Tax evaders stash 21 Trillion dollars...

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Forums › Finance and wealth management › Tax evaders stash 21 Trillion dollars...

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John2010

532 posts

Ultimate Geek

#665314 1-Aug-2012 12:30

mattwnz: ...In a way you have to wonder why, because paying tax is giving back to your country to support it's infrastructure, health, and less fortunate.
I am a firm believer in people/companies paying taxes and paying their fair share, and not using accountants/lawyers to look for tax minimisation.

There are two reasons that come to mind as to why companies pay accountants and lawyers.

One is to pay only that tax which is legally required of them and that is only being responsible (after all, how many of the complainers here volunteerily pay tax that is not required of them?), they do not do so to defraud the public. Cash that does not go in tax can only be used in two ways: company growth, renewal and security (this, I would of thought, is a worthwhile reason) and to distribute as dividend. If doing so means they also have more cash they choose to distribute as dividends, then as I was at pains to point out in my last post these will be passed to the shareholders with imputation credits and the shareholder will pay tax at his marginal tax rate (which will likely be higher than the company tax rate) on the balance and so the profits end up indeed taxed.

The other reason is due to the complexity of company taxes and the high costs if one gets it wrong or the IRD claims one got it wrong: both of which frequently happen, even in the best run companies.

In the case mentioned by bradi, as to profits distributed out of the country I think most people accept that those that invest in NZ are entitled to a return on that investment. In the same way, the many NZ companies and individuals who invest in overseas countries (an obvious big example is Fonterra) are entitled to a return on those investments.

The alternative is an insular economy divorced from the international environment. Probably the only two significant countries most like that are North Korea and Cuba both of which I would hope we do not mimic. In the first year of this century NZ proclaimed an intention to becoming a "non-aligned" one, but which as was eventually discovered to mean "no friends" and was one contribution to a capital flight out of the country (including that of some of our own corporate tax residents) at that time.

EDIT: typo's

gzt

17104 posts

Uber Geek

Lifetime subscriber

#665373 1-Aug-2012 13:21

One of the biggest problems identified by Tax Justice around offshoring is the level of secrecy gained.

The U.S created an enforcement and loophole elimination plan a while back including sanctions for non-compliance - I wonder what success they have had:

http://www.forbes.com/2009/05/04/obama-taxes-jobs-business-washington-full-text.html

John2010

532 posts

Ultimate Geek

#665465 1-Aug-2012 14:44

gzt: One of the biggest problems identified by Tax Justice around offshoring is the level of secrecy gained.

Not sure if you were adding to what I had said or not, but if so:

I agree, but that only applies for those headquartering in disreputable, non-cooperative OFC countries. They are, in fact, very little used by the vast, vast, vast majority of corporates.

Some here give the impression that any use of a OFC country having a low or nil company tax, by a corporate (or individual), is for disreputable reasons. And that is really just the opinion of those who have no understanding at all. There may be some merit in claims (not made in this thread though) that low or nil tax countries are anticompetitive but if so one would have to be of the belief that taxes should be the same everywhere. NZ (among many others) has adjusted company taxes for international competitive reasons and by some definitions is classed as an OFC.

It is a worry that there are a surprising number of people in NZ whose knowledge is so little regarding corporate tax that they believe nonsenses along the lines of "because companies can deduct expenditure that it means the items expended on are free".

A troublesome case of that I came across was a local union representative who was extremely bitter (like pathalogically so) towards management, and it turned out part of that was because he believed that because the payroll was tax deductible, the payroll did not cost the company anything. In his mind that meant management had no reason at all not to pay the workers what they thought they were entitled to except to be bloody minded, as the payroll was effectively free to the company

. Was very disruptive until I and a union organiser who knew me got there and undermined the guy's power base.

gzt

17104 posts

Uber Geek

Lifetime subscriber

#665551 1-Aug-2012 16:30

It was not intended as a reply. Just referring back to the original parameters of the discussion before the interesting side track.

Your explanation covers offshoring implementations where there is no tax benefit because the total amount of tax paid in the end is the exactly the same. You explain further that a common driver for the practice is lower compliance costs and to some degree infer that this does not directly impact on tax paid.

This is not where Tax Justice sees it's 21 Trillion disappearing into.

