2009 August » Tax Research UK

Swiss handover of US names ‚Äòa timely reminder’ to Guernsey

Aug 242009

Swiss handover of US names ‚Äòa timely reminder’ ¬ª Business ¬ª This Is Guernsey.

THE handing over of 4,450 names of wealthy Americans who have offshore accounts in Switzerland is a timely reminder for Guernsey’s finance centre, according to KMPG tax partner Tony Mancini.

‚ÄòThis is quite a significant development,’ said Mr Mancini. ‚ÄòMuch of Switzerland’s success as a finance centre has been built upon its banking secrecy laws.

‚ÄòThis deal suggests that those laws are no longer as effective as they were once perceived to be, when allegations of tax evasion are involved.

‚ÄòThis development, and the agreement between the UK and Liechtenstein, indicate how jurisdictions that have relied upon banking secrecy laws are coming under intense pressure from other governments.’

Under Guernsey law, which does not allow for banking secrecy, Mr Mancini said suspicions of such activity must be reported and it was therefore unlikely that a case would emerge in Guernsey.

What a load of rubbish.

Are all Guernsey banks now reporting all cases of refusal to disclose information under the European Union Savings Tax Directive as suspected tax evasion – which in almosty every case they are? If not then his argument is blatantly wrrong – because non-reporting is the norm.

These people do comfort themselves with complete nonsense.

The Nationwide IoM cannot be a separate entity operating solely outside the UK

Banking, Country-by-country, Ethics, IASB, Isle of Man 10 Responses »

Aug 242009

I slept on last evening’s blog on the Nationwide.

I have noted one or two commentators have suggested that the comment the Nationwide has made does not suggest they do not have the offshore records, it suggests that they do not have the offshore records onshore in the UK.

I have to say I think this is a meaningless argument. Unfortunately I cannot, as yet, back up my logic with any information from the decision of the First Tier Tribunal in the UK – as far as I can see no detail has yet been published. But I suspect that this decision will require disclosure whether or not records are maintained in the UK. This is not, however the key issue here.

The reality is the Nationwide must have access to the details required by HMRC. The Nationwide’s Isle of Man subsidiary is owned by Nationwide in the UK. That means the UK directors have access to the accounting data of this subsidiary at any and every time they want.

How do I know? There are several reasons why I know. First, as the Nationwide accounts make clear, International Financial Reporting Standards apply to them, including International Accounting Standard 27. This requires consolidated accounts. The UK directors of the Nationwide must have access to the books and records of the Isle of Man subsidiary to prepare these.

Second, take a look at what they say with regard to segment reporting in the accounts for 2009:

IFRS 8 covers segment reporting. What it basically says is that if the main board gets separate data on an activity then that fact has to be reflected in the information published in the financial statements. Here all the information is grouped: no segment data is published because the Board is saying the Isle of Man is part of the UK. The message can be put like this: the Nationwide’s board manages the Isle of Man subsidiary as an integral part of the UK activity. It does therefore have full and free access to its data. They cannot deny that: they have publicly confirmed that fact.

So let’s consider the alternative scenarios we now face. Either 1) my interpretation yesterday was right, in which case the scenario is the one I described or 2) the Nationwide has full and free access to this data but is saying it will not give it because it is hidden in a subsidiary in another state which is, none the less, managed as an integral part of the UK business.

Now which route to non-compliance do you wish to use might be the question? If we go the first route then we have all the consequences I have already explored. If the second is true then there are further options:

1) Nationwide is refusing to supply HM Revenue & Customs with information it has in its possession;

2) Nationwide is representing that this subsidiary is managed in the Isle of Man and yet in its accounts represents it is managed integrally with the UK operation;

3) Nationwide says it has just one set of books and records in its accounts – those for the UK, Isle of Man and Ireland combined – and presents data for that one single entity alone – and yet apparently those books and records are not good enough (for reasons noted in the previous blog on this issue) to ensure that its liabilities are fairly stated – so it now has a books and records problem in the UK and not just in the Isle of Man;

4) I suspect that the Isle of Man company represents that the Isle of Man subsidiary is managed in the Isle of Man alone and is not tax resident in the UK. And yet the parent treats it as an integral part of the UK operation. How can that be? Surely, it is either part of the UK operation, or is not for management purposes, but if presented as part of the UK operation for main board purposes – as IFRS 8 reporting confirms here – then surely its central management and control is here, which means the books and records are available and that it is also UK corporation tax resident. You really can’t have it both ways i.e. claim you’re not resident with central management and control elsewhere and then not how that the subsidiary in question is a separate segment. That’s just not possible, as far as I can see.

