2010 January » Tax Research UK

Why won’t HM Revenue & Customs admit the scale of tax evasion?

Jan 172010

Barristers and vets are expected to be the next professionals to come in for scrutiny after HM Revenue & Customs targeted doctors last week.

GPs and consultants, as well as dentists, who have failed to declare additional sources of income are being given the opportunity to come forward in return for a 90% discount on the usual penalties, under the Revenue’s latest “amnesty”, launched on Monday.

According to HMRC the total direct tax gap in the UK is just £25 billion a year. Of this tax evasion is not specified but at maximum it is claimed – assuming all inaccurate self assessment tax returns are evasion and not errors – to not exceed £14.4 billion.

That’s a big number – but is just 5.3% at most of all direct tax to be collected this year.

And that’s utterly implausible. As HMRC admit (page 11) the average VAT gap over the last 7 years as been 13.7% of the gross sum that should have been collected.

VAT is charged on sales. If 13.7% of sales do not have VAT on them that’s the top line that’s not being declared. And it’s very unlikely in that case that anything below the top line will be declared for tax if the tip line is not i.e. the direct tax loss on PAYE on wages self employed profits and corporation tax on profits is also likely to have a tax gap of at least 13.7% of the gross sum due. Actually, it’s likely to be higher still since small business is not liable to VAT – a fact allowed for in the VAT calculation and therefore the rate of loss amongst small unregistered businesses is likely to be even higher still.

So the overall direct tax loss is likely to be at least 13.7% of gross expected revenue – or about £42 billion. The loss on indirect tax would come in at more than £25 billion. Allow for some loss in ‚Äòother revenues’ as well and the tax loss to evasion is in my estimate not less than £70 billion a year.

No wonder tackling the endemic crisis of tax evasion – even amongst the leading professions – is so important.

But in that case why won’t HM Revenue & Customs admit the scale of the problem they’re tackling?

Spain scrambling to forge accord on savings tax

EU STD, Luxembourg, Tax evasion 16 Responses »

Jan 162010

15/01/2010 Spain scrambling to forge accord on savings tax.

Europolitics reports:

Spanish Finance Minister Elena Salgado is having a series of meetings with her EU counterparts to try to hammer out an accord on a revision of the Savings Tax Directive ahead of a Council meeting, on 19 January. EU finance ministers will convene in Brussels to make up ground lost in December 2009, when Austria and Luxembourg put their foot down over the automatic sharing of savers’ bank account information.

Changes to Directive 2003/48/EC were proposed in November 2008 to close loopholes for interest paid via tax-exempt trusts and charities, as well as to include interest payments on life insurance and other complex financial products. The revision is being negotiated alongside anti-fraud agreements with Switzerland, Liechtenstein, Andorra, San Marino and Monaco, as well as two directives on administrative cooperation (COM(2009)29) and tax recovery (COM(2009)28).

Moves to combat tax evasion have intensified since last April’s G20 meeting in London, when the Organisation for Economic Cooperation and Development (OECD) published a black list of tax havens, naming and shaming the five non-EU tax centres – alongside Austria, Luxembourg and Belgium – for not following through on promises to sign tax information exchange agreements with at least 12 other countries (the internationally agreed standard).

Austria and Luxembourg – as well as Belgium – have a temporary opt-out under EU savings tax rules, which came into force in 2005, allowing them to continue applying a withholding tax to non-residents’ interest payments, rather than swapping bank account data with other countries. But if Liechtenstein and the other four non-EU states agree to exchange information on request – which is part and parcel of the new anti-fraud agreements – it will trigger the end of the EU’s transitional period. It means Austria, Belgium and Luxembourg will have to switch to automatic data sharing with other EU member states, while Switzerland and the rest of the non-EU jurisdictions will not. Luxembourg is furiously opposed to mandatory data-sharing if foreign tax shelters are not subject to similar rules, while France is pushing to tighten up standards across the board.

Luxembourg’s behaviour annoys me intensely. There is only one reason for the European Union Savings Tax Directive: it is designed to stop tax evasion.

