Как уменьшить отток народных денег в офшоры: успешный опыт (рус)

The nation is being fooled by hard-core populism of the top brass. As a result, voters massively say: ‘Politicians rob us, but we can do nothing!’ And when not false patriots emerge, but real, responsible political activists, progressives, not from TV or street flocks, then voters ask them with disbelief: ‘Well, what have you done?’ In fact, the Republicans and some other new leftists are in the vanguard of the struggle against the withdrawal of public money to offshores. An exclusive interview with Tommaso Faccio, a prominent West European specialist in deoffshorization, will help us understand these issues.

New forces are emerging in the world, seeking to halt the unfair ‘milking’ of national wealth by selfish business. In Western Europe, for several years now, therе is successfully struggle, in particular, against the negative influence of offshore companies, against the schemes for the withdrawal of those funds that justly must be owned by nations. Many people have heard of Snowden, and about Panama Papers. Numerous unethical and illegal export operations are pulled off, through which Ukraine, for example, loses hundreds of millions of dollars annually. How these schemes work, who and how can catch the tails of fraud and theft, – this is in an interview with the head of secretariat at The Independent Commission for the Reform of International Corporate Taxation. The expert has shown an intricate internal kitchen of counter-system studies and their implementation, he has told that we, the Ukrainian progressive forces, have successful colleagues, allies in many countries.


In October 2018 in Kiev, with the active participation of the Political party Respublika (Republic), a campaign was held to inform the public about the results of the study ‘Profit shifting in Ukraine's iron ore exports’. An international group of analysts worked on the initiative of the independent Kryvyi Rih trade unions, and supported by the GUE/NGL (European United Left/Nordic Green Left) group of the European Parliament. The results of the study suggest that a profit of about $520 million was not subjected to fair taxes, was withdrawn from Ukraine, by international business groups, using foreign low-tax jurisdictions, and the harmful features of the global and Ukrainian economic and political systems, in 2015-2017. In general, about $3 billion in profits passes by ignoring the Ukrainian budget annually, i.e., the Ukrainian people lose $540 million through such schemes for exporting metallurgical and agricultural products.

[pullquote]You are one of the authors of the study ‘Profit shifting in Ukraine's iron ore exports’, initiated by independent Kryvyi Rih trade unions, organized by an international group of researchers (with your active participation) and supported by Ukrainian left-wing - NGO Social Movement, the Platform Start and Political party Respublika (Republic). Until then, and, perhaps, after that, you've also explored a lot of stories about suspicious export operations. What is the difference between Ukrainian processes of profit shifting and non-Ukrainian ones? Are any Ukrainian special features of profit shifting?[/pullquote]

What we have established in our research is a significant discrepancy between market prices of the products and the prices charged by the Ukrainian affiliates of multinationals. The size of the difference indicate a high risk of profit shifting.

If, for example, I want to transfer profits from Ukraine to a more profitable, in terms of taxation, country, like Switzerland, then I reduce the price, and as the profits in Ukraine are lower, and profits in Switzerland, or another similar country, are higher, than this results in tax savings because that in the other country the tax is low or zero rate.

Is Ukraine unique in this respect? As for the abovementioned scheme, probably not. In many countries, multinational corporations use this type of tax avoidance techniques. A more accurate answer is hampered by the issue of secrecy. Exact data on the amount of moving profits are related to data on a particular commodity market, on specific operations of a number of international companies, on many payments, transactions of the company that is selected as the object of study. Given the necessary information, I assume that the approach, the method, the strategies of many Ukrainian exporters would be similar to the above scheme, but the size of the imbalance between prices, the volume of moving profits might be different.

[pullquote]In recent years, the governments of developed countries have introduced more rigorous approaches to the export and import of capital, with regard to offshores. How effective are those activities, and are they sufficient? Is this the result of a consistent policy of the states? May be, this is just an attempt to respond to the scandals of Panama Papers, Paradise Papers, etc.?[/pullquote]

G20 and the EU, through the OECD, are conducting a big reform. The reforms of the OECD basically try to close some of the loopholes which are the gates for profit shifting. However, legal tax avoidance still exist. That avoidance is quite easily carried out within a multinational corporation, through price transactions between legal entities within the same group of companies.

