Russians Return to Cyprus, a Favorite Tax Haven

Nearly a year ago, European authorities sought to drive a stake into the heart of this country's role as an offshore tax heaven, when Cyprus briefly became the newest epicenter of the euro xone's debt crisis.

Πηγή: New York Times
By LIZ ALDERMAN
Feb 17 2014

NICOSIA, Cyprus — When the Cypriot government forced bank depositors — many of them Russian — to pay their share of an international bailout last spring, Vasilis Zertalis’s phone started ringing.

The companies his consultancy helps incorporate on this breezy Mediterranean island — many of them Russian, too — wanted to know how quickly they should get out.

These days, the calls are coming for another reason: Businesses are eager to get in.

“We are registering twice as many companies than when after the crisis hit,” Mr. Zertalis, the head of a big registrar, Prospectacy Limited, said as the sun set over palm trees near his office one recent weekday. “Russians, Germans, Latin Americans, Canadians — they’re all coming,” he said.

Especially the Russians. And that is even though they were the category of foreign investors that the Cypriot government and its international bailout creditors seemed to single out for punishment last spring, when officials tried to turn the economy here into something more than an offshore tax haven whose banks looked the other way as money of questionable provenance rolled in from abroad.

Launch media viewerA woman at the Alkyonides charity in Nicosia, the capital of Cyprus, where the unemployment rate is 17.5 percent. 

The banking system has been drastically overhauled. But the tax haven part less so.

“People are still interested because the legal and tax system remains much more stable than in Russia, and they think that the threat of another haircut is remote,” said Costas Erotocritou, the vice president of the Russian Business Association here, and a lawyer whose firm specializes in setting up offshore accounts.

The haircut he referred to was the Cypriot government’s move last spring to seize vast sums, much of it deposits from wealthy Russians, at the nation’s biggest banks. (Because part of the money seized was converted into bank shares, one other anomaly of the bailout was that it turned wealthy Russians into some of the biggest shareholders in Cypriot banks.)

A year after the bailout, Cyprus’s economy is still in deep trouble and its banking sector is half its former size. With bank tellers, construction workers and retail employees caught in the fallout, unemployment has jumped to 17.5 percent from 14 percent a year earlier; youth unemployment is above 40 percent.

Banks sharply curbed lending as the level of deposits shrank, and nearly half their outstanding loans are in arrears or default. Private debt has surged to around 300 percent of Cyprus’s 17 billion euro economy.

But the one rebounding business is foreign incorporation. Cyprus is once again a favorite tax haven, even after international bailout officials forced the government to nudge the corporate tax rate up to 12.5 percent, from 10 percent. That is still the lowest in the euro zone, on par with Ireland and well below Germany’s 29.5 percent and France’s 33.3 percent.

The registration of what are mostly shell companies created to shelter income was 1,454 in January alone. That is more than double the nadir of last spring, after the bailout, and even slightly more than were registered in December 2012, before the collapse.

As a result, there are now about 273,000 companies on Cyprus’s corporate registry, a staggering figure in a country whose population is only 839,000. “This is not an industry that has died,” said Yiorgos Lakkotrypis, 

Cyprus’s commerce and energy minister.

Launch media viewerThe Alkyonides food bank, which is serving many more Cypriots.

And the Russians have dug in.

“The Russians won’t leave because they really don’t have any other option,” Mr. Zertalis said. “Sure they lost money in the haircut, but when it comes to business they will continue to use the island because returning to Russia is not a better solution for them.”

But there is one place where neither the Russians nor any other foreign investors are putting much money: Cypriot banks.

After deposits were seized, “companies generally won’t hold more than 100,000 euros in a Cypriot bank now,” said Mr. Erotocritou.

He was referring to the radical move by officials who, for the first time in a euro zone bailout, forced some depositors to take a loss. The authorities last spring liquidated Laiki Bank, Cyprus’s second-biggest financial institution, and folded its remains into the largest one, Bank of Cyprus, where the government then confiscated 60 percent of deposits above €100,000 to recapitalize the lender.

Total deposits in Cypriot banks, which were €57 billion last April, dropped to €47 billion by November. They might have fallen further and faster if the government had not tightly controlled withdrawals and foreign transfers at the height of the crisis.

By now those controls have been relaxed to the extent that they hardly affect business operations anymore, enabling companies that are still comfortable keeping their money in a Cypriot bank account to conduct transactions more easily than they did six months ago.

