 13.72001 -3.3 0.7 -2.6 33.8 -12.0 21.8 19.1 17.12002 -5.6 2.6 -2.9 29.1 -12.8 16.3 13.4 11.92003 28.6 -1.4 27.3 35.8 -27.2 8.6 35.9 31.2Total $62.8 $13.2 $76.0 $196.0 $-61.6 $134.4 $210.4 $195.9 Source: data from IMF/World Bank (2008), JSH analysis (c)JSH/ TJN 2012 25
  26. 26. Huge debt- and oil-financed real flight flows by region… Unrecorded Net Capital Outflows from Latin America, 1970-2010 (Real Value of Cumulative Net Outflows by Period, $2000 Billions) ** AC L a er a d tin bi a ela th m da m il en zu o lO e na az xic lo ini ne il g Al Me Ch Co Ve Pa Br Ar Tr =$362.2 $320 $87.9 =$278.2 $1376.0 =$263.5 $270 =$259.3 (Real $2000), Unrecorded $220 $56.0 CF Outflows $153.5 $106.3 LAC REGION, $195.8 1970-2010 $170 $93.2 $64.0 $120 $45.3 $71.3 =$82.4 $36.8 =$33.8 $70 $44.6 $45.1 $7.0 $71.1 =$33.7 =$39.8 $60.0 $56.4 =$22.5 $38.9 $11.3 $0.5 $3.5 $34.3 $34.2 $31.2 $20 -$5.4 $13.9 $14.3 $9.3 $3.8 $4.5 $0.7 $7.9 $9.2 $0.4 -$9.0 $2.4 -$25.0 -$30 1970-80 1981-90 1991-2000 2001-10 (c) JSH 2008, 2011**30 other Latin American and Caribbean countries Source: data from World Bank/ IMF (1979-2008); JSH analysis 26 (c)JSH/ TJN 2012
  27. 27. (c)JSH/ TJN 2012 27
  28. 28. Source: Project data models, JSH analysis12/13/2012 (c) JSH/TJN 2012 28
  29. 29. (c)JSH/ TJN 2012 29
  30. 30. TOP 8 LATIN AMERICAN SOURCE COUNTRIES:CF vs. NFI: % of Real $GNI (c)JSH/ TJN 2012 30
  31. 31. 139 countries = $ 9.4 TrillionTop 20 = $ 7.6 Trillion Global Flight Wealth - Key Countries, Including China ($2010 Billions) (c)JSH/ TJN 2012 31
  32. 32. External Debt Vs. Estimated Flight Wealth, By Key Country - ( 2007 $Billions) I nd o ne sia R N ig eria Phi R lipp i ne sR Me xic oR Ven ezu ela Arg R ent ina R Bra zi l R Ru ssia R-$500 -$400 -$300 -$200 -$100 $0 $100 $200 $300 $400 $500 $600 © JSH 2008 External Debt Flight Wealth (c)JSH/ TJN 2012 32 Source: data from IMF/World Bank (2008); JSH analysis
  33. 33. Global Flight Wealth, Vs. All Developing Country Debt** (1975-2003) (Billions US $Current) Flight Wealth “Surplus” First crossover: 1989-90Including China © JSH 2008 (c)JSH/ TJN 2012 Source: data from IMF (2005), World Bank (2005); JSH analysis 33
  34. 34. Growth Factors – TP Abuse• Corporate globalization • Developing country tax• `Abusive industry growth resources and skills – Software • Competing jurisdictions – Big pharma (vs. MNC solidarity) – Extraction • Global resources – Finance • Policy analysis • Training• Rise of secrecy • Enforcement jurisdictions• Rise of “enabling experts” – Accounting firms – Law firms – Major banks• Official tolerance (OECD) (c)JSH/ TJN 2012 34
  35. 35. Many recent TP abuses involving leading MNCs and havens…• Intellectual property abuses: Apple, Google, Pfizer, GE, Cisco, Forest Labs, etc. (current – WNB)• Banana exporters cases (2006-)• SABMiller (2008-): South Africa, 4 other countries• Glencore (2011-): Zambia• Grain exporters (2011-): Argentina• Big bank tax evasion
  36. 36. TNC Corruption CasesTop 10 US penalties ($MM) as of 1/12 Now in the works…(DOJ/SEC:+75)• Siemens ($800->$1700,’08) • Alcoa • Allianz• Halliburton/KBR ($579,’09) • AstraZeneca• BAE($400,’10) • Avon (grand jury re China)• Technip ($338,‘10) • China NE Petrol Corp• Daimler ($185,’10) • BHP Billiton • Bridgestone Tire• Alcatel-Lucent ($137,’10) • Deere & Co• Shell/Panalpina ($82,’10) • Glaxo• ABB ($58,’10) • HP (Europe) • IBM• Pride ($56,’10) • Ingersoll• Baker Hughes (‟07) • Johnson & Johnson• Willbros („08) • Lilly• Chevron (‟07) • LV Sands/Adelson• Titan („05) • Merck • Morgan Stanley • Pfizer • Raytheon • Tyco, etc etc. etc. Source: FCPA Blog.com (2011) (c)JSH/ TJN 2012 36