In that case it seems to me that Luxembourg is supporting tax evasion.

And that makes me very angry.

Tax Justice Focus – the Justice issue

Uncategorized Comments Off

Jan 152010

The new edition of the Tax Justice Network’s publication ‚ÄòTax Justice Focus’ is out.

The them of the issue is justice. as guest editor Paul Sagar says in his editorial:

Welcome to a special edition on the theme of tax justice and political philosophy. In a world ruled by ideas, the apparently disconnected enquiries of philosophers eventually shape world-views, orientate debates, influence elections and direct policies. But there is more value to philosophy than its long-run impact on practical politics. For it is through philosophy that we explore our beliefs and discover where our values lie. This, after all, is particularly important for the Tax Justice Network and everyone who demands tax fairness – two terms loaded with centuries of philosophical baggage.

Fittingly, this edition introduces a spectrum of very different philosophical approaches, from the left to the far right.

Martin O’Neill draws on the work of Thomas Nagel and Liam Murphy to show how modern liberal egalitarian insights can make a compelling case for tax justice. From this perspective, tax avoidance is anti-democratic and oversteps the legitimate freedoms offered in a democratic society.

John Pugh MP offers insights from a faith perspective, arguing that those who seek to live within this tradition should follow a sincere and continuous self-evaluation of their mortal journeys – and a greedy free-rider is not a figure Christian ethics support.

In the spirit of debate we also publish a contribution from the libertarian right. Daniel Mitchell and Hiwa Alaghebandian of the Cato Institute present what they call the moral and philosophical case for tax havens.

Drawing on the Marxian tradition, Martin McIvor shows that Marx’s legacy takes the form of a powerful analytic tool for the critical assessment of the tensions of capitalist societies. On this basis, he argues, abusive tax practices are a symptom of an unjust, unaccountable and fundamentally unbalanced economy.

Richard Murphy looks back at the Noughties and, suppressing his anger about the prevailing spirit of unjustness, concludes that this was a decade of progress, not least because of the success of the Tax Justice Network.

All this, plus book reviews from Sheila Killian and Thomas Rixen, should provide ample food for thought at the start of 2010.

Download Tax Justice Focus Volume 5, Number 2 here.

Offshore banking is unsustainable

Banking Comments Off

Jan 152010

FT.com / Columnists / Martin Wolf – How the Icelandic saga should end.

Martin Wolf says:

The combination of cross-border banking with generous guarantees to creditors is unsustainable. Taxpayers cannot be expected to write open-ended insurance on the foreign activities of their banks. It is bad enough to have to do so at home.

He’s right. He used Iceland to draw the conclusion, and it is a correct one.

And it puts a nail in the coffin of offshore banking.

And rightly so.

Tories to cut aid to pay for defence in new colonial policy

Conservatives, Development Comments Off

Jan 152010

FT.com / UK / Politics & policy – Tories plan defence budget overhaul.

The Tories are announcing a defence policy today. As the FT notes:

One of the most controversial elements is likely to be the proposals to divert aid spending to support a new “stabilisation and reconstruction force”, which will be overseen by the national security council.

The new force will include soldiers, diplomats and aid workers in a joint working structure reminiscent of Britain’s former Colonial Office.

So now we know how the Tories will meet their obligation to aid: they’ll relabel defence as aid and ensure it’s aim is to promote British mercenaries.

It would be impossible to make up if they weren’t planning it.

It’s sick that this is their idea of development.

Puzzled by economics?

Conservatives 10 Responses »

Jan 152010

Hat tip to Adam Lent.

Swiss private banks want to renege on information exchange

Switzerland, Tax evasion, TIEA 24 Responses »

Jan 152010

Swiss private banks want clearer legislation over bank secrecy. - swissinfo.

Switzerland has got itself off the so called OECD grey list of tax haven states by committing to more than 12 new or revised Tax Information Exchange Agreements and Double Tax Agreements including the latest for of the OECD standard information exchange clause which gets round bank secrecy.

