Amtshilfe

Administrative cooperation.

Switzerland said they will provide administrative cooperation to governments seeking evidence about tax cheats even if the governments are using “stolen” data. However, Switzerland said, it does not want to cooperate with governments that “actively” acquired stolen data (such as the German state of Rhineland-Palatinate, der Spiegel suggested) but will now cooperate with governments with which those “actively” acquired data have been shared.

(OMTS hill fah.)

Im Quellenland Steuern zahlen

“Paying taxes in the source country.” The O.E.C.D. presented its post-Offshore Leaks report on 19 Jul 2013 and announced it wants to enact new rules forcing companies to pay taxes in the countries where the income is earned, disallowing the currently not-illegal practices that shift income to low-tax countries. The G20 countries supported this plan. A “golden era” of “tax arbitrage” may be ending.

Update on 06 Sep 2013: World leaders at the G20 summit in St. Petersburg agreed that in future corporate income will be taxed in the country where it is earned. It will no longer be possible to schubs income around the world, shopping for lower-tax jurisdictions.

(Imm   KVELL en lont   SHTOY ahn   TSOLL en.)

Steuersparmodelle für Grossunternehmen angehen

“Having a go at tax savings models for large companies,” what the EU is doing now that US firms have started testifying before Congress about still-legal systems of international tax loopholes partially revealed by the “Offshore Leaks” data trove.

From the Süddeutsche Zeitung’s description of some results from the 22 May 2013 EU summit in Brussels:

“At their meeting Wednesday the 27 leaders also talked for the first time about actions to be taken against tax savings models for large companies. With an eye on corporations like Apple, Amazon or Google, which avoid taxes on a large scale, British leader David Cameron said it is time to close the loopholes. He said one has to be sure that companies are really paying taxes. France’s president François Hollande demanded action against the ‘corporations’ tax tricks.’ Irish premier Enda Kenny was put under pressure because for years Apple has been using Irish subsidiaries to save billions of euros. Kenny said there aren’t any exception rules for international corporations. Ireland’s rules for taxing companies are ‘transparent and clear.’ The EU commission now plans to submit proposals for closing corporate tax loopholes by the end of 2013.”

(SHTOY ah SHPAH mode elle ah   foor   GROSS oont ah NAME en   ON gay hen.)

Fantastillionen

“Lots of money,” an “unimaginable fortune,” but no one knows how much yet. The Münchener Abendzeitung reported reports, firmly denied, of account balances totalling several hundred million euros. Uli Hoeneß, the president of German soccer’s version of the NY Yankees, FC Bayern Munich, submitted a Selbstanzeige in January 2013 for unpaid taxes on funds in one or more Swiss bank accounts and has already paid an initial lump sum of about six million in unpaid taxes. He said he didn’t report himself before January 2013 because he was betting the tax agreement with Switzerland would be ratified that provided amnesty, anonymity and a low tax rate for “tax sinners.” Tagesschau.de reports that it’s still unclear where the untaxed monies came from, whether from his bratwurst factory or from other sources.

ZDF heute journal found footage of Hoeneß on talk shows such as the charming Günther Jauch’s in autumn 2012 recommending low taxes for rich Germans because otherwise, he said, they would move to Austria, Switzerland or “who knows where.”

CSU chair Horst Seehofer confirmed on Saturday, 20 Apr 2013, at a CSU meeting in a Munich Hofbräuhaus cellar, that the district attorney was looking into the matter. The CSU had been going to propose Hoeneß as a political candidate, and he probably would have been confirmed.

The Münchener Abendzeitung commented on 20 Apr 2013:

“The question remains whether Hoeneß can now hope for the same support from the Bavarian state government as Franz Beckenbauer, to whom Bavarian finance minister Ludwig Huber once gave tips about tax flight into Switzerland while Huber was still in office?”

Achtung: Focus Magazin’s publisher is on the board of FC Bayern Munich.

(FAHN tossed ill ee own en.)

