As some will be aware, there has been considerable correspondence on this site recently from those from tax havens who have tried to justify the actions of these places. One of these series of correspondence (for they are lengthy) came to this conclusion:
Richard - I feel bound to rise to the challenge you set.
There is a very good reason why offshore centres do not want to disclose - if you are avoiding tax (note- avoiding, not evading) then disclosure may prompt the relevant Revenue Authorities to investigate and find out how you are doing it. Once they know how you are doing it, they can legislate to stop you. i.e. what they don't know can't hurt you, what they do know just might!
Yes, non-disclosure can assist evaders as well and the IoM (I don't actually know about others) makes it an offence to assist anyone in the evasion of their proper liabilities. I think most of us "offshore operators" take the view that if you can't do it legitimately you don't do it at all. Apart from anything else, the penalties of being caught at it far outweigh any gain you might make i.e. evasion is bad business.
Unfortunately the commentator clearly shows how little he knows about UK tax law. As HMRC's site says:
On 1 August 2004 statutory provisions came into effect requiring arrangements that enable a person to obtain a tax advantage ('schemes') to be disclosed to HM Revenue & Customs (HMRC).
[For most taxes] The obligation to disclose rests principally with promoters of schemes. However, the obligation moves to the scheme user when they devise their own scheme; the person promoting the scheme is based outside the UK; or the promoter is unable to provide relevant information about the scheme to HMRC because they are bound by legal privilege.
Let's be clear about what this person is saying. In their opinion nondisclosure of tax avoidance is not tax evasion. Actually, what is now very clear under UK law is that nondisclosure of tax avoidance is very definitely tax evasion, because there is a law requiring disclosure of tax avoidance schemes. That law applies to schemes created outside the United Kingdom, where the obligation to make disclosure is simply passed to the person using the arrangements. So in this case, the failure of the Isle of Man adviser to tell a UK based client that they must disclose the scheme that has been created to the UK tax authorities immediately puts that client in the position of having evaded a UK taxation obligation, and exposes them to penalty.
And that is, of course, assuming that the nondisclosure only hid an avoidance arrangement. Who knows? Nondisclosure can, of course, just as easily hide tax evasion. If you have to rely upon nondisclosure of tax avoidance to make the scheme work the assumption should always be that it is tax evasion, and any wise client and adviser should know that.
So let me be blunt: if this is the basis of tax planning in the Isle of Man, it is promoting tax evasion to its very core, and tax advisers there are so ill informed they either do not know it, or consciously participating it without making their clients aware of it. It's not an attractive scenario.
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“However, the obligation moves to the scheme user when …the person promoting the scheme is based outside the UK.”
The IOM is outside the UK, hence it is up to the UK tax payer to disclose the scheme and thus you have proved the IOM is promoting tax avoidance not tax evaision. There is nothing wrong with the IOM assisting in tax planning.
Does the UK ensure that UK resident non Doms are paying tax on their worldwide income not remitted to the UK to other countires where it is due? or do they leave it to the tax payer?
So the IOM is just following the UK’s lead.
Creg
As usual, you either miss the point or choose to miss the point.
The comparison with the UK non-dom situation is completely irrelevant. I oppose our non-Dom Law – indeed I think I can claim some credit for the campaign that gave rise to the change this year – albeit that I wanted complete abolition of that law – but the point about the non-dom law is that the UK does not know anything about the income of those people who are non-domiciled here. It has no rights to enquire about it. There is therefore absolutely no comparison with the situation you’re talking about from a government perspective.
A UK tax adviser to a non-dom can at best ask them to do so, and should decline to act if they do not.
The point I am making is that in the comment I have been offered there was a clearly negligent act ( in my opinion) which is absolutely and fundamentally typical of what does happen amongst professional advisers in places like the Isle of Man. Compliance soared with the Isle of Man regulation. Absolutely no indication is being given that the person who complies with IoM regulation is not being compliant with UK regulation. in fact the tone is quite clear: the advice being given in the IoM is dependent upon non-compliance with UK regulation and therefore tax evasion is a fundamental component in the service provided.
The adviser should not do that. But this is a criticism of the adviser. It has nothing to do with the government.
The Isle of Man government creates secrecy that allows evasion to occur – and I allege that it does so deliberately and knowingly – but it is the advisers who comply with local regulation whilst turning a blind eye to the consequences of the structures that they create in other countries who actually facilitate activation by failing to offer advice or asking questions about what happens in other locations, about which they should have concern in their capacities, for example, as trustees and nominee directors.
