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26 • Fifty Shades of Tax Dodging Box 8 Tax inspectors without borders – a model for capacity building? According to the OECD, the Tax Inspectors Without Borders initiative is to be used as a tool to build developing country capacity to implement BEPS solutions. 173 As the OECD itself announces, it is a ‘dating agency’ in which retired or in-service tax officials – both from developed and developing administrations – are deployed in developing countries to instruct them how to audit multinational companies. 174 The initiative complements the programmes on capacity building on transfer pricing in developing countries that the OECD Task Force on Tax and Development has been carrying out jointly with the World Bank and the European Commission in 14 countries. 175 Until now only pilot deployments have been in place, with four EU countries involved: France in Senegal, Italy in Albania, the Netherlands in Ghana and the UK in Rwanda. It thus seems clear that EU countries will take on a big part of the capacity building under this initiative. Eurodad has analysed the pilot deployments in Ghana and Rwanda and two main concerns have arisen. First, the probability of conflicts of interests and the involvement of the private sector. For example, in the case of Rwanda, the programme, including the deployment of UK inspectors, was managed by PwC – a company that among other things played a very central role in the LuxLeaks tax scandal. 176 Second, the potential conflicts of interests between the country deploying the experts and the host country. In the case of Ghana, for example, the partner country, the Netherlands, is also home country to several large multinational corporations operating in Ghana. 177 During the Third UN Financing for Development Conference held in Addis Ababa in July, the initiative was officially launched with the support of the UN Development Programme (UNDP). 178 Time will determine whether the initiative will benefit developing countries, or whether it will end up becoming a way to promote other interests and export a failed approach to international taxation. 3.9 Hidden ownership of companies and trusts A key challenge in the fight against tax evasion is that it is so easy to hide money. Traditionally secret bank accounts were the preferred choice for hiding wealth. However, with the trend towards increased information exchange between countries on bank account information (see section 3.1 above), tax evaders, the corrupt and criminal are increasingly turning to other sources of secrecy. “Offshore banking is … becoming more sophisticated. Wealthy individuals increasingly use shell companies, trusts, holdings, and foundations as nominal owners of their assets,” 179 as noted by tax expert Gabriel Zucman. These structures allow individuals to hold money anonymously: instead of the person or group of people who actually controls the funds being listed as the owner, the apparent owner is a company or nominee director of that company. Zucman notes that this leads to the worrying phenomenon that more than 60 per cent of all foreignheld deposits in Swiss banks belong to entities in the British Virgin Islands, Jersey and Panama, all renowned jurisdictions for setting up shell companies. 180 The SwissLeaks revelations showed a similar pattern, with 20 per cent of bank accounts associated with Viet Nam being held by offshore companies, and 30 per cent of those associated with Kazakhstan. 181 According to The Guardian, the HSBC files shows that the bank actively advised some of its wealthy clients to hide behind such shell companies to avoid their bank information being subject to the new EU rules on automatic information exchange. 182 Some of these shell companies and trusts are used for legitimate purposes; the problem is that the secrecy they offer tends to attract those with secrets to keep. And when it comes to finances, this includes the world’s tax dodgers, money launderers, corrupt dictators and the like. A World Bank review of more than 150 grand corruption scandals in developing countries found that anonymous companies were used in more than 70 per cent of the cases. 183 To counter the widespread misuse of corporate secrecy through shell companies and trusts, the EU adopted new regulations on money laundering in 2015, which provides that all EU Member States will have to create registers of the real owner of shell companies and some trusts. This is a major step forward as it will mean that individuals will no longer be able to hide behind obscure lines of ownership. However, the EU law-makers missed a huge opportunity for transparency by deciding that only members of the public who can demonstrate a ‘legitimate interest’ should have access to the registers of real owners. 184
Fifty Shades of Tax Dodging • 27 Figure 6: Money-laundering risks in 15 EU countries, 2015 Luxembourg Germany Italy Spain Netherlands France United Kingdom Belgium Czech Republic EU Average Ireland Denmark Hungary Sweden Poland Slovenia 0 1 2 3 4 5 6 Source: Based on the Basel Institute of Governance’s Anti-Money Laundering Index 2015. 185 The index ranges from 0 (low risk of money laundering) to 10 (high risk of money laundering). The EU average includes all 28 Member States and is not weighted according to population or other factors. Although it seems obvious that all citizens have a legitimate interest in knowing who owns the companies that operate in our society, particular interpretations of ‘legitimate interest’ could be used by some Member States to exclude the public’s access to this information. It is as yet unclear whether tax administrations in developing countries, let alone the public, will be allowed access to this information under the EU regulation. Member States are, however, free to go beyond the minimum requirements in the directive and adopt fully public registers. 78 per cent of citizens in 18 EU Member States agree that their government should require companies to publish the real names of their shareholders and owners. 186
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