[stop-imf] A taxing agenda for the IMF (IMF reviews of tax havens)

[robert weissman]

http://www.brettonwoodsproject.org/art-561001


  A taxing agenda for the IMF


April 1, 2008


      By Alex Wilks and Marta Ruiz, Eurodad

The irony of the IMF giving a passing grade to Liechentstein on money
laundering in the same month that Germany launches a massive
investigation into tax evasion based in the Alpine country shows that
the Fund has a lot of work to do if it wants to help clamp down on
illicit flows that hinder development finance. Zambia may be showing the
way for poor countries.

The concern that the Fund is giving cover to dubious government
practices was clear during the Liechtenstein scandal that first emerged
in February. The world of private banks was brought into the spotlight
with reports of German spies paying =804 million to obtain a CD-Rom with
data on individuals with secret accounts in the tiny Alpine state. After
arresting high-profile suspected tax dodgers, Germany pressed
Liechtenstein to take action, saying it was undermining its budget by
facilitating tax evasion.

At the launch of an IMF report on his country in early March
Liechtenstein Prime Minister Otmar Hasler picked out the positive
messages =96 that =93the praise by the IMF shows that we are on a successfu=
l
path of reform=94 and that "most of the IMF's recommendations will be
taken up in our implementation of the Third EU Money Laundering
Directive, which is imminent=94. In fact the IMF report found =93discrete
and flexible legal structures, strict bank secrecy and favourable tax
arrangements=94. Some 90 per cent of the country=92s financial business is
from abroad and =93by its nature, Liechtenstein's financial sector
business creates a particular money laundering risk=94.

In the UK, parliamentarians pressed IMF managing director Dominique
Strauss-Kahn about the potential for the Fund to do a better job
policing tax havens during his mid-March visit to London. Strauss-Kahn
was reportedly wary of the IMF becoming more involved, saying that the
Fund must stick to the mandate it has been given by shareholders. That
mandate includes the Fund surveillance programme, Reviews of Standards
and Codes (ROSCs), which are assessments of countries=92 financial systems
including on anti-money laundering and countering the financing of
terrorism (see Update 54 <http://www.brettonwoodsproject.org/imfcycle54>).

Criticism of the ROSC framework has come from campaigners in the Tax
Justice Network (TJN) (see Update 49
<http://www.brettonwoodsproject.org/atissuecapitalflight>). On their
blog they cite a legal expert who states: =93the way the IMF has been
conducting its ROSCs has led to turning its offshore financial centre
surveillance process into a grant of a seal of approval=94. In a March
comment in the Financial Times, TJN members John Christensen and David
Spencer argued that the current official initiatives, including the
IMF=92s reviews are =93legitimising the illegitimate=94 because they ignore
banking practices that facilitate tax evasion.

TJN has called for companies to provide country by country break downs
of where they take their profits to help eliminate the transfer pricing
that facilitates tax evasion. This call is echoed by three German NGOs
in a report on public finance written by Jens Martens: =93The
responsibility for reform does not just lie with governments of the
South. Only together can governments halt worldwide tax =91races to the
bottom=92 and capital flight to tax havens. It is the industrialised
countries, particularly the EU, the USA and the institutions that they
dominate =96 the IMF, the World Bank and the WTO who are responsible for
the erosion of revenue bases =85 The effective taxation of transnational
corporations, the fight against corruption and the repatriation of
embezzled money from foreign bank accounts to countries of the global
south can only be achieved via strengthened, multilateral cooperation.=94

The paradox is that while the IMF does very little to combat tax evasion
and has done very badly in preventing the current banking crisis, it is
asking taxpayers to cover the losses. The IMF deputy managing director
John Lipsky recently urged policymakers to "think the unthinkable".
Lipsky announced that =93governments might have to intervene with
taxpayers' money to shore up the financial system and prevent a
'downward credit spiral" from taking hold'.

It remains to be seen if the IMF, in its search for relevance, will take
up a more vigorous role in policing international tax evasion. Seasoned
IMF watchers doubt that the Fund has the guts to stand up to major
shareholders such as the UK government which allow secretive accounting
and financial practices which should be outlawed in the name of tax
justice.


    Proposing windfall taxes

It emerged in February that French president Nicolas Sarkozy has asked
the IMF to study whether a windfall tax could be levied on corporate
profits, according to a statement from French finance minister Christine
Lagarde. Sarkozy has asked the Fund to think of a worldwide tax on oil
companies=92 windfall profits. Companies that the French head of state may
have had in mind include Total, the French oil major that saw a 64% jump
in fourth quarter profit in 2007. The French are wary of a national tax
since that would disadvantage French oil companies on the global market.

The global commodities boom does give new negotiating power to countries
that export raw materials. The Zambian government has toughened its
treatment of extractive industry contracts that were originally promoted
as part of World Bank and IMF conditionality. It is demanding higher
royalties from mining multinationals which were given tax concessions as
part of Bank-supported efforts to improve the =91investment climate=92.

Zambian president Levy Mwanawasa has announced the cancellation of all
tax concessions for copper mining companies operating in Zambia, saying
they were =93unfair and unbalanced=94. In their place =93the government has=
,
therefore, decided to introduce a new fiscal and regulatory regime in
order to bring about equitable distribution of the mineral wealth.=94 It
will include higher royalties and a windfall profits tax, bringing
dramatic change to the expected tax revenue. Without the reforms mining
firms would have earned $4 billion in the 2009 financial year but would
only have paid tax of $300 million. Tax is expected to reach $650
million after the change.

The World Bank supported the contract re-negotiations in Zambia, but has
been reticent to wade further into reform of the global financial
architecture which encourages bad deals for developing countries. In
September Bank president Robert Zoellick acknowledged that "a study of
the development impact of off-shore financial centres would be a
valuable contribution to the governance and anti-corruption agenda".
This was following Norway=92s request to conduct a study on the more than
$500 billion that illicitly flows out of developing countries each year
(see Update 57 <http://www.brettonwoodsproject.org/odiousdebt57>). A
serious and objective study on these impacts would help. But in recent
weeks it appears that the Bank is backing away from its president=92s
promise and instead plans instead to organise a conference at the end of
2008, with some unspecified input papers. NGOs will continue to push for
a full study with external peer review mechanisms.