2009 November » Tax Research UK

The non-dom rule

Nov 302009

I have the following article on the Guardian’s ‚ÄòComment is free’ section today under the heading “The non-dom rule is racist”:

Zac Goldsmith’s embarrassment about his non-domiciled tax status is more important than it seems. It cannot be dismissed as simply being an effective blow landed by the Lib Dems in their campaign to retain a key seat; underpinning that blow are a much wider range of issues that relate to fundamental injustice and even illegality within the UK tax system.

The concept of domicile, like so much in UK tax law, has no legal definition. Your domicile is, in effect, your natural home. It is not your place of citizenship, or your ethnicity, or even where you live: it is the place to which you owe your long-term affiliation. To put it another way, your domicile is the place you consider to be your place of national origin.

The concept as used in UK law is, at its core, racist. It was of considerable value in the colonial era. When there were no passports and a quarter of the world was pink on the map, domicile made clear who you were; part of "Blighty", or not, as the case may be.

And, in a very real sense, that remains the case – except the tables have turned. Because domicile is a concept quite separate from tax residence (itself a concept in need of radical reform), the trick now is to be tax resident in the UK, but non-domiciled. That way, you get all the advantages of living here, but don’t have to pay all your taxes for doing so. Only your UK-source income and gains, and those income and gains you bring to the UK from abroad are subject to UK tax if you’re non-domiciled.

This is, of course, only of benefit if you have non-UK-source income and gains. For the vast majority of those temporarily resident in the UK – for example, the 3.8 million current non-UK-born UK employees representing 12.9% of the UK workforce – the domicile rule will be irrelevant. Their only earnings will arise in the UK, and if they are involved in remittances, they will be sent from the UK, not to it. But for a small minority of about 100,000 people, the rule provides something quite different: a unique advantage to structure their affairs so that they can pay very little or no tax in the UK, bar an annual membership fee for joining the non-dom club of £30,000 per annum, introduced in 2008.

Whether Goldsmith is exploiting this situation is not the real question. The real questions are fourfold. First, why do we let an elite who are as resident in the UK as anyone else pay less tax than others who are also resident here? Second, why do we allow non-domiciled status to be claimed by people who are born here, have lived here much of their lives and are so integrated into UK society that they are even MPs and peers here? Surely, better policing is needed when the loss to the UK from this rule is, in my current estimate, about £3bn a year? Third, why do we allow the UK to continue to operate as a tax haven in this way, at considerable cost to our international credibility and at cost to the credibility of the anti-tax haven campaign the UK is spearheading? And finally, and most importantly, why do we tolerate a tax law that is illegal?

As I have argued for some time, the terms of the Race Relations Act 1976 and the Race Relations Act (Amendment) Regulations 2003 make clear that unlawful indirect race discrimination takes place in the UK if a public authority provides a service that affords a person of one national origin a social advantage over a person of another national origin, unless there is a legitimate and proportionate objective that justifies that different treatment. The granting of non-domicile status is the provision of a service by a UK public authority and it does confer considerable advantage on those who are granted it without there appearing to be any legitimate and proportionate reason for doing so.

Those who lose are, of course, UK-domiciled people who cannot enjoy the tax advantage that non-doms have and which society could most certainly not afford to grant to all of us. The fact that it is the majority who are being discriminated against does not stop this being an abuse of the law, as it has been since national origin become a grounds for discrimination in 2003.

As Richard Wilkinson and Kate Pickett have shown, the more unequal a society is, the less successful it is. The UK domicile is about creating inequality on the basis of national origin – itself an illegal act. What better reason to get rid of it as an economically and ethically unjustifiable anachronism from a bygone age, exploited now only by the richest in our society so that they can get richer at cost to all the rest of us?

And knowing that this is the case is, no doubt, the cause of Goldsmith’s rightful embarrassment. We should save him his blushes: let’s abolish the rule, now.

What’s the reaction? That I’ve pushed the envelope too far: that the term racist cannot be applied here.

I’d ask, why not? Is discrimination on the grounds of national origin not racist when defined as such by our Race Relations Act? If it isn’t, what else is it?

I stand by my argument: I am convinced its right. The more the libertarians who like to comment on Comment is Free think otherwise the more I am convinced of it.

The Swiss and Minarets: this is secrecy jurisdiction culture

Corruption, Secrecy jurisdictions, Switzerland, Tax Havens 14 Responses »

Nov 302009

Europe unites to deplore Swiss ban on minarets – Times Online .