What it comes down to is this: the Nationwide has made a public declaration that the books and records of its Isle of Man subsidiary are part of its UK books and records but is then claiming not just that they are separate but that it has no access to the data.

I don’t see any way on earth that can be justified.

I sincerely hope HMRC pursue this very hard.

But it does mean that I have now find a real use (at long last) for International Financial Reporting Standards 8.

Of course they could get round this with country-by-country reporting – but they don’t use it, so can’t make that excuse.

NB added 15.30 24-8-09. I have just realised the Nationwide has not yet adopted IFRS 8. It is still uisng IAS 14 and is assessing the impact of IFRS 8. I do however think my argument stands. IAS 14 requires segment reporting on geographic lines – and the Nationwide is not offering this as it treats all units as one segment. The same conclusions flow.

Telling all to the Ministry of Justice: Jersey, Guernsey and the Isle of Man

Guernsey, Isle of Man, Jersey 3 Responses »

Aug 242009

The House of Commons Justice committee has announced an enquiry into the management of the relationship between the UK’s Ministry of Justice and the Crown Dependencies.

CALL FOR EVIDENCE

THE UNITED KINGDOM AND THE CROWN DEPENDENCIES

The Isle of Man, Jersey and Guernsey are self-governing dependencies of the UK. These ‘Crown Dependencies’ have their own directly-elected legislatures together with independent legal, administrative and fiscal systems. UK legislation only extends to them with the consent of the relevant legislatures. The Crown Dependencies are not part of the EU or EEA but they are in the Customs territory of the EU which means they can benefit from free movement provisions.

The UK Government is constitutionally responsible for the international representation of the Crown Dependencies. The Ministry of Justice is the UK Department with policy responsibility for managing the UK’s relationship with the Crown Dependencies.*

Recent events, for example, the impact of the banking crisis on the Crown Dependencies, have brought the Ministry of Justice’s role in relation to the Crown Dependencies into focus.** The Justice Committee has decided to conduct a brief inquiry into the role and performance of the Ministry of Justice in relation to the Crown Dependencies.

The inquiry will focus on:

i) How, in practice, the UK Government represents the Crown Dependencies internationally;

ii) The role of the Ministry of Justice in managing the United Kingdom’s relationship with the Crown Dependencies including inter-departmental liaison and coordination; and,

iii) What, if any, changes are required, in terms of either policy or practice in order to improve the Ministry of Justice’s management of the relationship between the United Kingdom and the Crown Dependencies?

These places usually peddle the most massive misinformation to such committees: I will be submitting evidence of what really happens within Jersey, in particular.

But the evidence of the subsidy given to the Isle of Man will also be submitted. I suspect the Committee will be wholly unaware of it, and these things need to be discussed.

Thank Heaven for little tax havens?

Secrecy jurisdictions, Tax evasion, Tax Havens 37 Responses »

Aug 242009

Thank Heaven for little tax havens?.

Good to see those wholly unconnected with Tax Justice Network find the argument that tax havens help keep tax rates down absolutely absurd.

Tax havens / secrecy jurisdictions promote criminal activity. If they did not they would not need the secrecy.

That’s about the beginning and the end of it.

If they mean, as they say, that they do not want to encourage tax evasion then remove the secrecy. If they won’t the conclusion is obvious: they’re not telling the truth.

Nationwide admits it does not have information on offshore account holders

Banking, EU STD, Isle of Man, Tax evasion 11 Responses »

Aug 232009

Note added 24.8.09: please note the Nationwide not say they do have this data – but that they did also report otherwise to the Times. See here.