I've been having a look around the tax justice website. It is a bit of an internal link labyrinth.

Hard to find any concise statements. Here's a couple I pulled out from one of their associated websites:

Tax compliance = seeking to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes.

Strikes me as being a good definition to use to guide policy, and consistent with mattwnz's approach. And:

Tax justice means being in favour of tax cooperation. This requires that:

a. Automatic information exchange on income earned in one country attributable to a taxpayer in another country;
b. The sharing of data to ensure tax is assessed e.g. on transfer pricing issues;
c. An assumption that all income is taxable giving rise to cooperation to tackle tax arbitrage;
d. A mutual intolerance of states that will not cooperate on taxation matters;
e. Cooperation on international tax collection;
f. Development, where appropriate, of international bases of taxation to assist mutual tax collection.

Being in favour of tax cooperation means that we are opposed to tax competition. Tax competition includes:

a. Offering incentives to encourage the artificial relocation of transactions to a territory;
b. The ring-fencing of taxation benefits from local populations;
c. Encouraging the ?race to the bottom? in taxation rates;
d. Refusal to share tax information;
e. Refusal to recognise tax evasion as a crime;
f. Non-cooperation on the recovery of tax debt;
g. Encouraging the non-taxation of capital.

Most of that is a logical development of a globalising economy. I'm not exactly sure what is intended by 2b, and I think that one will be contentious. In practice a lot of the items would need to go hand in hand with reducing complexity. Similar points are made around transparency in international banking.

To make it worthwhile in practice (and politically easier to implement) they should set the barrier for enforcement action fairly high to begin with rather than chasing some joe blogs internationally for a deduction he may or may not have been entitled to.

John2010

532 posts

Ultimate Geek

#665588 1-Aug-2012 17:36

gzt: It was not intended as a reply. Just referring back to the original parameters of the discussion before the interesting side track.

Your explanation covers offshoring implementations where there is no tax benefit because the total amount of tax paid in the end is the exactly the same. You explain further that a common driver for the practice is lower compliance costs and to some degree infer that this does not directly impact on tax paid.

This is not where Tax Justice sees it's 21 Trillion disappearing into....

Yes, I agree - My explanations were only responding to the growing number of claims in this thread that that corporates made a general habit of not paying tax (and that in a thread with an "Tax Evader" title and so infering corporates generally manage their tax affairs in an illegal manner) and that represented a loss of tax revenue.

John2010

532 posts

Ultimate Geek

#665592 1-Aug-2012 17:45

gzt: To make it worthwhile in practice (and politically easier to implement) they should set the barrier for enforcement action fairly high to begin with rather than chasing some joe blogs internationally for a deduction he may or may not have been entitled to.

Of course, countries that have no or very low personal and corporate taxes, raising their revenue with other taxes e.g Hong Kong 16.5% company tax, max 15% personal tax, and the one I referred to before was zero company and personal tax on earnings) do not have these worries.

Their tax residents can hide their money whereever they may like, but it is hardly worth the while them doing so though. Don't know the current situation in Hong Kong, for example, but when I was there quite some time back the Revenue did not even have the right to audit unless they had evidence from elsewhere of evasion.

JimmyH

2886 posts

Uber Geek

#665713 1-Aug-2012 20:42

mattwnz:
DarthKermit: Companies like Google and Apple use all sorts of methods for tax minimisation. They both pay very little tax on their vast annual profits.

In a way you have to wonder why, because paying tax is giving back to your country to support it's infrastructure, health, and less fortunate.
I am a firm believer in people/companies paying taxes and paying their fair share, and not using accountants/lawyers to look for tax minimisation.

I suspect that while most people don't object to paying their "fair" share of taxes, different people have wildly divergent views on what "fair" is, and a significant number object to paying tax that they see as being excessive or more than their fair share. For example, one person can say that someone on $65,000 should pay a 39% because it's fair given they are on a high income, whereas someone earning $65,000 might see taking 39 cents of every dollar they earn as being unfair - particularly if they feel they are working hard to earn it, when others pay much less, and the money is being given to people they perceive as work-shy. Psychologically, I suspect it is easy to rationalise taking steps to reduce your tax bill if you feel that what you are being asked to pay is unfair and unreasonable.