Selbstanzeige

“Self reporting,” voluntary submission of an amended German tax return reporting money hidden in e.g. Switzerland. You can still report yourself to the German IRS, pay a low tax rate on the unreported funds, get immunity from prosecution and legally repatriate the money to Germany. The reason we know there are still Germans with Schwarzgeld, under-the-table or “black” capital, in Swiss bank accounts who have not taken advantage of the Selbstanzeige is because the German state governments, acting independently, buy CD’s of data about these accounts and use them to pursue tax sinners for fun and profits. The state of Rhineland-Palatinate recently bought another one, for the 500 million euros they expect to collect with its help and because no capital crimes were committed in the seller’s acquisition of it. ~200 apparently-related tax razzias took place on 16 Apr 2013. The RP finance minister is asking the other German states to show solidarity by contributing toward the purchase price because they too will be benefiting from the content. Lower Saxony has already announced they will contribute. Both states are ruled by SPD and Green Party coalitions.

The Selbstanzeige will soon be irrelevant because international negotiations are moving toward closing the loopholes, especially since publication of the “offshore leaks” financial data trove. Meanwhile, the Süddeutsche Zeitung writes in a wonderful history of bank account data sales to Germany, RP tax officials are “electrified” and say they’ve never had foreign bank account data this good before. “First class.” It sounds like enough years of transfers and other information are included that, after the tax authorities are done with it, the CD could form the basis of some interesting doctoral theses.

The top Rhineland-Palatinate tax agent now says he sees the recently failed tax agreement with Switzerland as disadvantageous, because it provides a partial amnesty and would destroy tax payment morale were it to be ratified now.

(ZELBST on ts eye geh.)

 

Die Oasen der Anderen

“The Oases of Others,” a playful film reference in post-leak financial news reporting averring that countries seem more concerned about lax tax rules abroad than they are about their own tax loopholes (i.e., the USA and the state of Delaware).

Der Spiegel reminds us that quality and variety are better bets for future growth than competing internationally in a race to the bottom. There will always be countries with lower wages, so you are better off investing in education for your people and diversifying your industries.

(Dee   oh OZ en   dare   OND er en.)

Der grosse Knüppel

The big stick (actually, a Knüppel is a blackjack or sap). This week’s breathtaking breakthroughs in offshore accounting EU reform initiatives are said to have only been made possible by help from the USA, which used its very big stick of threatening to cut off uncooperative countries from the financial Mecca that is Wall Street.

Before the offshore data leak was published on 04 Apr 2013, it was Luxemburg and Austria versus 25 EU Member States regarding offshore anonymity, and now Austria is standing alone, which EU countries describe as being “isolated” and fear more than US Americans might expect.

(Dare   GROSS ah   c’nupp ell.)

Der Mann ohne Gesicht

“The man without a face,” East German spy chief Generaloberst Markus Wolf. Whose son Franz now runs a complex web (a Geflecht or “weaving,” meshwork) of offshore companies supposedly from his registered residence in Gibraltar. The SZ calls his network an empire, stretching from the Caribbean to Russia. Companies in the network are involved in dozens of industries, including surprisingly water utilities (Wasserversorger, water suppliers). Speaking of water, the chains of companies also once helped hide ownership of the oil tanker Prestige after it sank off the coast of Spain in 2002 and its oil spilled onto Spanish beaches. The SZ said the Neue Zürcher Zeitung wrote that ownership was eventually traced to a Franz Wolf company which quickly disappeared.

(Dare   MONN   oh neh   geh ZICHH t.)

Schneeballsystem

“Snowball system,” the house-of-cards finance company operated from 2006 until its collapse in 2011 by a guy now awaiting trial in the USA which ate $117 million of one Venezuelan businessman’s money and the at least $500-million pension fund, for 25,000 workers, of the Venezuelan state oil company PdVSA. Reporting the story on 04 Apr 2013, the ICIJ wrote that the financier appeared to have started the pyramid scheme after suffering a $5 million loss in 2005.

A bankruptcy administrator (Konkursverwalter) or receiver appointed by a US federal court said inter alia that a very well-connected Caracas stockbroker apparently got fees as high as $10 million per transaction for diverting large amounts of money into the pyramid scheme to keep it going, and an investments and insurance manager at the oil company collected $37.5 million for sending PdVSA pension money to Connecticut. The receiver has recovered $230 million from a bank in the Netherlands and is still hunting for the rest, writes the ICIJ. When the SEC started investigating in 2010, they discovered “intricate financial transactions and virtually zero bookkeeping.”