So I argue that my position stands and there is absolutely no parallel with the UK in the way you allege
And yet curiously you add to the body of evidence that is growing around the world that compliance in the tax haven means local compliance alone and yet you know that the only purpose of the structures that you create is to undermine the regulation of other places, to which you are oblivious
That is where evasion occurs and I suggest you know it
Richard
I would say that most advisor will tell their clients that they should tell the UK taxman about any strategy to be compliant and most reputable firm wills get a copy of the cilents UK tax advise on file for record.
I haven’t worked in the IOM for a good 10 years, so may be things have changed. But where I work in Cayman, this how we do things.
But that is all they should do, it is not for them to ensure that they have declared all worldwide income to the UK gov, especially any investments not with the firm. There is no way an IOM advisor will know any holdings your client may have stashed in Panama, just like you in the UK will not know.
Or let me put it this way, when was the last time you informed the Manx government to check if a client had paid his proper tax in the IOM?
Richard, once again you are selective in your argument.
I realise it doesn’t suit your purpose, but you didn’t mention the Hallmarks regime. As it says on the very HMRC page you cited”..the intention of the hallmarks being to limit disclosure to only those schemes that are new, innovative, or of specific concern.”
So, there is not actually a requirement to report every piece of legitimate planning, only those that fall within certain criteria.
Sue
Sue
But the point remains: the assumption is that disclosure will be made.
The assumption of the adviser I referred to was that non-disclosure was appropriate, and a reason for using the IoM
My point is entirely valid and appropriate
You are simply seeking to justify non-disclosure of material facts. That is evasion.
Richard
Richard
I’m sorry but I think you are wrong.
Yes, reportable schemes (as defined by HMRC) do need to be reported and failure to do so is an offence. Whether or not the reporting obligation obligation rests with the UK client, with the UK advisor or with the offshore fiduciary is a moral point and a responsible offshore fiduciary will take steps to ensure that a reportable scheme is reported. I’m not sure though that failure to report a reportable scheme automatically constitutes tax evasion as you suggest. Just because the scheme isn’t reported as a scheme does not mean that the offshore fiduciary and the client are not reporting everything regarding the offshore structure or paying the resulting tax. What it means is that they may not be reporting the finer detail of how the scheme actually works but if all resulting tax is being paid how can tax have been evaded ? The only thing which has been evaded in that scenario is the disclosure of intellectual property relating to how the planning works.
Also, not all offshore tax planning constitutes a “scheme” as defined by HMRC. There are many, many structures available which result in legitimate tax planning without any of the hallmarks of a scheme existing. Even HMRC accept that. They have not even attempted to close many of the tax planning opportunities that they know all about.
I don’t think that the comments re the Isle of Man are therefore justified by you although I do agree with you that the offshore provider should never simply accept that its solely the uk client’s duty to report use of an offshore scheme with no responsibility at all on the offshore provider. The onus on the offshore provider must be greater than that if it is acting responsibly.
Richard, you really are blinkered in your views and you fail to grasp the legislation as it is put. Instead you put your opinion on the matter which rarely reflects the wording of the tax laws.
It is fact that not all schemes are reportable. If tax planning is done correctly, within the existing laws, it may not necessarily be reportable.
My company in particular does not market schemes, tax planning should be bespoke to suit an individual client.
In the comment from the commentator you have quoted, he has specifiaclly argued against the promotion of tax evasion, what is your problem with legitimate tax planning. As an accountant, it is an absolute duty of yours to seek to act in the best interests of your client, not the revenue. If you can’t grasp this, you joined the wrong profession.
Richard – here you’ve gone again, making sweeping generalisations. It does not do you any credit. I would like to add to the prescient comments already made by Creg, SQ and David. I suggest you ponder them all:
1. The Scheme Reporting requirements of HMRC are very well known to me, thank you. However, they only apply in the case of persons resident for tax purposes in the United Kingdom. It must have escaped your notice that these days the bulk of the business conducted on the Isle of Man (and the Channel Islands, no doubt) is not UK-related and emanates from jurisdictions which do not have such requirements;
2. It is perfectly possible for persons resident in the UK for tax purposes to enter into arrangements with entities or persons in offshore centres which confer significant advantages on them. Such advantages do not necessarily include a tax advantage and so the arrangements do not necessarily need reporting i.e. there is much use for offshore centres quite apart from tax avoidance;
3. Offshore Centres can be very useful for avoiding double taxation where suitable Treaties do not exist i.e. if a non-UK resident sets up a UK business via a limited company the profits of the venture are subject to Corporation Tax. Any dividend then paid may then be taxed in the person’s home jurisdiction without any offset in respect of the CT paid in the UK. Arrangements may then be devised so that either the UK CT is paid and there is no liability “back home” or no CT is paid but tax is paid to the person’s home tax authority.
