Analysis: How rich oil firms are using a secretive court to fight capital gains tax in developing world

By George Turner from Finance Uncovered.

At a little known but powerful international court of arbitration, so secretive that senior officials decline to disclose even the dates of hearings, a new case has been filed that will pitch a mighty US oil major from Houston, Texas, against one of the world’s last Communist-run countries.

On the face of it, this battle between ConocoPhillips and the Socialist Republic of Vietnam is as dry as it gets. Hardly anyone has yet heard of it.

But the result could mark a significant shift in the way huge multinationals fight off the threat of taxes from desperate revenue authorities in developing countries.

For ConocoPhillips is using the not-so-glamourous Bilateral Investment Treaty Mechanism of the UN to launch a pre-emptive legal strike against Vietnam’s intention to levy an estimated $179m capital gains tax charge on oil fields sold by one of its UK subsidiaries.

Capital gains: A new frontier

Think of any of the major tax avoidance scandals that have dominated headlines in the last ten years: Google, Facebook, Apple, Nike, all have focused on profit shifting, the art of moving money out of profitable markets and into tax havens as a means of avoiding corporate income tax.

Most commonly, profit shifting happens when companies move revenues abroad, for example by billing their customers from an offshore company, or by invoicing a local business for fees and costs from an offshore company.

However, there is another important form of tax avoidance which multinationals frequently abuse but which has received little attention from the media: avoiding tax on capital gains.

Over the next few years, as more countries claim their resources have been bought and sold by foreigners tax free, this issue is likely to become a new frontier in the anti-tax avoidance campaign.

A capital gain is where a company or an individual sells an asset and makes a profit on that sale due to an increase in value of the asset being sold. Think of selling a house. The money you make by the virtue of your house increasing in value is your capital gain.

When it comes to major multinational mergers and acquisitions the capital gains can be enormous, and tax can easily be avoided if deals are structured offshore.

Capital gains tax: Made in Vietnam?

In 2012, a UK subsidiary of ConocoPhillips sold two other UK companies it owned, ConocoPhillips Gama Limited, and ConocoPhillips Cuu Long. It sold them to a UK company owned by Perenco, the Anglo-French oil firm. Perenco is also a party to the arbitration.

The only assets held by ConocoPhillips Gama and Cuu Long were Conoco’s oil interests in Vietnam.

ConocoPhillipsAccording to accounts filed at UK Companies House, ConocoPhillips sold the companies for $1.3bn making a profit of $896m. Buried in the detail of those accounts, a small note states that the company paid no taxes on that capital gain.

Why? Because Britain operates a loophole known as a “substantial shareholder exemption”. This means that profits on the sale of shares in subsidiary companies are not subject to capital gains tax in the UK.

But although the UK may choose not to levy any capital gains tax, that has not prevented Vietnam’s policymakers from trying to do so.

Under the terms of the UK-Vietnam tax treaty, Vietnam has the right to tax any capital gains made by UK companies that originate in Vietnam. If the profits on the deal were subject to the standard corporation tax rate in Vietnam, then ConocoPhillips could have to cough up an estimated $179m to the Vietnamese government.

So the question therefore becomes, what and where is the source of the profits?

If you are ConocoPhillips, the value is all in the shares, and the profit should be located in the UK. When we asked the company about the deal a spokesman said: “The sale was between two UK incorporated and resident entities with no taxable presence in Vietnam. The target companies are also UK companies. As a result, no taxes were owed on the sale in Vietnam.”

The Vietnamese government takes a different view, claiming the profits really arise out of the transfer of the oil assets. As these were located in Vietnam, it says that’s where they should be taxed.

Indeed, Vietnam has signalled its intention to tax the transaction – and that has alarmed not only the US oil giant, but also in all likelihood other similarly powerful corporations.

The potential precedent for multinationals

If Vietnam is successful, there could be profound implications for other developing countries, which have often seen Western companies make huge profits on their investments, only to walk away with them tax-free.

It is an issue that has concerned policymakers at the highest levels of the United Nations and the Organisation for Economic Cooperation and Development. In essence, the argument is: if multinationals make fortunes from a poorer country’s resources, then surely the host should have the right to levy the appropriate tax on the gains.

