(...) The present thesis seeks to contribute to substantial answers to this question. Its subject is a set of regulatory measures taken by the Argentinean Corporate Supervisory Board Inspección General de Justicia (IGJ) between 2003 and 2005. One of their alleged aims is to counteract offshore tax evasion through a ban of the aforementioned shell companies, an approach which is deemed to be unique and novel worldwide. The venture of the IGJ rests on the assumption that the bona fide-treatment of the latter’s legal person is crucial for cross-border tax evasion. Designed as an explorative case study, the thesis’ central interrogative is about the normative-judicial scope and the factual impact of IGJ’s policy on offshore tax evasion. Much of the data underlying the answers given henceforth has been collected through a two-months field research in Buenos Aires.
The structure of the thesis is as follows: The second chapter opens with a brief section of definitions of key terms used thereafter (2.1). Section two (2.2) seeks to clarify the practical relevance of the subject and to establish and engross its links to two theoretical debates. Thereby, the central question and two related hypothesis will be carved out (2.3). In the following section (2.4), the subject is circumscribed. Epistemological and broad methodological issues are addressed in section 2.5, sources and formal issues are presented in 2.6. The field research and interview methodology are subject of section 2.7. The third chapter is dealing mostly in a descriptive way with the legal context of the IGJ-norms (3.1), focuses on institutional and general administrative issues in relation to their implementation (3.2), presents the regulations in question chronologically (3.3) and eventually summarizes the mayor issues relevant for the subsequent analysis (3.4). In the fourth chapter, the measures are subject to analysis with regard to a test of the first hypothesis presented in chapter two. The fifth chapter seeks to do the same for the second hypothesis, although the venture is far more complex and the results are more ambiguous. Some points of departure for further research are addressed. In the sixth chapter, an answer to the central question is provided, the results of the test of both hypotheses are summarized, conclusions are drawn and a more generic outlook is given.
Content
List of Abbreviations
List of Tables and Annexes
1 Introduction
2 Theoretical background, research subject and methodology
2.1 Definitions of key concepts
2.1.1 Offshore
2.1.2 Tax evasion
2.1.3 Offshore tax evasion
2.1.4 Offshore financial centre (OFC) and tax haven
2.1.5 Offshore (shell) company
2.2 Theoretical Background and Relevance
2.3 Research Question and Hypotheses
2.4 Delimitation
2.5 Epistemological background and Methodology
2.6 Sources and Formality
2.7 Field research: qualitative and quantitative methods
3 Corporate Law, Institutions and Policy
3.1 Judicial Context: Corporate Law on the federal level
3.2 Institutional Framework: Implementation on the provincial level
3.3 Offshore Corporate Policy: IGJ-General Resolutions 2003-2005
3.3.1 IGJ-RG 7/03 – Centrepiece: Real Economic Activity Criteria
3.3.2 IGJ-RG 8/03 – End to Actos Aislados Provision
3.3.3 IGJ-RG 12/2003 – Defining and Supporting Adecuación
3.3.4 IGJ-RG 22/2004 – Exemption of Investment Vehicles
3.3.5 IGJ-RG 2/05 – Severing of Real Economic Activity Criteria
3.3.6 Resolution IGJ-RG 3/05 – Identification of Shareholders
3.3.7 IGJ-RG 7/05 – Integration and Reordering
3.4 Summary: Two layers and two criteria interplaying in implementation practice
4 Analysis and Test of Hypothesis 1
4.1 Qualitative Analysis
4.2 QuantitativeAnalysis
5 Hypothesis 2: widening the perspective
5.1 Offshore tax evasion: framework of analysis
5.2 Bottlenecks in the puzzle: Access to foreign currencies
5.3 The Argentinean Tax-System: Law and Judiciary
5.4 Mechanisms of illicit trans-border capital flows in Argentina
5.4.1 Enabling Entities
5.4.2 Enabling (accounting and/or tax) Devices
5.5 Thoughts on quantitative assessments
6 Conclusions
References
List of Abbreviations
Abbildung in dieser Leseprobe nicht enthalten
List of Tables and Annexes
Tables
Table 1: Overview IGJ’s General Resolutions
Table 2: Available Data of the Public Register of Commerce, Buenos Aires (IGJ)
Table 3: Property tax in Argentina (bienes personales): Number of taxpayers and the tax intake; 1997 and 2001-2006
Annexes
Annex 1: Code and List of Interviewees (2 pages)
Annex 2: Additional early structuring questions (1 page)
Annex 3: Guide for directed interviews (Guía para entrevistas; 4 pages)
Annex 4: selected questions for professionals (Cuestionario; 1 page)
Annex 5: Two copies of Entries in the Register of Commerce (bad quality due to bad photographs)
a) Art. 118: Sucursal (branch; 1 page)
b) Art. 123: Participación en sociedades ("Part. Soc.", shares only; 1 page)
Annex 6: Model Form to complete for initial information regime according to IGJ-RG 7/05 (3 pages)
(Leonhardt, Dietl, Graf & von der Fecht)
Annex 7: Model Form to complete for annual compliance according to IGJ-RG 12/05 (2 pages)
(Leonhardt, Dietl, Graf & von der Fecht)
Annex 8: List of low or no tax juriscidictions as of PEN-DEC 1037/00 (14.11.2000 BO; 4 pages)
Annex 9: Model Form to report foreign exchange operations 'Boleto de Cambio' (1 page)
Annex 10: Calculation of deadline for compliance with criteria (IGJ-RG 7/05; 2 pages)
Annex 11: Interpretation of IGJ’s understanding of FATF’s recommendations 33 and 34 (3 pages)
Annex 12: Brief summary of technical flaws and omissions in IGJ-RG 2/05 (1 page)
Annex 13: Glossary (Tax Justice Network 2006; 10 pages)
1 Introduction
"For the absentee owner, the purpose is not to ‘maximize’ profits but to ‘beat the average’. The ultimate goal of business is not hedonic pleasure, but differential gain. […] The capitalist seeks higher profit, not in order to buy more goods and services, but in order to assert his or her differential power.” Jonathan Nitzan, Differential Accumulation (1998: 173, 174)
“[…] Pride is essentially competitive - is competitive by its very nature - while the other vices are competitive only, so to speak, by accident. Pride gets no pleasure out of having something, only out of having more of it than the next man. We say that people are proud of being rich, or clever, or good- looking, but they are not. They are proud of being richer, or cleverer, or better-looking than others. If everyone else became equally rich, or clever, or good-looking there would be nothing to be proud about. It is the comparison that makes you proud: the pleasure of being above the rest. […] Greed may drive men into competition if there is not enough to go round; but the proud man, even when he has got more than he can possibly want, will try to get still more just to assert his power. Nearly all those evils in the world which people put down to greed or selfishness are really far more the result of Pride.”
C.S. Lewis, Mere Christianity (2002 : 122-123)
Tax havens and related cross-border tax evasion by wealthy individuals have recently gained widespread public attention in Europe when Germany's foreign intelligence agency, the Bundesnachrichtendienst (BND), uncovered massive evading practices of around 900 German taxpayers in the alpine principality of Liechtenstein[1]. Whereas in this recent case foundations[2] have been the judicial entities used to conceal the identity of the owners of assets and capital income, similar ends are achievable with other judicial persons in other tax haven jurisdictions. For instance, Jeffrey Owens, the Head of the OECD’s Fiscal Affairs Department, mentioned in an article elaborating on “Offshore Tax Evasion” in June 2007 that nowadays “the creation of offshore financial accounts, shell companies and the like are just a click of a mouse away." (Owens 2007). The potential for abuse of such offshore structures has been highlighted by a great many of international bodies concerned with money-laundering, tax issues and organized crime. The term ‘shell companies’ refers to mere façades of companies which are used for and whose raison d’être exists in the booking of economic transactions. Simplifying grossly, the process by which a person is creating and using accounts and companies in places she or he might never tread or reside in, can be called offshorization. Such offshorization though is considered detrimental not only for industrialized countries’ tax revenues and the capacity to provide for public services thereof, but is found harmful also for developing countries[3].
For similar reasons and as financial efforts in the framework of the UN-Millennium Development Goals (MDG) are burlesqued by a simultaneous, massive siphoning of mostly undeclared funds out of developing countries, this issue recently gains momentum in the international development debate, too. In a joint press-statement with UN-Secretary General Ban in September 2007 on the occasion of presenting the Stolen Assets Recovery-initiative, World Bank President Zoellick said that “there should be no safe haven for those who steal from the poor" pointing at data which suggest that the cross-border flow of global proceeds from criminal activities, corruption and tax evasion was annually 1-1,6 trillion US$ (Hoge 2007).
Generally and so far though, international developmental efforts clearly find their limitation when it comes to concrete tax cooperation[4]. While industrialized countries achieve at best meagre results in their combined efforts to counter international tax dodging, this pathway is more difficult to take for developing countries. The ‘willingness’ on behalf of offshore tax havens to ‘cooperate’ can be expected to decrease drastically when their negotiating counterparts are no more the US or EU, but let say Ghana or Mercosur. Thus, the question arises if any unilateral action can be successfully taken by developing countries in order to reduce their exposure to the “supply side” (TJN 2007: 32-34, 132) of global corruption as instituted in offshore financial structures. The present thesis seeks to contribute to substantial answers to this question.
Its subject is a set of regulatory measures taken by the Argentinean Corporate Supervisory Board Inspección General de Justicia (IGJ) between 2003 and 2005. One of their alleged aims is to counteract offshore tax evasion through a ban of the aforementioned shell companies, an approach which is deemed to be unique and novel worldwide. The venture of the IGJ rests on the assumption that the bona fide -treatment of the latter’s legal person is crucial for cross-border tax evasion. Designed as an explorative case study, the thesis’ central interrogative is about the normative-judicial scope and the factual impact of IGJ’s policy on offshore tax evasion. Much of the data underlying the answers given henceforth has been collected through a two-months field research in Buenos Aires.
