Tax evasion lies at the heart of the Greek financial collapse, which has resulted in international bailout loans exceeding 205 billion euros, or $266 billion, the size of Greece’s depressed economy. In fact, Greece’s international creditors have made revamping its notoriously lax tax system a primary condition for any additional bailout financing, the International Herald Tribune reported. But even after an overhaul of Greece’s tax collection apparatus — and a politically charged campaign to pursue delinquents — government officials have collected only a tiny fraction of what is owed and potentially collectible. Rather than capture a lot of extra money, the crusade seems mainly to have captured prominent quarry. The net cast by newly empowered prosecutors has snared the former mayor of Salonika, the leader of the Greek national statistical agency and several former cabinet members. Lawyers and tax officials estimate that hundreds of people have been locked up in the last year, suspected of tax evasion. Under the new laws, someone who owes the government more than 10,000 euros in taxes can be arrested on the spot and given the choice between paying up or being put behind bars. While held, the suspect can wait as long as 18 months before the prosecutor decides on a formal charge. Despite those efforts, of the estimated 13 billion euros that government officials say is owed by Greece’s 1,500 biggest tax debtors, only about 19 million euros has been collected in the last two and a half years. Read more. (Subscription required.)
Daily Insolvency News Headlines
Mon., May 13, 2013
Vietnam's central bank will cut three policy rates from Monday, as easing inflation gives the government room to lower companies' borrowing costs and get more money flowing through the economy, The Wall Street Journal reported. The 100 basis point cuts in the refinancing, rediscount and overnight rates on dong-denominated loans will make it cheaper for banks to borrow from the central bank, which should help increase credit growth. With the Consumer Price Index down to just 6.61% in April from a peak of 23.02% in August 2011, the government has been urging banks to lower lending rates to get more cash sluicing through the economy. Friday's steps indicate "the government is more active in pushing for credit and money growth," said Hanoi-based economist Le Dang Doanh, a former adviser to Vietnam's prime minister. With weak demand keeping inflation expectations low, credit grew only 1.4% in the first four months of the year, much lower than the 5.3% rise in dong deposits during the same period, Mr. Doanh said. But he added the move probably won't have a big impact given banks and companies' rising levels of bad debt. A government official said in February that bad debts account for 6% of total outstanding loans, but the government has been slow to set up an asset-management company to deal with the bad debts. Read more. (Subscription required.)
Germany’s finance minister has warned that a single EU bailout agency and rescue fund for ailing banks is legally untenable until the bloc’s treaties have been overhauled, the Financial Times reported. In today’s Financial Times, Wolfgang Schäuble calls for a “two-step approach” that would leave bank rescues in the hands of “a network of” national authorities until treaty changes can take place. Mr Schäuble’s declaration comes just weeks before the European Commission is due to present its plan for a single bank resolution agency and rescue fund – widely touted as the second pillar in the eurozone’s much-vaunted “banking union” – throwing the proposal into doubt even before it is unveiled. A single EU bank resolution authority was originally designed to take bank oversight and rescues out of the hands of national capitals where lax regulation and massive bailouts helped exacerbate the eurozone crisis. Read more. (Subscription required.)
Orpington Structured Finance I has gross assets of €1.7 billion, which would make it one of the most valuable firms in Ireland. Except it has no employees. It has no buildings or machinery. Nor does it pay any tax. It is one of hundreds of so-called financial-vehicle corporations, which are companies set up to house or trade in securitised investments, in other words to package and resell loans. It’s part of a much wider area of financial activity known as shadow banking, a term coined five years ago when the US economist Paul McCulley defined the area as the “whole alphabet soup of levered-up non-bank investment conduits, vehicles and structures”, the Irish Times reported in an analysis. The term spread almost as fast as the financial crisis, and regulators and governments have been mobilising ever since to try to map this largely uncharted world. It’s big business: the total value of assets in the Republic’s shadow-banking sector, at €1.7 trillion, is almost 11 times the State’s gross national product, which is the total value of all products and services produced in a single year. Supporters of low taxes and multinational-friendly policies say these companies help create much-needed jobs in a country with 14 per cent unemployment and stagnant growth. The wider IFSC employs an estimated 32,000 people, for example, and contributes about €1 billion in corporation tax. Of those employees, about 1,000 work in companies linked to the securitisation industry. If Ireland weren’t courting this kind of business, the argument goes, it would end up in rival jurisdictions, such as the UK or the Netherlands. But detractors question whether the benefits really stack up. Much shadow-banking activity is set up to attract little, if any, tax. This reliance on aggressive tax avoidance, critics say, distorts the country’s industrial policy and leaves it vulnerable to appealing changes in tax rates around the world. Read more.
Professional debt negotiators will be allowed to set their own rates and charge upfront fees from struggling debtors going through the State's new insolvency process, The Independent reported. According to confidential draft regulations to be published later this month, personal insolvency practitioners (PIPs) can charge initial consultation or assessment fees and the actual rates will be left to the practitioners themselves. The Insolvency Service of Ireland says the rates will be dictated by the "market" and it won't be issuing guidelines on how much PIPs should charge. It expects fees for the debt arrangement will average €5,000, in line with rates for a similar insolvency process in the UK. The only stipulation in the draft regulations is that PIPs must disclose a written schedule of fees upfront with potential debtors. It has been widely claimed that the regulations on PIPs will be so onerous that only larger solicitors and accountancy practices will have the resources to qualify. Read more.
Portugal's government said on Sunday its EU and IMF lenders had concluded work on the latest bailout review, indicating there were no outstanding obstacles for Lisbon to receive the next 2 billion euro tranche of the rescue package, Reuters reported. The review, which had been practically sealed in March, hit a snag early last month when the constitutional court threw out some of this year's austerity measures. But the government presented a plan to compensate for those, along with wider deficit reduction steps until 2015 worth 4.8 billion euros. "The cabinet met today to be briefed on the completion of the works related to the seventh evaluation and confirm the conditions necessary to seal it," the government said in a statement after an extraordinary cabinet briefing. Finance Minister Vitor Gaspar will present the final terms at the meetings of EU and euro zone finance ministers that begin in Brussels on Monday, it said. By getting its deficit-reduction plan back on track, Portugal also expects to get a full EU approval this week for an extension of its rescue loan maturities, which is aimed and helping it regain full access to the debt market. Read more.