But ConocoPhillips is holding firm, telling Finance Uncovered that it would “pursue all available legal remedies to challenge any attempt by Vietnam to tax the transaction”.

And that is exactly what the company is doing with this new legal move: it wants to stop the threat in its tracks.

ConocoPhillips and Perenco have quietly filed a petition in the secretive investment tribunal, requesting it orders Vietnam not to levy the tax.

Unusually, the case is being brought under the UK-Vietnam Bilateral Investment Treaty, which is subject to an arbitration process run by a little known corner of the United Nations System, The United Nations Commission on International Trade Law.

The use of the Bilateral Investment Treaty Mechanism is itself controversial. Such disputes are expensive, opaque and are not usually used to settle tax disputes.

Cavinder BullNeither ConocoPhillips nor Cavinder Bull (pictured, left), a senior Singaporean barrister and chairman of the arbitration panel looking into the case, would disclose the location, or the dates, of the hearings.

And this case is thought to be the first to look at the issue of capital gains tax. If it goes ahead, that itself could act as a deterrent to developing countries trying to levy taxes because such battles cost fortunes in legal fees – about $5m a case, on average.

Michael Lennard is the Chief of the UN International Tax Cooperation Section who is currently on sabbatical as a visitor at the Oxford University Centre for Business Taxation. He has negotiated many tax and investment agreements, and speaking in a personal capacity he told Finance Uncovered: “The proceedings are held in secret, with expensive Western law firms often having to be hired to deal with arcane procedures.

“Most of the potential arbitrators in tax-related cases are not tax experts or else are tax advisers to corporations, with insufficient experienced and non-partisan arbitrators from the developing world (such as academics), not enough women and not enough younger experts.

“As a result it is extremely difficult for developing country governments to secure the expertise they need to defend these cases.”

For many, this reeks of injustice: big multinationals using the sledgehammer of a secretive and prohibitively expensive court to deprive developing countries of the revenue they feel is theirs.

Jayati Ghosh, a renowned professor of economics at Jawaharlal Nehru University in New Delhi, said: “Developing countries’ experience with the outcomes of such cases does not inspire optimism, as it is well known that the panels tend to be more investor friendly and generally support the claims of firms over the rights of governments or even the human rights of their citizens.”

Perenco declined to comment.

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Israel, Ironically, Becomes An Apartheid State

All you need to do is look towards those who create and propagate the propaganda to see a situation where the propaganda certainly won’t apply — at the origin itself.

Like rivers flowing to the sea, follow them back to the origin, follow the money, follow the names, and Israel comes up every time — if you do, more and more you will see a state unadulterated by the legislature, policies and dictums actively and unilaterally pushed on Europe and the West — it’s brilliant to see a nation-state in its natural, untainted form, and also a haunting reminder of how much the Overton window has been warped.

In an astonishing act of hypocrisy — The Knesset of the nation of Israel, the Satanic Jewish-Masonic oligarchy’s crown colony and “homeland” in the Levant has passed a bill making the nation “the historic homeland of the Jewish people”, where Jews “have an exclusive right to national self determination”. Arabic is no longer an official language.

Adalah, a legal centre for Arabs living in Israel, called the law “illegitimate” and “colonial” as it becomes increasingly obvious that Israel, the self-proclaimed Jewish state, wants to class all non-Jews as second class citizens.

About 20% of Israel’s population of nine million are Arab, with an additional 2.8m Palestinians living in the Israel-occupied West Bank and about 1.7m in the Gaza strip. The new bill gives the Jews priority in their own supposed nation, with the Israeli placing “national value” on Jewish settlement. This kind of openly nation-centric bill wouldn’t ever be allowed in the West.

Many are claiming that the new law is pushing Israel, ironically, towards an extreme ethnic nationalism. That would be right. But there will be no uproar — because it’s Israel. Israel knows what’s best for itself (monoculturalism, conservatism, & ethnonationalism) and what is worst for its opponents (multiculturalism, liberalism, & cosmopolitanism) and vassals, i.e. European countries.