Some controls remain in place for individual accounts, including a €300 daily withdrawal limit and central bank vetting of large cash transfers. But last week the finance ministry said further loosening of the rules was in the offing. That was in response to a review by the International Monetary Fund, which found that Cyprus was fulfilling the fiscal promises it made as part of the bailout.

Launch media viewerThe streets in Nicosia’s main shopping area are lined with shuttered stores and largely empty of people

Even so, many businesses are taking no chances. They are setting up bank accounts entirely outside of the euro zone on the concern that, as in Cyprus, their assets could be seized to pay for banking crises that might blow open in other European countries, Mr. Zertalis, the consultant, said.

“No matter what European leaders say now, all of our clients are saying, ‘Let’s split our accounts among as many different countries and banks as we can,’ ” Mr. Zertalis said. “They say ‘We won’t keep our money in Cyprus, but we don’t feel secure about Europe anymore, either.’ ” He said many had turned to financial institutions in Canada, Switzerland and Asian countries.

Yet while financial agents like Mr. Zertalis are enjoying a bounce-back — he doubled the size of his small staff in the last six months and plans to double it again this year — many other people across the island are casualties of the banking collapse.

Thousands of small and midsize businesses have been hobbled by the dearth of bank lending, said George Pamboridis, a senior partner at the law firm Pamboridis.

On Nicosia’s main shopping street, storefronts once adorned with mannequins, shoes and electronics now sit empty. In Nicosia’s main square, retail space formerly occupied by a Laiki Bank branch is vacant, with debris strewn where teller windows once stood.

Outside Nicosia, at a hulking warehouse near green meadows and olive trees, volunteers at the Alkyonides charity rushed on a recent weekday to prepare for the 50 families who had trekked there to receive handouts of food, diapers and used clothing.

Two years ago, the charity typically served around 15 families a month. Today, it is overwhelmed with as many as 1,000 families in need, mostly people who used to work in banking, construction or retailing, said Koulla Demetriou, a volunteer.

“Many people can’t find jobs, and every month it gets worse,” Ms. Demetriou said, as she typed up a food ticket for Angeliki, 42, a mother of three who recently lost her job working in security for a bank.

“The main hope now is that the people of Cyprus will care for each other.”

In the meantime, the gap between Cypriots out of luck and foreigners with money — especially the Russians — has never been starker.

“Rich Russians love this country,” Mr. Erotocritou said. “They will keep coming back.”

Super rich hiding up to $32 trillion offshore

Up to $280bn is lost in tax revenues as wealthy individuals park financial assets in offshore tax havens.

(Click on image to enlarge)

Πηγή: ALJazeera
July 23 2012




 Rich individuals and their families have as much as $32 trillion of hidden financial assets in offshore tax havens, representing up to $280bn in lost income tax revenues, according to research published on Sunday.

The study estimating the extent of global private financial wealth held in offshore accounts - excluding non-financial assets such as real estate, gold, yachts and racehorses - puts the sum at between $21 and $32 trillion.

This amounts to roughly the US and Japanese GDP combined. Roughly 10 million people worldwide have offshore accounts, with 100,000 people owning half of those secreted assets.

The research was carried out for pressure group Tax Justice Network, which campaigns against tax havens, by James Henry, former chief economist at consultants McKinsey & Co.

John Christensen of the Tax Justice Network told Al Jazeera that he was shocked by "the sheer scale of the figures".

"What's shocking is that some of the world's biggest banks are up to their eyeballs in helping their clients evade taxes and shift their wealth offshore," said Christensen.

"We're talking about very big, well-known brands - HSBC, Citigroup, Bank of America, UBS, Credit Suisse - some of the world's biggest banks are involved... and they do it knowing fully well that their clients, more often than not, are evading and avoiding taxes."

Much of this activity, Christensen added, was illegal.

He used data from the World Bank, International Monetary Fund, United Nations and central banks. The report also highlights the impact on the balance sheets of 139 developing countries of money held in tax havens by private elites, putting wealth beyond the reach of local tax authorities.

The research estimates that since the 1970s, the richest citizens of these 139 countries had amassed $7.3 to $9.3 trillion of "unrecorded offshore wealth" by 2010.

Private wealth held offshore represents "a huge black hole in the world economy," Henry said in a statement.

