23 rd  October 2009, UNLEASHING ECONOMIC POTENTIALS. COPENHAGEN ENDING TAX EVASION AND ILLICIT FINANCIAL FLOWS John Christ...
<ul><li>For each dollar of aid that goes into Africa, at least five dollars flows out under the table.  The time has come ...
<ul><ul><li>“ Any survey of the main uses of offshore funds would have to conclude that low tax is not the main benefit at...
<ul><ul><li>The economic transformation </li></ul></ul><ul><ul><li>Since the 1970s: </li></ul></ul><ul><ul><li>exchange co...
Financial Times - 26 September 2003  
In 2006 developing countries lost an estimated US$858.6 billion - $1.06 trillion in illicit financial flows.  Between 2002...
Real capital flight over the 35-year period amounted to about $420 billion (in 2004 dollars) for the 40 Sub-Saharan Africa...
<ul><li>loss of revenue for public expenditure programmes </li></ul><ul><ul><li>increased reliance on external debt </li><...
<ul><li>greatly increases  tax administration costs </li></ul><ul><li>threatens the viability of weaker states , and incre...
  The expanding credit crisis has helped underline the dangers of a lack of transparency in international finance, poor re...
<ul><ul><li>Replace the OECD black/grey/white list with TJN’s  Financial Secrecy Index  (to be published 1 st  November) <...
<ul><ul><li>Strengthen international cooperation with a primary objective  of  ensuring that national tax systems do not h...
more info:  taxjustice.net taxjustice.blogspot.com taxresearch.org.uk/blog contact:  [email_address]
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John Christensen, Director, Tax Justice Network: Ending tax evasion and capital flight: Measures to improve tax mobilisation and cracking down on tax havens.

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John Christensen, Director, Tax Justice Network: Ending tax evasion and capital flight: Measures to
improve tax mobilisation and cracking down on tax havens.

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  • Financial liberalisation proceeded despite concerns about major loopholes The loopholes enabled mobile capital – mainly portfolio investment – to circumvent regulation and tax Micro-states competed to attract capital by offering preferential treatments – legislatures for hire An enabling infrastructure has emerged to provide offshore financial services – especially to facilitate tax evasion Tax competition threatens national sovereignty, undermines comparative advantages, and shifts the tax burden Offshore secrecy arrangements have created a global criminogenic political economy – subversive of democracy and supportive of corruption Major nations, including and especially UK, US and Switzerland – base their policies on beggar-my-neighbour processes, and baulk international efforts to remedy the situation Plenty of remedies are at hand – by pursuing this issue with the same vigour as debt relief and aid, we could shift the political agenda – we have allies in surprising places
  • The political ascendancy of financial capitalism --- The capture of tiny island legislatures enables the elites to shape their own laws and regulatory instruments Non-disclosure of ownership provides immunity from investigation and challenge Offshore companies are ideal mechanisms for perpetrating crimes like insider trading, market rigging, illicit funding of political parties, bribery, tax evasion, etc
  • The political ascendancy of financial capitalism --- The capture of tiny island legislatures enables the elites to shape their own laws and regulatory instruments Non-disclosure of ownership provides immunity from investigation and challenge Offshore companies are ideal mechanisms for perpetrating crimes like insider trading, market rigging, illicit funding of political parties, bribery, tax evasion, etc
  • The political ascendancy of financial capitalism --- The capture of tiny island legislatures enables the elites to shape their own laws and regulatory instruments Non-disclosure of ownership provides immunity from investigation and challenge Offshore companies are ideal mechanisms for perpetrating crimes like insider trading, market rigging, illicit funding of political parties, bribery, tax evasion, etc
  • The political ascendancy of financial capitalism --- The capture of tiny island legislatures enables the elites to shape their own laws and regulatory instruments Non-disclosure of ownership provides immunity from investigation and challenge Offshore companies are ideal mechanisms for perpetrating crimes like insider trading, market rigging, illicit funding of political parties, bribery, tax evasion, etc
  • John Christensen, Director, Tax Justice Network: Ending tax evasion and capital flight: Measures to improve tax mobilisation and cracking down on tax havens.

