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Tax Havens

Treasury Department Building

Treasury Toying with Making Tax Avoidance Easier

Sometimes the long drive towards a more equitable and reasonable tax system feels like it’s one step forward, two steps back.

This month, the two steps back we risk taking come in the form of unraveling a Treasury rule established under the Obama administration. Thanks to an executive order from the Trump administration, Section 385 is currently being reviewed by the Treasury Department. The rule takes aim at curbing corporate tax haven abuse — the hallmark of a tax system rigged for the few biggest multinational corporations. Preliminary estimates from Treasury found that it’s impact on offshore tax avoidance would be significant considering that the rule would raise $7.4 billion over 10 years.

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Just the FACTS: July 27, 2017

Over the past several decades, anonymous shell companies have been at the heart of heinous crimes, including cases of grand corruption, human trafficking, and even the facilitation of the opioid epidemic. Didier Jacobs of Oxfam America highlighted some of the blights of anonymous companies in a recent blog. In it, he describes how drug lords, corrupt politicians, and human traffickers are able to perform illegal acts while hidden from justice by a veil of anonymity. With shielded identities, criminals can effectively function above the law.

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Sixteen Members of the House of Representatives Sent a Letter Urging the Financial Accounting Standards Board (FASB) to Require Country by Country Tax Reporting

Sixteen members of the House of Representatives sent a letter to the Financial Accounting Standards Board (FASB), urging them to require multinational companies to be more transparent in reporting where they pay taxes and book profits. Specifically, they called on the accounting body to require that companies disclose their taxes and profits on a country-by-country basis.

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Just the FACTS: June 15, 2017

For the second time, Wells Fargo was found liable for a tax penalty in connection with an abusive tax shelter.  This points to a broader trend where companies’ abusive tax schemes are being exposed to increasing public discontent.  In the case of Wells Fargo, a jury in Minnesota had previously nixed $350 million in foreign tax credits finding that they “lacked both economic substance and a non-tax business purpose.” Now, a federal court has found them liable for a 20% negligence penalty from the IRS. The court’s decision is yet another example that the tax gimmicks employed by multinationals to inflate profits are becoming riskier.

In a blog, FACT’s Jacob Wills explained the current climate around tax fairness, “Scandals have shaken public confidence in the integrity and fairness of the tax system at a time when tightening budgets and increasing deficits are leading to calls for austerity and scaling back on long relied upon public services.”

It should be no surprise that tax avoidance schemes face increased scrutiny, a recent report suggests that the ultra-wealthy are dodging more in tax than many had previously estimated.   Economists Annette Alstadsæter, Niels Johannesen, and Gabriel Zucman took data from two tax haven leaks — the Panama Papers and Swiss leaks — in order to get more accurate estimates of tax evasion.  Their findings: the ultra-rich — on average — evade about 30% of their due taxes, compared to the average evasion rate of 2.9%.

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World Leaders Gathered for Another Paris Agreement, and the U.S. Was Noticeably Absent

Tell me if you’ve heard this before:  Nations from around the world gathered in Paris to sign a multilateral agreement that had been negotiated over several years with the U.S. as a leading partner.   In the end, the U.S. was conspicuously absent from the ceremony and did not sign onto the final agreement.

I, of course, am referring to an effort to combat aggressive corporate tax avoidance and address the wealth-draining concerns over the growth of tax havens. See FACT’s statement on the event.  The agreement was a part of the multilateral initiative on Base Erosion and Profit Shifting (BEPS) negotiated through the Organization for Economic Cooperation and Development (OECD).  Over seventy countries moved forward with an agreement to combat tax avoidance by amending bilateral tax treaties.

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