The Swiss and European establishment united today in deploring yesterday’s decision by Swiss voters to outlaw the construction of minarets but conservative leaders warned that the referendum showed genuine fear over Islam on the continent.

Swiss officials, media and business leaders voiced shame over a vote that they say will stigmatise the country’s 400,000 Muslims and stain Switzerland’s name in the Muslim world. In contrast, hard right leaders in France, Austria, Italy and the Netherlands hailed what they depicted as a triumph for the people against the elite.

The hard right and a secrecy jurisdiction acting in concert: no surprise there.

Secrecy jurisdictions are captured states that are used to promote the hard right.

There will be howls of protest – but let’s be clear. Apart from this very obvious abuse of the human rights of Moslems who should be allowed to worship as they please, secrecy jurisdictions do something much more sinister: they deliberately ensure that what little wealth the poorest of the world might be entitled to in the world’s developing countries is systematically transferred to the world’s wealthiest countries for the benefit of the wealthiest in those wealthiest countries.

This is an abuse as bad as slavery.

And the right say that this is about liberty. No it isn’t: it is only about abuse. There is no other explanation.

If you want evidence that secrecy jurisdictions are used to harm the poor

Development, Secrecy jurisdictions, Tax Havens 5 Responses »

Nov 302009

If you want evidence that secrecy jurisdictions are used to harm the poor then an article in the Independent on Saturday provided it. Given its importance I have reproduced most of it, and hope they’ll forgive me:

According to the World Bank it is the second poorest country on the globe – a place where 84 per cent of the population scrapes by on less than $1.25 a day. And yet Liberia was this week told by the High Court to pay $20m it can’t afford to two shadowy offshore vulture funds which now have carte blanche to seize what meagre assets the country holds in the UK.

This case was brought by the British Virgin Islands-registered Hamsah Investments and the Cayman Islands-registered Wall Capital.

They now hold the rights to a $6m loan advanced to the country in 1978 by the US-based Chemical Bank. The money was lent at a time when rich countries and rich banks were falling over themselves to lend to developing nations, with disastrous consequences. The money was transferred before the civil wars which devastated Liberia and since then the debt has passed through a myriad of hands. No one has any clear idea of how much – if any – has been repaid, a situation not helped by the conflicts that raged between 1989 and 2003, resulting in the loss of thousands of lives and reducing real gross domestic product by 40 per cent.

Mr Justice Burton appeared to be less than delighted at the ruling the law forced him to make – which recognises an earlier US judgment – saying: "The only issue raised is plainly a sad one, that Liberia is a poor country, and cannot afford it."

In a statement issued by the Ministry of Finance, Liberia said it had effectively been left facing a "David and Goliath fight" and "does not even know who is behind the companies that are bringing the claim as they are both registered in tax havens in the Caribbean".

The fact that the international financial crisis is "imposing tremendous strains on our budget and limiting our ability effectively to reduce poverty" (a statement backed up by the most recent report on Liberia by the International Monetary Fund) appears to cut no ice with the shadowy figures behind the funds.

They were represented by the London office of the Philadelphia law firm Dechert, whose spokeswoman did not return calls yesterday.

Often, says Jonathan Stevenson from the Jubilee Debt Campaign, such funds are set up on an ad-hoc basis, buying up individual debt, pursuing the matter through courts and closing when they have extracted their pounds of flesh. However, Hamsah has popped up before.

Debts to commercial entities rather than to governments are what the vultures target – with most of the afflicted countries either already in receipt of sovereign debt relief or working through the qualification process with the International Monetary Fund. But can anything be done to curb the activities of these businesses, which are, after all, operating within the law?

Mr Stevenson says Jubilee is not opposed to trading in debt through the secondary market per se – it serves a purpose and without it people might be much less willing to offer loans to those that need them.

But he says there is a solution to the problem of the vultures and it lies with legislation to limit the amount that they can realise from launching cases through the UK courts. Jubilee suggests that capping the profits a vulture fund can make, at say 10 per cent, would do the trick. The idea would mean a vulture buying a debt for $2.5m would only be able to make $250,000 on top of that rather than the face value.

The UK Treasury is not unsympathetic to the views of the campaigners and has been looking at the issue. A spokesman says: "The Government calls on all creditors of Heavily Indebted Poor Countries to provide their share of debt relief and strongly oppose those that instead pursue full repayment through the courts.