You really must get away from the tunnel vision by ehich you view everything done in an offshore centre as evasion and reprehensible.
Well said Clarke. Richard needs to distinguish between the facts and his inaccurate assumption of the type of business that the offshore islands carry out these days.
Having said that, and to be fair to Richard, it would not be wrong to say that Richard’s views may well not have been so wide of the mark 10 to 15 years ago. What really frustrates me is his and John Christensen’s inability or perhaps sheer unwillingness to accept that the islands’ finance industries have adapted well to external pressures since then and changed the industry dramatically. I really see no correlation at all today with the CI trust industry of 20 years ago, much of which was then more like Richard’s current views. Maybe he has simply lost touch with the facts and can only see what he wants to see to suit his objectives.
Richard I am not saying that every single facet of the finance industries of the three islands is 100% as it should be. That would be na?Øve on my part. However I would say that it is 95% of the way there and the sooner that we achieve the other 5%, the better. That is precisely why we all get so upset when people like you focus on the 5% which we still need to work at, instead of recognising just how far we have come re the other 95%. Your views would gain far more credibility if you gave us some credit for that.
Personally I would advocate getting rid of the entire retail deposit-taking banking sector. I’m sure that it contributes to most of the problem 5%. The financial benefits to the islands from the pure banking sector are minimal, yet as we have seen from the fallout from the Icelandic bank collapses the risk exposure to the islands from this sector is disproportionately huge. Your well-documented views on the stance of the major banks in relation to deposits held by UK residents who opt for withholding tax ahead of information exchange is I believe inextricably linked to this “problem 5%” but I guarantee you that you would be totally surprised by what you found re the core 95% if only you would take off your blinkers.
By all means keep attacking the 5% problem area because all of islands’ reputations will benefit from getting rid of it. The other sectors are more than capable of standing up to even the toughest of external scrutiny but the one weak link in the chain could prove disproportionately problematic for us if we don’t sort it.
Richard it would be nice if you would respond to these latest postings.
David (and Creg)
Sorry not to respond as fast as you would like – I have a day job to do as well as this.
Creg, as usual, splits hairs. I accept that not all planning done offshore needs to be explicitly reported to the UK tax authorities under the disclosure scheme. This does not invalidate the point that I made that his indifference to that need did, in my opinion, amount to endorsement of evasion of the requirements of taxation legislation, if not of tax itself. And many in the UK would completely agree with me that any form of so called tax avoidance that is dependent upon non-disclosure of material facts for its success, which he claimed to be a justification for using offshore arrangements, is likely to be tax evasion.
It does, incidentally, make no difference to me whether the person using the tax haven is resident in the UK or not in this regard. Non-disclosure to avoid tax in any jurisdiction is equally unacceptable to me, and to its tax authorities. And you may note the opinion of the New York Bar Association that the Tax Justice Network has published on this yesterday.
But let me also be clear that I am 100% aware that personal, and even small business taxation (and its evasion) is now a relatively small part of the activity of many tax havens. That, as David says, was not the case a decade or so ago. But let me be clear: I think it is the growth in the other business, and not the relative decline in personal business or tax evasion in that sector that does, I suggest to David, explain the fall in the unacceptable part of that activity to just 5% of the total business. The volume is likely now to be the same as it always was, it’s just less significant as a part of the whole, I suspect.
And 5%, by the way, is an implausibly low number: I doubt any economy anywhere includes such a low proportion of tax evasion so why offshore should be inherently better than locations such as the UK and USA is a logic that baffles me, and I’ll therefore leave it aside for now. It is, though, offshore business of HNWIs that forms the basis of my estimate of $255 billion tax cost to the governments of the world, and that’s amply big enough whatever proportion it is of total offshore activity to justify action to stop that abuse.
But let me also be clear, other activities are, we know, in many locations more significant by volume. So, corporate transfer abuse through re-pricing (almost entirely through tax havens) is the basis of Ray Baker’s estimates of tax lost to the developing countries of the world – a flow of some $900 billion or so a year, which more than justifies Christian Aid’s calculation of actual tax lost for this reason by developing countries alone of some $160 billions year. You facilitate that. I know that’s another part of what you do.