Editor's note: Tax Justice Network  underlines that corruption is not to be found only in the public sector but quite contrary:

"While Transparency International and others would tend to restrict this “supply side” to bribery, it is clear, as the example of Switzerland and the Bribe-Payers’ Index shows, that we need to focus on a larger arena than that. It is much larger: Raymond Baker, a world authority on corruption and money-laundering, has estimated that the cross-border component of bribery and theft by government officials is the smallest part of “dirty money”, or only about three percent of the global total. The criminal component constitutes about 30 to 35 percent, while the commercially tax-evading component, which is driven primarily by falsified pricing in imports and exports, is by far the largest, at some 60 to 65 percent of the global total. The “pinstripe infrastructure” of offshore bankers, lawyers and accountants who welcome these flows of “dirty money” with open arms are a central part of the corruption problem".

Germany sides with the tax havens in transparency fight

Germany and Liechtenstein had been tied up in a big tax scandal since February 2008

Πηγή; EUobserver
By Nicholas Shaxson
March 8 2012

Germany has long been a champion of financial transparency in Europe, having pushed hard for the EU Savings Tax Directive, a co-operative arrangement since 2005 where participating jurisdictions routinely exchange information about the income and holdings of each other’s citizens, so that they may be taxed properly. Germany has also strongly supported current moves to strengthen the directive, which is currently full of loopholes.

The transparency project has faced major political difficulties. A group of tax haven countries, led by Switzerland and supported inside the EU by the tax havens of Austria and Luxembourg, have been involved in a political chess game, to sabotage the progress of the powerful Amendments to the EU Savings Tax Directive (EUSTD) through the European legislative process.

For a long time, Germany had been a stalwart supporter for those determined to fight for financial transparency, and to fight against the tax havens.

Until now.

As my last post noted, Germany appears decisively to have switched sides, and now has placed itself firmly on the side of the tax havens. As Europolitics reports, confirming my earlier post:

“An unnatural alliance has been made at the Council to block, once again, any move forward in the dossier on the taxation of savings income. Germany has joined forces with Luxembourg and Austria.”

The key tool that is being used to sabotage the Amendments has been Switzerland’s bilateral “Rubik” deals with the UK and Germany, under which Switzerland is supposed to apply some withholding taxes on UK (criminal) German and UK taxpayers’ Swiss assets and income, while keeping their identities secret.

The original political aim of Rubik was to play a divide-and-rule game in Europe, weakening German and British resolve on pushing forwards the EUSTD Amendments, and providing Austria and Luxembourg with a pretext for blocking progress on those amendments: they would be able to claim that the Amendments are unfair because the Rubik bilateral deals give special treatment to Switzerland. Which they do. Germany, inexplicably, wants the EC to drop its objections to the deals.

Switzerland has also been thumbing its nose at the European Union over this issue. Last November, for instance, Swiss Finance Minister Eveline Widmer-Schlumpf snubbed EU Tax Commissioner Algirdas Semeta by cancelling a meeting with him on this issue, at the last minute.

The European Commission has, quite rightly, stamped down hard on the Swiss “Rubik” deals. In a fierce March 5th letter to the Danish EU Presidency, Semeta warned strongly against the deals, warning that

 “Such agreements must not include any aspects which overlap with areas in which common action by the European Union has been taken or is envisaged.

Those words “or is envisaged” are particularly important: the deals must not cross the Amendments, even though these Amendments, which are a welcome threat to financial secrecy in Europe, have not yet been passed.

As my earlier post explained, the carve-out that the European Commission insists upon effectively renders the Rubik deals functionally worthless, and pointless except for one thing: as a potent political tool for sabotaging the amendments.

This is why it is so shocking that just at a moment when progress was about to be made – Britain and Germany being made to realise that their deals would have to be scrapped or rendered useless, and Austria and Luxembourg appearing to back down from blocking progress – Germany suddenly intervened to block progress. As Europolitics reports:

The Danish Presidency of the EU confirmed, on 7 March, during a meeting of the Committee of Permanent Representatives (Coreper), that the discussion on savings taxation has been withdrawn from the 13 March Ecofin Council. Copenhagen had hoped to reach a compromise on granting the European Commission a negotiating mandate with several countries, including Switzerland, but Germany has put a ‘reservation’ on this approach.

There are several theories circulating as to why Germany want to do this.

A first is that wealthy and powerful (criminal) German tax evaders have been able to apply enough influence to stop financial transparency being expanded in Europe, and have been able to influence the German Finance Ministry. The theory is not so very far-fetched: many were surprised to see Germany ranked in the top ten of the Tax Justice Network’s Financial Secrecy Index last year.