The structure of the thesis is as follows: The second chapter opens with a brief section of definitions of key terms used thereafter (2.1). Section two (2.2) seeks to clarify the practical relevance of the subject and to establish and engross its links to two theoretical debates. Thereby, the central question and two related hypothesis will be carved out (2.3). In the following section (2.4), the subject is circumscribed. Epistemological and broad methodological issues are addressed in section 2.5, sources and formal issues are presented in 2.6. The field research and interview methodology are subject of section 2.7. The third chapter is dealing mostly in a descriptive way with the legal context of the IGJ-norms (3.1), focuses on institutional and general administrative issues in relation to their implementation (3.2), presents the regulations in question chronologically (3.3) and eventually summarizes the mayor issues relevant for the subsequent analysis (3.4). In the fourth chapter, the measures are subject to analysis with regard to a test of the first hypothesis presented in chapter two. The fifth chapter seeks to do the same for the second hypothesis, although the venture is far more complex and the results are more ambiguous. Some points of departure for further research are addressed. In the sixth chapter, an answer to the central question is provided, the results of the test of both hypotheses are summarized, conclusions are drawn and a more generic outlook is given.
2 Theoretical background, research subject and methodology
2.1 Definitions of key concepts
In order to avoid misunderstanding and ambiguity as well as for easier comprehension, the definition of some frequently used terms is to be given here. They are assembled for the purposes of this thesis only. Some of them still lack a precise, widely shared meaning but are fluid concepts instead. This section does not pretend to give a comprehensive picture of the (theoretical) debates surrounding each term, but will only clarify the minimum in order to proceed. As the reader might not be familiar with financial issues, it is sought to provide explanations in footnotes where appropriate. For easier comprehension and in case that terms remain unclear, a glossary taken from a Tax Justice Network publication (2006) is attached in Annex 13.
2.1.1 Offshore
To begin with, the term ”offshore” might be confusing since it evokes the imagery of open sea and drilling platforms and thus refers to a real, palpable geographical location. In this sense, this imagery is misleading because offshore for our purposes corresponds to a purely artificial, judicial space instead[5] (Palan 2003: 19). This is even more emphasized if its aspect given by International Law is pronounced, which deems the open seas as being beyond the sovereign space of single nation states[6]. To make long story short, offshore refers here to a space legally created and supported by nation-states which at the same time is freed and explicitly exempt from regulatory and indeed sovereign control. For such a thing to exist, two elements are necessary: Firstly, a state providing laws, whether deliberately or accidentally, which withdraw or reduce effective regulation and/or taxation over international economic activities taking place in or being rooted through its jurisdiction. Secondly, the principle of exclusive sovereignty which is bound to a territory and prescribes that no other state or force is allowed to intervene in affairs taking place on the former’s territory (Palan 1998: 25-28; 2003: 19-20). Thus, the unregulated and/or untaxed realm of the former state is becoming offshore, allowing international economic activity - and therefore activities which affect third states or parties - to take place therein under the protection of the institution of sovereignty.
Offshore may take different forms, of which tax havens are probably the most famous incarnations. Other forms of offshore include the Euromarkets, Flags of Convenience (FOC) and Export Processing Zones[7] (EPZ, Palan: 2003: 36-59). To some extent, the laws and regulations assembling the offshore world can seen as being “strictly-for-export” provisions (Alfred Conrad, cited in: Palan 2003: 19-20).
2.1.2 Tax evasion
Tax evasion equals non-compliance with a legal obligation to pay tax. Whether the transgression is criminally prosecuted or is ‘only’ administratively fined can depend either on quantitative or qualitative criteria[8]. For instance, in Germany the difference hinges upon whether the evasion has been carried out in an ‘airy’ or ‘frivolous’ way (“leichtfertig”) or deliberately and consciously instead (Abgabenordnung 1977: §370 and §378). In contrast in Argentina, the threshold between civil tax evasion and criminal prosecution lays at the watershed of the evaded amount of one million AR$ (ca. 300.000 US$) (IV28 , IV26, IV1; Unidos 2007: 53). In difference to tax evasion being clearly illegal, the term tax avoidance refers instead to actions taking place in an indeterminate area between legality and illegality (Palan 2003: 41-45, 196). It is mostly acknowledged that while in a strict sense complying with the letter of the law, tax avoidance uses legal provisions in an abusive way not intended by and contrary to the spirit of the law (Annex 13). Such opportunities are arising more pronouncedly in an international business context where transnational corporations daily face the verges of many different national legal systems. This problem of multiple domiciles and/or “identities” is given to a lesser extent when it comes to natural persons.
The present thesis is only concerned with the offshore tax evasion of individual, natural persons and not by judicial persons. Generally, individuals are liable to tax in the place of residency with all their worldwide income (a fact which is called ‘worldwide income criterion’). In practice though this remounts to nothing but a mere idealistic claim to be negotiated bilaterally, because most countries additionally claim the right to tax income accruing from activity taking place on their territory, too (e.g. portfolio investments). The latter account of taxing according to the place of the income’s underlying activity is called ‘source’ principle or -taxation (Figueroa 2004, 2005; IV11). To speak of a ‘worldwide income criterion’ as taxation principle is misleading in so far as it is contrasted to a ‘source principle’. This is because what nowadays is widely understood as ‘worldwide income criterion’, from the viewpoint of a single country, in reality entails the claim to tax income of all activity on its own territory plus the worldwide income of residents (Figueroa 2004: 55; IV11). Many of the international evasion problematic finds its origin in this, in virtually every state’s (legal) claim to tax both: any and all economic activity taking place in its jurisdiction and all the (worldwide) income of natural persons resident in its jurisdiction. Claims necessarily clash and require negotiation if double taxation is to be avoided[9].
2.1.3 Offshore tax evasion
Combining both of the former terms, offshore tax evasion means the illegal non-payment of due taxes involving at any stage offshore judicial spaces. It excludes broader definitions of (offshore) capital flight (e.g. Epstein 2005, Gaggero / Grosso 2007) as well as it excludes offshore tax avoidance. Importantly, excluded is furthermore tax evasion which might involve foreign or international elements, but which dispenses with offshore institutions[10]. Thus, evasion stemming from situations in which, for instance, wealthy people are able to transfer assets to a third state (not providing offshore spaces) through official and legal (supposedly recorded) channels, but the domestic tax authority does not assure and question the payment of taxes due on these assets in the following years. In practice though, this might be very unlikely to happen because an international tax-evading transaction or asset-location, even if its destination might be, let say, the US, is expected to be at least routed through an offshore space in order to erase traces left. This leads us to the question what precisely is to be understood by an “offshore space”.
2.1.4 Offshore financial centre (OFC) and tax haven
Generally, a tax haven shall be broadly defined here as a jurisdiction which has laws or regulations in place which are facilitating the tax evasion of another countries’ taxes (based on OECD 1998: 22[11]; and TJN 2008[12]). The qualitative criteria the OECD established in 1998 to identify tax havens are still widely echoed. Some of the four following criteria must be given in order to speak of a tax haven (based on OECD 1998: 25, and TJN 2006: 8):
(a) no or only nominal taxes (especially for non-residents);
(b) lack of effective exchange of information (with other countries);
(c) lack of transparency (guaranteed to judicial persons offering services there);
(d) no substantial activities (are required of companies incorporating there).
It is noticeable that the lack of something is crucial in any of the four points (taxes, information exchange, transparency, real activity). Thus, a tax haven may be identified according to whether its legal system allows for the creation of a space, defined essentially by the deliberate removal or the absence of regulative (or sovereign) access onto this space.
As for a distinction to offshore centres, so far there has been no clear-cut and shared definition of differences and/or synonymous meanings (Palan 2003: 36ff). Whereas a proposition has been to consider an offshore financial centre a concept more broad than a tax haven and thus the former not necessarily being the latter (implicitly Palan 2003: 33-41), this notion is ultimately reversed by emphasizing the qualitative legal structure being characteristic of tax havens and possibly existing without having in place a range of financial services offered (Murphy 2008, TJN 2006: 4, 8). Quoting from TJN 2006,
“Although most tax havens are Offshore Finance Centres (OFCs), the terms are not synonymous. […] An OFC actually hosts a functional financial services centre, including branches or subsidiaries of major international banks.” (TJN 2006: 4)
This suggestion is compatible with propositions made in an IMF-working paper by Zoromé (2007), entitled “Concept of Offshore Financial Centers: In Search of an Operational Definition“. Very roughly, in this work the ratio of financial services exports to GDP is taken as an indicator for OFC- status, emphasizing that an OFC is characterized by a vivid commercial activity in the financial sector. Hence, whereas speaking of a tax haven highlights the qualitative, legal and regulatory provisions opening up an offshore (untaxed and secretive) space, an OFC is the commercial response or exploitation to such a space offered (Murphy 2008). Nevertheless, in the present thesis, because firstly both concepts are largely congruent in comprising and naming broadly the same jurisdictions (Murphy 2008; Zoromé 2007: 19, 23; TJN 2006: 4), and secondly the distinction between both is deemed not of crucial relevance to this work, both terms are going to be used interchangeably, except where it is explicitly stated otherwise. This is without detriment to sharing generally the notion of their analytical (and in some instances phenomenological) distinctiveness.
2.1.5 Offshore (shell) company
An offshore shell company is a company which is registered as resident or domiciled in a tax haven and/or offshore financial centre. By definition, it is governed by the laws of the jurisdiction in which it is incorporated (registered or domiciled). More precisely, often, a tax haven and/or OFC has special ‘foreign activities only’-types of companies available which, again by definition, are not allowed to pursue their commercial ends in this very same tax haven. It is this company which is labelled ‘offshore (shell) company’ (or interchangeably with ‘offshore company’ and ‘shell company’).
2.2 Theoretical Background and Relevance
In the last years, academic and political debate related to international development has increasingly focused on the revenue side of the state as instituted in its taxation system. One of the reasons for this may be traced back to the financial crises of the 1990s witnessed by many developing countries or economies in transition. A common factor to most of these crises has been the involvement of foreign denominated debts, either securitized as portfolio investments (mostly public debts) or in short-term loans (mostly inter-bank, private sector debt). The concomitant short time-horizons of investments were found to introduce significant volatility, which are exacerbated by either an (excessive) ratio of the stock of such debt to GDP and/or by an excessive ratio of an associated flow of debt service to GDP. These, in very broad terms, have been discussed as (some of) the main common factors in triggering the crises[13].
As a consequence, the effect of different sorts of indebtedness on the macroeconomic (in)stability of developing countries has been scrutinized. Some studies have focused on the vicious relationship between (expectations about) exchange rate depreciation and liability dollarisation (Eichengreen / Hausmann / Panizza 2002; Fritz 2002) or went further in enquiring international insolvency procedures for heavily indebted states (Fritz 2004, Krueger 2002). Others have identified statistical links running from foreign indebtedness to negative growth effects in developing countries (Pattillo / Poirson / Ricci 2002, 2004) or have connected foreign indebtedness and capital flight as mutually reinforcing through ‘revolving door’ phenomena (Cerra / Rishi / Saxena 2005).
