Matthew Jones

23rd April 2016Manchester & Stockport District Synod

The Methodist Tax Justice Network was set up in 2012

Currently based primarily in the Birmingham District, but growing

Membership is not restricted to Methodists –despite the name!

To see tax systems set by democratically elected governments, not corporations

To see all individuals and companies paying their taxes

To see the end of tax havens through changes to international regulations

To see the Methodist Church take on tax justice as a fundamental mission objective

Produce educational resources

Engage with church groups, students etc, and run public events and workshops

Work with partner organisations (e.g. Christian Aid) to promote their campaigns

Get out there and campaign ourselves!

Take a few minutes to talk to your neighbour and try and think of as many of the following as you can:

◦ Companies recently involved in tax avoidance scandals

◦ Countries/jurisdictions that have been called tax havens

Tax Evasion – Deliberately breaking rules to deceive the authorities. Failing to file a tax return, hiding taxable assets, not declaring full income etc. Illegal, up to 10 years prison.

Tax Avoidance – Exploiting loopholes in tax law to pay low (or zero) tax rates in ways that governments did not intend. Often involves using tax havens and networks of shell companies. Legal but morally dubious.

“The difference between tax avoidance and tax evasion is the thickness of a prison wall.” Denis Healy, former UK Chancellor of the Exchequer.

“Taxes are what we pay for civilized society” – US Supreme Court Justice, Oliver Wendell Holmes Jr.

Tax is frequently seen as a cost, something to be reduced to increase profit. It is not – tax is a responsibility, taken into account after profit/loss, and should accurately reflect real economic activity (turnover, employees and assets) in each country where that company/individual operates.

Eroding a country’s tax base means it cannot afford crucial public services and infrastructure. It also widens the inequality gap between the wealthiest and poorest in society.

UK Budget Deficit 2014/15– £87.7bn

George Osborne wants to reclaim £5bn from tax avoiders...

The UK’s ‘Tax Gap’ – between £35bn (HMRC) and £119.4bn (Tax Research UK)

George Osborne wants to save £12bn through welfare cuts...

Benefit Fraud cost to the UK - £1.2bn (0.7% of DWP’s budget)

$160 Billion denied to developing countries through tax dodging every year (Christian Aid).

$814 billion denied to Sub-Saharan countries from 1970-2010 (Boyce & Ndikumana 2012)

“Globally, our estimate is that the amount of money flowing out of developing countries is 10 times the amount of foreign aid flowing into developing countries.” (Raymond Baker, Director of Global Financial Integrity)

Leak of 11.5 million files from Panama law firm Mossack Fonseca by unknown whistleblower. Contains details of tax avoidance on an industrial scale.

Mossack Fonseca created networks of offshore shell companies and trusts for clients including politicians, criminals and corporations.

Vast majority of these shell companies and trusts incorporated in UK Overseas Territories.

Release of files from PricewaterhouseCooper in Luxembourg, dating from 2002-2010, by former employee Antoine Deltour.

Showed that PwC routinely negotiated beneficial tax rulings between multinational corporations and the Luxembourg tax administration, allowing MNCs to easily shift profits into the low-tax country.

Deltour due to stand trial in Luxembourg on April 26th 2016.

Tax Avoidance is a multinational industry.

The world’s wealthiest individuals and corporations are routinely stashing vast amounts of money offshore, to the detriment of developed and developing countries alike.

Law firms and the ‘Big 4’ accountancy firms facilitate this, creating vast networks of offshore companies, lobbying governments to relax tax legislation and giving advice on secrecy and loopholes.

All Tax Havens shareTwo key characteristics:

o Low Tax/Relaxed Legislation

o High financial secrecy

Finding out who owns tax-haven based accounts and subsidiaries is nearly impossible without the necessary transparency measures.

Welcome to THE CAYMAN ISLANDS – a UK OverseasTerritory

0% Corporation Tax

0% Income tax

0% VAT

Popular with banks - Barclays have over 120 subsidiaries here.

Welcome to LUXEMBOURG.29% corporation tax...BUT only on profits made in Luxembourg.

‘Participation Exemption’ = profits derived from foreign subsidiaries of companies based in Luxembourg are EXEMPT.

Welcome to THE NETHERLANDS

‣ Home to 12,000 ‘mailbox companies’ channelling €4bn a year.

‣ No source taxes on interest or royalties

‣ Network of double taxation treaties

‣ Ability to negotiate tax rulings before payment

What has struck you so far?

Why would a country want to be a tax haven?

What might happen if all countries tried to bring in business by lowering tax rates?

0% tax paid on £1.2bn UK sales over the last three years.

Only £8.6m paid over 14 years.

Paid royalties to Dutch subsidiaries for use of trademarks, bought coffee beans from Switzerland, and paid interest on loans from other parts of the company.

Coffee Bean producing country

Subsidiary in Switzerland

Starbucks branches

Consumers

Key

= Money

= Coffee

‘Transfer Mispricing’

Low Tax Jurisdictions

Dutch ‘mailbox’ company

Starbucks branches (Europe and Middle

East)

Loss thanks to profits being shifted into Netherlands as IP

royalties...

Profits moved on again – Dutch double tax treaties mean taxes

are liable offshore...

‘Loss’ made in operating countries –

no tax paid here...