(SHNAY boll zyss dem.)

Generalsekretariat für Staatseinnahmen

“General Secretariat for Revenues,” a newly created department in the Greek government responsible for checking government income. Its head used to be in charge of the Greek General Secretariat for Information Systems (GSIS). In response to the “Offshore Leaks” data release last week, the Greek Revenues office will be investigating, among other things, a chain of offshore companies that have been providing military technology to Greece and the USA but whose actual ownership remains a mystery.

The Süddeutsche Zeitung reported: “Interoperability Systems International Hellas S.A. […] was co-awarded a 190-million euro order in 2003 for kitting out Greek F-16 fighter jets. The company also delivered hardware and software to the US Marines. In 2003, 33% of ISI belonged to Bounty Investments Ltd., which in turn owned part of another offshore company. Over that company there was a third veil as well. An attorney for ISI Hellas said Bounty Investments ‘fulfilled all requirements of the Greek tax authorities.’ Some experts think companies in the defense sector fundamentally ought not to be messing around in cloudy offshore waters.”

Update on 10 Apr 2013: This highly entertaining* SZ article about a British family that managed letterbox companies (Briefkastenfirmen) in New Zealand and includes Miami, Moscow, Pyongyang, Teheran and Vanuatu notes that it becomes impossible to trace ownership after only three to four “dummy companies” (Scheinfirmen). “After three, four dummy companies in a row the track gets lost in a thicket of commercial registers (Handelsregister, HRB).”

(Genn er OLL seck rett arr ee OTT   foor   SHTOTS eye nom men.)

 * highly entertaining until the deaths of two Russian reformers at the very end of the piece: Sergej Magnitskij (37) and Alexander Perepilitschnij (44).

 

Pustekuchen!

Poppycock! In this video op-ed from the Süddeutsche Zeitung, a commentator says it might appear that the best way to reform the world’s tax oases would be to let each fix their own lax tax laws, one-by-one. But piffle! No! Those 40+ tax havens are in competition with one another. Max Planck Institute researchers said market pressures would mean the last holdouts would become too powerfully wealthy and resistant to change. The best way is the one that is most politically difficult: negotiating simultaneous agreements with all tax oases.

(POUSSE teh KOO chh en.)

Bankgeheimnis

“Banking secrecy.” Luxemburg announced on 07 Apr 2013 that they intend to relax their banking code of silence, “no longer strictly refusing” to automatically share information about international accounts with other countries’ tax authorities, starting in 2015. EU countries have also been in negotiations with Switzerland about similar issues for several years, though individually as separate countries and not with the full power of the EU.

Until now, foreigners banking in Luxemburg have paid an anonymous tax of 35% on interest earned there. This will be changed in Luxemburg e.g so that account holders’ names will be included in the information shared with German tax authorities.

German critics say this is insufficient because other Luxemburg income, such as company profits, remains untaxed for foreigners. Also, Luxemburg isn’t the only European tax oasis. Jürgen Trittin of the Green Party criticized Austria, for example, where names of foreign account holders earning interest in Austrian banks are only shared after initiation of criminal proceedings. Green Party finance guy Gerhard Schick wrote that the G20 summit in 2009 actually agreed to end Bankgeheimnis; certainly some reforms were enacted that year though movement has been slow since, until the recent data leak. The ZDF report concluded by saying that economists have warned that if only some tax oases reform their laws, the ones that don’t will profit from acquiring fleeing customers.

Update on 09 Apr 2013: “In principle, Liechtenstein has separated itself from its tax haven past.” Speaking of Liechtenstein, it looks like they had an interesting idea for a new field for financial services experts in former tax oases to move into: ratings agencies that are independent of the big three on Wall Street. The nonprofit Carlo Foundation (carlofoundation.org), said to be the world’s first independent fund rating agency, was founded in Liechtenstein in July 2012.

