NEWS,21.07.2013

OECD publishes plan to cut tax evasion

The Organisation for Economic Co-operation and Development (OECD) unveiled new plans to tackle tax evasion by improving the way tax authorities share information about individuals and entities like trusts.
Countries are increasingly moving to a standard of sharing information on taxpayers even in the absence of any specific request.
This is more likely to flag up inappropriate behaviour than the longer established practice of one tax authority starting an investigation into suspicions of wrongdoing, and then making a request for data.
The European Union has estimated hundreds of billions of euros are lost each year to tax evasion. The stashing of undeclared earnings in accounts in offshore jurisdictions has long been a favoured method for hiding cash from one's home tax authority, aided by the veil of secrecy.
The OECD, which advises its mainly rich nation members on economic and tax policy, issued an updated standard for the automatic exchange of information at the sidelines of a meeting of G20 finance ministers on Saturday.
The OECD has proposed a detailed description of the kinds of information that would be exchanged and proposals for common legal and technological standards to facilitate the flow of information.
The OECD hopes to have a new draft agreement ready for countries to sign in late 2013.
The shift to an international standard on automatic sharing of information has been accelerated by the US Foreign Account Tax Compliance Act (Fatca) which forces banks outside the United States to give Washington details of foreign accounts held by US citizens.
Countries like Bermuda, often labelled a tax haven by Western lawmakers, said that once they agreed to share information with the United States, other large countries pressured them for a similar deal.

China frees up lending rates

China's central bank removed controls on bank lending rates, effective on Saturday, in a long-awaited move that signals the new leadership's determination to carry out market-oriented reforms.
The move gives commercial banks the freedom to compete for borrowers, a reform the People's Bank of China said on Friday will help lower financial costs for companies. Previously, the lending floor was 70% of the benchmark lending rate.
However, the PBOC, in a statement, left a ceiling on deposit rates unchanged at 110% of benchmark rates, avoiding for now what many economists see as the most important step Beijing needs to take to free up interest rates.
The latest step underscores Beijing's resolve to start fixing distortions in its financial system and the economy more broadly as it tries to shift from export- and investment-led growth to more consumption-led activity.
Some analysts said cheaper credit could help support the economy, which has seen year-on-year growth fall in nine of the last 10 quarters.
"This is a big breakthrough in financial reforms," said Wang Jun, senior economist at China Centre for International Economic Exchanges, a prominent government think-tank in Beijing.
"Previously, people had thought the central bank would only gradually lower the floor on lending rates. Now they scrapped the floor once and for all."
The Australian dollar rose modestly on the news on hopes cheaper credit will lead to more demand from Australia's biggest export market.
The announcement provided some support to weak stock markets in Europe and a timely reminder to the world's top financial leaders meeting in Moscow of China's intention to rebalance its economy.
A Group of 20 draft communique will urge China to encourage more domestic demand-driven growth as part of wider efforts to rebalance the world economy, G20 sources said.
The United States welcomed the move, saying China promised to let markets play a bigger role in allocating credit during the US-China Strategic and Economic Dialogue in Washington last week.
"This is a welcome further step in the reform and liberalisation of China's financial system," Holly Shulman, a spokesperson for the US Treasury, said in an email.
Signal of resolve
China's big lenders, such as Industrial and Commercial Bank of China , China Construction Bank, Bank of China and Agricultural Bank of China have generally resisted interest rate reforms because they do not want to see their rate margins get squeezed.
But many economists say such a push is necessary so that lenders learn to better price risk, which will force them to allocate capital more efficiently and so help rebalance an economy saddled with overinvestment and overcapacity in sectors from cement to steel making to solar panels.
Scrapping the lending floor will likely cut borrowing costs for businesses and individuals, ending what many observers say had been artificially high rates that benefited state lenders at the expense of private enterprise.
Some economists were sceptical at how much direct economic impact the move would have because few banks have fully utilised the limited freedom they already had to charge interest rates slightly below benchmark rates, choosing instead to keep their rates slightly above the floor that has been in place.
"So the move may have more of a signalling effect than transmit immediately to the economy but it is an important signalling effect," said Manik Narain, emerging market strategist at UBS in London.
However, to the extent that it does lead banks to lower their lending rates, the move could serve to stimulate investment at a time when the world's second-largest economy is running around its lowest growth rates since 2009, having logged 7.5 percent growth in the second quarter.
More important, though, is the sign that policymakers are getting serious about tackling challenging reforms, just four months after Premier Li Keqiang took office, analysts said.
"This is one of the biggest steps they could have taken," said Mark Williams, chief Asia economist at Capital Economics. "It tells you something about the trajectory."
The need for financial reforms was put on full display in late June, when the central bank attempted to choke off funds flowing to "shadow banking" activities, leading to a crunch in the country's money markets that sent short-term borrowing rates to levels normally seen only during financial crises, prompting jitters among investors around the world.
The shadow banking sector, or non-bank lending, has ballooned in recent years, raising concerns that authorities are losing track of potential bad debts building in the economy.
Long path ahead
The central bank said it is also scrapping controls on rates on discounted bills, a common form of payment among companies.
The PBOC made clear in its statement it does not intend to ease up on its controls over mortgage rates. Beijing has been clamping down on the property sector for several years to try to keep a lid on rising prices and speculative buying.
It said it planned to free up deposit rates eventually but now was not the right time. It said it still needed to do more groundwork, which is expected to include launching a deposit insurance system, something many observers expect may happen this year.
"(Reform of deposit rates) is more difficult and more sensitive. We should not expect it to happen very soon," said Yu Yongding, former member of the central bank's monetary policy committee and a researcher at the Chinese Academy Of Social Sciences in Beijing.
Beijing worries that allowing banks to raise deposit rates to compete for funds could crush some smaller lenders and force them to go bust.
Longer term, the latest move could signal that the government will step up other reforms seen as necessary to help rebalance the economy.
"This underlines that China is moving to a fully convertible currency and floating exchange rates," said Flemming Nielsen, senior analyst at Danske Bank in Copenhagen. "Their next step will be to widen the daily trading band for RMB (yuan). They should do that within the next three months."