A second theory is that German Finance Minister Wolfgang Schäuble, who is known to be very pro-Swiss, wants to help Switzerland, for particular reasons of his own. Bizarrely, Germany seems particularly eager to help Swiss banks, as Europolitics continued:

“In particular, Berlin wants the guarantee that is has the right to “facilitate” the access of Swiss operators to its national market of financial services.”

A third possible reason is this: by trying to force the European Commission into accepting the deals, Schäuble will be able to avoid the humiliating experience of having to admit the truth: that the Rubik deals were a gigantic mistake from the beginning.

Ultimately, Schäuble’s motivations may stem from a combination of all three. In any case, amid all the financial and political turmoil in Europe, it marks another arena in which Germany appears to be taking a rather nationalistic path, disregarding the efforts of the rest of European member states, which stand to lose tens of billions of Euros in revenues if the tax haven sabotage is successful.

Schäuble appears to be gaining a source of perhaps unwitting support from the German media, which has so far largely (with the odd exception) failed to pick up on Germany’s decisive shift onto the side of the tax havens, and which appears to have greeted Semeta’s powerful letter on March 5th with silence.

Austria, meanwhile, appears to be taking as cynical position as it ever has. Andreas Schieder, Austria’s State Secretary of Finance, had this to say:

“We cannot wait until all the tax issues between the EU and Switzerland have been dealt with. They have had 20 years to do this, and this is certainly far too long for us.”

Which is interesting. What Schieder omitted to mention was that one of the main reasons for delay has been that Austria and Luxembourg have been blocking progress inside Europe!

In an open letter to Finance Ministers and EU Permanent Representatives on March 6th, the Tax Justice Network called Germany’s actions “unacceptable” and called on EU governments to “stand up against Germany’s position.”

Endnote 1: if any evidence is needed on just how very bad the original Rubik deals are, click here.

Endnote 2: a lot of media stories (such as this one) have falsely given the impression that because Germany and the UK have agreed to the Commission’s demands that they must renegotiate their Rubik deals, and that the sticking point has been the tax rate specified under the German deals, and that this effectively irons out the problems. That is false: the tax rate is a distraction. The changes that the EU Commission is referring to is “drop everything in Rubik that overlaps with the EUSD and its future amendments.” To repeat: if they do accept the European Commission’s demands, as is right (and as seems likely,) then the whole point of Rubik disappears.

International Tax heavens: 'Scale of multi-national tax avoidance revealed'

Multi-nationals staying one step ahead of the game

Πηγή: The Bureau of Investigative Journalism
Oct 11 2011


The London Stock Exchange’s 100 largest companies have thousands of subsidiaries based in international tax havens, an investigation by a development charity has found.

The report by ActionAid found FTSE 100 companies have more than 34,000 subsidiaries and joint ventures and a quarter of these – over 8,000 – are in jurisdictions ‘that offer low tax rates or require limited disclosure to other tax authorities’, reports the Guardian, which covered the story.

According to the report, in the past many FTSE 100 companies have failed to conform to UK laws that require them to list their subsidiaries and where they are registered with Companies House.

As a result of a formal complaint made by ActionAid to Companies House, along with a subsequent investigation by business secretary Vince Cable, the report is the first time the full list has been collated.

Analysis by ActionAid found ‘that 98 of the FTSE 100 companies use tax havens, with only Fresnillo, a Mexican-based mining company, and Hargreaves Lansdown, a Bristol-based financial services group, declaring no offshore subsidiaries’.

The largest number of tax haven companies belong to the banking sector, the UK’s ‘big four’ banks — HSBC, RBS, Barclays and Lloyds – have a total of 1,649 subsidiaries between them.

There are legitimate reasons for multi-nationals to base subsidiaries in countries around the world — the banks say they are global businesses with local operations in dozens of countries — which in itself is not evidence of tax avoidance.

But campaigners say the investigation reveals the need for stricter regulation to stop global firms from getting away with tax avoidance.

Martin Hearson, a tax policy expert at ActionAid, said: ‘When companies use tax havens to dodge taxes, ordinary people in developing countries and the UK lose out.

‘Our research today lays bare the extent to which the use of tax havens is rife among Britain’s biggest multinationals, who have serious questions to answer.’

Read the full ActionAid report here.