Update on 22 May 2013: At their summit in Brussels all 27 EU leaders confirmed in principle their finance ministers’ decision to eliminate Bankgeheimnis for “foreign”-held bank accounts, insurance policies and investments starting in 2015. The leaders of the two last holdouts, Luxemburg and Austria, said they too would agree to the automatic exchange of data after the EU as a whole negotiated banking agreements with relevant third-party countries such as Switzerland, Liechtenstein or Monaco. Luxemburg’s prime minister Jean-Claude Juncker said his country is particularly concerned that the same competition conditions apply in finance centers inside and outside the EU. Negotiations with Liechtenstein, Monaco, Andorra, Switzerland and San Marino about automatic exchange of banking data are underway and expected to be concluded quickly, in “two to three months.” If all goes according to schedule, EU leaders could completely eliminate Bankgeheimnis at their meeting in December 2013.

Update on 20 Mar 2014: The 28 E.U. heads of government agreed to end Bankgeheimnis in the European Union, with comprehensive exchanges of tax data. This will also end banking secrecy for foreigners, though that might mean only for foreigners from other E.U. member states. Five third-party countries, Switzerland, Liechtenstein, San Marino, Monaco and Andorra, also agreed to exchange sufficient information to end banking secrecy de facto with regard to interest income, said Luxemburg’s prime minister, saying this fulfilled Luxemburg’s conditions for also agreeing to the new policy.

The O.E.C.D.’s standard for automatic data exchange will be the orientation point, and the E.U. hopes it will become the standard for tax information exchange regulations worldwide, said E.U. Council President Herman Van Rompuy. But today’s breakthrough E.U. policy agreement goes beyond the requirements of the O.E.C.D. standard:

“In future, the data exchange is supposed to apply not only to private persons but also to certain trusts and foundations. The guideline will also apply for stock profits and certain insurance profits, particularly from life insurance and investment funds. The banks are also to be obligated to collect more information in future about the actual economic owners of companies.”

(BONK geh HIGH mniss.)

Partnermedium

Partner member of the media, what the Süddeutsche Zeitung is calling the other news organizations that received copies of the “Offshore Leaks” data trove. The SZ has posted a map showing the countries known so far to contain such media outlets and a list of the latest important discoveries.

(POT nah may dee OOM.)

Inländische Steueroasen

“Domestic tax oases” inside a country. The head of the largest opposition party to Chancellor Merkel’s government coalition has accused the states of Bavaria and Hesse of acting like tax paradises within Germany by hiring low numbers of tax officials, reducing tax auditing frequencies and bruiting that about in order to attract businesses. It’s probably no coincidence that Bavaria and Hesse recently filed a lawsuit seeking to break the decades-old post-WWII reconstruction “solidarity pact” in which German states that are doing well financially pay money to German states that are not.

US state Delaware was mentioned in a “Planet Money”-style ZDF report that said it has very low taxes, very business-friendly courts, 800,000 inhabitants and 900,000 companies and is where most of the world’s firms “organize their America business.”

(E’en LEND isch ah   SHTOY er oh OZ en.)

Durchgangssteueroase

“Pass-through tax oasis” or “flow-through tax oasis,” in a third country; also called a Vertragssteueroase (treaty tax oasis). The fierce discussion triggered in Germany by the publication of what is being called the  “Offshore Leaks” data trove on 04 Apr 2013 has moved from international tax avoidance by individuals, usually heirs in journalists’ examples, to international tax avoidance by companies, not least because these schemes do require a complex web of service providers and subsidiaries to move the money around. So, say your company earns income in a foreign country where your country has a double taxation agreement* with that country’s government not to tax it. As a first obfuscatory step, you can transfer this money to a Durchgangssteueroase, a third country that also has a nontaxation agreement with the country where you earned the income. The Netherlands is one of the world’s biggest pass-through tax oases because of agreements they’ve made with Asian countries that do a lot of manufacturing.