"Going forward the Government is looking at the issues raised by our recent consultation on changing the law and, if these can be resolved, we will support legislation."

But there was nothing in the Queen’s Speech and the charities are concerned that this means the issue is not a priority. They also fear that the Conservatives may not be as amenable to taking action if they make up the next government.

There is, though, the possibility of a private member’s Bill, and with government thinking favouring action, that could be a route through which legislation to muzzle the vultures could be achieved.

Of the most recent private member’s ballot three of the MPs in the top five signed an early day motion sponsored by Labour’s Sally Keeble which called on the Government to support a new law. All Labour MPs, they were Dr Brian Iddon, who topped the ballot, followed by Albert Owen and Julie Morgan, who came in fourth and fifth. So far none has been willing to commit – it is not unusual for MPs finishing at the top of the ballot to find themselves besieged by requests. But given the problems faced by countries like Liberia, the charities say action is needed now.

Martin Hearson, policy officer at ActionAid, says: "Like the fund that successfully sued the Republic of Congo earlier this year, the two vulture funds in the Liberia case are based in Caribbean tax havens. It’s outrageous that they can profit so much from poor countries while hiding behind the veil of secrecy on these islands. Vulture funds that try to sue through the High Court in London should be forced to come clean about how they do business."

And Mr Stevenson says: "It’s outrageous that it’s still legal for these appalling companies to profiteer from countries as poor as Liberia. Vulture funds don’t have to tell us anything about themselves because they’re registered in tax havens – they can just turn up in London and sue one of the poorest countries in the world for millions. We urgently need a new law so that this is the last time a vulture fund swoops through the British courts."

Is it a chance that BVI and Cayman are being sued for this abuse? Not at all.

And all those who support the secrecy these places provide to facilitate this abuse should be ashamed of themselves. By offering your excuses you will, undoubtedly, be causing hardship beyond imagination and death as well.

Which is why I campaign for the abolition of secrecy jurisdictions – the BVI and Cayman included.

You shouldn’t be a non-dom and an MP

Conservatives, Domicile, Ethics Comments Off

Nov 302009

The Guardian reports:

Zac Goldsmith, the prominent environmental campaigner and Tory parliamentary candidate, was tonight forced to deny opposition claims that he had "dodged" paying taxes in Britain.

As it notes:

Goldsmith, who is standing in the key marginal seat of Richmond Park, west London, confirmed that he retained the non-domiciled tax status inherited from his billionaire father, Sir James Goldsmith. He said he had derived "very few" benefits from being a non-dom and had already decided to give it up.

British citizens with interests abroad can register for non-domiciled status, meaning they do not pay tax on earnings made outside the UK.

Although his father was Anglo-French, Goldsmith grew up in Britain. The bulk of his inheritance remains in a Cayman Islands-based family trust which bought his UK homes, in Richmond and Devon, where he farms organically. In his statement, Goldsmith said he paid UK income tax on UK-generated income.

After consulting his accountants, PricewaterhouseCoopers, Goldsmith, 34, said: "My annual tax returns are all signed off by the Inland Revenue and there are no outstanding matters between us ‚Ä¶ despite having been non-domiciled because of my father’s tax status, I have always chosen to be tax-resident in the UK."

There are three things to say. First, you basically can’t claim non-domiciled status unless you have tax reason to do, so he is bound to get benefit. Second, if the trust from which he benefits is discretionary (and I have little doubt it is) then his statement is true and completely misleading at the same time: he gets no benefit from his non-dom status but the fund from which he benefits is clearly abusive. And third, there is no way in which Goldsmith can be an MP and be non-domiciled. How can anyone say the UK is not his natural home, his allegiance is elsewhere, and use that to avoid tax, and then want to be an MP supposedly upholding our tax system and holding our executive to account?

One of the essential reforms that are long overdue with regard to our tax system is the abolition of the domicile rule, something for which I have long campaigned. Another long over due change is that all MPs and Lords should be deemed domiciled and fully tax resident in the UK.

I’d suggest Darling puts it in the pre-Budget report. it’s a vote winner.

New AIB boss backed secret tax haven plan

Banking, Ireland 2 Responses »

Nov 302009

New AIB boss backed secret tax haven plan – Irish, Business – Independent.ie.

Colm Doherty, the newly appointed managing director of AIB [formerly Allied Irish banks - now heavily supported by the Irish State], was one of the supporters of a controversial investment scheme to allow the bank to circumvent rules preventing AIB from buying and selling its own shares.