Alternative approaches to solve the problem are being discussed in the European Union now. There is a trend which looks at the group of companies as consolidated business. Such consideration requires taking into account how many people, sales, how many assets this or that group of companies has, and to compare all this with the share of profits in this group, to apply indicators to the group as a whole. That is, if in Ukraine there is 20% of the group sales, assets, and people, so 20% of the multinational’s profit should have to go to Ukrainian tax authorities. If 1% of sales, assets, people of the group are found in Switzerland, then you have to pay taxes on 1% of all group's profits to the tax authorities of Switzerland. EU Commission has made the proposition. European parliament has approved this, and now it with the Council to decide this, and at this level there is substantial resistance from a number of countries to which such reforms are unfavorable, for example, the Netherlands, Ireland, Luxembourg.

So, the reform is still being pursuit, but is not finished. Although the OECD has done a lot.

[pullquote]In Ukraine, the big business, and all kinds of PR specialists who serve it, try to justify the use of offshore schemes by saying that such schemes help Ukrainian companies to compete better with other corporations, especially Russian ones. You know, of course, about the current conflict between Ukraine and Russia. Is such rhetoric used in the West, and what could be used to counter those flimsy arguments?[/pullquote]

If a company avoids taxation, it could hardly be called fair competition. Of course, if this company pay less taxes, it has more money to reinvest. But in reality they do not invest in employing more workers, in people. Their activity, their tax avoidance, leads mainly to the fact that the rich people get richer and the poor people get poorer.

The governments are lobbied by multinationals, and it is clear why some governments resist change, tax reform. If you want to reform international taxation, then this is a threat to the interests of numerous and influential consulting companies, tax advisors, auditors, middlemen, so there is an easier way for the government to surrender, to succumb to their pressure if there is no pressure from civil society demanding the reform. Of course, the reform would be easier in a country categorized as liberal democracy, with more transparency. Although reforming in the absence of these factors will also be difficult, there will be other difficulties. In a country like Ukraine such reform would be more difficult than in a country like Sweden.

[pullquote]What cases of successful investigations of profit shifting, which resulted in fines or sentences of profit shifters, and in reimbursement in favor of the state budget, you could rememember? What has allowed the budgets to get that money, and what has allowed prisons to get those scammers?[/pullquote]

Investigations are successful when tax authorities are powerful. For example, if you look at the digital companies in the UK, and there is a weak tax authotity, then you’ll see Google with its 10% share Google’s global market volume being in Britain. The UK is the biggest European market for Google, but the company pays taxes of only around $100 million. Unlike in Italy, where tax authority have agreed a tax pay of around $300 million from Google, that’s significantly higher, though the revenue of Google is significantly lower in Italy than the revenue in the UK.

Those facts mean that tax authorities are able to negotiate, to deal with multinationals. That's why the authorities of France and Italy get higher amounts of tax payments from multinational business compared to the countries like the UK, where tax authorities are weak.

[pullquote]Is humankind losing this war, or winning, globally? Please, tell us about a case of successful ending of such investigations — not just the investigation, the truth discovering as a final point, but the final ending of the story, when the money, formerly tried to be avoided the taxation, has been finally transferred to nation, to budget, not to corporate pockets.[/pullquote]

The process is still on-going. Since 2015 there has been the process of trying to change rules to make tax avoidance more difficult for multinationals. There are some transparency initiatives. For example, EU banks now need to publish country by country data showing where they put the profits. This will lead to the increase of taxes they pay. Some of the reforms are already successfully changing the ways which were used previously to avoid paying taxes, they weaken some grievous tax avoidance structures. But the reality is that we are not seeing major changes that would lead to the decrease of tax spending of multinational overall. The amount of taxes payed by multinationals, by companies all over the world, is steady for the last 5-6 years. It is long process. Small steps have been taken, and we need deeper steps, and reform. The OECD, through its work in taxing digital multinationals, have now open itself to broader reforms, which is promising but of course we will need to see where this process ends.

