“Just the FACTs” is a round-up of news stories and information regarding efforts to combat corrupt financial practices, including offshore tax haven abuses, corporate secrecy, and the laundering of money through the financial system.
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A Biden Boom in the Fight to Close Tax Loopholes
Here’s the State of Play
Tax Loopholes and Tax Transparency
A Biden Boom in the Fight to Close Tax Loopholes
Over the past month, there has been an unprecedented global focus on corporate tax loopholes and profit shifting amidst reporting that at least 55 of America’s largest corporations paid no federal corporate income taxes at all in 2020. Since the dawn of civil society campaigning for international tax justice, this may be the closest activists have come to ending the era of tax havens and massive tax avoidance and it is increasingly clear to many lawmakers that corporations need to pay their fair share to help pay for COVID recovery programs, infrastructure, and other needs.
President Biden made waves when he unveiled his American Jobs Plan and his intention to pay for it with long-overdue hikes in the corporate tax rate. His proposals to raise the statutory rate to 28% and to narrow the gap between the tax rate on profits earned abroad to the tax rate on profits earned in the US promise to both institute a fairer tax burden and remove the offshoring incentives created by the Tax Cuts and Jobs Act in 2017.
The proposal has set off a debate around US competitiveness, but as Secretary Yellen has made clear in her own statements, the US can remain competitive while ending the global “30-year race to the bottom” on corporate tax rates. The administration has already sent their proposal to the 135 countries participating in OECD negotiations, and many major countries have signaled support for a global minimum corporate income tax. Experts have affirmed the secretary’s comments both on the need for a global minimum tax and the resiliency of American corporate competitiveness.
Congress has signalled its own interest in closing corporate tax loopholes. In a Senate Finance hearing on March 25th on the U.S.’s International Tax Policy Treasury Deputy Assistant Secretary Kimberly Clausing made the case that “our tax system would benefit from a much stronger minimum tax.” Chye-Ching Huang from the New York University School of Law also confirmed that the current tax code created a real incentive for firms to move operations abroad.
On the same day, the Senate Budget committee convened a hearing on “Ending a Rigged Tax Code,” where Amy Hanauer, Executive Director of FACT member Institute on Taxation and Economic Policy highlighted how effective corporate tax rates for America’s wealthiest corporations have been sinking to the single digits since even before the COVID-19 pandemic.
Lawmakers have seized the moment to introduce a growing number of their own tax plans. Representing a range of progressive and moderate Democrats, Senators Wyden, Warner, and Brown released their own framework for international corporate tax reform, largely mirroring the administration’s plans. The FACT Coalition, and nearly a hundred NGOs, support the No Tax Breaks for Outsourcing Act which would repeal many offshoring incentives and fully equalize the tax rate on profits earned overseas to the tax rate on profits earned in the US.
Tax Transparency Negotiations Underway
The global tax transparency effort has cooled down after last month’s “explosive” momentum, but progress continues behind closed doors. With the E.U.’s “trialogue” negotiations underway aimed at finalizing an agreement to require public country-by-country reporting of taxes and other key financial information, European civil society leaders have, in an open letter, reiterated their position against any watering down advocating for firm public country-by-country reporting requirements.
Back in Washington, the Disclosure of Tax Havens and Offshoring Act, which would require public country-by-country reporting by multinational corporations, is due for reintroduction soon, providing an important signal that the US Congress is serious about tax transparency.
Ending Anonymous Shell Companies
Treasury Kicks-off Crucial Rulemaking on Beneficial Ownership
After weeks of waiting, the Biden Administration’s supportive comments towards beneficial ownership transparency are finally translating to direct action. The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) officially began the implementation process around the Corporate Transparency Act on April 1st, with their release of an Advanced Notice of Proposed Rulemaking asking for public comments to inform proposed rules by May 5. Following up on our key role in the legislative process, the FACT Coalition will be engaging with the Treasury to ensure a strong final rule that lives up to the expectations of its congressional authors and civil society supporters.
Proper implementation of corporate transparency will require more than just a strong rule, however. The administration must pair their mandate with the means to see it through. After broad recognition that FinCEN was critically underfunded for its outsized role in fighting financial crimes, the president has joined the effort to secure a large budget increase for the agency. In his FY2022 budget request, Biden called for a 50% increase in appropriations for FinCEN, totaling a greater than $60 million dollar increase. House Financial Services Chairwoman Maxine Waters has sent even more encouraging signs from the Hill. In a letter to senior members of the appropriations committee, Maxine urged “a substantial increase of not less than $74.3 million in new funding” for FinCEN. These funds will be essential in assembling the groundbreaking federal registry required by the Corporate Transparency Act. In addition to clamping down on illicit financial flows and national security threats, investing in this federal registry could also help pay for itself. In a March Senate hearing, economist Gabriel Zucman saw “great potential” to use beneficial ownership information to curtail tax evasion among the rich “quite significantly.”