    1. 1. 23 rd October 2009, UNLEASHING ECONOMIC POTENTIALS. COPENHAGEN ENDING TAX EVASION AND ILLICIT FINANCIAL FLOWS John Christensen Director, International Secretariat
    2. 2. <ul><li>For each dollar of aid that goes into Africa, at least five dollars flows out under the table. The time has come to confront the tax haven monster . </li></ul>“ ” Dirty Money Flows Distort Our Economy And Corrupt Democracy 30 th May 2007
    3. 3. <ul><ul><li>“ Any survey of the main uses of offshore funds would have to conclude that low tax is not the main benefit at all; the real attraction is their total confidentiality. This makes them perfect places to lodge capital in flight from tax, politics or the law.” </li></ul></ul><ul><li>Financial Times </li></ul><ul><li>18 January1997 </li></ul>Financial Times - 26 September 2003   <ul><ul><li>Mission Statement </li></ul></ul><ul><ul><li>In an era of globalisation, the Tax Justice Network is committed to a socially just, democratic and progressive system of taxation. </li></ul></ul><ul><ul><li>TJN campaigns from an internationalist perspective for a tax system which is favourable for poor people in developing and developed countries, and finances public goods and taxes harmful activities  which pollute and cause unacceptable inequality. </li></ul></ul>
    4. 4. <ul><ul><li>The economic transformation </li></ul></ul><ul><ul><li>Since the 1970s: </li></ul></ul><ul><ul><li>exchange controls have been eliminated </li></ul></ul><ul><ul><li>trade tariffs and taxes have been significantly reduced </li></ul></ul><ul><ul><li>there has been a massive expansion of cross border trade and investment </li></ul></ul><ul><ul><li>increased income from foreign sources </li></ul></ul><ul><ul><li>capital mobility now virtually unimpeded </li></ul></ul><ul><ul><li>the number of secrecy jurisdictions has tripled since the 1970s </li></ul></ul>
    5. 5. Financial Times - 26 September 2003  
    6. 6. In 2006 developing countries lost an estimated US$858.6 billion - $1.06 trillion in illicit financial flows. Between 2002 and 2006 the volume of illicit financial flows increased by 18.2 per cent: the situation is deteriorating Illicit financial flows include the proceeds from both illicit activities such as bribery and embezzlement, criminal activity, and the proceeds of licit business which become illicit when shifted across borders in contravention to applicable laws and regulatory frameworks (most commonly for tax evasion purposes)
    7. 7. Real capital flight over the 35-year period amounted to about $420 billion (in 2004 dollars) for the 40 Sub-Saharan African countries as a whole. Including imputed interest earnings, the accumulated stock of capital flight was about $607 billion as of end-2004. Their net external assets (accumulated flight capital minus accumulated external debt) amounted to approximately $398 billion over the 35-year period.
    8. 8. <ul><li>loss of revenue for public expenditure programmes </li></ul><ul><ul><li>increased reliance on external debt </li></ul></ul><ul><ul><li>need to offer incentives to foreign investors </li></ul></ul><ul><ul><li>conditions imposed by aid donors </li></ul></ul><ul><li>reduces investment in public goods – education, training, physical infrastructure, research & development </li></ul><ul><li>switch of tax burden between factors of production </li></ul><ul><ul><li>worsens inequality </li></ul></ul><ul><ul><li>raises cost of labour relative to capital </li></ul></ul><ul><ul><li>reduces consumption of domestic produce and increases imports of luxury goods and services </li></ul></ul><ul><li>creates micro-economic distortions </li></ul><ul><ul><li>the free-rider phenomenon </li></ul></ul><ul><ul><li>corporate responsibility begins with paying tax </li></ul></ul>Wrecking Opportunities for Mobilising Domestic Resources – direct impacts “ Aggressive tax avoidance is a serious cancer eating into the fiscal base of many countries” Pravin Gordham Finance Minister South Africa, 2009
    9. 9. <ul><li>greatly increases tax administration costs </li></ul><ul><li>threatens the viability of weaker states , and increases reliance on external players – this has an entirely negative impact on democracy building </li></ul><ul><li>tax dodging undermines public confidence in the rule of law and the integrity of public systems, institutions and rules. It should be classified as a predicate crime under the UN Convention Against Corruption </li></ul><ul><li>tax dodging is a crime against society and should be ranked as grand corruption because it generally involves privileged elites </li></ul>Wrecking Opportunities for Mobilising Domestic Resources – further impacts US$160 billion € 110 billion The estimated annual cost to the people of developing countries of tax evasion by multinational companies
    10. 10. The expanding credit crisis has helped underline the dangers of a lack of transparency in international finance, poor regulation and insufficient cooperation . . Yet the world risks wasting political capital on the wrong targets. We are pursuing the timorous policies of a past age to tackle tax havens. Comment: Stop this timidity in ending tax haven abuse John Christensen and David Spencer, 5 th March 2008 Financial Times - 26 September 2003   “ ”
    11. 11. <ul><ul><li>Replace the OECD black/grey/white list with TJN’s Financial Secrecy Index (to be published 1 st November) </li></ul></ul><ul><ul><li>Adopt automatic information exchange as a multilateral standard, and sanction non-cooperative jurisdictions </li></ul></ul><ul><ul><li>Adopt an International Financial Reporting Standard on country-by-country reporting </li></ul></ul><ul><ul><li>Require full public disclosure of beneficial ownership of trusts, companies, foundations and similar legal entities </li></ul></ul><ul><ul><li>Adopt a General Anti-Avoidance Provision accompanied by purposive legislation </li></ul></ul>Strengthening transparency and governance “ We should endorse sharing information and bringing tax havens and non-cooperating jurisdictions under closer scrutiny” Manmohan Singh Prime Minister of India, 2009
    12. 12. <ul><ul><li>Strengthen international cooperation with a primary objective of ensuring that national tax systems do not have negative external impacts on tax sovereignty elsewhere (UN Tax Committee proposals under Monterrey Consensus) </li></ul></ul><ul><ul><li>Define tax evasion as a corrupt activity within the scope of the UN Convention Against Corruption , and as a predicate crime under AML regimes </li></ul></ul><ul><ul><li>Negotiate a multilateral framework to allow states to tax multinationals on a global unitary basis (using formulary apportionment) with appropriate mechanisms to allocate tax revenues across borders </li></ul></ul>Enhanced global cooperation “ Action by the international community is required to ensure that the potential tax base of developing countries is not undermined through tax evasion” African Tax Administrator’s Forum, Pretoria, South Africa, 2008
    13. 13. more info: taxjustice.net taxjustice.blogspot.com taxresearch.org.uk/blog contact: [email_address]

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