In response to an acknowledgement that liability dollarisation has destabilising effects on developing economies and thus should be avoided or reduced, three policy-relevant research paths may be discerned. The first one relates to the question about how developing countries can be enabled to incur debt in other than strictly foreign currency (Eichengreen / Hausmann / Panizza 2002). Secondly, especially in relation to sustainability, the question arises how domestic resources of developing countries can be mobilised to substitute for debt (see Cobham 2005a, 2005b, UN 2002: 3ff). Within the framework of the financing needs in order to achieve the Millennium Development Goals (MDGs), an IMF-working paper ultimately spanned a connection, running from findings critical of foreign indebtedness to the need of domestic revenue mobilisation through tax effort (Gupta 2007). Such focus on the revenue side of the state can be seen as part of a larger, though slower shift away from the former emphasis on (foreign) private investment in the international developmental debate[14] (Hersel / von Eichborn 2004; Chang / Green 2003; Craig / Porter 2005).This change gains more momentum on theoretical grounds in the Latin American context because of the outstanding importance of the public sector indebtedness there[15]. It is this research branch concerned with raising domestic tax revenue to which the present work wishes to contribute.
Thirdly, the most radical policy relevant research path resulting from the concern with foreign indebtedness is of less direct relevance here but shall be presented for the sake of comprehensiveness. Continuing the quest for causes for financial crises, it enlarges the analytical framework beyond foreign indebtedness and asks whether a liberalized capital account truly can be found beneficial for developing countries. In this respect, Hujo (2003) has strikingly argued from a viewpoint of macroeconomic theory[16] that a liberalised capital account is expected to be detrimental for a catching up developing strategy (ibid.: 30). Cobham (2002) has overseen different studies which have been searching for robust empirical evidence for a causal effect running from capital account liberalization (CAL) to faster growth. The main finding is that “the growth benefits of CAL - which proponents would typically claim to offset the costs of crises - have simply not been shown to exist at all.” (ibid.: 182). In a similar vein, through a cross-study analysis and cross-country regressions, Lee and Jayadev (2005) state that the “empirical search for the growth effects of financial openness has been fruitless, despite the predictions of theory.“ (ibid.: 46). Instead, a robust link running from CAL to worsening inequality has been found (Epstein 2005: 24). Finally, Cobham (2005b: 20) calls for a similar critical examination of the widely shared belief that trade liberalisation policies are overall beneficial for poorer countries[17].
A second reason for the renewed interest in the revenue side of the state stems from the insight that economic growth is slowed by inequality and poverty. In a recent publication, the World Bank highlights income inequality in Latin America as a primary cause for poverty[18] as well as an obstacle to economic development (see Perry et al. 2006, e.g. 11-12, 115-127). The arguments of the authors are sustained by data showing increasing inequality within countries of LA between 1980 and 2000 and a slight increase of poverty rates within the same period of 20 years (ibid.: 2). Similar results for inequality have been provided by the UN-Economic Commission for Latin America and the Caribbean (ECLAC) in 2002 (83). Although this publication has not addressed questions as to how funds for increased redistribution could be raised, the link running from inequality to growth impediments have been identified by this UN-agency a couple of years ago. ECLAC wrote in 2002:
“The existence of a highly unequal income distribution is an important consideration, not only because of the ethical and political problems it poses, but also because of its implications for economic growth. […] in recent years numerous studies have highlighted the negative effects of inequality on economic growth - the so-called ‘inequality trap’[…]” (ibid.).
Thus, both the World Bank and CEPAL are sharing in that there is no major rationale for believing that a trade-off between growth and redistribution is existing.
The role taxation is and should be playing in this picture of inequality though is assessed differently by both. An assessment of Latin American tax systems undertaken by CEPAL in 2006 brings out that inequality actually often worsens if (hypothetical) pre- and post-tax distribution is compared. Most of Latin American taxation systems are found in this vast report to have or to have had in the past decade a de facto regressive impact on income distribution (see CEPAL 2006: 95-102). Argentina appears to be a case in point (ibid.; Cetrángolo / Gómez-Sabaini 2007b: 39-41).
The World Bank is paying far less attention to this data about tax system’s impact on inequality and poverty. On less than a quarter of a page, a single study of Chile is reviewed which is raising the same findings as CEPAL’s study do (Perry et al. 2006: 92). A few lines further down though, the World Bank summarizes all empirical enquiry for tax-system’s impact on distribution in Latin America with the lapidary acknowledgement that “market income inequality does not likely differ much from disposable income inequality” (ibid.: 92). On the next page, oblivious to regional contexts and with hint at supposedly (in an abstract economic model) more efficient outcomes through transfer payments in contrast to tax-induced redistribution, the World Bank suggests that tax should only be the ‘second best’ option after considering transfer payments (ibid. 93). This leaves open the questions
(a) why no further research into the distributional impact of tax systems in Latin America has been called for by World Bank before recommending policy options, given that its sole study about Chile provided incidence for significant negative distributional effects (92);
(b) why CEPAL’s findings about distributional impact of taxes has been so much more detailed whilst published in the same year?
It remains questionable to me whether the recommendation by the World Bank to prioritise transfer payments over tax-related redistribution truly makes sense in cases in which the tax system adds to further inequality in the first place.
However, the Bank does call for redistribution not only through direct public transfer payments, but also points to the need to foster the capacity for redistribution of national taxation systems. Therein, the first priority on the “tax front” should be “strengthening anti-evasion programmes and addressing the existing high levels of exemptions.” (Perry et al. 2006: 101). There are available only piecemeal estimates about tax evasion in Latin America. For Argentina, México and Chile the estimated evasion show varying ratios of tax evasion as a share of tax intake between 20 and 77% varying upon the estimate and the tax involved (Cetrángolo / Gómez-Sabaini 2007a: 41-46). Although these estimates are laden with methodological difficulties, a tendency observable in the figures indicate that the level of evasion in personal income taxes is among the highest ratios (ibid.). Lledo, Schneider and Moore have emphasized for the Latin American context that offshore structures are playing a role therein: “Of particular worry is the ease with which citizens avoid income taxes, for example by shifting income off-shore.” (2004: 13).
Apart from sharing this concern about the role offshore is playing in distracting tax revenue from developing countries, Cobham (2007: 6, 8) is referring to a further argument about the centrality of offshore tax evasion. ‘Tax morale’ is being corrupted significantly by the perceived levels of (offshore) evasion. Thus, the latter appears to be acting as a general catalyst for “enlarging the shadow economy” (ibid.: 8).
Summing up, successful measures against offshore tax evasion can be expected to strengthen both redistribution[19] through public transfer payments (through a generally increased revenue level), as well as redistribution which is institutionally rooted and engraved in the taxation system, e.g. through the more effective application of taxation principles as rate progression and equal treatment of all sorts of income.
At the same time however, the opportunities for action against offshore tax evasion appear narrow. Within the framework of the globalisation debate, the ability and capacity of the nation-state to levy and collect taxes is said to be challenged. The “competition state” (Cerny 1999; Palan 2004: 110-123) finds itself in and propels at the same time fierce international competition for investment, shares of added value as well as employment. This would lead in the end to decreasing tax ratios especially on a highly mobile and fugacious production factor as capital is (Wagschal 2006: 142ff). Concerning empirical evidence apparently suggesting that only the marginal tax rates, but not the effective tax rates have fallen, Genschel presents a counterfactual proposition. He claims that if and when the effective tax rates had not fallen, this is not because of the absence of downward pressure exerted by tax competition, but because other effective tax rates have risen instead. Thus, in absence of tax competition, the effective rates and revenue from the taxation of capital would be higher (Genschel 2000).
Fueled by “secrecy jurisdictions” (Murphy 2008), the exit option of mobile capital consisting in the shady area between (legal) tax avoidance and (illegal) tax evasion is held responsible for the downward-pressure in the international tax competition. Transnational corporations and affluent individuals could shift their profits and wealth at any time to tax havens, where they are protected from the grasp of domestic tax authorities by virtue of those jurisdictions’ strictly enforced secrecy laws (see Cameron / Palan 2004: 89ff, 123ff; Brittain-Catlin 2006).
In such context and under the ‘condition’ of unrestricted international capital mobility (and also giving due respect to other jurisdictions’ sovereignty), no single state is anymore able to guarantee that its basic taxation principles are fairly followed (such as the worldwide income principle and/or the application of tax progression equally on all incomes). Some commentators conclude that it would be wise for (large) states and their economies to tax the factor capital income with a smaller rate or differently[20] (see Ganghof 2006: 15). However tentative such propositions might be on efficiency and/or feasibility grounds, they might be problematic because of the risk to understate the importance taxation plays in creating nexuses of legitimacy and accountability between citizens and representative governments (Cobham 2007: 7-8; Lledo / Schneider / Moore 2004: 8-11).
The precise extent of tax evasion through relocation of wealth and income to OFC is impossible to determine, though estimates of different origins suggest enormous loss of public revenue. The international NGO Tax Justice Network contends that worldwide annual loss of public revenue may account to as much as 255bn US$. due to tax evasion of High Net Worth Individuals alone (TJN 2005: 3ff). Of this amount, Cobham (2005a: 10) attributes roughly 50bn. US$ to developing countries’ governments[21]. In the year 2000, the British-based NGO Oxfam estimated the gap in developing countries tax revenue caused by tax havens[22] to amount to 50bn US$, a figure which is qualified by an offshore expert as being too low[23] (Oxfam 2000, Palan 2003: 47).
When it comes to individual countries of the OECD, in the last years there have been several instances indicating that offshore evasion is significant for industrialized countries too (Owens 2007). Most strikingly, the US-Senator and Chairman of the Permanent Subcommittee of Investigation, Carl Levin, has put the figure of annual lost revenue to the US Treasury at 100bn. US$. (Levin 2007a and 2007b). The role played therein by offshore shell companies has been highlighted by the OECD- Forum on Tax Administration in 2006: "Individuals have, for example, used offshore accounts, offshore trusts or shell companies in offshore financial centres or other countries to conceal taxable assets or income […]; businesses of all sizes have created shell companies offshore to shift profits abroad […].“ (OECD 2006: 3).
