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tisonlyi · 02-21-2009, 09:33 AM

Quote:

Originally Posted by guyy

well, tis, in that case, why even bother going after the swiss & ubs?

The context of the article is a tightening of banking regulation, and there are indications, noted in the article, that states are no longer so cool with tax havens. How far they want to go, and how far they will get is another issue.

If there were a genuine will to deal with 'offshoring', 'non-doms' and tax havenry in general then the US would be simultaneously going after ALL the accounts in EVERY offshore haven... Otherwise the rich folks get plenty of time to dream up new schemes, in new countries and shuffle their assets around.

Aside from this, the real problem with offshoring is in the area of trade. Vast swathes of trade, by some account much more than half, washes through these same sorts of tax haven places (half of which have HRH QE2 on their stamps) and vastly reduces the tax burden on the corporations and companies engaged in the trades.

Sometimes, the webs of offshored companies and special vehicles that trade (technically, but not physically) flows through are staggering... cayman islands to british virgin islands, biv to dublin, dublin to isle of man, iom to guernsey, guernsey to jersey, jersey to the uk.

Sounds insane and paranoid?

Take the Banana industry as an example:

(originally in the guardian)
Bananas to Uk Via the Channel Islands? It Pays for Tax Reasons

Quote:

Think of Jersey and you think prosperous tax haven, or perhaps offshore financial center as it prefers to be called. But exporter of bananas to the UK? Surely not. Banana boats from the Windward Islands have never actually jostled with luxury yachts in its immaculate marinas, of course, but on paper a substantial volume of banana trade from the Caribbean has passed in the last 15 years through Channel Island-based offshore subsidiaries and joint ventures owned at various times by Fyffes and Geest.

Fyffes accounts for about 8% of the global banana market. Geest is no longer a banana trading company. Today three other transnational corporations dominate the rest of the banana trade. Dole, Chiquita and Fresh Del Monte account for more than two-thirds of the global market between them and source mainly from large industrial plantations in Latin America and West Africa.

Fresh Del Monte is registered in the tax haven of the Cayman Islands, and has more than 30 subsidiaries based on the islands, where the rate of corporation tax is zero. It also has subsidiaries in other tax havens and low tax jurisdictions that include Gibraltar, Bermuda, the Dutch Antilles and the British Virgin Islands.

Dole and Chiquita only identify their largest subsidiaries in their accounts but those listed include 11 subsidiaries of Chiquita in Bermuda at the end of 2006 and subsidiaries of Dole in Bermuda, Liberia and Puerto Rico. This routing of commodity trade and its associated activities through tax havens is typical of a growing trend among transnational corporations to shift their transactions between different countries to minimize their tax bills. The phenomenon, dubbed the flight of capital, is not illegal but is increasingly depriving countries in which the profits were actually earned of the ability to raise money for development or for services.

Highly profitable

Bananas are highly profitable - they are the largest single item by volume sold in British supermarkets and the third largest in value. Dole, the US-based company with a 26% global market share, supplies bananas to Tesco in the UK. Chiquita, another US-based corporation with a further quarter of the global market, also supplies Tesco. Fresh Del Monte controls 16% of world bananas, and supplies the vast majority of Asda's bananas and some of Morrison's. But governments at either end of the chain are seeing less and less of the money this banana trade generates.

A Guardian investigation of the financial accounts of the three big banana companies has revealed that Dole, Chiquita and Fresh Del Monte had combined global sales of over $50bn (£24bn) in the last five years, and made $1.4bn of profits. They paid just $200m (or 14.3% of profits) in taxes between them in that period. In some years the banana companies have paid an effective tax rate as low as 8%, yet the standard rate of corporation tax in the US where they have their headquarters and file their accounts is 35%.

Although tax havens have existed for decades, the flight of capital took off with the removal of exchange controls and the development of information technology in the late 1990s. And it is still gathering pace. Large corporations have been able to shift profits around between complex networks of subsidiaries in different countries, choosing where to incur costs, where to allocate overheads or locate assets, where to borrow money and where to make taxable profit. They tend to weight their costs towards countries with high rates of tax thereby reducing their taxable profits in those, and weight their profits instead towards those with minimal or no tax.

Over 60% of international trade now takes place between subsidiaries within transnational groups, according to the OECD. This gives the corporations unprecedented ability to engineer their finances for the greatest tax advantage.

John Christensen, a former economic adviser to the Jersey government who runs the Tax Justice Network, says the effect has been to turn the idea of free trade on its head. "In a world of globalised companies, money can be routed offshore to ensure they don't pay tax. World trade theory depends on the idea that production will flow to the place that is most efficient, but tax competition is completely distorting it."

When transnational corporations trade internationally with their own subsidiaries they use a mechanism called transfer pricing. Sales between parts of the same company are meant to take place at the open market price, at an "arm's length price". A whole accountancy industry has grown up around determining transfer prices and justifying them to tax authorities. In practice it can be very difficult to determine an open market price, particularly when trade in a particular sector is highly concentrated in a few companies.

Transnationals have developed ways of bundling up parts of their business such as intellectual property, brands, logos, marketing, insurance and finance expertise and owning them offshore. They can then charge for the use of these to other parts of their group onshore. In this way a banana may be sold by one subsidiary of a group in the country where it was grown to another group subsidiary offshore at little more than the cost of production in the originating country. The banana ends up being sold back onshore to a further subsidiary of the same company in the consuming country at a price that is close to the final retail price.

In between, royalties for the use of brands, distribution networks, insurance, finance and marketing charged to the subsidiary in the final destination country can be made to accrue to subsidiaries based offshore in low tax areas. Through transfer pricing, the taxable profit on transactions at either end of the chain, in Latin America or in the EU or US say, is kept low. At Fresh Del Monte, the company had 48% of its sales in the US in 2005 but lost $35.2m in that country. Overseas it made a profit of $133.5m. It paid no US tax but was instead given a tax credit of $8.3m that year.

