Sanctions on secrecy jurisdictions

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I mentioned yesterday that sanctions were an obvious part of any process that the G20 might put in place to tackle tax havens / secrecy jurisdictions.

I think that there are two forms of sanction available. One is the head on attack. The USA is looking at these in the Stop Tax Haven Abuse Act. Germany is also looking at arrangements like this in draft legislation published in January.

The second group might be described as ‚Äòwork-round’ sanctions: measures that will neuter the impact of tax havens with out directly confronting them.

Given the ingenuity of tax havens when faced with regulation any sanctions must be broadly based, comprehensive, and in my opinion, of both types. That gives maximum chance of impact.

Dealing with the first group, I think there are at least six worthy of consideration:

1) Applying withholding taxes on payments to tax havens. The range of payments to which withholding taxes might apply would include interest, royalties, licence fees, dividends and management charges at a minimum. There could also be withholdings from the remittances of the capital proceeds from sale of assets such as shares, other securities, land and buildings, auction sales and other such arrangements;

2) At the same time as withholding taxes are imposed on the payments noted in the previous paragraph tax relief should be denied on such payments if they are included in the profit and loss account of a trading organisation;

3) It should be presumed that any tax haven entity to which a payment of the time noted above is made (unless to a regulated bank or investment fund) is under the control of the person making that payment, with that person then being liable to pay tax in their country of residence upon the entire actual or estimated income of the recipient entity unless they can prove the presumption wrong;

4) It should be presumed that any tax haven entity to which a payment of the time noted in paragraph 1 is made has established a branch in the country from which the payment is made for the purposes of managing the receipt in question and as such it should be liable to tax on the amount paid in the country from which payment was made;

5) It should be presumed that any tax haven entity settled, managed or controlled by a person resident in another state is resident in that place where the person establishing, settling or controlling it is tax resident and as such it should be required to file tax returns and accounts in accordance with the laws of that state;

6) No claim for payment registered by a an entity established in a black listed jurisdiction in the court of another jurisdiction should be considered unless that entity shall have first put on public record in the country in which claim is being made its constitution, details of beneficial ownership, names and addresses of its management including all shadow directors and enforcers of any trusts, and its financial statements for the last three years or since incorporation.

Harsh? Maybe. But appropriate, beyond doubt. They will provoke a response, which is exactly what is required.

And if the list of secrecy jurisdictions I suggest is covered is accepted (and something like it is inevitable, surely?) then there’s going to be a lot of change going on.

We are addressing those supporting illegality through the creation of a deliberate veil of secrecy.