In response to this offshore related tax evasion, a number of multilateral and regional policy initiatives with varying scope and impact have been started[24]. Although these initiatives might have proven successful in some respects, their overall results especially relating to tax evasion have been considered to be meagre so far[25]. For instance, the OECD-“blacklist” of tax-haven jurisdictions from 1998 has contained more than 30 jurisdictions initially. Two years later, only six “uncooperative tax haven jurisdictions” remained. In the meantime, the rest had underwritten commitment letters promising cooperation in information exchange. However, in the year 2007 most of them are said to be “no closer to exchanging tax information than they were in 2000” (Spencer 2007: 39). Additionally, the OECD-campaign is flawed by a double-standard consisting in OECD-members like Switzerland and Luxembourg getting along unchallenged by holding out (ibid.: 40). On the other hand, the European Union’s Directive on the Taxation of Savings Income from 2003 is flawed by the limitedness of the assets being reported, the exemption of judicial persons (and related technical loopholes) and their confined geographical scope (Meinzer 2007; Giegold 2004). This is without detriment to the notion of these measures being promising points of departure in tackling offshore- related problems.
What almost all of these initiatives share is that they represent multilateral[26] efforts aiming broadly at enhancing transparency and information exchange. Borrowing from and expanding Castell’s (1994) terminology, those initiatives might be characterised as ones which seek to establish additional cross-border “channels of flows of information”, but which neglect the possibility to selectively close or narrow existing cross-border “channels of flows of capital”.
However, even in the case of concessions (couched in terms of cooperation) like tax information exchange provisions conferred by tax havens to member countries of these initiatives, developing countries would not take advantage of them because they are not part of these exclusive, club-like groupings of states (Giegold 2004; TJN 2007: 8, 82). Generally, developing countries both alone and together with others can be reasonably assumed to lack the necessary power resources to achieve what the G7, the OECD and the EU apparently struggle hard to obtain: to force third, sovereign jurisdictions into withholding tax or information exchange-upon-request regimes, not to speak about automatic exchange of information[27] (ibid.). Even if developing countries were included in a coherent, quasi global or international (though up-to-date non-existing) information exchange regime, it would remain questionable to what degree sufficient administrative, technical and staff resources in order to process the resulting flood of information timely and effectively are available.
Also, the way of unilaterally counteracting offshore jurisdictions (or their damaging activities) may be assumed to be barred: Firstly, the application of direct political coercion is restricted because of the extra-territorial quality of tax havens and the international public law institution of (reciprocal respect of) sovereignty (Palan 1998). Secondly, over the last three decades, many states have demonstrably liberalized their capital account (Miniane 2004). This process is sometimes contended to have occurred at least partly against the will and consent of respective domestic governments, and more generally it is suggested that this process is irreversible. Therefore, it appears as if these liberalizing tendencies (or a sort of ‘liberal condition’) are somehow entrenched in international treaties or regimes, inhibiting severely the imposition of restrictions on cross-border capital flows[28]. Thirdly, against the aforementioned background of competition for investment and capital, it does not seem to be reasonable for a single developing country to discourage or deter investors through “more bureaucracy”, which in the end might be equalled with higher or more effective taxation.
Throughout the history, there have been unilateral attempts to counteract tax havens (Palan: 2003: 104). A more recent instance of such measures being debated are contained in the Gordon Report for the Internal Revenue Service of the US from 1980. Some of its recommendations appear to have been successfully introduced across a broad range of countries[29] (Gordon 1980). To target tax havens with policy tools based on black-lists though has been sceptically discussed in this report (ibid.: 135-137) and - to my best knowledge - has not been introduced in the US so far. Ultimately, the current US-Senator and democratic candidate for the presidential elections, Obama, is part to a legislative initiative entitled “Stop Tax Haven’s Abuse”-Act which is discussing unilateral measures afresh (Levin 2007c). The difference though to developing countries becomes clear when considering that the IRS is probably ranking amongst the most efficient and technically sophisticated tax agencies worldwide.
Since 2003 however, the corporate supervisory board of Buenos Aires has been issuing regulations aiming to ban tax haven-based companies’ entrepreneurial activity from Argentinean territory. It is said that for the first time ever worldwide such categorical ban has been ruled (Komisar 2005; Meinzer 2005). Although the supervisory board is not a tax authority, based on the aforementioned crucial role played by offshore shell corporations to help conceal assets and evade taxes, one of the measures’ stated aim is to counter offshore tax evasion. From 2003 to 2005, the Inspección General de Justicia (IGJ), a governmental agency belonging to the Ministry of Justice, has been introducing and extending respective regulatory provisions through a series of administrative ‘general resolutions’.
Broadly speaking, any foreign company wishing to invest or do business in Argentina has to inscribe itself in the national public register of commerce, at whose charge the IGJ is. The measures do prevent this local registering in case of any company stemming from a low or no tax jurisdiction unless it proves not to be a shell company, that is, not be a mere façade for business. Thus, the burden of proof is shifted to the company resident in the OFC and now it must convince the IGJ with broad and extensive additional information that it is actually economically active in a significant manner in the jurisdiction of incorporation[30]. Additionally, the foreign company must identify its ultimate owners or shareholders. The rationale behind is that through refusal of legal accreditation (which in times of liberalised cross-border capital- and investment flows is usually “naturally” conferred) to corporations of seemingly dodgy origins and formed allegedly for dubious ends, the opportunities for individual and corporate tax evasion (as well as for other fraudulent activities) are reduced. These regulations can be seen as a de facto constriction of international capital mobility and they are going to be subject of the thesis.
Upon introduction, these norms have provoked intense debate between lawyers, economists and politicians (IV6, IV7; IV1). According to one interviewee, “foreign investors complained heavily, but they did so driven more for ideological than for real concerns.” (IV7). This debate ended at last when in December of 2005 the loose administrative measures were integrated in a complete reordering of the regulatory oeuvre of the IGJ (which has not happened for almost 25 years). By then it has become clear to everyone that the offshore-related measures are not transitory.
An Argentinean Senator estimates that thanks to these measures, annual tax evasion in Argentina may be reduced by the equivalent to US$ 7bn., a figure which seems overstated to me (Jorge Capitanich, cited in: Genco 2005: 2). A first hint to the effectiveness of two of the resolutions in question relates to the number of foreign corporations with commercial presence in Buenos Aires, which within a year’s time diminished to about one third (Director of the IGJ, Ricardo Nissen, in: Komisar 2005).
It is important for the reader to understand that this corporate supervisory board IGJ is not supervising companies whose shares are traded on stock-exchanges (which are publicly traded shares and which is supervised by the Comisión Nacional de Valores). Instead, the IGJ is supervising all the stock-companies which are not publicly traded[31]. Foreign direct investment (FDI), at least in the Argentinean case, usually comes in this form of participation in nominal shares and not through the purchase of publicly traded shares.
2.3 Research Question and Hypotheses
To my best knowledge, there has neither been carried out comprehensive and profound research about the judicial scope of IGJ’s measures in question nor about their impact on a more practical level[32]. It is this gap which the present thesis aims to narrow through an explorative case study (Flick 2005). The role played by offshore shell companies and the link between them and wealthy individual’s tax evasion is lacking precise understanding generally. Furthermore, the link’s detailed functioning may depend to a large degree on the national tax system which adds to the complexity involved. Generally though, these companies are seen as representing a convenient way to separate and split property (titles) or other legal attributes of a natural person’s (judicial) personality in order to deceive the tax authority and/or creditors. Albeit it is not known in detail how these mechanisms work and are facilitated in each country, still the perception of the OECD is that shell companies are crucial in manifold ways for offshore evasion (OECD 2006: 3; Owens 2007). If the supply of such shell entities is such that they can be purchased ‘off-the-shelf’ with a ‘mouse-click’, it is not absurd to assume that HNWI’s (High Net Worth Individual’s) offshore evasion is heavily based on a web of corporate bodies. Therefore, I want to point out the following assumption upon which much of the following thesis is resting. The core assumption is[33]:
Assumption A: So called ‘offshore shell companies’ are pivotal for offshore tax evasion, both by individuals and transnational corporations.
This assumption needs to be specified in two respects: it is not meant to suggest the (false) proposition that for offshore tax evasion to occur, it is sufficient that ‘offshore shell companies’ are existing. Instead, it seeks to posit that without shell companies, offshore tax evasion is significantly less likely to occur and only available at higher cost. Assumption A is going to be loosened later in chapter 5 in order to be enquired more closely itself.
In order to find out not only the legal shape and implementation of IGJ’s policy in a narrow sense without paying attention at all to the mechanisms implicitly assumed to exist, assumption A is going to be incorporated to the central question as follows:
Question Q: What is the normative-judicial scope and the factual impact of IGJ’s policy aimed at countering offshore tax evasion?
The first part addresses the legal and/or administrative-regulatory provisions which are the nucleus of the policy of IGJ. The second part to it deals with the implementation of the policy on an administrative level which might be seen as a question about the ‘output’ of IGJ’s policy. Only through the third part of the question (‘aimed at countering offshore tax evasion’), both of the former are firmly tied to the Assumption A that IGJ’s policy is countering offshore tax evasion. This implies a dynamic element to the research question and allows to augment the reach of this interrogative to include enquiries about their outcome[34].
In a recent book on tax havens by Chavagneux and Palan, this gap of research relating to the impact of the policy of IGJ has been mentioned: “La mise en oeuvre de cette politique est lente et son impact reste à determiner[35] [Meinzer, 2005]” (2006: 110). Both go on to suggest that the policy of the IGJ may be easily circumvented:
“Un pays du Sud, engageant, seul une action importante contre les paradis fiscaux a toutes les chances de voir les activités qu’il condamne se poursuivre comme si de rien n’était, entreprises et banquiers empruntant des chemins plus indirects pour arriver à leur fin[36]." (110).
This sober forecast goes along with the mainstream opinion in the globalisation debate about the tight and restricted space for manoeuvring single nation-states dispose of vis-à-vis unleashed (financial-) market forces. Out of the cited passage it is possible to extrapolate the two following, falsifiable hypotheses, limiting or reducing “tax havens” (“les paradis fiscaux”) to one, albeit crucial functional quality: offshore tax evasion.