The big three banana companies openly admit they use low tax areas and tax avoidance schemes. Dole said in its 2007 first half results statement: "Income tax benefit for the half year ended June 16 2007 totaled approximately $6.6m. The company expects to generate a tax benefit on pre-tax income for the full fiscal year, given it expects to incur losses in the US for which benefit will be provided and earn pre-tax income in foreign jurisdictions taxed at a lower rate than in the US. For the periods presented, the company's effective income tax rate differs from the US federal statutory rate primarily due to earnings from operations being taxed in foreign jurisdictions at a net effective rate lower than the US rate."

Chiquita says the same. "The company's taxable earnings are substantially from foreign operations being taxed in jurisdictions at a net effective rate lower that the US statutory rate," its accounts state. While Fresh Del Monte concedes in its 2006 annual report that "many of the countries in which we operate have favorable tax rates".

The big three banana producers have a long history of confrontation with the regulatory and tax authorities. When the US tax authorities investigated Dole's income tax returns for 1995-2001, they decided the company had paid $175m too little and imposed interest and penalties. In 2005 Dole received a tax assessment from Honduras, a producing country, of $137m, including claimed unpaid tax, penalties and interest. Fresh Del Monte's 2007 accounts record that it has "uncertain tax positions" to the tune of $12m, including interest and penalties of $3.7m primarily relating to tax audits in the European region that it expects to be completed this year. Its tax payments for 1988-2006 remain subject to examination by tax authorities throughout the world, including in producing countries such as Brazil, Costa Rica, Guatemala, and consuming countries such as the UK, the US, Italy, Japan, South Africa, and South Korea.

Blew the whistle

Chiquita, Dole and Fresh Del Monte are being investigated by the European Commission after Chiquita blew the whistle on an alleged price-fixing cartel among them. Chiquita is paying a $25m fine in the US for illegally funding a Colombian armed terrorist organization.

The fair trade campaign group Banana Link has also tracked how supermarket banana price wars in the UK have corresponded with moves by the big three suppliers to drive down wages and conditions on plantations in Latin America.

Fyffes, which supplies part of Asda, Morrison and Co-op demand, has its headquarters in Ireland, one of the lowest taxing regimes in Europe, where corporation tax is 12.5% compared with the UK's 30%. It lists six Jersey-based subsidiaries.

Its 2001 accounts record €17m (£11.8m) of banana sales between its subsidiaries and joint ventures with Geest through a Jersey-based holding company. It said, however, that its banana purchasing, marketing and shipping are now located in Ireland, the UK, the Netherlands, and Germany and not in the Channel Islands. These particular activities ceased going through the Channel Islands in 2001, when Geest ended any banana trading.

It paid less than €1m on its profit before tax of €15.7m in the first half of this year (ie a tax rate of just over 6%).

Last year it paid no tax on its continuing operations, but its underlying tax position is difficult to assess because it broke up parts of the business in that period, hiving off its property holdings to a separate company with subsidiaries in tax havens. It said that its tax payments in the five years 2002 to 2006 were €71m on profits of €361m, ie 19.7%.

Dole declined to comment on the detailed allegations, saying that they involved confidential and proprietary information. Chiquita said it complied with all tax laws in the jurisdictions where it did business. It added that "a significant portion of our earnings occur outside the US where they are subject to taxation at the local tax rate". Both companies said they were working with Latin American unions to address workers' rights.

Fresh Del Monte said it too operated in many countries and complied with all local tax law and international tax treaties. It added that it also complied with all local labour laws, was a strong proponent of freedom of association, and that the average wage of its agricultural employees in the countries where it operated exceeded the mandated minimum agricultural wage.

The companies: Subsidiaries and savings

Dole

A US-based company with approximately 26% share of the global banana market. It supplies bananas to Tesco in the UK. It has subsidiaries in low tax regimes of Bermuda, Liberia and Puerto Rico. Our investigation of its financial accounts over the last five years has found that it paid $20m a year less in actual tax than the standard US corporation tax rate.

Fresh Del Monte

US-based corporation owned by Jordanian-Palestinian Abu-Ghazalleh family. It controls about 16% of world bananas and supplies the majority of Asda's bananas and some of Morrisons'. It has over 30 subsidiaries in the tax haven of the Cayman Islands, as well as in other low tax areas including Bermuda and the British Virgin Islands. Over the last five years its actual tax paid has been as much as $69m a year less than tax calculated at US corporation tax rates.

Chiquita

A US-based corporation with approximately a quarter of the global banana market. It supplies Tesco in the UK. It lists 11 subsidiaries in Bermuda in its 2006 accounts. Our analysis of its finances over the last five years shows that actual tax paid was as much as $44m a year below US standard corporation tax rates.

Fyffes

Irish-based corporation supplies Asda, Morrisons and Co-op in UK. It lists six Jersey-based subsidiaries. Irish corporation tax is 12.5%, compared with UK rates of 30%. It told us that its tax payments in the years 2002 to 2006 were €71m on profits of €361m, a rate of 19.7%.

© Guardian News & Media 2008
Published: 11/6/2007

So yes, this is pure theatre.

Bankers and the financial industry shaft the nation's economy on a scale of trillions (with the sums still piling up, folks... the US govt is in for a total of over $10.5 trillion at the minute) and lo... Madoff, couple of other tiny implosions and a solitary, ineffectual action versus UBS... which had already been bailed out by the US govt.

Something for the plebs to feel better about while the main event is still firmly in place.