Of course, you think it’s all open an above board. But the tax directors of some of the companies (banks included) who discuss such activities with me assure me they think that it is far from otherwise (and some actively want to stop their companeis doing it) – and in their discussions of places that they think facilitate this abuse they name locations such as Cayman, Jersey, the Isle of Man, Luxembourg and Jersey (plus of course, the Netherlands – an essential component in many such schemes). Having counsel’s opinion does to make these things legal: it just mitigates the penalties, another abuse that should ended, worldwide, partly by putting the counsel in question out of business.
Next of course there is the intellectual property game that you all now play, designed solely to reduce the tax bill of MNEs and so transfer wealth from countries that need revenue to support the poorer members of their communities to the wealthiest members of those same communities. I really don’t like the presence of such grotesque tax subsidies for a minority at the exdpense of the majority that distort the fair operation of the market system. Why are you so keen on them?
And then there’s private equity: the gains offshore, the debt on shore to ensure no tax is paid in the location where the real profits (when they were to be had) were located. Another blatant plan to ensure the redistribution of wealth to the richest in our communities (and yes, they own the pension funds, so don’t play that card). And what a blessing to the community the whole idea has been, hasn’t it? Watch them tumble over the next year or so.
And then we come to hedge funds. Need I say more? As an acquaintance of mine says of his advice to some of these, it’s a matter of advice to Mayfair, bill to Cayman. So that’s VAT abuse for a start, tax abuse and regulation abuse next, and let’s carry on from there.
Oh, and you still don’t justify why you won’t automatically information exchange as the EU STD makes clear is required to beat tax evasion.
It’s really not an attractive list of abuse to society at large, is it? I’m still struggling to find the redeeming feature, and I don’t call getting credit for UK corporation tax paid a redeeming feature by the way.
Anything left to say?
Richard
Richard
Yes I have plenty to say in response to your many inaccuracies. It does rather suggest that your actual current knowledge of what goes on in Jersey, Guernsey and the Isle of Man is completely out of date. I suggest that you update your knowledge before making an even bigger fool of yourself.
The extent to which Jersey, Guernsey and the Isle of Man are involved in “re-pricing” of corporate activity is negligible. There are hardly any reinvoicing or trading companies administered in the islands these days. Why ? Because they don’t work once scrutinised, and because the regulators strongly discourage us all from operating trading companies. That business left the islands in droves around a decade ago. Today its about private wealth planning and succession planning. Its dealing with wealth which was already taxed when it was first earned, usually by the corporate businesses owned by the private client.
The intellectual property business in the three islands is not resulting in lots of illegally evaded tax. If IP is owned offshore then its usually transferred at arms-length prices and the transfer is taxed accordingly. The resulting royalty income is properly taxed. That’s legitimate tax planning. I don’t care whether you think that’s morally right or not as that’s merely your opinion, but you try to dress it up as illegal tax evasion when it certainly isn’t. Please don’t substitute fact for your wishful thinking.
Again, whether you like private equity or not is not the issue. The tax arrangements are well-known to HMRC and taxed accordingly. Its not tax evasion, its tax avoidance. There is absolutely nothing unlawful about it. If HMRC didn’t like it then they would legislate to stop it. They haven’t.
I’ve never understood how the hedge funds get away with that billing arrangement but again the fact is that HMRC do largely accept it (to a degree). Again, not illegal.
The EUSTD does not and never has demanded automatic exchange of information. The offshore islands have given the EU what the EU demanded. Nowhere else has agreed to automatic exchange of information so why on earth would anybody volunteer it ? That’s not tax evasion either.
I’m afraid that you are allowing your beliefs about the morals of tax avoidance to completely blind you to the facts. You cannot deem something to be illegal just because you don’t agree with it. The courts of the land decide whether something is illegal or not. Tax mitigation has never been outlawed by the UK courts. Artificial schemes quite correctly have been outlawed. Even the government itself is not seeking to attack legitimate tax avoidance which does not rely on non-disclosure to the tax authorities.
Having a debate with somebody about the interpretation of the law is one thing. Having a debate with somebody who disagrees about the morality of the laws and interprets them in some other way purely so suit their personal political agenda is something else altogether. I prefer to deal with fact rather than fiction.
David
I’m not for a minute blind to the facts.
The only fact that you have available to you is this: you minimally comply with regulation which we now know to be wholly inadequate.
The facts I have available to me are substantial, and well documented on this site. Tax evasion occurs in tax havens, and significant numbers of people participate in the process, not least in the places where you are located. Transfer pricing abuse does take place in tax havens, but I agree probably not in the Crown dependencies ( but then I never actually said it was in the location you represent). The undermining of the global financial system was massively facilitated by tax havens. these are indisputable facts. You make assertions because secrecy denies you the opportunity to prove almost anything.