Mr Doherty was head of the key AIB capital markets division at the time that the investment scheme was adopted by AIB. He was one of the executives who persuaded AIB’s top brass to go ahead with the project.

The scheme, devised in 2001 by AIB’s wholly owned subsidiary Goodbody Stockbrokers, involved AIB using obscure tax havens with strong secrecy rules. The locations used in the scheme included well-known tax havens, namely the Caribbean island of Nevis and the Isle of Man.

At the time, Nevis was named by the Financial Action Task Force as one of the 10 tax havens in the world, actively promoting money laundering and was blacklisted by some regulators.

At a meeting of top executives in 2001, Mr Doherty proposed the plan. It was then referred to the full AIB board audit committee, which in turn gave it the go-ahead.

We conme back to the same isues time and time again.

Corruption, including blatant breaches of fianncial regualtion using he crecy provided by places like the Isle of Man.

And the fact that nothing appears to have been learned. Those who perpetrated the abuse are still getting away with it.

When will we clear out the Augean stables?

Cameron’s policy on growth and the deficit is fundamentally flawed

Economics Comments Off

Nov 292009

Cameron’s policy on growth and the deficit is fundamentally flawed | Business | The Observer .

I am tempted to resort to last year’s fashionable word “oxymoron” to describe Cameron’s position.

The question is: is Cameron’s position on growth and the deficit consistent, or is it fundamentally flawed?

In my view, it is the latter. Cameron is right to want to “go for growth”, but wrong to argue that this position is consistent with a bigger assault on the deficit than the present government is planning.

Almost any sane economist would agree.

But sane economists are in short supply. So a lot don’t.

Ashcroft promotion threatens to create rift with Belize

Secrecy jurisdictions Comments Off

Nov 292009

Lord Ashcroft promotion threatens to create rift with Belize | Politics | The Observer .

David Cameron was warned yesterday that Britain’s relations with a key Central American ally would be damaged if Lord Ashcroft was given a government post.

In a stinging attack, Dean Barrow, the Belizean prime minister, depicted the billionaire Tory deputy chairman as a “relentless foe” and declared that a “state of war” existed with the peer.

Barrow told the Tory leader to bear in mind that Britain had a military training base in his country when he decided whether to promote Ashcroft after the election. The peer has extensive business interests in Belize where his father served as a diplomat.

Barrow said: “It’s not for me to presume to advise Mr Cameron. All I can do is to say I would hope that a practical problem would be managed in such a way as not to damage relations between Belize and the UK. We wouldn’t want to see institutional reels of collaboration and communication damaged.”

Interesting. Barrow has courage and conviction. It’s a shame more in secrecy jurisdictions do not share those qualities.

Who’s leaving now?

Conservatives Comments Off

Nov 292009

From the Observer today:

[Ruper Everett] suddenly announces that if the Conservatives get in, he’ll definitely leave the country.

"I’m not going to stay here if David Cameron gets in."

He rants about the Conservatives for a few minutes, and then, I say, but why do you dislike them so much?

"Because they’re posh."

But you’re posh, I tell him.

"I know, but I wouldn’t put myself up for parliament. I don’t believe them. And I don’t want the country run from yachts."

Do you feel that having come from that same milieu, that you have an understanding of them?

"Yes. And they’ve got no perspective on reality. If you’re in a country that’s 95% Hooray then maybe they have a perspective on reality, but actually we’re in a country that’s 90% not Hooray‚Ä¶ and I don’t want the country to be run through a boat moored off the coast of Corfu, where a foreign newspaper billionaire is pulling all our strings."

I actually don’t really believe Everett any more than others who say they’ll leave.

Interesting though to note that this side of the threatened exodus is not being noted. Could that be due to the bias in the press he notes?

The dangers of a libertarian view

Economics, Ethics 1 Response »

Nov 292009

From Will Hutton today:

At the launch of his new think-tank ResPublica, "red Tory" Phillip Blond, basking in David Cameron’s approval, said that one of the three cornerstones of a new conservatism was the moralised market. He fiercely criticised the tendency to size and monopoly in unregulated free markets in which the only criteria was narrow static economic efficiency. There needed to be more diversity and genuine competition. Small was beautiful. A libertarian view of the world, he said, had allowed too many mergers to go through.

Some right wingers get it: libertarianism as most on the right and in economics promote it is harmful to well-being.