Where they are untaxed. The perfect

middleman...

Where there is a close to zero tax rate – no tax paid here either!

“God has blessed us with such an abundance of natural resources. The paradox is that Zambia gets ranked among the bottom 20 in terms of poverty... We are wealthy, yet we are poor.” Wylbur Simuusa, Zambian Minister of Mines.

Switzerland-based Glencore (now Glencore Xstrata) bought Mopani Copper Mines in 2000 at knock-down price. Sold copper to Switzerland at under market value, artificially inflated running costs to make a loss in Zambia and pay no tax.

2006:

◦ $3bn worth of copper.

◦ $50m of tax revenue.

◦ $150m electricity bill for the mines.

If Zambia had Switzerland’s copper export tax revenue, their GDP would double.

Tax Justice campaigning is not just about targeting companies – it’s also about changing the rules through advocacy and lobbying.

The current system is deeply flawed, and doesn’t recognise the complexities of the modern financial system.

Subsidiaries of a corporation treated as individual entities trading fairly with each other – clearly not the case!

The European Commission recently announced a package of tax and transparency reforms – they’re not up to scratch. No involvement for developing countries, not publicly available, won’t apply to 85% of corporations.

These reforms were based on the recommendations of the OECD – a club of 28 rich countries who currently control global tax and transfer pricing legislation.

The OECD’s BEPS (Base Erosion & Profit Shifting) Action Plan which led to these recommendations was a flawed process lasting only two years.

What has struck you from the last few slides? What have you learnt?

Which do you think is the more effective method for tackling tax dodging – targeting companies or political advocacy? Why?

Greater financial transparency:◦ Compulsory Automatic Information Exchange

worldwide

◦ Public Registers of Beneficial Ownership

A complete overhaul, not a patch-up:◦ Compulsory Public Country-by-Country Reporting

across all sectors

◦ Prevention of exploitative tax treaties

◦ Unitary Taxation – tax paid where real economic activity takes place.

A new international body to create tax legislation, under direct UN control.

National governments closing loopholes and eliminating tax breaks with no public benefit.

National tax infrastructures which are transparent and accountable.

“We read the Gospel as if we had no money, and we spend our money as if we know nothing of the Gospel.” James Haughey, Jesuit Theologian

Ched Myers; economic and social justice are ‘woven into the warp and weft of the Bible’. Three points:◦ The world as created by God is abundant, with

enough for all provided that human communities live within limits.

◦ Disparities in wealth and power are not ‘natural’ but the result of human sin, and must be mitigated – at least within faith communities– by the regular practice of redistribution.

◦ The prophetic message calls people to the practice of redistribution, characterised as ‘good news to the poor’.

Matthew 22: 15-22. ‘... “Give therefore to the emperor the things that are the emperor’s, and to God the things that are God’s.”’

Is there more to this passage than just the question of ‘should we pay our taxes?’

What is the challenge Jesus is posing to us and to our governments?

Myers suggests Jesus’ economics are based on the Jubilee/Sabbath system – can you think of other examples in Jesus’ ministry?

Do you think this is a fair application of Biblical teaching?

Would any other passages be of use in this context?

Path 1– Engage with companies directly. Contact/boycott a company and let them know that you believe they are acting immorally.

Path 2 – Lobby for changes to the law. Write to your MP on why you are concerned about tax avoidance. Ask for better transparency and reporting measures.

Path 3 – Investment/Shareholder activism. If you or your church have investments, make sure you let your treasurer/accountant know that you do not wish to avoid tax or invest in tax avoiders.

MTJN’s campaign against Cadbury has been running since 2013, but was emphasised this Easter.

Paid no corporation tax in 2014/15 despite UK profits of £96.5m thanks to an avoidance scheme through the Channel Islands.

Draft a letter to Cadbury, or another tax-dodging company, asking them to pay tax in line with their real economic activity in all countries where they operate.

Previously avoided tax through Cayman Islands pre-takeover. Has vast network of subsidiaries for tax avoidance purposes.

London is due to host the Global Anti-Corruption Summit in May –a perfect time for David Cameron to implement Public Registers of Beneficial Ownership in the UK’s Overseas Territories.

Draft a letter to your MP asking them to put pressure on David Cameron and the government to implement Public Registers of Beneficial Ownership in UK Overseas Territories.

Why not try writing to your MEP as well, about the recently announced tax and transparency reforms?

The Methodist Church invests in tax dodging corporations such as Vodafone. Disinvestment is not feasible, but we can ask questions of these companies.

The CFB manages all Methodist investments (unless your church has an annual turnover of £100,000 or more) and pension funds,.

Draft a letter/speech to your church treasurer/council outlining why you believe fair tax should be an ethical investment policy, and get them to contact the CFB. Check your own investments too!

Write a letter to your local paper/Methodist Recorder/an article for your church newsletter.

Try and inform your congregation about the issue through worship (see readings above) or small groups – show ‘The UK Gold’ documentary.

Keep yourself informed – sign up to our mailing list and the Tax Justice Network podcast.

“We know that God’s arithmetic is somewhat odd. When you subtract by giving away, you get more. When you seek to hoard, somehow

you seem to lose out.”

Archbishop Desmond Tutu.

THANK YOU!

For more information contact: Matthew Jones <mtjncoordinator@gmail.com>