The Times has reported:

Nationwide building society confirmed last week that it is responding to inquiries from HM Revenue & Customs (HMRC) just a week after the taxman secured an order compelling 308 institutions to turn over details of all offshore accountholders.

In a sign that the Revenue’s move could provoke a row, Nationwide said it may not be able to comply with the order to disclose UK customers with offshore accounts.

It said: “Nationwide has been in active discussion with HMRC on this matter. However, we do not believe our records enable us to identify those customers who live in the UK and have an offshore account. We have already informed HMRC of this, but inquiries are ongoing.”

This is an extraordinary admission. Let’s just for a moment consider what it means. The UK’s largest mutual building society, which operates internationally from the Isle of Man, where it is one of the largest deposit takers, and yet it admits that it has no idea whether it is operating accounts from that location form people who are resident in the UK, or not.

Let me not overstate the significance of this. Without in any way overstating what the Nationwide is saying this means, if correctly reported (and I stress, I am assuming that is the case):

Nationwide may have failed to operate money laundering rules

The nationwide seems to be saying it has not got basic money laundering controls in operation in its Isle of man operation.

Money laundering rules universally require that a financial institution ‚Äòknows their client’.

The Financial Action Task Force is responsible for setting standards on this. Its recommendation 5 says:

Financial institutions should undertake customer due diligence measures, including identifying and verifying the identity of their customers.

It goes on to say:

These requirements should apply to all new customers, though financial institutions should also apply this Recommendation to existing customers on the basis of materiality and risk, and should conduct due diligence on such existing relationships at appropriate times.

In other words, the account being an old one is no excuse. The Isle of Man will have its own version of this rule, but as anyone, anywhere who has tried to open a bank account knows the identification required fundamentally comprises two parts. The first is who you are (for which a passport is often required) and the second part, usually and in my opinion essentially, requires proof of where you are i.e. your address.

It seems the Nationwide has admitted to not having this data.

How do we know they require it though? Because the accounts they operate in the Isle of Man must comply with the requirements of the European Union Savings Tax Directive.

Nationwide may have failed to ensure compliance with the European Union Savings Tax Directive

The European Union Savings Tax Directive requires that a bank in the Isle of Man know where its customers are. If they do not the EUSTD cannot be properly applied. This is because if the customer is in an EU state then the Nationwide must ask the customer a) if the want tax withheld on interest payments on the account or b) if the want data on interest payments sent to their domestic tax authority. If they do not know the customer is in the UK they cannot do this. Prima facie the requirements of the EUSTD cannot be met as a result. This clearly breaches the requirement of law.

Of course the Nationwide will also be failing to ensure appropriate tax is paid in the UK as a result as a consequence. I suspect that puts it in breach of UK law too, although I’ll take a little while to think about which one, I admit.

Failure to keep proper books and records

If as the Nationwide suggests it has not got proper records of where its customers are it must be failing to apply the EUSTD properly and as a result it must be failing to keep proper books and records in its Isle of Man subsidiary because it cannot be properly recording to whom it has liability for any tax owing, if at all. In that case one has to question whether the auditors have qualified the accounts or not. I have seen no hint of this, anywhere.

Consolidated result is it true and fair?

If a material subsidiary is failing to keep proper books and records, as seems possible in this case as a consequence of serious breaches of money laundering and taxation regulation meaning it cannot know to whom it has liability then one has to ask if that is material for the group as a whole. It may not be. But how do we know? Are the UK accounts mis-stated as a result?

These are massive regulatory failures, but matters do not end there. Others are also clearly at fault if the |Nationwide’s reported admission is true:

What is the liability of the auditors?

One of the most basic responsibilities of an auditor is to ensure that their client is operating in accordance with appropriate regulation. If the client is not there is obvious significant financial risk and risk that they are not a going concern. It would be entirely appropriate to expect an auditor to have tested basic money laundering controls on an offshore bank (and they don’t come more basic than this). And yet this issue has not emerged until now, when HM Revenue & Customs have demanded the data. Why not, one wonders? My old friends PricewaterhouseCoopers audit the Nationwide.