Beneficial Ownership Taking Root around the World
Even as the global community sees growing momentum on other issues such as global corporate tax loopholes and transparency, international movement on beneficial ownership and anti-corruption has not stalled. The Canadian government announced on April 19th that it intends to establish a beneficial ownership registry by 2025 that would be accessible by the public.
Campaigners in Canada indicated that the US passage of the Corporate Transparency Act spurred Canada to finally move after a year’s long campaign by Publish What You Pay Canada, Canadians for Tax Fairness, and Transparency International Canada. Beyond North America, the International Consortium of Investigative Journalists reports that Cyprus, Ghana, and Kenya have all joined the list of countries set to create beneficial ownership registries.
China has also issued new rules around its beneficial ownership policies, requiring financial institutions to carry out broader customer due diligence requirements. Increasing coordination among the global community promises to gradually squeeze bad actors out of the international financial system. Even where autocratic or rogue states threaten the advancement of transparency, tools such as the CROOK Act, could empower the U.S. and allies to counter overseas corruption.
In the Press
|PRESS RELEASE: Biden Budget Request Boosts Funding for Treasury Agency Tasked with Combatting Financial Crime|
April 9: The FACT Coalition welcomed the inclusion of increased funding for the Financial Crimes Enforcement Network (FinCEN) in President Biden’s topline FY22 budget request released today.
|COMMENT: FACT Sent Comments to Congress on Hearing on International Corporate Tax Policy|
April 2: FACT sent comments to Congress regarding Senate Finance’s hearing on international tax policy, urging them to increase transparency and close loopholes.
|Buying a Home Through an LLC Is Not as Anonymous as It Used to Be|
April 2: The Wall Street Journal quotes FACT’s Ian Gary and Erica Hanichak in their coverage of the Corporate Transparency Act’s effects on homebuyers.
|Five ways Biden could crack down on dirty money and financial secrecy|
April 1: The ICIJ quotes FACT Executive Director Ian Gary on encouraging signs from the Biden administration on moves to combat financial crime and illicit financial flows.
|Sanders and Colleagues Introduce Legislation to End Rigged Tax Code as Inequality Increases|
March 25: Senator Sanders’ office highlights comments from FACT Executive Director Ian Gary on the importance of legislation to close corporate tax loopholes.
|Corruption Is a National Security Threat. The CROOK Act Is a Smart Way to Fight It.|
March 23: Senators Wicker and Cardin discuss the importance of their CROOK Act and hail FACT as one of the world’s “most prominent anti-corruption advocates.”
Recent and Upcoming Events
|Notre Dame Financial Statement Fraud Seminar Series Final Panel|
May 3rd: Notre Dame University’s Center for Accounting Research and Education will be hosting a series of seminars on financial statement fraud, culminating in their final panel on May 3rd.
|(RECENT) STOP THE BLEEDING! Curbing Illicit Financial Flows from Africa|
April 12th: FACT Executive Director Ian Gary joined civil society leaders from Tax Justice Network Africa, Friends of Angola, and the US-Africa Bridge Building Project to discuss cross border transfers of illicit funds in Africa.
|(RECENT) The High Cost of Corporate Tax Avoidance |
April 8: Institute on Taxation and Economic Policy Executive Director Amy Hanauer and Senior Fellow Matthew Gardner hosted a presentation on unrigging the corporate tax code, followed by a panel discussion with Arlene Martinez (Good Jobs First), Stacy Mitchell (Institute for Local Self-Reliance) and Dania Rajendra (Athena).
|(RECENT) A Clean Cut: Addressing Informality and Illegality in the Colombian Timber Sector|
April 8: FACT member Global Financial Integrity and the Environmental Investigation Agency hosted a discussion on the drivers of deforestation in Colombia and what can be done to strengthen environmental protection.
Social Media Shoutouts
@SenWarren, Giant corporations that make billions of dollars in profits off the services that the rest of us pay for need to invest in America’s future. Billionaires and giant corporations must pay a lot more.
@SenWhitehouse, I’m excited to see the Biden Made in America tax plan. @POTUS is right: we need tax reform that’s fair; that closes loopholes for sending profits overseas; and that ends the needless race to the bottom against other countries.
@SenWarren, Giant corporations like Amazon report huge profits to their shareholders – but they exploit loopholes and tax havens to pay close to nothing in taxes. That’s just not right – and it’s why I’ll be introducing a bill to make the most profitable companies pay a fair share.
@RepMaloney, Thank you @POTUS for prioritizing funding for the Treasury Department’s Financial Crimes Enforcement Network (#FinCEN) to implement my Corporate Transparency Act. This landmark legislation fights corruption and the financing of illegal activities through anon shell companies.
About the FACT Coalition