There are examples of success. The Australian company BHP has recently been forced to pay the Australian state budget $386 million in profits from exports of a mining conglomerate, although it initially tried to transfer profits to Singapore in order to reduce tax payments. Australian society could have missed this big money, but did not miss it. The government has settled an agreement with BHP, in a way which means that BHP had to pay $386 mln to Australian tax authorities.

[pullquote]In Ukraine, capitalists and politicians are a single whole, the Ukrainian government’s policy is separate from business only in declarations. And all this political-economic so-called elite has been syphoning wealth for about 30 years. This system of syphoning Ukrainian national wealth, all kinds of resources, abroad. Only very little part of those resources come back - in the form of so-called black money, for bribery, to finance dishonest elections, the politics in general. However, it turns out that those countries and their peoples, which are final destination locations of the money shifting, appear to be beneficiaries of it... So, we have a terrible contradiction, the conflict of interests here. How can we overcome it?[/pullquote]

I think, the only one way is more transparency. It’s necessary to seek all multinationals operating in Ukraine to publish how much revenues, how much profits, and how much taxes they pay in Ukraine, this is called public country by country reporting and to compare these figures to the overall group. In some countries, where the government and international companies are too close, are connected, have common interests in tax avoidance, the support of the international community is required, an external pressure is needed.

[pullquote]Probably, Ukrainian civil society should do this?[pullquote]

Yes, Ukrainian civil society, and multinational community, and other governments, G20, European governments, – all the governments that deal with Ukraine, should put pressure for the reforms dealing with tax avoidance in Ukraine. Probably, Ukraine’s amount of revenue lost as result of tax avoidance may be lower than of other countries in absolute figures, compare to Germany, for example, or to Italy, to France, to the UK, the US. But in relative numbers, that is in terms of percentage of GDP, it could be higher.

[pullquote]In Ukraine, investigators and activists who are trying to understand why and how much money is unfairly withdrawn to other countries are often rebuked, although international media works to combat the withdrawal of funds abroad. Is such investigation the activity of the left movements and parties or rather the right ones in the West? Or there is no difference? Are any cases of persecution, violence against those debunkers and socio-political activists who have proved the crimes or manipulations of corporations?[/pullquote]

If we take a look at those persons who have been involved in high-profile cases regarding the leakage of compromising data about corporations, if you view all these leaks, you will see that the majority of the investigations and revelations come from the left wing of political ideology. Yes, they have been often prosecuted by governments, because they reveal many of things which the system doesn’t want to reveal.

[pullquote]Western societies are probably more susceptible to violations of social responsibility by companies. What tools, to encourage corporations to be more responsible, moral, open, you know and can recommend? Not lawer’s tools, but some forms of public pressure, which are legal and non-violent at the same time.[/pullquote]

Yes, there are different ways to do this. For example, boycotting of companies for being involved in tax avoidance, particularly by now awarding them with public procurement contracts. There are also special initiatives – for example, in the UK we have an initiative called a Fair Tax Mark, which analyze companies in the aspect of paying taxes, to name the best and the worst companies from this point of view. Accordingly, companies strive to look better in this prestigious ranking. Moreover, shareholders are more and more calling for having investments in transparent business, with good reputation. Therefore, shareholders sometimes use pressure on tax avoiding corporations.

For example, one of the biggest investment funds, which is investing thousands of companies in the world, is calling for multinationals to public country by country reporting data, for higher transparency. A recently formed group of banks and savings societies across Europe that do 20 billion of investments, now want to put pressure on the companies where invest their money. The group call for multinationals to become more transparent, move away from using tax avoidance.

As you can see, there is good news, too.

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04.10.2019 new-republic

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