ECOSOC Side Meeting 23Jul07

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Tax Avoidance Evasion from the Perspective of a
Small International Financial Services Centre Dr
Malcolm Couch Isle of Man Assessor of Income Tax
Side Event to UN ECOSOC Meeting, Geneva, 23 July
2007
2
Introduction

• All countries have people and businesses who
  either fail to comply with tax law or in some
  cases wilfully break it
• Financial markets are increasingly globalised
• Criminal activity has also become increasingly
  multinational and resident to an extent within
  the global financial market

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Introduction (2)

• Dirty money may account for 1 trillion of
  cross-border capital flows each year (Raymond
  Baker)
• Sources are corruption, criminality and illicit
  commerce
• Any country can be part of the footprint of these
  capital flows

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Introduction (3)

• As an example of the indiscriminate global impact
  of dirty money, consider"Criminals seeking to
  launder money, evade taxes or commit other crimes
  want to cloak their actions in secrecy, and right
  now, that's exactly what they get when they
  establish a US shell company." (Carl Levin, US
  Senator)

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Introduction (4)

• Raymond Baker has called on the USA to state that
  it welcomes money that is legally earned and
  transferred and that will be legally employed,
  but it will not be a safe haven for dirty money.
• Baker suggests eight measures should be taken
  within the US jurisdiction to improve its
  financial system

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Introduction (5)

• The concern of national tax authorities to
  ensure their fair share of the tax base of
  international business is also counterbalanced by
  concerns to ensure their country maintains its
  international competitiveness in attracting
  investments and as a base for such business (Sol
  Picciotto)

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Terminology

• The debate about tax evasion and avoidance almost
  always includes a focus on tax havens,
  offshore and offshore finance centres (OFCs)
• What do these terms mean?
• There cant be anything intrinsically wrong with
  being a financial centre of excellence!

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Terminology (2)

• A 1987 Report by the OECD recognised the
  difficulties involved in providing an objective
  definition of a tax haven. That Report concluded
  that a good indicator that a country is playing
  the role of a tax haven is where the country or
  territory offers itself or is generally
  recognised as a tax haven this is known as the
  reputation test (OECD)

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Terminology (3)

• there is no unanimity on what constitutes an
  OFC. While authors have proposed various lists
  of what they consider to be OFCs, an empirical
  framework for uniform classification does not
  exist. (Ahmed Zoromé, IMF, April 2007)
• There does not exist a single, unambiguous
  definition of a tax haven or an OFC. (Tax
  Justice Network, July 2007)

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Terminology - Conclusion

• If everyone knows that they cannot define a tax
  haven, offshore or OFC, why do they bother
  trying?
• Stigmatisation serves a useful purpose the
  scapegoat carries the sins of others

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OECD

• some OFCs will have a secure future, not as
  concealment centres, but as service centres
  that have carved out niche markets in which
  activities can thrive in a lightly regulated,
  tax-neutral environment. Those that continue in
  the old way of offering themselves up as places
  in which home taxes can be avoided will, however,
  in the authors opinion, face extinction.
  (Jeffrey Owens, OECD, December 2006)

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OECD (2)

• Owens again (January 2007)if you want to be a
  serious player in the international environment
  not going for sort of the dark side of this game,
  the illegal activities, the money laundering, the
  tax evasion if you want to be a serious
  offshore financial centre, the key thing is
  reputation. And if you have a reputation for
  being a place thats a bit seedy, without
  transparency, being prepared in fact to take on
  illegitimate transactions, then what youll find
  is that the legitimate business will not come
  your way.

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UN

• The UN Committee of Experts on International
  Cooperation in Tax Matters considered at their
  meeting in 2006 the possibility of a tax code of
  conduct that might- set a moral tone for
  international tax communityundermine the social
  acceptance of international tax avoidance and
  evasion

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UN(2)

• Code of conduct concepts (continued)- give moral
  support to governments that wish to conform to
  international standards of conduct- create a
  level playing field for low-tax countries that
  are meeting their international obligations by
  putting pressure on non-complying countries to
  meet their own obligations

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Summary

• Global financial crime, including tax crime, is a
  major problem running alongside the legitimate
  international financial system
• Ultimately, effective action to combat global
  financial crime will be founded on international
  cooperation, but may also require individual
  countries to make domestic legislative changes

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Summary (2)

• Benchmark standards in international tax
  cooperation should be developed by a broad
  coalition of countries seeking to understand the
  underlying problem areas and treating each other
  with respect UN sponsorship of such work would
  give it great credibility
• Standards should apply to all, and should define
  the legitimate global economic community

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Contact

• Malcolm Couch can be contacted viae-mail at
  malcolm.couch_at_gov.imphone on 44 (1624) 685355
  (direct line)