Hypothesis 1: Measures of one single developing country against offshore tax evasion are not altering patterns of behaviour of agents making use of OFC for tax evading purposes.
Hypothesis 2: Measures of one single developing country against offshore tax evasion merely compel those agents making use of OFC for tax evading purposes to find more indirect or other means and ways to achieve their ends (offshore tax evasion).
Assuming that these hypothesis can be tested here duly, it should be retained that the evidence arising from a single case study by no means allows for claims of general reliability. Even if both hypotheses were to be found false in the case of Argentina as a middle income country, there are serious questions to be addressed and further enquiries made before somehow claiming a general causal relationship translating into the presumption of the opposite to hold true as well[37]. In tendency though, what I reckon to be at stake ideally should the hypotheses be found false, and should compliance with tax laws in Argentina being enhanced and thus tax evasion reduced, then serious corollaries would arise at least for the potential fiscal space of developing countries and their (social- and redistributional-) policies[38]. More radically, it could be asked if it makes fundamentally any sense that “international tax competition” or even “globalisation[39]” is used and taken as explanans in political and/or academic debates.
The further steps in an operationalisation of a test of the hypotheses are given in the respective chapters (chapter 4 for Hypothesis1, chapter 5 for Hypothesis 2). A brief remark concerning the attempt at duly testing Hypothesis2 I want to anticipate here: in order to duly test Hypothesis2, the core AssumptionA made above and included in the Question Q has implicitly to be loosened and subject to enquiry itself. Without asking to what extent and how precisely OFC-companies are pivotal for offshore tax evasion, there is little sense in making any claims about truth relating to alternate patterns of behaviours of the keen-to-evade agents (which is the crucial part of Hypothesis2). Put in other words, the question about the role of shell companies in tax evasion cannot be separated from the remaining, the “more indirect or other means and ways” to achieve offshore tax evasion. Thus, an enquiry of Hypothesis2 necessarily requires addressing the mechanisms available for offshore tax evading agents in Argentina - a task which is adding complexity to the field research.
2.4 Delimitation
This section seeks to name briefly all the issues which are not going to be addressed in this thesis. First of all, I dispense with an introductory overview of Argentina, with a broad description of the country, the political and economic system and a historical contextualization[40]. The space is not sufficient to do so in whatsoever expedient manner. The most necessary contextual remarks are going to be given preferably in footnotes during the unfolding of the work. Secondly, the Argentinean taxation system in broad and comprehensive terms is not subject of nor is dealt with in the present work[41]. The most indispensable for enquiring Hypothesis 2 is addressed in section 5.3. Thirdly, I am not dealing with domestic tax evasion, by which I mean evasion which might take place for a lot of reasons but which does not involve a foreign and/or offshore element[42].
Fourthly, since tax avoidance is not subject of the work[43], I am dispensing too with pretending to research tax evasion by transnational corporations (TNCs). Their means and ways to orchestrate their tax matters are too complex and their meaningful understanding would require too much detailed and specific accountancy knowledge to be dealt with here. This is not to suggest that evasion by TNCs is less rampant. Fifthly, I am only concerned with offshore tax evasion by Argentinean individuals (natural persons). Nevertheless, the central focus is offshore shell companies. This point is crucial for the reader to understand in order to resolve this apparent contradiction: Although I mostly deal with corporate issues, my interest lays not on corporate tax evasion in a strict sense but the evasion of personal (capital) income and property taxes, which is facilitated through the deployment of a secretive veil of corporate identity. It is obvious though that the delimitation between both is often not clear at all. The illustration of this point will be a recurrent theme throughout the work.
2.5 Epistemological background and Methodology
Very broadly, the methodological approach applied in this work is first of all reminiscent to the interdisciplinarity of its subject. Countermeasures against offshore tax evasion relate directly to the disciplines of law, economics and international relations and this thesis in particular takes a perspective which is concerned with developmental and international justice, possibly bordering with philosophical issues. Whereas legal and political science might be expected to rely more on qualitative methods in enquiry, within the social sciences economics is usually associated with quantitative and statistical methods. Out of an understanding that both arrays of methodological instruments are complementary and both have strengths and weaknesses, I seek to make use of both in order to assess the hypotheses[44] (King et al. 1994: 5-6). Whereas the qualitative element is clearly dominant in the framework of an explorative case study, still an end of the field research has been from the outset to assess data availability and suitability for further quantitative research. Especially relating to Hypothesis 1 I make use of quantitative data collected about the register of commerce in Buenos Aires in order to further assess the measure’s impact on the level of implementation. Concerning Hypothesis 2, the fifth chapter includes a section (5.5) which is dealing with possibilities of quantitative testing.
Although applying quantitative methods only in a small portion of the thesis, I wish nevertheless to add some remarks about their potential for being abused. Since they suggest precision through numerical measurement, general problems associated with the choice and compilation of the datasets may not become apparent and not considered duly. Both, its compilation and its later use for analytical purposes, are necessarily based on prior, subjective decisions not always made explicit. Measurement errors are to be expected which are rooted in inaccuracy in data construction resulting in invalidity of the results (King et al. 1994: 44; 151-155). The most transparency in data construction is therefore necessary in order to assess adequately the validity of results. This does not mean that I deem qualitative enquiry to be somehow superior. What I seek to advert to though is that statistical evidence, due to its apparent numerical precision, is prone to be taken for a truth which it cannot actually claim to possess[45].
On the other hand, I disagree with an outright refusal of quantitative enquiry which might rest on a general suspicion of no ‘clean’ and proper statistical enquiry being possibly carried out and statistical data being necessarily biased and an instrument of manipulation. I sense this generally not holding more true than the same proposition for qualitative data (with the reservation of the previous FN). Both depend, among others, on the transparency in the data collection. This critique might be even more pronounced (but possibly formulated for different reasons) in the Latin American context. Some might implicitly contend that official data quality on this continent is across the board ‘less reliable’ than elsewhere. Again, I do no share with this proposition. It might hold true in some countries (and certainly not restricted, nor even amassed, in Latin America, LA) and for some statistics. To assume statistics of a region, a country or an institution of being wrong across the board, especially if contrasted with presumably more objective quantitative data from abroad, may be counterproductive at best and perceived as politically provocative at worst. This is clearly to be differentiated of arguing the same case. Decrying the former without making follow the latter may be understood in terms of intellectual laziness.
An epistemological point of view most similar to the one I want to take in the present thesis is the one presented by King et al. (1994: 7) when they ascertain that claims to truth are always limited and relative and can never be taken for certain. This present thesis departs from the acknowledgment that objective, absolute and last truth is not to be found on the grounds of scientific enquiry[46]. But this does not imply that one ought not try as hard as she or he possibly can. Speaking with King et al.: “Yet even though certainty is unattainable, we can improve the reliability, validity, certainty, and honesty of our conclusions by paying attention to the rules of scientific inference.” (1994: 7). Translated into the present thesis, this most strikingly leads to the question of how to assess data obtained through qualitative interviews. This is addressed in section 2.7. First, a few comments on the choice and use of the other sources informing the thesis shall be given.
2.6 Sources and Formality
There are six broad categories of sources considered, of which the first two consists of material mainly in English language, but relying also on German and to a lesser extent on Spanish language. The remaining four categories have been mostly made of sources in Spanish language. Firstly, the theoretical background has been nurtured by academic writings on taxation and offshore and from a developmental economics and policy point of view. It comprises both, monographs as well as journals and working papers by research institutions (Oxford Council on Good Governance, Review of International Political Economy, etc.). Secondly, publications by and documents of international specialized bodies dealing with the issues have been observed and assessed upon their relevance. This included the UN-Committee of Experts on Cooperation on Tax Matters, the OECD (Organisation for Economic Co-operation and Development) with its Fiscal Affairs’ department, the EU Savings Tax Directive (STD), the Financial Stability Forum, the FATF (Financial Action Task Force), the World Bank with its Stolen Assets Recovery-initiative (StAR) and the UN-Office on Drugs and Crime (UNODC).
Thirdly, Argentinean newspapers in general and specialized judicial and economic journals have been consulted in order to assess the measure’s legal shape (Diario Judicial, InfoBAE, Clarín). Fourthly, Argentinean national legislation has been included especially relating to tax and through the Corporate Law, as well as for some purposes the National Constitution. On an administrative level, regulatory General Resolutions of the IGJ, of the tax authority AFIP[47] (Administración Federal de Ingresos Públicos) and Central Bank regulatory circulations have been researched and analyzed. Statistical data too has been searched either through official bodies or in newspapers (for instance the tax authority AFIP’s annual statistics on tax revenue). Fifthly, during the field research a considerable additional amount of Argentinean academic writings and official documents not accessible through internet have been included (for instance the writing on IGJ’s measures by Fernández 2006 was provided in Argentina, see 3rd chapter). Ultimately, and most crucially, the interviews and following up personal communication have been a major source informing the research.
Addressing some formal questions, in this thesis, I am not going to dispense with the use of abbreviations. By using them properly though, they ought to help to reduce complexity whilst securing the most accuracy and transparency possible. When national Argentinean laws are quoted, I am only writing “Ley” or “Law” and then the number of the law together with its date of publication in the boletín oficial (BO), which is the Argentinean legal gazette where Laws are published. The exceptions to this are the two most frequently cited laws which I refer to as follows: for the Corporate Law (Ley de Sociedades) the reference given in brackets is (LS), whereas for the Income Tax Law (Ley deImpuesto a las Ganancias) the quotation is (LIG). Equally important as laws are presidential decrees (Decreto del Poder Ejecutivo Nacional) which are abbreviated (PEN-DEC) followed by the rule number. The remaining institutions’ regulations are encoded similarly (“Institution”–“Sort of Rule”– “Number”–“Date of Publication in BO”), but each of these abbreviations is going to be introduced when first appearing.
Newspaper articles are treated according to whether their author is indicated or not. If the name of the author is indicated, the article is treated formally as if it was any other written source and is to be found in the references at the end. Newspaper articles instead, whose author is unknown and which are traceable with a weblink are going to be mentioned in footnotes only with the link and access date. The latter is done too for any website which is only accessible through internet (very few, e. g. legal search engines, etc.).
Interviews are cited and referred to in the same way as if they were a written source. However, the interviewees’ names and identity is encoded with numbers. Whenever a reference is made to an interviewee’s statement, it is quoted with ‘(IV1)’ until reaching ‘(IV27)’ with the abbreviation IV used for ‘interviewee’. The list in appendix 1 decodes the identity of interviewees up to the degree consented (see section 2.7). When data or information has been provided by the interviewee after the interview has taken place (through personal communication), then the date of the communication will be denoted after the interviewee’s code.