Making a mockery of regulation in the Isle of Man

There’s more though. Earlier this year Isle of Man Treasury Minister Alan Bell said:

The Island also has a strong track record of complying with international standards of financial regulation, as assessed by the IMF and others. A series of independent, external reviews over the past decade have enhanced our reputation as a well regulated centre for international finance.

The Nationwide statement, if true, drives a coach and horses through that claim. If one of your major deposit takers admits that it has not complied with the most basic Financial Action Task Force requirements that also means by default that the Island has not honoured its obligations under the EUSTD which then means its reputation deserves to be in tatters.

The fact that the Nationwide admitted this when HM Revenue & Customs comes knocking at its door is also telling. The Isle of Man clearly either does not know about it, in which case its regulation has failed, or did know about it and did nothing, which again leaves its regulation in tatters. The fact that the Nationwide appears to have done nothing until the UK took action also gives clear indication of what it thinks of the obligation it has to comply with Manx (Isle of Man) law: it would seem to treat it with contempt.

Everything the Isle of Man has ever claimed is blown apart.

And what we are witnessing is, in effect, a UK building society – one of the most respected at that – appearing to admit that it was operating a banking system that required that there be controls in place to prevent both money laundering and tax fraud and that tt did not take the required steps to ensure that either happened – despite it knowing, beyond a shadow of a doubt, what those requirements were.

This is no trivial matter. This means it might be, like UBS, turning a blind eye, at the very least, to the opportunities it has created for fraud to take place, and at the same time by default admitting that it has not taken the necessary steps to prevent that fraud – despite the European Union Savings Tax Directive having been in operation since July 2005, which necessarily required the Nationwide in the Isle of Man to know the exact address of all its customers.

Conclusion

Two conclusions for now:

a) Let’s not pretend that UBS was alone

b) Let’s not pretend Switzerland was alone.

UBS and Switzerland are typical of banking and secrecy jurisdictions, they’re neither of them an exception. What this means, I think, is that we have to assume all banks and all secrecy jurisdictions behave in the same way in the absence of evidence to the contrary.

I’ll turn to what I think should happen to the Nationwide and more generally in another blog.

Where are they now?

Banking, Corruption, Liechtenstein, Switzerland, USA Comments Off

Aug 232009

The USA has now charged four foreign nationals, three from Switzerland and one Liechtenstein with crimes related to tax evasion in the USA

Mario Staggl, a Liechtenstein citizen and resident who owns and operates a Liechtenstein trust company, New Haven Trust Co. Ltd.. He was indicted in 2008 with Bradley Birkenfeld for conspiring to defraud the United States by assisting Igor Olenicoff, an American billionaire, evade income taxes on approximately $200 million of assets hidden in Swiss and Liechtenstein bank accounts.

Raoul Weil, a UBS AG official, was indicted November 6, 2008, on a charge of conspiring to help 20,000 wealthy Americans hide assets from the Internal Revenue Service. He was declared a fugitive by a US judge in January 2009.

Hansruedi Schumacher, a former UBS banker, and Matthias Rickenbach, a Swiss lawyer with the firm Rickenbach and Partner, were indicted August 19, 2009, for conspiring to defraud the US government "in the collection of federal income. taxes."

So, what is the US doing to bring them to justice? Not a lot it seems. None of their names appear on Interpol’s list of individuals wanted by the US.

In that case what are Switzerland and Liechtenstein doing to help?

And where are they now? Does anyone know. And does the US Department of Justice really care?

Come on guys: it’s lawyers behind bars time; please get on with it.

Oh happy day: The U.S. is going after tax cheats

Secrecy jurisdictions, Tax Havens 5 Responses »

Aug 232009

Oh happy day: The U.S. is going after tax cheats.

When I began this blog I guess it’s fair to say i didn’t expect to end up being quoted in Tampa.

But I’m delighted I am:

So, according to the OECD, there are no longer any tax havens, but the International Monetary Fund, Tax Research Org and the U.S. Stop Tax Havens Abuse Act have their own lists as does the Tax Justice Network and taxresearch.org, all of which are in dispute with the OECD claim. In 2005, estimates of offshore tax havens held $11.5 trillion in funds globally. Hit by the worldwide recession, the figure is now approximately $7 trillion socked away.