While you can do analysis on the economic impacts of different tax rates, the question of what tax scale and deductions are fair and reasonable is inherently political rather than analytical.

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bradi

137 posts

Master Geek
Inactive user

#665814 1-Aug-2012 23:51

So this has been a real eye opener in terms of people's views / opinions. Thanks to all who contributed.

gzt

17104 posts

Uber Geek

Lifetime subscriber

#666590 2-Aug-2012 22:29

Found a link to the full report on an unrelated news website:

http://www.taxjustice.net/cms/upload/pdf/Price_of_Offshore_Revisited_120722.pdf

Really long and fluffy. From my perspective it does a horrible job of bringing together lots of disparate data and making it understandable. Not a single graph.

I skimmed it, some of the main points given are:

21 Trillion is the lower end of the estimate
The external privately held assets of 3rd world countries are greater than their debt
Does not include hidden personal physical assets like yachts etc
International private banks competing to provide practically secret shelters for super-wealth
Transfer mispricing between related entities in different countries

RNZ did an interview with the author/economist employed for the report: James Henry (not listened)

John2010

532 posts

Ultimate Geek

#666767 3-Aug-2012 10:30

gzt:
...Does not include hidden personal physical assets like yachts etc

So how does one hide a yacht - in a mangrove swamp somewhere

???

This is something that I know more than a little about. A yacht worth "hiding" is going to be on a register of ships in some country, else it will not be able to undertake international voyages. Registers of ships will, subject to conditions such as the condition of the vessel, take on vessels which are owned by citizens (or in some cases citizens of related countries e.g. if it is a territory). Also note that the nationality of a vessel on a register of ships (as it is required to be) has nothing whatsoever to do with the nationality of its owner - the vessel has its own nationality (that of the country whose register it is on) and it is subject to the laws of that country, not the country of residence or citizenship of its owner.

Persons or companies are regarded as citizens so anyone can (generally speaking) register a yacht on another county's register by putting the vessel into the ownership of a company in that country and the vessel becomes subject to the laws of that country. Let us say that company is owned by Mr Company Owner and note that Mr Company Owner does not own the vessel, the company does. Now, there are many reasons Mr Company Owner may have for doing that and indeed one is to avoid taxes that may apply to the vessel in the country that Mr Company Owner is a tax resident (for example in many of countries you are taxed annually for the pleasure of owning a pleasure vessel) but there are many other reason which, in the main revolve around the survey and manning requirements of registers of ships of many countries (especially the likes of the UK, etc) are oriented to big working ships, not pleasure vessels or pleasure vessel types in charter.

So for example, if one has a superyacht which is chartered for part of the year, on ones own country's register one may find that there is a requirement to have a doctor as part of the yacht's crew (don't know what it is just now but for the UK register used to be around 10 Pax have to have a doctor on board). There are other things to do with the structure and fitout of the vessel which are just silly (in fact I had a client with a vessel on the UK register and there were demands of the register which were just silly for a pleasure vessel) but which some registers go out of their way to accomodate. For example, the New Zealand register does not require the vessel's name to be welded in raised plate form to the hull of the ship (as always is on the sterns, for example, of big ships) and for smaller vessels does not require the registration details to be "carved" into an internal beam visible for inspection - these in recognition that doing so detracts from yacht quality.

A local example is for NZ owned yachts departing NZ as they have to comply with an inspection (based on the ISAF Offshore Racing Rules, Category 1) before they will get customs clearance for departure - NZ is the only country that does this - and this is for every departure, not just one or once in a while. So some owners who hold citizenship of other countries place their yacht on the register of that country in order to avoid the costs of the inspection and the equipment or modification costs that may entail for the vessel if on the NZ Register. These are not superyachts being "hidden" to avoid/evade tax but ordinary people scraping by with an old, cheap and small sailing yacht with which they want to undertake an international voyage (a holiday to the South Pacific Islands, for example).

So for those who have got this far, while all the claptrap about "hiding" yachts may have some little tax reason there are many other reasons which normally are the predominant ones when a yacht is put on the register of another country. Putting "superyacht" and tax evasion or avoidance together in the same sentence though sure does appeal to the envy of the chattering classes and gets mileage from those wanting to lead them to an envy driven idiological outcome.

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