  37. 37. Recent Aggregate TP Cost Estimates Study Approach Estimated Lost Tax RevSimon Pak (2003-6) • Goods trade misinvoicing - “+$200 billion/ yr.`” Bilateral Customs data GFI (2011-12) • Goods trade misinvoicing “$98-$106 b./ yr., 2002-06 “Christian Aid (2009) • Goods trade misinvoicing – “+$160 billion/yr.” partner discrepancies TJN (2012) • Country studies • Case studies of Mx, •`intangibles``’ abuse Zambia, Swiss, India, China (c)JSH/ TJN 2012 37
  38. 38. Ireland : 4p Consumed in UK : charged for use of Import price : 60p brand 39p retail mark-up 1p taxable profits Isle of Man : 4p for Luxembourg : 8p for insurance services financial services Bermuda : 17p for use of distribution network Jersey : 6p charged forCayman Islands : management services8p for use ofpurchasing network Produced in Latin America Export price: 13 pence 1.5p labour costs / 10.5p production costs 1p taxable profits
  39. 39. ZAMBIA(c)JSH/ TJN 2012 39
  40. 40. SWITZERLAND(c)JSH/ TJN 2012 40
  41. 41. MEXICO Mexico Misinvoicing Vs. Net FDI as a % of GDP, 1970-2011 (c)JSH/ TJN 2012 41
  42. 42. (Cumulative Total, 1962-2010; Real $2000 Billions) Total = $627.8 b,1962-10 $182.4 $445.3 Source: JSH 2012(c)JSH/ TJN 2012 42
  43. 43. Apple – China ”value chain”• 20 mm Ipads/yr @ $500 retail = $10 b.• 65k US workers (35k in retail stores)• 1.2 mm Chinese workers (Foxconn)• $40/Ipad = $800 mm to China• $2.2 b royalties for IP, brand to offshore jurisdictions w 3% tax rate• Total non-China gross margin = $9.2 b – sales and marketing – royalties = $6 b• Total effective tax on non-COGS margin =<10%, mainly to US IRS (c)JSH/ TJN 2012 43
  44. 44. http://werenotbrokethemovie,com (c)JSH/ TJN 2012 44
  45. 45. The Global “Tax Race” (c)JSH/ TJN 2012 45
  46. 46. (c)JSH/ TJN 2012 46
  47. 47. (c)JSH/ TJN 2012 47
  48. 48. (c)JSH/ TJN 2012 48
  49. 49. What Is To Be Done?• Policy collaboration vs. “competition” o Tax regimes o Trade o Reserves/ sov. wealth o Financial regulation o Enforcement• MNCs/ Banks oInformation/ investigation o Penalties o Regulate global enablers• Private elite o Information/ investigation o Global industry enablers o Taxing global wealth o Attracting capital home
  50. 50. A Hallowed Tradition:Debt Forgiveness“We shall never be able to move again, unless we can free our limitsof these paper shackles. A general bonfire is so great a necessity thatUnless we can make of it an orderly and good-tempered affair in which no seriousInjustice is done to anyone, it will….grow into a conflagration.” - J.M. Keynes, The Economic Consequences of the Peace (1920). (c)JSH/ TJN 2012 50
  51. 51. Summary¶ Global tax haven industry is huge; hurts growth and development¶ Huge global stock of “missing wealth:” $21 - $32 trillion¶ Growing TNC abuses – transfer mispricing, corruption¶ Solutions require citizen pressure ¶ Transparency ¶ End “tax+rule competition” ¶ Crucial role of “Enablers”
  52. 52. (c)JSH/ TJN 2012 52
  53. 53. “It is capitalism that is truly radical.” -- Brecht (c)JSH/ TJN 2012 53
  54. 54. (c)JSH/ TJN 2012 54
  55. 55. Odious Debt• Citibank/MHT (Bataan/CBk/Philippines)• JP Morgan (Brazil dams,nukes)….• Panama/Torrijos’ buffalo farm• Indonesia power projects• Argentina/Yacyreta• Peru/Majes-Siguey• Mexico/Laguna Verde• Stroessner’s phone calls• Chase (Venezuela, Iran)• Deutsche Bank (Iraq)• Chile privatization fiasco (BT)• Sandinista debt deal…• Lesotho (LHWP dam)• Carlos Andres’ offshore fund…• Guatemala/Chixoy…..Clearly a systemic problem (c)JSH/ TJN 2012 55
  56. 56. Pirate Banking (c)JSH/ TJN 2012 56