O fear the link is wrong: it should be to taxresearch.org.uk because as far as I know taxreserach.org has no comment on this.

But the point is clear – that whilst there are some in the US who are – unbelievably – mourning their tax cheats being found out – becasue like the Institute for Economics Affairs in the UK they think that tax cheats will help bring domestic tax rates through the process of tax competition – which they applaud – the vast majority think that what is happeniong is good for all of us.

As it is. Becasue cheats don’t bring down tax rates. They increase them for everybody else by free-riding the system.

The change in attitude we’re seeing is one of the best things that’s happening. I can’t be sure the tide ahs turned yet – but it feels like it has.

Hartnett, tax evasion and where the UK goes next

HMRC, Liechtenstein, OECD 4 Responses »

Aug 222009

Forbes has published a profile of Dave Hartnett, the Permanent Secretary within the UK Civil Service responsible for HM Revenue & Customs. They say:

Dave Hartnett is taking strength from a baying crowd. As governments around the world call more loudly for a clampdown on tax evasion, [he] is doing all he can to stop wealthy Brits from hiding their money in tax havens. Having shifted to "Dave" from "David" a decade ago, his informality and aggressive persona may well have aided crucial negotiations to drive through the clampdown.

Hartnett, who led the team that brokered the deal, says it took 14 months of talks, some taking place in the home of the British ambassador to Switzerland, to gain the trust of Liechtenstein’s authorities. Now he expects to rake back 1 billion pounds ($1.7 billion) in lost tax revenues over the next five years as a result of the agreement.

As they note:

Hartnett, who became a tax inspector soon after graduating from Birmingham University with a degree in Latin, is known in the financial industry for his hard-line stance on tax evasion. "We want people to pay their fair share," he says. "Rather like most other countries we’ve got hospitals and schools to build, we’ve got welfare payments to make."

And they sought third party evidence:

"He’s the hardest tax negotiator the Revenue has ever had," said Richard Murphy of British consultancy Tax Research. "Don’t argue with him."

But so what? What’s next?:

Harnett hopes the Liechtenstein deal can be copied with other countries, and says his department would be prepared to help facilitate the discussions. "The U.K. wants to make a big contribution to tax compliance generally." Hard to argue with that.

True, but I do know that there are those in his department who are not, shall we say, wholly committed to the cause. Certainly any mention of Automatic Information Exchange goes down like a lead balloon with some at HM Treasury, where he is based. And that is not helpful right now because if the Liechtenstein deal proves anything it is that Dave Hartnett believes that Tax Information Exchange Agreements cannot deliver by themselves.

We’re looking for more from the UK at the OECD Mexico meeting as a result.

If Switzerland Can … – NYTimes.com

Secrecy jurisdictions, Tax Havens, USA Comments Off

Aug 222009

Editorial – If Switzerland Can … – NYTimes.com.

Another major neswpaper indicates the shift in public mood, this time quoting my work for the Tax Justice Network:

There is a growing international backlash against tax evasion. The Tax Justice Network, a research and advocacy organization, estimates there are $11.5 trillion in global assets hidden in offshore havens. In recent months, dozens of formerly uncooperative sanctuaries from Singapore to Lichtenstein have rushed to sign on to new multinational norms on information sharing.

More needs to be done. Congress should pass the tax-evasion legislation that was wrapped into the 2010 budget proposal. It would entitle the I.R.S. to demand that foreign banks doing business here disclose information about their American account holders and withhold the appropriate taxes. If they didn’t, the I.R.S. would be entitled to automatically withhold income taxes on payments into those accounts.

More international cooperation is needed to determine standards of compliance with newly devised tax information exchange agreements and police them. And pressure should be brought on recalcitrant countries like Panama. If Switzerland can be persuaded to get out of the tax haven business anyone can.

I could improve on their list. Automatic Information Exchange is notthere, for example, but the movement is in the right direction.