2007 February » Tax Research UK

Sarah Wykes – an update

Uncategorized Comments Off

Feb 282007

Following the report I made a week or so ago about Sarah Wykes’ arrest, I’m pleased to post the latest update on her situation:

LATEST GLOBAL WITNESS STATEMENT ON ARREST OF DR SARAH WYKES

28/02/07 Cabinda, Angola : Global Witness employee granted permission to leave for Luanda but must remain in Angola to face national security charges

At about midday Angolan time, Dr Sarah Wykes was given permission to leave Cabinda and travel back to Luanda . She intends to do this today. She has been allowed to travel to Luanda on condition that she report to the police every two days. Permission has not yet been granted for her to leave Angola .

She has been notified verbally of the charges against her which involve an alleged violation of Article 26 of Angolan law relating to crimes against national security. Sarah and her lawyer have requested access to documentation relating to these charges and to any evidence against her but so far, permission has been denied.

Global Witness is relieved that she is finally able to travel and calls on the Angolan Government to allow her to leave the country and to drop the unfounded case against her.

Ryanair – not much grasp of economics

Economics Comments Off

Feb 282007

Accountancy Age has reported that Micahel O’Leary of Ryanair has been attacking Gordon brown again :

O’Leary has not let up with his attack on chancellor Gordon Brown’s air passenger duty, telling the Parliamentary Monitor that it is a ‘tax grab’ and has nothing to do with the environment.

He has apparently said:

‘Taxing cheap air travel is Brown’s contribution to the environment. That is £1bn in taxes, and not one cent of it will be spent on the environment,’ he added.

Well of course, O’Leary is right. Not one penny of this will go to the environment. It has no way it can partake in exchange through the medium of cash, so the Treasury has to act as surrogate manager of the funds. And tax is in this sense a form of rationing.

There may be better forms of rationing, but rationing does make sense. Which is more than can be said for O’Leary’s logic.

Yesterday Tax Research, today the FT

Jersey Comments Off

Feb 282007

Chris Steel offered a guest contribution on poverty in Jersey here yesterday. Today he is quoted extensively in the FT on the same issue along with Rosemary Pestana, another key member of TJN / ATTAC Jersey.

The FT charges for its on-line content and so full access will not be available to many. but this gives some flavour of what is said:

“It’s screwing the locals to look after the rich,” protests Ms Pestana, a hospital cleaner. Mr Steel, who is unemployed, adds: “It’s more expensive to live here than in the centre of London.”

Their strength of feeling highlights a historic shift in tax policy that Jersey plans in response to competition from other offshore financial centres and pressure from the European Union and other bodies to scrap levies that “discriminate” in favour of foreign investors.

Frank Walker, chief minister, suggests it is “completely and totally wrong” to suggest the changes will hit the poor disproportionately. The changes simply reflect moves worldwide towards indirect taxes, he says.

“In philosophical terms, it’s quite a change – no question of that,” he says. “But in reality it’s a change that most other countries have gone through at some point.”

Mr Walker does not, of course, know what poverty is. The tax system in Jersey guaranteed that when he sold his interest in the Jersey Evening Post, the island’s only paper, he would not have paid any capital gains tax at all, whatever the proceeds. But hospital cleaners and the unemployed are seeing tax increases to allow such profligacy for the richest members of Jersey society, and for others who abuse the secrecy space it provides. Walker’s defence that Jersey is moving the same way as others is also inappropriate. Since when did more of something that’s wrong mean you were doing something right?

In fact, the FT, covers the Jersey story in another other article as well today, which cover other themes familiar here, for example:,

At issue are the measures the government proposes to fill a resultant hole in the public finances of between £80m ($157m) and £100m.

The deficit is of course bigger than that, but the point is clear. Jersey’s in a mess. The reason is also explained:

The Channel Islands, for example, have come under particular pressure from the Isle of Man, which could reduce its corporate taxes without suffering a large deficit. Its champions claim it has a competitive advantage because it draws most of its revenues from the UK’s value added tax system.