Wherever translations are given from a foreign language into English, it is always my own translation except for those cases in which it is explicitly mentioned. Although for legal texts the original language source should be made available, I dispense with it in the cases in which the norms are easily and very quickly accessible via internet (all links are provided in bibliography).
Ultimately, there are three groups of words which I shall seek to establish here as being used interchangeably throughout the thesis, except where stated otherwise. Firstly, ‘company’, ‘stock company’, ‘joint-stock company’ and ‘corporation’ are going to be treated as equivalents, indicating a corporate entity which is based on and limited by shares. Secondly, ‘place of incorporation’, ‘…of constitution’, ‘…of registration’, ‘…of inscription’, ‘…of origin’, ‘…of residency’ and ‘…of domicile’ are posited as equivalents, indicating the lieu whose laws govern a person, both natural and judicial. Thirdly, ‘country’, ‘jurisdiction’, ‘state’ and ‘territory’ are treated as equivalents, indicating any somehow sovereign unit which contemplates at least the sovereign quality to write its own law (at least to write its own business, tax and/or secrecy laws). ‘Place’ is given the same meaning if used concomitant with an expression from the second group (from above).
2.7 Field research: qualitative and quantitative methods
The core of the research process in Buenos Aires consisted in the interviews carried out with 27 people. When dividing up the professional status of the interviewees in five categories and ‘counting’ each interviewee once only[48] according to (my perceived) major source of income, the distribution is as follows: One interview has been carried in each category pertaining to the ‘judiciary’ and ‘journalism’. In the category ‘non-profit organizations’ four interviews have been carried out, eight interviews in the ‘private sector’ and thirteen in the ‘public sector’. For a more detailed overview of the interview partners please consider Annex 1.
First of all, the central question has been complemented by a set of additional questions which have helped to structure the investigation before field research has started (Annex 2). These in turn have inspired the development of an interview guide (Annex 3). This guide’s construction has been methodologically informed by Flick’s discussion of qualitative interviews based on semi-structured questioning (2005: 127-145). The interviews have been ideally carried out along the questions contained in this guide[49] although it has proven too large in order to be applicable in the very practical process. Therefore, according to each expert’s professional background, I have made a selection of the questions. It is difficult to clarify theoretically and abstractly more in depth how the procedure of and upon which criteria the selection of questions has happened especially during interview. It is only to be emphasized that each interview has had a very proper and singular dynamic neither possible to anticipate nor to reproduce[50]. The interviews have been recorded and thereafter transcribed in order to dispose of the interviews in written form. In sum, this material amounts to 576 single-lined DIN-A4 pages.
The interviewees were chosen on the criteria of assumed expertise in their respective field. This presumption has been based initially on a variety of sources, as for instances literature, legal journals and newspapers. Once the fist interviews have been carried out, a proper ‘snow-ball’ dynamic has set in and further opportunities for interviews opened up. In some cases (as is with most private sector interviewees), either upon their wish or because I deemed it appropriate, I have decided not to disclose their name and/or the name of their institution (company). In order to keep the research process nevertheless as transparent as possible, I have encoded the interviewees identity. This allows me to use interviewees’ statements in the same methodological way as I am using other literature or legal sources. Hence, whenever I base an assessment or statement on what an interviewee has said, I seek to put the enunciator’s corresponding code in brackets (IV1-IV27).
Possibly the major methodological problem arising with qualitative interviews relates to how their content is going to be weighed and how the statements contained therein are assessed for being true in a more objective sense than simply affirming subjective truthfulness. Acknowledging that this ‘methodological problem’ cannot be solved entirely, still a strategy to limit the counterproposition of absolute arbitrariness and indeterminacy can be chosen. In the present work I proceeded through taking for an increase of the plausibility of a given statement when (the more the better) interviewees have confirmed independently of each other this very statement. In other words and borrowing from Sharman’s recount of his research heavily based on interviews (2006: 7-8), the highest degree of reliability of a statement and of a claim to truth about a fact is assumed, the more of the interviewees have asserted its validity independently of each other. The plausibility of a claim to truth may be further enhanced through a cross-checking of possibly conflicting or contradictory statements, e. g. through confronting the interviewees possibly in a second session with conflicting propositions (Sharman 2006: 7-8). In some instances, such a cross-checking has taken place.
In what relates to generally counting the agreements made by different interviewees upon one fact, and to determine in consequence quasi-quantitatively the fact’s plausibility, a serious limit is imposed both by the vast material collected and the interview method chosen. Firstly, because the transcribed material of all interviews together amount to more than 500 pages, the possibilities to strictly and systematically assess each and every fact upon how often interviewees came up with it, appears futile to me (at least within the framework of a thesis). This might become clearer if it is secondly taken into account that I have not used a standardized set of questions, but instead used the methodology of a directed, semi-structured interview (Flick 2005: 127-145). To sum up, when I will correspond to what an interviewee or what interviewees have stated, most endeavour is clearly directed towards not committing errors. Though, errors of omission will be inevitable by which I mean that I do not systematically refer to every interviewee which has shared a certain assessment on every single subject. For this to achieve, much more additional scrutiny and time would be needed, whereas the relevance of the results remain unclear. Dispensing with doing so systematically appears reasonable to me given that there have been very few instances with outright conflicting statements between different interviewees. In those cases I have attempted to cross-check the information and additionally I am pointing out such instances of contradicting statements during the thesis. What I want to prevent here is the (false) impression that an assessment shared, for instance, by 5 interviewees is by any means more true than another assessment relating to another, independent fact or instance, for which I am referring, let’s say, only to 3 interviewees. When differing claims about one relevant fact have occurred, these instances are discussed and not decided depending upon (a misleading) ‘majority’ of interviewees.
Some general conclusions about quantitative methodology have already been given above, whilst more concrete methodological issues are addressed in the respective chapters. Roughly, the quantitative assessment of Hypothesis 1 rests on the above mentioned Assumption A and additionally trusts in the public statistics of the registry of commerce. The indicator chosen for Hypothesis 1 not to hold true is a significant reduction of offshore company’s registering with the IGJ in order to presumably invest in Argentina. The underlying variable’s values are taken from the public register of commerce. The opposite indication is working, this is, if the amount of registering shell companies does not vary, then plausibility of Hypothesis 1 increases.
The quantitative dimension of Hypothesis2 is far more challenging and chapter five deals in large parts with such venture. There could not be acceded significant datasets for an attempt to assess Hypothesis2 statistically. Moreover, during the research process, it has increasingly become clear that such venture requires much more preparation. A more detailed discussion of related methodological issues, assumptions to be made and data needed is to be found in section 5.5.
3 Corporate Law, Institutions and Policy
In order to understand the scope of the IGJ measures, first a few introductory notes on the judicial context relating especially to the Argentinean Corporate Law and the corresponding supervisory arrangements shall be given. In the second subchapter, relevant institutional issues relating to the IGJ’s scope and regulatory and supervisory functions shall be addressed before the relevant General Resolutions and the resulting administrative regime are described in chapter 3.3. Subsequently, chapter 3.4 will summarize the measures taken and the judicial regime introduced and put them in a broader context.
3.1 Judicial Context: Corporate Law on the federal level
The Argentinean Corporate Law[51] (LS) defines for its purpose a (stock) company as made of at least two shareholders (Art. 1). In its section XV, the LS establishes the different regimes for foreign companies wishing to do business in Argentina. In essence, there are two different ways of doing so[52]: Under Article 118, a foreign company can set up a permanent establishment (branch) which is legally connected to the foreign entity and lacks separate judicial personality in Argentina[53]. This is reflected by the obligation of giving the branch a name at least resembling the parent’s name (IV6; Verón 2007). Above all and substantially, a legal responsibility between both is established. If the branch goes bankrupt or faces economic charges, the parent would be liable with its capital (IV6, IV5, IV3, IV1). A branch has to provide separate balance sheets and file tax forms annually and its declared profits are fully liable to Argentinean income tax (source principle; Art. 120 LS; Art. 14 LIG[54]), although the branch is governed for most of its purposes by the (foreign) corporate law of the jurisdiction of the parent’s incorporation.
The second way for a foreign entity to engage in economic activity in Argentina is laid down in Article 123 of the Corporate Law (LS). This article establishes that a foreign company can operate through an Argentinean local company by purchasing its shares and thus becoming its majority owner. It is not possible though to become its only shareholder because according to Art. 1 (LS), any joint stock company constituted under Argentinean Law must have at least two shareholders. Both shareholders though may be foreign[55]. The profits of such foreign-owned local companies when remitted abroad are treated differentially and favourably for tax purposes in Argentina. These companies must submit separate accountancy information which their foreign shareholders do not have to comply with (Richard 2005: 2). From the viewpoint of the foreign investor, this way of participating in a local company is attractive since no legal liability of the foreign owner above the agreed nominal (or par) value of the shares is instituted. Additionally, de facto enforcement of judicial responsibility and related sentences in other than civil law-suits might be much more difficult, which adds to Art. 123 being considered to be an attractive means of reducing risk for foreign investors. Together with taxation issues, it is for these reasons that they are the most common means of investing in Argentina[56] (Richard 2005: 1-3; IV6, IV1).
Based on a report by KPMG in 2006, the main difference in relation to taxation between Art. 123 and Art. 118 is that the latter is taxed entirely in the same way as an Argentinean company would be (35% on profit). The former though is taxed significantly less with a withholding tax often based on “an assumed net profit percentage on the gross amount paid.” (KPMG 2006: 62). This possibly means that allowances and deductions are disregarded and instead any gross payments made to the foreign entity is taxed on the presumption that of the gross amount transferred, 43% is net profit and thereon a 35% tax rate is applied. This, the report is suggesting, results in an effective tax rate on any gross transaction abroad stemming from any Art. 123 participations in local company of 15,05% (ibid.). If in such a case a company prefers paying 35% on its actual profits, then the calculation of them is dependent on prior DGI approval (ibid.). Thus, a preferential tax treatment for remitted profits might add to the attractiveness of investing under terms of Art. 123 LS.