Of course — the floundering countries of Europe, buckling under the pressure of a tirade of third world African and Arab migrants cannot possibly be allowed the same kind of national self-determination; in the West to desire similitude is a no-go, basic sociology “doesn’t exist”, ethnologically founded preferences just “don’t exist”, seeking out familiarity and kinship “isn’t legitimate”, you must embrace cultural enrichment, yet the Jewish culture in Israel can be protectionist — the hyper-liberal mainstream media won’t touch (or barely scratch) this hypocrisy, because the mainstream media is owned by the same people that own the corporate state called Israel.

Israeli PM Benjamin Netanyahu said the bill was about defending the “Jewish character” of the state, which was established in 1948 as a homeland for the Jewish people, “for generations to come”. Yes, really. It proves that those in power absolutely know what they’re doing in eradicating the European character (that they claim doesn’t exist and/or is insignificant) yet retaining the Jewish character in Israel is acceptable.

“We will keep ensuring civil rights in Israel’s democracy but the majority also has rights and the majority decides,” Netanyahu said.

Indeed, desiring a national identity is “racist” and “xenophobic” to all but the Satanic Jewish-Masonic state of Israel; and they fully expect you to hold that doublethink in mind and accept it.

After all, this is, as Netanyahu said, a “defining moment in the annals of Zionism”, all the other social programming doesn’t apply here; because all the programming is phony of course! (But we’ll keep applying it in our own countries nonetheless).

Why Father’s Day Matters

The outright assault on the traditional family structure continues. This time, Father’s Day, an annual day set aside to appreciate the healthy father figure in people’s lives, but even this couldn’t stay pure for long.

Good Morning Britain tweeted that:

“Is it time to ban Father’s Day? With a rise in single parent, blended, and same-sex families, is it time to get more inclusive and appreciate parents all year round?”

With a total disregard for the science behind a non-traditional family structure, the mainstream media is bashing a symbol of stability, success, happiness, and wellbeing.

The negative effect of non-traditional families on human wellbeing is astonishingly understated, as I will explain.

Here’s some facts:

  • Single parent households double the likelihood of child mental illness.
  • Single mothers are more likely to get ill when they get older.
  • Children raised by gay couples are twice as likely to be in poverty as children of straight married couples.
  • Households with a single mother and a non-biological father have the highest rates of child abuse and neglect.
  • 85% of children who exhibit behavioral disorders come from fatherless homes.
  • Boys who grow up in fatherless homes have significantly lower testosterone levels than average.
  • Children born to single mothers show higher levels of aggressive behavior than children born to married mothers.
  • 71% of high school dropouts come from fatherless homes.
  • 70% of juveniles in state operated institutions come from fatherless homes.
  • 71% of adolescent patients in chemical abuse centers come from fatherless homes.
  • 63% of youth suicides are from fatherless homes.

Stefan Molyneux, a popular philosophy YouTuber, covered the effects of female-headed/single mother households and the associated poverty rates. In every example poverty rates were above that of the average poverty rate and the poverty rate of married couple families.

Welfare rewards and encourages social instability and boosts dependence on the state/big government.

Molyneux also discussed in the video below that in the West the introduction of welfare has subsidized irresponsibility by taxing stable, good income families and redistributing the resources to keep single mother households afloat. The effect of this is placing pressure on responsible members of society and encouraging social instability by funding the lower-end of society and helping it flourish.

Molyneux argues that because society is accustomed to the “safety net” guarantee of welfare, it feels at liberty to make irresponsible decisions and involve itself in marriages, decisions and partnerships that are dysfunctional rather than practical.

Welfare has broken apart the strength of strong, effective families and replaced it with an irreverence towards forging lasting, stable relationships — which form the bedrock of society.

To take things further, the deep state economists and legislators are perfectly aware that subsidizing bad decisions will equal more bad decisions. In fact, it’s their goal; suppress social stability and cohesion in the masses, promote fragmentation, atomization and encourage an unhealthy dependence and allegiance to a nanny/provider state, that, by extension, gets to call all the shots and direct all policy-making unhindered.

Feeding a cancer helps it to grow — the welfare state is a powerful fertilizer for the social cancers that afflict western civilization.

More welfare emboldens the weak, erodes the stable middle class, and empowers the deep state.

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