Income can thus be transferred out of high-tax countries to a pass-through tax oasis such as Mauritius to a zero tax oasis (Nullsteueroase) such as the Cayman Islands. Hans-Lothar Merten’s book “STEUEROASEN Ausgabe 2013: Neue Einblicke in die Offshore-Welt” explains that countries acting as pass-through tax oases justify being the first step in the chain by saying they are providing an important service in avoiding double taxation but, he says, what they are providing is in fact double nontaxation. ~20 trillion euros flowed through the Netherlands in this manner in 2012, Merten said [p. 29]. Ireland has provided useful related services.

German media are also reporting, or perhaps repeating each other’s examples of, perfectly legal situations where international companies’ foreign subsidiaries reduce their local net income by paying high licensing fees—for the rights to use their parent company’s brand—to subsidiaries in low-tax countries, perhaps while also deducting their expenses in high-tax countries.

(DOER chh GONGZ SHTOY er oh OZ iss.)

* Durchgangssteuerungsabkommen, “double taxation agreement,” “double tax treaty”: country A makes a (bilateral) agreement with country B to not tax income earned by country B people in country A. However, people who are residents of neither country can take advantage of the advantages by hiring an intermediary. The result is international flows of capital that are, writes Hans-Lothar Merten, inexplicable for any reason other than double taxation agreements and so-called “treaty shopping.” He cites the example of the island of Mauritius, which has double taxation agreements with ~50 other countries. Cyprus had them with ~45 countries, according to Wikipedia, with more in negotiation.

Kapitalverschleierung über Steueroasen

“Using tax oases to veil capital.” Methods for doing this were disclosed by financial data about 130,000 people, in 170 countries, >120,000 “mailbox companies,” >260 GB in >2 million documents from a time range of ~30 years sent anonymously to the International Consortium of Investigative Journalists over a year ago. The story hit the world press on 04 Apr 2013. Greek and Filipino tax authorities announced that they will be investigating. The vice president of Mongolia‘s parliament will probably have to resign. Some of the still-legal methods to create tax opacity to be gleaned from the data were shown to have been used by the Deutsche Bank in Singapore, which had an intermediary agent (Trustverwaltungsfirma, “trust administrator company”) create >300 companies in so-called tax paradises (Steuerparadise).

In response: Gerhard Schick (Green Party) suggested Germany follow France’s example of levying an additional tax on all transactions with low-tax countries, disincentivizing tax flight (Steuerflucht) by neutralizing the advantages. Joachim Poß (SPD) proposed “an international anonymous NGO and a comprehensive information exchange, starting here in Europe.” The Leftists party proposed following the USA’s example of linking tax obligations to citizenship, so that every German residing abroad would be obligated to report “their total income every year, how much property they owned in total and what taxes they had had to pay for that in the Seychelles that year. And the difference between that and their German tax obligation” would then have to be paid in Germany, said Gregor Gysi (Die Linken).

The Süddeutsche Zeitung reported that they and NDR were the two German media outlets given access to the data (of “the biggest leak in world history”), and furthermore that a representative of Finance Minister Wolfgang Schäuble requested access to the data on Thursday, 04 Apr 2013, but the SZ would not grant that request. The data were protected under freedom of the press (Pressefreiheit), which includes protecting one’s sources, the Süddeutsche wrote. Sharing the data with government authorities might endanger those sources and obstruct the SZ’s ongoing research. NDR also refused the request to share the data. Now Focus magazine seems to have acquired the data somehow.

Update on 06 Apr 2013: “I have a certain degree of pleasure from the fact that this public scandalization in all countries has very much increased the pressure,” said German finance minister Wolfgang Schäuble with quiet satisfaction on 05 Apr 2013. “And now we have better chances to make progress faster than was possible in the past.”

Critics say the German finance minister has to be kidding because everyone’s known about this for years. If Schäuble were serious, they say, his office would be drafting new legislation. Income tax is regulated state-by-state in Germany, for example, and some people are calling for it to be centralized, made into a uniform federal-level taxation system with fewer “tax bait” niches. The OECD seems to be the locus for international negotiations in response to the new information; that group wants to issue a list of proposed actions in response to the “Offshore Leaks” data trove by July 2013.

(Cop ee TALL fer SHLY er oong   üüüberrr   SHTOY er oh OZ en.)

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