However, in the Article 124 of the Corporate Law, a restriction to such foreign direct investment in local companies is found. It states that:
“The company domiciled abroad whose headquarter is or whose main objective is meant to be achieved in the Republic [of Argentina], will be treated as a local company for purposes of the fulfilment of the formalities relating to constitution or change of the articles of incorporation and for the supervision of its functioning.” (LS, Art. 124).
Thus, the mere participation of foreign capital in a company is not reason enough for the Argentinean legislator to concede them the status as a legitimate foreign investor under article 118 or 123. If a company has its de facto headquarter or carries out its main business activity in Argentina, consequently it lacks justification to claim or to insist on being treated as a foreign company either under article 118 or 123. In such a case, a company is obliged to accommodate its statutes and articles of incorporation to the judicial forms and onto the regulatory and supervisory environment in Argentina. This requirement can be couched in terms of prevalence of economic substance over legal form (Genschel / Rixen 2006: 15). The conferment of the legal personality to engage in the economic sphere in Argentina is subject to the qualification of its adequacy, being the benchmark the adequacy of judicial form for economic activity. A hollowed out judicial person (shell company) acting only as a disguise for others is to be rejected through this law.
Basically, this Article 124 had been ineffective until 2003[57]. As “dead letter” (“letra muerta”;
Fernández 2006: 5), generally no foreign firm had to provide for information or documentation which could have proved that its engagement on Argentinean territory was truly only one (insignificant) among others (Fernández 2006: 5; IV5, IV1, IV2, IV7, IV6). There was neither a definition of how to proceed to determine if ‘treatment as a local company’ had to be applied, nor was there any administrative procedure known about how to accommodate to Argentinean law. This situation of judicial imprecision and uncertainty rooted in Art. 124 has been addressed fundamentally between 2003 and 2005 through the series of (administrative) General Resolutions the IGJ has been issuing.
3.2 Institutional Framework: Implementation on the provincial level
Although the Corporate Law as a whole is nation-wide in its scope (CN, Art. 75, 12th and 13th clause), its implementation and corresponding administrative procedures have been delegated to the provinces through a Law in 1980 (Law 22.280, 3.9.1980 BO; Kirchner 2005, in: S-2.214/05). Due to this law, any federal agency subsequently instituted by national law charged with law application and vested with regulatory power and functions could assume jurisdiction or competence in CABA only[58] (ibid.). Hence, when the IGJ had been designed roughly a month later by the so called Ley Orgánica (LO, Ley 22.315), its territorial reach was and is limited to the City of Buenos Aires (Art. 2, LO, 7.11.1980 BO). Therefore, there is a mismatch in competences between law making and law application[59]. Both, the Organic Law and its implementation decree from 1982 (PEN-DEC 1493/82,16.12.1982 BO), lay down the competences, functions and routine of the IGJ. Its mandate is to maintain the public registry of commerce of the City and to supervise all the joint stock corporations domiciled within its reach except for those which are listed on the public stock exchange[60] (Art. 3, LO). Additionally, the IGJ is in charge of the National Registry of Joint Stock Corporations and of the National Registry of Foreign Corporations, although both of them can be considered to have been ‘dead letter[61]’ in law again: although they formed part of the LS since 1972 (Art. 4, clause d-f), it is not until the very recent months that such centralised registries are going to materialize with the Registro Unico de Sociedades[62] (Single Corporate Registry).
Within its supervisory and policing mandate, the IGJ requests information and documentation from corporate entities and determines the appropriate form and certification of such (Art. 6). Whenever deemed necessary, the IGJ is also allowed to carry out investigations and inspections in situ in order to check accountancy books and other documentation or it may pledge information from other administrative, judicial or police agencies (ibid.).
[...]
[1] http://www.spiegel.de/international/business/0,1518,535768,00.html; accessed 20.2.2008.
[2] Indeed, there is no need to identify the person creating the foundation. See http://taxjustice.blogspot.com/2008/02/press-release-liechtenstein.html; accessed 20.2.2008.
[3] In order to prevent any misunderstandings as relating to the developmental concept preferred in the following thesis, I refrain explicitly from any blueprint or one-size-fits-all approach to development. Instead, in the following work ‘development’ should ideally be replaceable always by ‘adding to policy autonomy and independence’. I assume that the best to be generally done by industrialized countries is to stop interfering negatively on a structural level of political economy. This shall neither preclude exceptional instances nor generally the notion that an international truly cooperative climate is feasible and desirable indeed. In more theoretical terms, the more sophisticated and equilibrated version of the dependency theory as set forth by Cardoso and Faletto (1976) seems to me still a fruitful point of departure.
[4] It is almost unthinkable to imagine for instance the Swiss providing a part of their development aid through information exchange assistance in tax matters with the developing world’s tax authorities. It would be misleading though to expect other industrialized countries, which are not offshore centres, to be generally cooperative towards developing countries requesting information exchange. Worse, industrialized countries may actively encourage corruption abroad or at least have done so until recently. German tax law for instance implicitly allowed tax deductions for German companies’ bribes abroad until 1999. In other words, the “expenses” a German company had for the corruption of foreign public officials has been actually subsidized by German taxpayers (TI 1999).
[5] They might be overlapping though with geographically palpable places as is the case with export processing zones (EPZ, Palan 2003: 36ff), see below.
[6] Although it would be clearly misleading to consider offshore similar to the open seas as Common Heritage of Mankind (UN-General Assembly 1970) - much to the contrary.
[7] A comprehensive introductory book on “The Offshore World” is written by Palan (2003). A more easy-to-follow account is given by BBC-journalist Brittain-Catlin (2005): “Offshore. The Dark Side of the Global Economy”. Articles by Picciotto (1999 and 2007) provide a legal perspective. An overview over the Euromarkets is found in Burn 1999.
[8] The only general exception not prosecuting tax evasion criminally I am aware of is Switzerland which engineers captiously in its laws that only “tax fraud” is a criminal offence, exempting though the tax form from being an official instrument (or certificate). Thus, the failure to file correctly the annual tax form cannot be fraud, because (tax) fraud necessarily involves the intentional manipulation of a public certificate. Hence, tax evasion is mostly deemed to be an administrative transgression. See Thielemann (2002: 7f) for an explanation of the Swiss specialty.
[9] For more detail, read Thielemann 2002, Genschel / Rixen 2006, and for the relation to the OECD and UN Models of double taxation treaties, read aforementioned articles by Figueroa (2004 and 2005).
[10] For instance, this might be the case where countries do either not provide for minimal records of international outflows of taxable assets, lack technical capacity to analyze them from the perspective of taxes due or are simply not willing to share tax information with domestic authorities.
[11] Tax havens may “[…] cause harm to the tax systems of other countries as they facilitate both corporate and individual income tax avoidance and evasion.” (OECD 1998: 22).
[12] “A tax haven creates laws and other measures that it knows can be used to evade or avoid the tax laws or regulations of other jurisdictions and which have little or no other purpose” (TJN 2008).
[13] For instance: Nitsch 1995; Griffith-Jones / Pfaffenzeller 1998/ Krugman 1997; Metzger 2003; Fritz 2004; Akkermann / Teunissen 2003; Bruno / Chudnovsky 2003; IEO 2004; Stiglitz 1999.
[14] Speaking very broadly, the influential Washington Consensus (1990) has had mainly, in Joseph Stiglitz’ words, “three pillars: trade liberalization, deregulation, and privatization. Essentially, the idea was once the government ‘got out of the way’ private markets would allocate resources efficiently and generate robust growth.” (1998: 1). It comprised in its oversimplified version ten points. For Williamson’s account of the use and abuse of his policy recommendations read Williamson 2003: 323-331.
[15] This is explicitly not to suggest that the Latin American state has caused its indebtedness alone (albeit in some cases this might be true). Instead it should be emphasized that through a variety of other mechanisms, crisis programmes and misjudgements, illegitimate or private sector debt has become public debt (e.g. Griffith-Jones / Sunkel 1989; Soederberg 2005; Corbridge 1993; Fischer-Lescano 2004; Basualdo / Kulfas 2002; Katz 2004; Olmos 2005). On the other hand, to emphasize Latin American countries is not intended to suggest that many countries for instance on the African Continent may not face similar or even drastically more serious situations of indebtedness.
[16] Though the article is empirically informed by the Chilean experience of capital inflow controls (for a brief synthesis of the findings see Hujo 2003: 28-30).
[17] For similar arguments see Khor 2000 (esp. 10-21), Hersel / von Eichborn 2004, Chang / Green 2003.
[18] At first sight, this might appear to be trivial. But it does make a difference indeed if poverty is primarily ascribed to a general lack of resources and wealth (GDP) in a given country or whether poverty is attributed predominantly to a redistributional problem. In the former case, a call for growth-oriented policies with potentially regressive distributional effects could be expected and to some extend ‘excused’. By pointing at social inequality as cause for poverty and as obstacle to economic development in Latin America, the World Bank is quite explicitly calling for redistributional policies.
[19] Of course, there is no guarantee that the additional funds are not going to be stolen. In this respect I wish to underline Cobham’s words: “It is worth pointing out here that the discussion that follows does not assume that governments, if unrestrained by liberalization, will necessarily follow efficient pro-poor growth strategies as part of balanced social policy programmes. However, it seems uncontroversial to assume that having stronger and more stable finances will allow governments greater freedom to choose such a strategy if they so wish." (2002: 177).
[20] The introduction of dual income taxation systems may be seen - in anticipatory obedience - as a corollary of this scenario. Thereby, the basic fiscal (and redistributionally crucial) principle of tax progression on capital income is given up and the income taxation is bifurcated. Instead, a linear (flat) tax rate on capital income is levied at the source and progression is limited to labour income.
[21] In the report, Oxfam states this estimate being derived only “from the effects of tax competition and the non- payment of tax on flight capital. It does not take into account outright tax evasion, corporate practices such as transfer pricing, or the use of havens to under-report profit.” (Oxfam 2000: 1).
[22] Included is here both evasion by legal and natural persons.
[23] The aforementioned point emphasized by Cobham is to be repeated here, namely, that offshore evasion might additionally influence on the size of the shadow economy through lowering ‘tax morale’.
[24] For an overview see TJN 2005 (39ff). The most relevant ones are: Initiative on harmful tax competition(OECD); Financial Action Task Force ( G7); Financial Stability Forum (G7); UN-Committee of Experts on International Cooperation in Tax Matters; EU-Savings Directive. For a reconstruction of the long political way of the EU-Savings Directive see Gilligan 2003 and for assessment Meinzer 2007; for an overview of the OECD- initiative see Webb 2004 or Eden/Kudrle 2005 and recently Spencer 2007.