I couldn’t possibly comment on how they found that out.

As the FT concludes:

The controversy over how many tax breaks to give business and the rich may be far from unique to Jersey, but the island’s small size and its dependence on the finance industry make it a particularly vivid illustration of the forces shaping fiscal systems worldwide.

I couldn’t have said it better myself.

People want tax justice

Cayman, Economics, Jersey, Tax Havens Comments Off

Feb 282007

It’s good to see Cayman NetNews quoting me quoting them on the subject to their editorial on poverty in their island. Coupled with yesterday’s report here about poverty in Jersey these two stories provide compelling evidence that being a tax haven is not by any means good news for those local people who suffer the phenomena. The Economist only hinted at this issue in its feature on tax havens, and suggested all was well in Cayman, for example, because a lot was being spent on education for local people.

The Economist is wrong. The days of buying people off are long gone. They want justice. Let’s be more precise. They want tax justice.

Private equity – subsidised by the UK to transfer our wealth offshore

Economics, Tax Havens, Tax management 3 Responses »

Feb 272007

The Guardian ran a special feature on private equity on Saturday. It referred to the tax incentives associated with this activity, but missed the essence of this taxation issue, which appears to have been universally overlooked.

There is little problem with private equity using borrowed money to buy companies and getting tax relief on the interest paid if that interest is paid to a recipient in the UK, who is then taxed on it. Likewise, making a capital gain on turning a company round has always been a part of capitalist activity, and is acceptable if the gain is taxed in the UK, where the company giving rise to the gain is located. And having a parent company charge a UK subsidiary for the management services it supplies is fine if the resulting income is taxed in the UK.

But the private equity market seeks to break these rules. If the interest it pays goes offshore it is not taxed there. The gains it makes are often recorded as arising in places like the Channel Islands where such gains are untaxed. And the management fees that the private equity companies charge to their subsidiaries often end up in places like Guernsey, where no tax might be paid.

That means tax relief is obtained in the UK on the cash flows going offshore but no tax is paid when they get there. This means the UK government is subsidising the private equity market to transfer wealth out of the UK to the private backers of this activity. That is why they make above average rates of return on the funds they invest. It’s easy for anyone to do so when they don’t pay the tax that might be due if they declared their income in the UK, as they should since this is where it arises.

This subsidy is being used to undermine UK employment, the UK capital markets, the tax income of the UK government and the standards of corporate governance and social responsibility we expect of business in the UK.

The answer is simple. Tax relief on interest paid offshore has to end. Management fees paid offshore have to be subject to tax deduction at source when paid and asset owning companies located offshore should be assumed to be located in the UK. Then tax would be paid here. That would create a level playing field. Private equity could not compete on that basis.

Jersey – not an island in the sun – guest blog from Chris Steel of ATTAC / TJN Jersey

Jersey 3 Responses »

Feb 272007

Senator Frank Walker is continually telling us that we live in an “inclusive society” where “the people of Jersey have a high quality of life”. Let us take a closer look at what he means.

Jersey’s high value residents, the ones that seek residency in Jersey so they can avoid paying their codified tax liabilities in their country of origin, only pay on average £71,000 a year in personal income tax. This is very low considering that some of them are billionaires. Therefore, they obviously have a high quality life.

Then there are the 12,000 people employed in the finance industry, who on average earn £37,500 per year. They probably have a reasonably good life style, as only 30% of households in Jersey have a yearly income in excess of £34,000.

This leaves 70% of households that have a yearly income of less than 34,000, so do they have a high quality of life? Are they socially included? We could look at public spending on social protection and social housing as a percentage of our gross national income (GNI) to see if Jersey looks after its less well off people. For example, the Social Security Department’s budget is slightly less than 2.7% of GNI, and the Housing Department’s budget is less than 0.01% of GNI. Both of these are well below the European average, yet Senators Routier and Le Main state that their departments can manage with these dismal budgets.