Israel to free Palestinian prisoners

Israel announced on Saturday it will release some Palestinian prisoners as a "gesture", after the two sides agreed to lay the groundwork to resume peace negotiations frozen for three years.

Some of those to be freed have been in prison for decades, Israeli Intelligence Minister Yuval Steinitz said.

His announcement came hours after US Secretary of State John Kerry said Israeli and Palestinian negotiators had agreed to meet to pave the way for a resumption of direct peace talks.

The last round of direct talks broke down in 2010 over the issue of Israeli settlements in the West Bank and east Jerusalem.

Speaking on privately owned Channel 2, Israeli Justice Minister and chief peace negotiator Tzipi Livni noted that while there were no preconditions to talks, "everything will be on the table", including the 1967 borders and east Jerusalem, which the Palestinians want as their future capital.

Steinitz said his government would engage in the staggered release of a "limited number" of prisoners, some of whom he defined as "heavyweights", who have been in jail for up to 30 years.

4 713 imprisoned

"There will definitely be a certain gesture here", he said, without noting how many prisoners were to be freed.

According to Israeli rights group B'Tselem, at least 4 713 Palestinians are imprisoned in the Jewish state.

Their release is one of the Palestinians' key demands for resuming peace talks, particularly the 107 prisoners arrested prior to 1993, when the Oslo peace accords were signed.

An Israeli official said no prisoners would be released before direct talks begin, and the process would then be dependent on the Palestinians proving they are "really serious and not playing games".

"It won't happen tomorrow and not next week," the official told AFP, speaking on condition of anonymity. He could also give no indication of the number of prisoners involved.

He said the releases, once they begin, would take place in stages and include "pre-Oslo prisoners, prisoners set to be released anyway, and those the Palestinians 'forgot' during the Oslo accords".

Commitment

Steinitz said Israel would not compromise "diplomatic issues", and that there was no agreement on a settlement construction freeze or on accepting the borders that existed prior to 1967 Six-Day war as the basis for talks, as the Palestinians demand.

He said the Palestinians had committed to "negotiate seriously" for "at least nine months", during time which they would refrain from taking action at the United Nations and other international institutions.

Kerry gave away very little detail of the agreement, which came after four days of consultations with Israeli and Palestinian leaders, saying both sides had reached "an agreement that establishes a basis for resuming direct final status negotiations".

"This is a significant and welcome step forward," he added, having doggedly pushed the two sides to agree to resume talks in six intense trips to the region since becoming secretary of state in February.

A State Department official said Kerry had wrenched a commitment from both sides "on the core elements that will allow direct talks to begin".

The Israelis and Palestinians remain far apart on final status issues including the borders of a future Palestinian state, the right of return of Palestinian refugees and Jerusalem.

'Ball in Israel's court'

Palestinian president Mahmud Abbas has also repeatedly called for a freeze to Israeli settlement building and a prisoner release.

"The ball is now in Israel's court," a Palestinian official said, speaking on condition of anonymity.

"Kerry has proposed the bases for a resumption of negotiations and asked [Israeli Prime Minister Benjamin] Netanyahu to respond favourably to one of them.

"The bases are the release of Palestinians jailed before the Oslo accords, minors, the sick or the elderly," he said. "And that Israel recognise the 1967 border lines as a reference point, or a halt to settlement building."

The official said Netanyahu had agreed to hold a special cabinet session to draw up Israel's response to Kerry's proposals.

The Islamist Hamas movement which runs the Gaza Strip rejected a return to talks, saying Abbas had no legitimate right to negotiate on behalf of the Palestinian people.

And the leftist Popular Front for the Liberation of Palestine warned that "a return to talks outside the framework of the United Nations and its resolutions would be political suicide".

Venezuela ends rapprochement with US

Venezuela says it has "ended" its rapprochement with the United States due to a statement by Samantha Power, nominated to become the US envoy to the United Nations.
Power said at a US Senate confirmation hearing on Wednesday that if she got the job she would stand up to "repressive regimes" and challenge the "crackdown on civil society being carried out in countries like Cuba, Iran, Russia, and Venezuela."
Washington and Caracas have not exchanged ambassadors since 2010 even though Venezuela exports 900 000 barrels of oil to the US per day.
"The Bolivarian Republic of Venezuela hereby ends the process ... of finally normalising our diplomatic relations" that began in early June, the Foreign Ministry said in a statement.
Venezuela is opposed to the "interventionist agenda" presented by Power and noted that her "disrespectful opinions" were later endorsed by the State Department, "contradicting in tone and in content" earlier statements by Secretary of State John Kerry.
Kerry and his Venezuelan counterpart, Elias Jaua, agreed on the sidelines of an Organisation of American States meeting in Guatemala in June that officials would "soon" meet for talks that could lead to an exchange of ambassadors.