Germany s efforts to curb international tax evasion

Transcription

1 Germany s efforts to curb international tax evasion Hannes Fauser (FU Berlin), Jakob Miethe (DIW Berlin) FairTax special session ECE Conference, Brno March 9, 2017

2 Outline 1 Overview 2 Identification 3 Data 4 Estimation 5 Outlook

3 Basic idea: tax evasion is hidden but leaves traces indirect identification possible: reactions of financial statistics to policy measures aimed at illegal behaviour (Hanlon et al., 2015; Johannesen & Zucman, 2014) 1 TIEAs (tax information exchange agreements), DTCs (double taxation conventions) 2 domestic tax law changes 3 leaks of identity of evaders ( tax-cds )

4 Motivation Do deposits from tax havens in German banks react? if yes, evidence of tax evasion (e.g. roundtripping ) exploit monthly Bundesbank deposits data in case study for Germany Advantages: detailed data available (monthly deposits, tax changes, leaks) largest Euro area economy: economically important effects accumulated capital through long standing export surplus (by wealthy HH and firms) long history of tax evasion

5 Our approach based on Hanlon et al. (2015) part of deposits of German banks vis-à-vis havens actually owned by German evaders using sham corporations Why? home bias of offshore investment, well-being of evader raised by spending offshore funds at home possibilities: credit cards in the name of the shell, donation to private foundation, transfer of funds to a trust held by fiduciaries of the evader unfortunately, not all of these would show up in our data... What shows up: direct accounts in Germany for consumption & investment purposes (we need more - anecdotal - evidence on the portfolio structure of wealthy evaders!)

6 Key assumptions: 1 Part of the offshore capital of tax-evading German households flows back to Germany in order to be spent or invested. 2 In the deposits data, changes with respect to TIE should exclusively affect illegal capital evaded by German nationals who worry about detection.

7 Data Main data source: Bundesbank, External Positions of banks monthly liabilities to non-residents of banks in Germany, and of German banks foreign branches and subsidiaries non-residents: foreign enterprises, households and governments enhanced data coverage since 2003 baseline sample

8 Liabilities, haven vs. nonhaven countries ( ) liabs.banks countrytype nonhaven taxhaven as.numeric(time) Source: Own depiction, based on Bundesbank data.

9 Liabilities, haven countries ( ) 150 country 100 Bahamas Bahrain Bermuda Jordan Lebanon Liberia liabs.banks Cayman Islands Curacao Cyprus Guernsey Liechtenstein Luxembourg Malta Marshall Islands Hong Kong Ireland Panama Singapore 50 Isle of Man Jersey Switzerland Virgin Islands, British as.numeric(time) Source: Own depiction, based on Bundesbank data.

10 Liabilities, selected countries ( ) 150 bank deposits (bn) as.factor(country) Cayman Islands France Guernsey Italy Luxembourg Switzerland Source: Own depiction, based on Bundesbank data.

11 Liabilities, weighted by goods trade ( ) bank deposits/(imports+exports) country Bahamas Cayman Islands France Guernsey Italy Liechtenstein Luxembourg Switzerland Source: Own depiction, based on Bundesbank and Destatis data.

12 Liabilities, weighted by goods trade ( ) bank deposits/(imports+exports) country Bahamas France Guernsey Italy Liechtenstein Luxembourg Switzerland Source: Own depiction, based on Bundesbank and Destatis data.

13 Data for policy measures: TIEAs and DTCs: OECD, BMF dates of signature and entering into force, OECD peer review whether properly drafted and enforced used to construct dataset with dummies for each event, transformed to treatment variables