[25] In part this might be attributable to the fact that their primary concern has often been another issue than tax evasion. Issues addressed involve international organised crime (arms trafficking, drug business, prostitution, trafficking in human beings, trafficking in organs, illegal gambling, trafficking of blood diamonds), money laundering, corruption in its narrow sense or the stability of international financial markets (countering little transparent, high-risk financial operations e.g. institutionalised through hedge funds). Since 11th of September, 2001, OFCs have attracted additional attention for their role in financing international terrorism.
[26] Only in a narrow sense of this term, because they include industrialized countries only. To my best knowledge, the only exception is the UN-Committee of Experts on International Cooperation in Tax Matters, but which at the same time is an initiative which up to date has not effectuated any palpable policy (TJN 2005: 40-41).
[27] For an overview what these different concepts of information exchange entail see Spencer 2005.
[28] In a way similar ‘neoliberalism’ has been contended to become increasingly ‘constitutionalized’ by Gill 2002.
[29] Admittedly, this issue requires further research. The different unilateral measures often though are very difficult to identify and handle because they are entrenched with domestic tax legislation.
[30] It is reflective of what Mitchell and Sikka have written: “The power of corporations is based on the artificial personality and shield conferred by Limited Liability. What the public has given it can take away, or change, to ensure that public purposes prevail.” (2005: 8).
[31] In fact, limited liability companies are within it’s scope too, but they are not (yet) subject to the offshore- measures.
[32] It is the General Resolutions 7/2003, 8/2003, 12/2003, 22/2004, 2/2005, 3/2005 and 7/2005. For an overview see chapter 3.3
[33] This is because without this assumption, the question guiding the research could be aiming merely at questions of implementation. Instead, it is sought to broaden the horizon and to possibly contribute identifying concrete cross-border evading mechanisms.
[34] Contrariwise, for a more static and strict enquiry, the ultimate part of the question must have been ‘aimed at banning offshore companies’ commercial activity from Argentinean territory.
[35] This translates into: “The implementation of this policy is low and its impact remains to be determined” (2006: 110).
[36] “A country of the South undertaking alone a bold step against tax havens is very likely to be witness of the activities it is condemning to continue as if nothing had changed, with companies and bankers taking more indirect paths to achieve their ends.” (2006: 110)
[37] For instance, if Hypothesis 1 and 2 were deemed false, it would be (logically) mistaken to deduce that such measures banning OFC-companies from economic activity do reduce offshore tax evasion.
[38] Under many precautions, the alleged no option to “necessary” and “painful” cutbacks, forfeits and structural reforms in industrial countries’ public services due to the harsh and increasing international (tax-) competition could be questioned as well.
[39] Especially where the “global” borderlessness of finance-, money- and tradeflows is taken as characteristic of „globalisation“ and described as exogenously structuring political deliberations and rooms of manoeuvre.
[40] For economic policy in the 1990s, read Hujo (2002) and for more broad introduction in Argentina “After ten years of Menem”, Birle / Carreras (2002). Svampa (2005) gives a good introduction about the rising inequality from a sociological point of view; Mason (2007) gives a sharp historic analysis of the dictatorship and its underlying political struggle for power in Argentina; Gambina (2002) introduces the regional context in Latin America.
[41] For instance, the already mentioned publication of the CEPAL might be a start (2006). Relating to Argentina, comprehensive and easy accessible is the paper of Gaggero / Grasso (2005); KPMG 2006 is dealing with more practical issues; Cetrángolo / Gomez-Sabaini (2007b) is forthcoming.
[42] For different ‘leaks’ in finance involving several paths of domestic evasion in a broad sense see Cobham 2007.
[43] Among other reasons, this is because it is estimated that most public revenues in developing country are lost to evasion, not to avoidance (TJN 2007: 59). See section 2.1, “tax evasion”.
[44] In part, such complementarity between quantitative and qualitative methods is reflecting the complementary relation between the epistemological approaches labelled positivist and ‘post’ or ‘non’-positivist as well as between the aims of scientific enquiry labelled understanding and explaining Alexander Wendt has written about (1998).
[45] Even fewer times, this perceived superior degree of validity inherent in statistical data might be knowingly abused for manipulation. Of course, a lack of transparency and the absence or lack of critical scientists are this abuse’s condition. Without suggesting that statistical manipulation takes place, the opposite problem becomes utmost obvious when it comes to offshore tax evasion: tax havens of OFCs usually deny the provision of (compromising series of) basic quantitative data, and its only qualitative data made public I am aware of consists in its laws. Hence, in absence of supposedly ‘hard evidence’ they implicitly and with innocent’s air might point at the lack of quantitative ‘hard evidence’ about them being truly devastating (or instead pointing at some absolute and superior ‘right to privacy’).
[46] The question if there is such thing is necessarily a question beyond science as for instance philosophy and religion, and a possible further question if it is attainable or if it is given to human beings by grace could lead to Christian theology.
[47] In order to avoid misunderstandings, it is to be highlighted that AFIP consists of two agencies, DGI (Dirección General de Impuestos) and DGA (Dirección General de Aduanas). DGA deals primarily with trade tariffs and cross-border trading, whereas DGI is concerned more with domestic law enforcement. DGI appears though to have a major competence in the formulation of general tax policies.
[48] This might be misleading because some are attributable to more than one.
[49] Another moment of deviance of the mentioned guide is a shortened and sharpened version which I have compiled with view at professionals (Annex 4).
[50] The philosophical thinking of Martin Buber about the dialogical nature of human beings might be enlightening for those interested in the proper dynamic potentially immanent in each interview or dialogue (Buber 1983).
[51] Ley de Sociedades Comerciales, Ley 19.550 (19.3.1972 BO). This law and its subsequent changes have been reordered in 1984 by presidential decree PEN-DEC 841/1984 (30.3.1984 BO). Whenever I refer to this Law, I consider the actualized text as found in the hyperlink given for the Law in the bibliography.
[52] Correctly, there are three: the third way consists in carrying out actos aislados (‘isolated acts’).It allows a foreign company to carry out loose commercial acts without inscribing whatsoever in the public corporate register given that these lack regularity. Its abuse has been targeted by Resolution IGJ-RG 8/03 (22.10.2003 BO), see chapter 3.3.2.
[53] The Commercial law and the definitions contained therein relating to branch, subsidiary, seat, etc. are considered to be unclear and loose. This consideration can be found in the authoritative commentary on the Commercial Law by Verón (2007: 63, 1146f). Thus, Verón depicts the content of Art. 118 as to merely describe which circumstances give birth to the obligation for registering (2007: 1147) but lack any other details about judicial terms and forms of such a presence which in turn gives rise for considerable definitional and regulatory room of manoeuvre left to the IGJ.
[54] This article contains a Controlled Foreign Company (CFC) clause. See chapter 5.2.2
[55] On the question if both may belong to the same economic group there have been conflicting statements of interviewees. To my understanding they might remount to a difference between legal rule and implementation practice. Apparently the shareholders cannot legally belong to the same economic group, but there seem to be instances of circumventing this rule (IV5, IV3, IV6, IV1). Both of these norms have not been enforced until recently: it was a common practice for foreign companies to have 99,9% - 0,01% in shares (IV6, IV1, IV5). See 3.3.7 for details.
[56] This is relevant in other than tax purposes: e.g. in insolvency disputes, divorce, any sort of economic litigation between former partners, etc. It played a role in the financial and economic crisis in 2001/2002 when foreign entities, especially banks, have not responded with their parent capital to the losses faced or assumed by their local (IV1). Richard qualifies the situation before the change brought about 2003 as foreign companies enjoying a privilege over national ones. For example, foreign joint-stock companies were not bound to the limitations on cross-ownership of shares imposed by Art 30, 31 and 32 LS (2005: 2).
[57] This article was in place at least since 1984 when the Law 19.550 has been reordered. Without certainty, it seems to me that this provision has already been in place since 1972, because whenever referred to this Article, Law 19.550 is mentioned as a source and not a subsequent modification, change of reordering of this law. The incorporation of such an article at latest in the beginnings of the 1980s must be surprising for its foresight. It was a time when the extent of international regulatory arbitrage (offering no or low business regulation and supervision) and the proliferation of tax havens’ services was still to be boosted by internet and in which the “commercialization of sovereignty” and legal personalities has not yet become endemic (Palan 1998, 2002). Thus, instead of bemoaning the “dead letter” in law, it could be asked about the reasons for Article’s 124 existence. Indeed, it is an open question if any other country has such a generalized provision seeking to assure congruence of legal form and economic substance in this matter today.
[58] This is due to the special status CABA enjoys. It is for many purposes unlike the other provinces under direct jurisdiction of the federal government.
[59] Which implies a concomitant incentive-structure for free-riding behaviour. For example, such a mismatch between law making and law application jurisdiction is instituted in today’s federal system in Germany. Relating to tax on capital income, free-riding behaviour resulting in lax implementation by some provinces (“Bundesländer”) is suggested in Giegold (unpubl.) and Meinzer 2007: 7.
[60] There are some more entities which are controlled by the IGJ, such as associations and foundations (Art. 3, LO). Corporations whose shares are publicly traded are controlled by the National Security Commission (Comisión Nacional de Valores; Art. 3, LO).
[61] The reason for non-implementation seems to be the lack of budgetary means as – among others – the former Head of the IGJ, Hugo Rossi, states (cited in: Debarbieri 2007). Taking into account the administrative effort and cost necessary to coordinate and maintain a nation-wide registry in a country only slightly smaller than the EU- 15 in extension (2.766.890 km2 against 3.200.000 km2, taken from http://en.wikipedia.org/wiki/1_E12_m%C2%B2; accessed 9.1.2008) and simultaneous recurrent pressing social needs during the past 25 years including massive indigence and malnutrition, again it seems advisable to me not to point at such a ‘lack’ without contextualizing.
[62] Based on Law 26.047 (BO 7.7.05); see also Fernández 2006: 19; Linares 2006; Mendéz 2005a; 2005b.
- Citar trabajo
- Markus Meinzer (Autor), 2008, Unilateral measures against offshore tax evasion, Múnich, GRIN Verlag, https://www.grin.com/document/115900
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