  57. 57. MAY 1976J.S. Henry (c)JSH/ TJN 2012 57
  58. 58. . “Unusual” Demand for US$ Currency – 1970-2011 -- $ per Capita (c)JSH/ TJN 2012 58
  59. 59. Key issues – aggregate TP estimates Trade Capital Bias Misinvoicing Flight• Country concentration ✔✔ ++• All negative flows omitted ✔✔ ✔✔ ++• Data quality (timing, cif ✔✔ ✔ ?costs, aggregation, etc.)• Stocks vs. flows ✔✔ ✔✔ -• Income on offshore stocks ✔✔ ✔✔ -• Post-2000 focus ✔✔ ✔✔ -• Missing data ✔ 53 zeroes +72 ✔69 zeroes + - missing /217 72 missing/217• Imputed values ✔LDCs +• Mispricing in traded services ✔ -?omitted(c)JSH/ TJN 2012 59
  60. 60. (c)JSH/ TJN 2012 60
  61. 61. US AS A TAX HAVEN (c)JSH/ TJN 2012 61
  62. 62. (c)JSH/ TJN 2012 62
  63. 63. THE US ”FINANCIAL-INDUSTRIAL COMPLEX" -- TOTAL REAL SPENDING ON FEDERAL POLITCAL INFLUENCE*, 1990 - 2010 (Cumulative $2010) $2973 per Congressman and Senator per day** - - for 20 years INSURANCE 28% FINANCIAL SERVICES 34% $1.930 B $2.292 B ∑ =$6.823 Billion* Total real cumulativespending on federal lobbyingand campaign contributions,by industry $2.601 B ** Asuming 220 workdays per REAL ESTATE year, which may be generous 38% Source: Opensecrets.org (2010) data, my analysis (c) Submergingmarkets.com, 2010 (c)JSH/ TJN 2012 63
  64. 64. “Dark matter”• 1970s : • 1990s – “Underground economy” – “Banqueros” („96) – “Intl. currency demand“ – “US as a tax haven” – Drug money in Florida – “Flight wealth”• 1980s: • 2000s – “Odious debt” – “Blood Bankers” („03-‟05) – “Capital flight” – Shadow banking (‟08-) – Citibank‟s “debt-flight cycles” – “We’re Not Broke” (’12) – Noriega/Stroessner – “Pirate banking” („12) – JP Morgan‟s bribery in Brazil – “Offshore wealth” – Marco‟s Central Bank – Human capital flight – Hidden offshore earnings – Hidden labor flows (c)JSH/ TJN 2012 64
  65. 65. Investigative economics Investigative Economics Neoclassical Economics•“Just look at the f’in data.” (J. Tukey’s inter- • Optimization model-centricocular significance test)•Anomaly-driven: Puzzles tell us where to •Models tell us where to looklook (often with night vision)•Skeptical of “methodological individualism” •Bias toward “methodological individualism”• Plausibility counts: case based + • 19th-century positivism lives on: inferential “prediction” trumps “explanation”• If you want to know how someone feels, • 1960s behaviorism: “You look pretty good you can ask them today; how am I?”• Get out of the armchair, go to the field ( • “But I want tenure!… and my armchair is vs. “abstract empiricism”) (C. Wright very comfortable!” Mills) (c)JSH/ TJN 2012 65
  66. 66. Basic Concept –- Adjusted Partner Trade MeasureTotal Misinvoicing = Export Misinvoicing + Import Misinvoicing `’Export Misinvoicing`: ∑∑ ((X*ijt (1+CIFijt) – ∑∑Mwijt)) ”Import Misinvoicing”: ∑∑ (M*ijt – ∑∑ (Xwijt(1+CIFijt))) Where: X* = Country X‟s Reported FOB goods exports per commodity per trading partner at time t, in a common currency M* = Country X‟s Reported CIF goods imports per commodity per trading partner at time t, in a common currency Xw = Sum of world‟s reported FOB goods exports per commodity per trading partner at time t , in a common currency Mw= Country X‟s Reported CIF goods imports per commodity per trading partner at time t, in a common currency CIFij1 = `‟normal trade costs,” including customs, insurance and freight, for commodity j and trading partners j at time t(c)JSH/ TJN 2012 66
  67. 67. CONVENTIONAL TRADE MISINVOICING World Exports Imports < > < > Exports ”Export Under-invoicing”Country X Imports ”`imports Overinvoicing” (c)JSH/ TJN 2012 67

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