14 German treaties with tax havens in our sample period ( ) Counterparty Type Signature In force Andorra TIEA 25 Nov Jan 2012 Anguilla TIEA 19 Mar Apr 2011 Antigua and Barbuda TIEA 19 Oct May 2012 Bahamas, The TIEA 09 Apr Dec 2011 Belgium DTC 21 Jan 2010* not yet* Bermuda TIEA 03 Sep Jun 2012 British Virgin Islands TIEA 05 Oct Dec 2011 Cayman Islands TIEA 27 May Aug 2011 Costa Rica DTC 13 Feb Aug 2016 Cyprus DTC 18 Feb Dec 2011 Dominica TIEA 21 Sep Nov 2014 Gibraltar TIEA 13 Aug Nov 2010 Grenada TIEA 03 Feb Nov 2013 Guernsey TIEA 26 Mar Dec 2010 Ireland DTC 30 May Nov 2012 Isle of Man TIEA 02 Mar Nov 2010 Jersey TIEA 04 Jul Aug 2009 Luxembourg DTC 23 Apr Sep 2013 Malaysia DTC 23 Feb Dec 2010 Malta TIEA 17 Jun May 2011 Mauritius DTC 07 Oct Dec 2012 Monaco TIEA 27 Jul Dec 2011 Montserrat TIEA 28 Oct Mar 2012 Saint Kitts and Nevis TIEA 13 Oct Sep 2016 Saint Lucia TIEA 07 Jun Feb 2013 Saint Vincent and the Grenadines TIEA 29 Mar Jun 2011 San Marino TIEA 21 Jun Dec 2011 Singapore DTC 28 Jun Dec 2006 Switzerland DTC 27 Oct 2010* 21 Dec 2011* Turks and Caicos Islands TIEA 04 Jun Nov 2011 Uruguay DTC 09 Mar Jan /48/EC EUSTD 03 Jun Jul 2005 Note: * indicates signature/enforcement dates of the latest TIE amendment to the DTC, rather than of the original DTC. Sources of data: OECD Exchange of Tax Information Portal and BMF (2017).

15 tax changes: major and minor increases and decreases, measures increasing domestic threat of detection taken from overview about tax law changes provided by the BMF build dataset for , so far only used since 2003 alternative for tax changes: top statutory personal income tax on dividends and interest further policy var: public scandals involving tax-cds

16 Key tax policy changes in Germany over our sample period ( ) Policy type Enacted In force Effect income tax 14 Jul Jan 2003 minimum rate -2.9 %pts, top rate -1.5 %pts income tax 14 Jul Jan 2005 (revised) reduction across all income brackets, top rate -5.0 %pts 23 Dec Jan 2004 temporary tax amnesty at reduced rates threat of detection 23 Dec Apr 2005 better access to domestic account information for fiscal authorities income tax 29 Dec Jan 2004 early implementation of tax rates planned for 1 Jan 2005 income tax 24 Jul Jan 2007 top rate +3 %pts income tax and others local/federal corporate tax, income tax 06 Jul Jan 2008 diverse, in total decrease (e.g. corporate tax rate by 10 %pts) income tax 06 Jul Jan 2009 new 25 % flat rate withholding tax on capital income income tax 02 Mar Jan 2009, 01 Jan 2010 rightward shift of tax brackets, i.e. reduction threat of detection 22 Dec Jan 2015 tightening of rules for self-disclosure of evasion Note: Own compilation, based on BMF (2014, 2015, 2016).

17 Key public scandals involving tax-cds ( ) Event Publication Effects CD with account information from Liechtenstein uncovers tax evasion of wealthy individuals, prominent: Klaus Zumwinkel, former CEO of Deutsche Post fiscal authorities buy CD with Credit Suisse account data, followed by several purchases the same year Federal Constitutional Court decides that acquiring account information is legal purchase of another three CDs with Swiss account data (Coutts, UBS) Uli Hoeneß evasion is publicised after faulty self-disclosure, another CD is bought, Offshore Leaks (with relatively minor impact on German customers, though) Feb 2008 Feb 2010 Nov 2010 Jul 2012 Apr 2013 increased no. of self-disclosures, investigations, fiscal surplus proceeds of around EUR 0.8 bn investigations and self-disclosures authorities can continue paying informants for account data investigations and self-disclosures Hoeneß resigns and is sentenced for prison, major public discussion about tax evasion of the wealthy, high no. of self-disclosures Swiss Leaks, HSBC branch in Geneva Feb 2015 more than 2,000 accounts with German bearing Panama Papers Apr 2016 another major public discussion about offshore financial centers Note: The date refers to when the general public was informed about the event, assuming that potential evaders thinking about self-disclosure did not know earlier. Source: Own compilation.

18 Further controls: monthly goods trade data (imports and exports) from Destatis not available for some countries (e.g. British crown dependencies simple replacement estimation using population figures) more controls would be desirable, problem: monthly frequency often hardly available example: trade in services data of the Bundesbank only quarterly, and for few countries

19 We estimate an equation standard to the literature (Johannesen/Zucman 2014, Hanlon et al. 2015): y it = α i + γ t + β 1 Threat Haven + β 2 x it + u it (1) y it : international bank deposits in German banks Year-month (γ t ) and country (α i ) fixed effects x it : control variables such as bilateral trade Threat Haven: treatment variable capturing threat of detection of evasion strategies using tax havens, due to new tax information exchange arrangements (TIEAs, DTCs, the EUSTD)