So, moving on from this position I have a choice. I can say that the law is entirely exogenous, and I have no influence upon it, and I can accept that the abuse that you cause through your minimal compliance is something I must live with. Alternatively I can presume I have the opportunity to influence the nature and scope of that law, and seek to change it to eliminate the abusive practices legally undertaken from within tax havens. which is exactly what I am doing.
So, please take comfort that that now you are safe and quite probably beyond prosecution. I would, however, remind you that compliance with the law was the defence of Nazis. The person who confuses legal compliance with acceptability is, to put it nicely, an ass.
There was nothing inaccurate in what I wrote. Indeed, you imply that I understand exactly what goes on in tax havens. What you do say is that we approach the issue of its acceptability from an entirely different dimension. That does not mean that I am wrong, or foolish. What it does mean is that we have an entirely different moral perspective on life, or perhaps more that one of us has a moral perspective and the other does not.
The point is very simple one: I am seeking to make what you do illegal. That is a fact. It may be the only one upon which we can agree, but I assure you that I am those who work with me are quite convinced that we will win. You will differ. Time will tell.
Richard
David
For the record: nondisclosure of material facts remains tax evasiin in my opinion
Richard
Richard what really grates with me is your unjustified arrogance. It is utter bollox for you to say that I “cause abuse through my minimal compliance.” You simply have no idea. You cannot accept that there are offshore practitioners who are 100 per cent compliant and take our responsibilities very seriously. Maybe if you accepted that then you would realise why I get so enraged at your comments. There are many of us out there who condemn tax evasion and have no problem at all with that aspect of your stance. I can accept that we disagree on the morality of tax avoidance but I cannot accept it when you accuse those engaged in lawful tax avoidance of something illegal. You do not write the laws of the country and until the laws change its unequivocal fact that you are wrong and that completely undermines your credibility.
I genuinely wish you luck in helping to stamp out tax evasion as there is no place for it. But don’t pretend that “murphy’s law” overrides the real law as that really does you no favours whatsoever.
David
I accept you’re 100% compliant.
But so are successful tax avoiders
You’re not enraged for that reason. You’re enraged because I am saying you’re complying with the wrong rules, they need to change and that will mean that what is now compliant will become illegal.
I think illegality in the use of structures created in tax havens is rife. I’m well aware practitioners who create them make sure they cannot be caught as a result. I intend they should be caught
No I do not write the law. But I can absolutely legitimately seek to have the law altered. Deny me that right, as you seem to seek and you deny the essence of democracy. And a campaign to change the law is always moral. It does not undermine my credibility to say what you are doing is positively harmful even if legal in the place where you do it: people all over the world (from the most owerful man in the world come 21 January onwards) agree with me. You don’t. That’s the be all and end all of it.
You have to face the fact that Schopenhauer was bang on the money when he said that truth goes through three stages. In the first stage, it is ridiculed. In the second stage, it is violently opposed. And in the third stage, which of course is where we are now, it is accepted as self-evident.
You have sought to ridicule me, saying I do not know what I am writing about. You admit you are enraged. Just give it time……..
Richard
But Richard whilst I may be playing to the “wrong” rules, they are the rules that exist.
It does not “undermine your credibility for you to say what your are doing is positively harmful even if legal in the place where you do it” but it certainly does undermine your credibility for you to deem legal acts to be illegal when they are not. You are saying that non-criminals are criminals when they are not, merely because you think that what they are doing should be illegal. If you went to your local pub and continuously called law-abiding citizens criminals then I think you’d be thumped very quickly and very frequently. Can you not spot the difference ?
David – there really is no point in allowing Richard to wind you up. Given that he is, basically, a Marxist you (and I) and he are never going to see eye to eye. Marxists are well known for being possessed of fanatical devotion so their (so-called) ideals and with that goes an inability (or is it a conscious determination) not to see common sense. We just have to put our logical point of view across, not for Richard’s benefit, but so that the impartial observer can see where the sense lies.
Clarke I think that’s very sound advice. I think “conscious determination” is probably the likelier of the two.
Long live legitimate tax avoidance planning, carried out by responsible professionals who know, accept and fully respect the difference between tax avoidance and tax evasion !
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David
You miss the point: I am saying you play by your rules but are utterly indifferent to the fact that they are designed deliberately to undermine the rules used elsewhere
That is the tax evasion you are indifferent to
That is why external forces will seek to close you down, and rightly so
Richard