And now the backlash has begun amongst Swiss private bankers. it’s reported that:

The Swiss Private Bankers Association (SPBA) on Thursday asked the government to look more carefully at the details of renegotiated double taxation agreements. Parliament was also urged to draw up a legal framework to allow concessions without breaking banking secrecy laws.

Speaking at the SPBA annual media presentation in Bern on Thursday, Anne-Marie de Weck, president of the Geneva Private Bankers Association, said it was time to defuse the legal minefield before more controversies erupted.

“We strongly believe parliament should adopt a strong legal framework to clarify the application of these [measures to align Switzerland with international tax demands] and clear up the uncertainty,” she told swissinfo.ch.

Such measures include the renegotiation of 12 double taxation treaties in the last 10 months with another 18 in the pipeline. The SPBA welcomed the decision to amend the treaties but questioned why a clause on exchanging tax information, demanded by the Organisation for Economic Co-operation and Development (OECD), had been included in agreements with some non-member countries.

It’s been included for good reason: the world knows banking secrecy facilitates crime. That is not by chance. That is its purpose.

The Swiss can say what they like, but if they renege on these deals they should expect substantial economic sanctions to be imposed on them as a nation state. And the only reason for their suffering will be to assist criminals from elsewhere.

They may decide to do that. But they would be very unwise to do so. The world has had enough of such crime and will no longer tolerate it even if Swiss bankers will.

Remember it is only a year or so ago that Swiss bankers admitted that maybe half of all cash in Swiss banks was illicit. They really do not have a leg to stand on.

Ireland is being taken for a ride

Ireland 1 Response »

Jan 152010

Finance jobs, banking jobs, recruitment in investment banking & in the financial markets.

eFinancial Careers in Ireland has said:

Ireland is benefiting from a raft of international insurance and re-insurance firms moving their legal domicile to a new low-tax home. However, to suggest that we’re about to see a slew of recruitment as a result may be slightly in the realms of fantasy.

So far this year, XL Capital unveiled plans to re-domesticate itself to Ireland from the Cayman Islands, Zurich Insurance transferred continental insurance portfolios here and Willis Group has completed the move of its corporate domicile from Bermuda.

This is due to a combination of Ireland’s low corporation tax, the US’s crackdown on tax havens, and – as some firms have suggested – the concentration of skilled insurance personnel here.

We could therefore assume that hiring is likely to swiftly follow, but recruiters suggest it would be unwise to hold your breath for this.

Paul Cotter, director of insurance-focused recruiters Cotter Personnel in Dublin, says: “We’ve seen very little hiring from the international insurance firms that moved here in the last six months. They’re small operations and many bring key people with them – I’d say it’ll be the summer at the earliest before we see any recruitment.”

Let me then suggest that those recruited will be a secretary, a security guy or two, and a couple of janitors, all of them hired to make it look as though there is a corporate presence in Ireland when there will in fact be none.

Ireland offers an internationally abusive tax system that fails to tax international income. It did so to appropriate tax revenue to itself and promote domestic employment. The trouble is it now neither raises revenue for Ireland or create domestic employment. It’s just internationally abusive.

Ireland is now being taken for a ride. It’s time it realised before it ends up on the short lists itself.

US banking levy expected to raise $90bn

Banking, USA 3 Responses »

Jan 142010

FT.com / Financials – US banking levy expected to raise $90bn .

The FT has reported:

President Barack Obama will announce on Thursday a sweeping levy on about 50 financial institutions that will raise an estimated $90bn to reduce the federal debt.

The “financial crisis responsibility fee” will hit investment banks such as Goldman Sachs particularly hard because insured deposits, the main funding mechanism of retail and commercial banks, are exempt from the charge that is levied on other liabilities.

As they also note:

Congress is likely to weigh in on the administration’s proposal

and

The timing – in the week that banks are set to announce billions of dollars in bonus pay-outs – is widely seen as an attempt to assuage public anger at the industry whose compensation is frequently held up in stark contrast to the high unemployment rate in the rest of the economy.

Good news.