20 Results Dependent variable: log(bank deposits tax-havens tax-havens non-havens non-havens (1) (2) (3) (4) Treaty signed (0.198) (0.193) (0.138) (0.114) log(imports) (0.051) (0.051) log(exports) (0.061) (0.059) country fixed effect Yes Yes Yes Yes year-month fixed effects Yes Yes Yes Yes Observations 17,034 16,748 17,034 16,748 R Adjusted R Note: p<0.1; p<0.05; p<0.01

21 Robustness: Time Dependent variable: log(bank deposits) tax-havens tax-havens non-havens non-havens (nocris) (postcris) (nocris) (postcris) (1) (2) (3) (4) Treaty signed (0.210) (0.091) (0.117) (0.107) log(imports) (0.055) (0.033) (0.055) (0.032) log(exports) (0.062) (0.062) (0.060) (0.061) country fixed effect Yes Yes Yes Yes year-month fixed effects Yes Yes Yes Yes Observations 14,944 10,636 14,944 10,636 R Adjusted R Note: p<0.1; p<0.05; p<0.01

22 Dependent variable: log(bank deposits) tax-havens tax-havens (1) (2) Bahamas (0.074) (0.189) Bermuda (0.075) (0.083) Guernsey (0.076) (0.073) Ireland (0.072) (0.079) Isle of Man (0.076) (0.072) Jersey (0.079) (0.074) Liechtenstein (0.071) (0.065) Luxembourg (0.070) (0.064) Malta (0.073) (0.066) Singapore (0.078) (0.071) Switzerland (0.073) (0.067) British Virgin Islands (0.073) (0.074) log(imports) (0.053) log(exports) (0.060) country fixed effect Yes Yes year-month fixed effects Yes Yes Observations 17,034 16,748 R Adjusted R Note: p<0.1; p<0.05; p<0.01

23 Test of tax policy changes: y it = α i + γ t + TaxPol Haven + β 2 x it + u it (2) where TaxPol is the tax policy treatment variable (statutory tax rate, domestic threat of detection, public scandals).

24 Dependent variable: log(bank deposits) tax havens tax havens (1) (2) Top PIT rate on capital income (0.787) Better access to domestic account information (0.146) EU Directive Administrative assistance (0.079) Domestic adaptation to FATCA and CRS (0.050) Tightening of self-disclosure (0.100) log(imports) (0.051) (0.051) log(exports (0.060) (0.060) country fixed effect Yes Yes year-month fixed effects Yes Yes Observations 16,748 16,748 R Adjusted R Note: p<0.1; p<0.05; p<0.01

25 Dependent variable: log(bank deposits) tax havens Zumwinkel (0.134) 1st CD wave (0.093) Fed. Const. Court verdict (0.115) 2nd CD wave (0.080) Hoeneß (0.058) Swiss Leaks (0.080) PanamaPapers (0.103) log(imports) log(exports) (0.051) (0.060) country fixed effect Yes year-month fixed effects Yes Observations 16,748 R Adjusted R Note: p<0.1; p<0.05; p<0.01

26 Further estimations/robustness already done no robustness of baseline results when testing different tax haven lists, e.g. when including Caymans or Cyprus no significant lags or leads (anticipation effects) for our preferred or the full tax haven sample

27 Further work expand range of controls, in case of necessity quarterly or yearly selection of tax haven sample based on relative importance for German tax evasion customers? Weighting? restrict duration of treatment dummies, in case of TIEAS and DTCs test the period between signature and effective date study earlier sample (dating back until 1968) cost: loss of many havens, partly also reduced time dimension benefit: look at specific 1980s and 90s events (interest income withholding tax 1989, 1993)

28 Conclusion Information exchange decreases tax evasion via the bilateral haven (deposit shifting possible!) very heterogenous effects over different jurisdictions tax changes have no discernible effect leaked data CDs have the expected sign but are not significant In general, results confirm some tax evasion going on but it is too early in the process to evaluate an overall success or failure of German policy measures

29 Literature Allingham, M. G. Sandmo, A. (1972), Income tax evasion : a theoretical analysis, Journal of Public Economics 1(3-4), Hanlon, M., Maydew, E. L. Thornock, J. R. (2015), Taking the Long Way Home: U.S. Tax Evasion and Offshore Investments in U.S. Equity and Debt Markets, Journal of Finance 70(1), Johannesen, N. (2014), Tax evasion and Swiss bank deposits, Journal of Public Economics 111(C), Johannesen, N. Zucman, G. (2014), The End of Bank Secrecy? An Evaluation of the G20 Tax Haven Crackdown, American Economic Journal: Economic Policy 6(1),