Senator Le Sueur says he is looking at tax incentives to aid people to save for their future, so they do not have to be dependent on the dismal support they currently receive from Social Security and Housing. We would ask, how do you save for the future when social protection benefits and a minimum wage of £5.24 per hour will keep people in income poverty, deprive them of material goods and socially exclude them from mainstream society? A working week of 40 hours on the minimum wage without deductions only equates to £209.60, which is less than 40% of the average weekly wage in Jersey and 20% less than the internationally recognised benchmark for assessing relative poverty.

How do you save for the future when 70% of households in Jersey have an income of less than £34,000 a year? Those who have tried to save for the future, have now found that the endowment policies and pension plans they have paid into are not worth the paper they are written on.

How do you save for the future when the average price of a one bedroom flat is £169,000 and a three-bedroom house is £388,000? At least 50% of households in Jersey suffer from at least one or more of the three benchmarking measures for assessing relative poverty. These are income, material deprivation and social exclusion. Jersey only uses income to measure relative poverty at the current time. This may well be due to the fact that material deprivation and social exclusion tend to demonstrate a truer reflection of relative poverty in reality. For example, if your household income is less than £20,500 per year or your personal income is less that £16,800 per year you will suffer from relative income poverty. Measuring material deprivation is based on what you do not have, but would like to have if you could afford to. If your household does not have half or more of the below list you can be deemed to be in relative material deprivation poverty

- A computer.
- A dishwasher.
- A daily paper.
- A car.
- A washing machine.
- A mobile telephone.
- A driving licence.
- A video cassette recorder.
- A garden.
- A stereo system.

Measuring social exclusion is based on whether your household would like to take part in the below activities if you could afford to. If your household is not able to participate in half or more of the below list you are deemed to be in relative social exclusion poverty:

- Have a private pension plan.
- Have a one week holiday away from home once a year.
- Have a night out once a fortnight.
- Go to the cinema, theatre or concert once a month.
- Have access to a cottage for one week once a year.
- Have friends or family for a meal once a month.
- Have a special meal once a week.
- Have a dental examination once a year.
- Have a haircut once every three months.
- Have a driving licence.

Research conducted by many civil society organisations tends to indicate that households who have an income in excess of £20,500 per year in Jersey, and are therefore not in relative income poverty, tend to suffer from material deprivation and social exclusion poverty approaching average household income of £34,000 per year. We therefore believe that Jersey is not an Island in the sun, but an Island on the dark side of the moon for at least 50% of households in Jersey.

——————-

ATTAC / TJN Jersey can be found here.

Chris Steel is media officer of ATTAC / TJN Jersey and a native Jersey islander.

Aid – the serious misconceptions

Development, Economics, Tax management Comments Off

Feb 262007

The Observer has reported that Action Aid has commissioned ICM to undertake a poll to find out how much the UK government really spends on development. Staggeringly the finding was that:

respondents guessed that the government spent an average of 18.5 per cent of its budget on developing countries.

The actual number is 1.3%.

Two things seem to flow from this. First the government has a serious problem on its hands in communicating just what it does spend money on. This reinforces my point that governments (starting with that in the UK) have a duty to massively improve the quality of their reporting to the people to whom they are accountable – the electorate. Second, people don’t realise how little support is really given to development. It’s time they did – and the government has a role in that as well.

The Economist and offshore finance

Cayman, Economics, Jersey, Tax Havens 4 Responses »

Feb 262007

The Economist published a review of offshore finance as a supplement with last weeks edition (24 February 2007). Most is not available free on the web, but the lead article is, here. As with KPMG’s recent efforts, this is a poor piece of work. To put it another way, it’s quite clearly designed as an apology for the fact that the Economist carries advertising for the tax haven operators of the world.

