Menu
Tax Notes logo

U.K. Lawyer Challenges NGO Over Tax Evasion Estimate

Posted on July 13, 2021

A London-based tax lawyer questioned an estimate from the Tax Justice Network (TJN) regarding tax losses arising from “private offshore tax evasion,” arguing that the figure made no allowance for exchange of information between tax authorities.

Dan Neidle, a partner at Clifford Chance, noted that the TJN’s report titled “The State of Tax Justice 2020” identified jurisdictions that have a high degree of banking secrecy and attract a disproportionate volume of bank deposits. The authors went on to “assume that all of these ‘abnormal’ deposits represent undeclared and untaxed income” to arrive at an estimate of $182 billion, he said on Twitter on July 6.

The estimate "made no allowance for the fact that most financial accounts are automatically reported to account holders' home tax authorities” under either the U.S. Foreign Account Tax Compliance Act or the OECD common reporting standard (CRS), Neidle told Tax Notes on July 9. “It's indefensible to publish a report claiming $182 billion of tax is lost to offshore accounts on the basis of an unstated assumption that FATCA and CRS are 0 percent effective,” he said. “That assumption is absurd on its face when we know there were €10 trillion of accounts reported under CRS alone in 2019. I would hope that the paper will be withdrawn and corrected, and that the organizations involved examine their governance and review processes.”

“The reason that we do not state an ‘assumption that FATCA and CRS are 0 percent effective’ is simply because no such assumption forms part of our methodology,” TJN Chief Executive Alex Cobham told Tax Notes later on July 9. “Even for the more secretive jurisdictions, there is no assumption of no effect of FATCA and CRS. In fact, their ‘normal’ proportionate volume of cross-border banking activity is assumed to be fully declared, even if their secrecy and continuing growth might suggest this is a quite unduly conservative assumption.”

“We actively welcome engagement and constructive criticism of the methodology, which is fully publicly available, as we begin the preparations for the next edition of ‘The State of Tax Justice,’” Cobham added.

Nearly 100 countries carried out automatic exchange of information in 2019, enabling their tax authorities “to obtain data on 84 million financial accounts held offshore by their residents, covering total assets of €10 trillion,” the OECD reported in June 2020. “Automatic exchange of information is a game changer,” Angel Gurría, then OECD secretary-general, said in a release.

The OECD website notes that the CRS approved by the OECD Council in 2014 calls on jurisdictions “to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis.” An automatic exchange of information portal provides an overview of the work of the Global Forum on Transparency and Exchange of Information for Tax Purposes.

The TJN report, released in November 2020, was co-published by the Global Alliance for Tax Justice and Public Services International, a global union federation that claims 700 affiliated organizations representing workers in public services. The federation's affiliates include the London-based Public and Commercial Services Union, whose members include staff at HM Revenue & Customs.

A detailed account of the methodology behind the TJN's $182 billion estimate noted the calculation of “abnormal deposits in financial centers,” which are “the difference between the actual deposits and the expected deposits in each jurisdiction.”

“We argue that these abnormal deposits are located in these jurisdictions precisely due to the fact that these jurisdictions provide financial secrecy,” the authors said, adding that “39.3 percent of global bank deposits can be considered abnormal.”

In the “fourth and final” step, the authors estimated the “tax revenue losses resulting from wealth being stored in secrecy jurisdictions” and a “5 percent return on offshore investment” was assumed. “We then multiply these returns by the personal income tax rates that would have been applied in the assets’ origin countries, had these assets not been moved to secrecy jurisdictions,” they added.

Neidle also questioned the assumption of a 5 percent return on bank accounts. His criticisms on Twitter prompted Richard Murphy, a founder and former director of the TJN, to suggest that the TJN report was methodologically flawed.

In a July 12 blog post on “the future of tax justice,” Murphy criticized the TJN’s response to the G-20/OECD process on global tax reform and asserted that the TJN might have “influenced the process” if it had “invested time and effort in talking to the OECD.”

“The global minimum corporate tax rate can mark the beginning of the end of the race to bottom on corporate tax. But the OECD increasingly looks unable or unwilling to deliver a fair and effective reform,” Cobham had argued in a July 5 release.

“To be fair to the OECD, they’ve been very open in meeting with us throughout the process to discuss both our technical proposals and the political opportunities, as have various ministries of finance in the G-7 and negotiators elsewhere. But ultimately, we can’t understand or condone the refusal to include lower-income countries in the benefits of a deal,” Cobham told Tax Notes on July 12. (Prior coverage.)

Copy RID