Some things in the supplement are just wrong. For example, the claim that Jersey regulates its trusts (page 10 of the report) is incorrect. It’s true that the trust administrators are regulated, but that’s very different. No one has any idea how many trust there are in Jersey. That’s no indication of regulation. As another example, the ‘tutorial’ on the bases of taxation of companies is simply wrong: it takes no account of ‘controlled foreign company’ legislation for a start. The list could go on, and on. Whoever wrote this stuff clearly did not know their subject.

More important though are the unsubstantiated claims which show this whole thing to lack objectivity. Try these:

Many successful offshore jurisdictions keep on the right side of the law, and many of the world’s richest people and its biggest and most reputable companies use them quite legally to minimise their tax liability.

How does the Economist know that? The very essence of secrecy is that this is not known, and secrecy is the essence of tax havens. This claim could never be proven.

Or take this:

In Cayman all regulated or licensed professions, including lawyers, auditors, fund administrators and auditors, insurance providers and service providers for trusts are required to blow the whistle if they suspect that something untoward is going on. This is separate from the money-laundering rules.

Well, that might be the law, but surely a good journalist would ask ‘how often has it happened?’. Those from the Economist appeared to have overlooked this obvious point.

As they have overlooked the obvious corruption that these places promote. For example, they say:

Some jurisdictions still ply [a] trade [as passive depositories of the cash of large companies, rich individuals and rogues]today and should be put out of business. But the best of them for example, Jersey and Bermuda, have become sophisticated, well-run financial centres in their own right, with expertise in certain niches such as insurance or structured finance.

That’s non-sensical. Jersey promotes the facilities to undertake tax evasion through its new trust laws. That’s what these places, even the ‘best’ of them, are all about.

But the biggest unsubstantiated claim in the whole piece comes in the conclusion:

This special report will argue that although international initiatives aimed at reducing financial crime are welcome, the broader concern over OFCs is overblown. Well-run jurisdictions of all sorts, whether nominally on- or offshore, are good for the global financial system.

And yet, the whole supplement fails to prove this in any way, always finding negatives to counter-balance any claimed benefit, and finding no evidence that it can quote anywhere that tax competition is in any way beneficial to the world as a whole. Put simply, this supplement is like an article of faith, but not of reason. Richard Dawkins should give up arguing with those who believe in God and take on economists of this sort instead – they’re an easier target and he’s likely to have a lot more success in proving that their ‘science’ is in fact nothing of the sort, but is simply wishful thinking promoted in support of self-interest.

So are the super-rich really worth having?

Tax avoidance, Tax Justice Network, Tax management Comments Off

Feb 262007

The Observer ran a story under the above title yesterday. I had the following to say in it:

Even if the super-rich deserve every penny of their bonuses, and spread their wealth around by helping charities, Richard Murphy of the Tax Justice Network says the ‘rich people create jobs’ argument doesn’t stack up. Attracting wealthy individuals to pounce on swanky flats is not the same thing as encouraging corporations to set themselves up in the UK.

‘We’re not talking here about the person who lives above the shop,’ Murphy says. ‘Firms come to the UK because we provide quite a good place to do business; quite a good workforce – these people don’t decide to place their companies next to their house.’

Instead, he says the super-rich are drawn to live in the UK – regardless of where their business is located – by its unusual ‘non-domicile’ tax rules, which allow foreign-born wealthy individuals to live here, but avoid paying income tax. ‘They’re here in no small part because they’re not paying tax’.

Vince Cable, the Lib Dems’ Treasury spokesman, agrees. ‘These people are wealthy beyond imagining; they have vast property holdings, and make very little contribution to society.’

Murphy says he’s asked the Treasury for figures on how much these non-domiciled individuals contribute to the economy, in spending, or tax contributions (VAT, for example) – but so far hasn’t received any evidence.

The Observer seek to give a balanced view, but I have a suspicion they buy this argument.