2011 April » Tax Research UK

Thompson & Morgan – playing a game in the Channel Islands?

Uncategorized Comments Off

Apr 252011

The Telegraph accused Thompson & Morgan of exploiting the Channel Islands to avoid VAT yesterday.

My sources in the Channel Islands have been doing their work and note that T & M did buy a company in Guernsey in 2007:

Horticultural supplier Thompson & Morgan has acquired Guernsey-based Rainbow Flowers.

The acquisition provides Thompson & Morgan with the opportunity to broaden its proposition and sell fresh and silk flowers, gifts and chocolates.

Rainbow will continue to trade under its own name with current managing director Carol Jenson remaining.

So what?

Well that’s just the time the pressure began to arise on ‘non-local’ owners to stop exploiting the VAT rules.

Was that why T & M and Mr Fothergill both bought Channel Islands’ companies at almost exactly the same moment?

I obviously don’t know, but the possibility must exist.

In which case both, of course, acted legally – as do others who exploit this loophole. But that doesn’t stop it being exploitation of a loophole. And it just adds to the tally of losses to the UK Exchequer that might have arisen as a result.

Commenting Rules

Blogging 6 Responses »

Apr 252011

I didn’t write this:

A number of people have complained that the troll or trolls (they may be the same person, and in any case are presumably paid operatives) are degrading the tone of the comments. I agree — I suspect that they’re responding to the growing readership of this blog despite their best efforts to drag it down by getting ever uglier. To be fair, some of the supportive comments have also gotten too ugly for the Times. So while there won’t be any banning of commenters, I’m going to try to delete comments whose tone goes over the line.

Paul Krugman did.

But I agree with it, entirely.

So far today I’ve had several comments needing deletion.

Some openly despised the poor.

Others suggested I needed medical help for thinking that the Tories might agree with Policy Exchange on the issue of benefits .

You bet I delete them.

It’s necessary in support of the freedom of others to comment without fear.

Isn’t it odd how so called libertarians from the right are so keen on using fear?

Liechtenstein structures will be within European Union Savings Tax Directive

EU STD, Europe, Liechtenstein, Tax avoidance, Tax evasion, Uncategorized 4 Responses »

Apr 252011

The following is for all serious offshore aficionados. It comes form the person I think the foremost expert on the European Union Savings Tax Directive – Mark Morris, and is from his blog, with permission.

What it says is at the end of the day simple, but vitally important, and that is that iof the European Union Savings Tax Directive is amended as the EU desires then Liechtenstein’s secrecy is cracked open. Which is very welcome indeed. Over to Mark:

“Liechtenstein is home to nearly 100,000 entities and legal arrangements which are effectively untaxed. These structure are used for succession planning, creditor protection, family support and confidentiality. Considering there are onshore taxable facilities that do these tasks equally well, one assumes the following Liechtenstein structures are chosen because tax efficiency is a prime motivator.

Aktiengesellschaft A.G. (company limited by shares)
Gesellschaft mit beschrenker Haftung GmbH (private limited company without shares)
Anstalt (establishment, commercial and non-commercial without shares)
Stiftung (foundation)
Treuunternehmen (registered trust)
Treuhandschaft (trust)
Partnerships [Limited, collective, simple, occasional & silent] (Not taxed on income from assets)

How Liechtenstein structures avoid tax:

Liechtenstein foundations, establishments and trusts have to date successfully avoided international taxes as they are crafted to present an image that no party involved can have a tax liability. This is done in seven stages:
1. Separate ownership of assets from the principal contributor: The principal contributorgives away their assets to someone else to manage on behalf of named or unnamed beneficiaries.		2. Disguise the source of assets: Utilise an agent /nominee to contribute the assets on behalf of the principal contributor. The only name on public record as the provider of funds is the nominee / agent, e.g. the lawyer who founds the foundation.
3. Utilise a temporary holder/ manager of the assets: The management cannot be taxed as they are not beneficial owners of the assets, but merely look after it for named or unnamed beneficiaries.		4. Disguise control of the assets: If the principal contributor is seen to be controlling the assets after giving it away, he may be liable for tax. Therefore the principal contributor manages the assets indirectly via an undisclosed letter of wishes / bylaws, appointment of protector, etc.
5. No beneficiary is immediately entitled to any payment received: No specific beneficiaries are named. Therefore no income tax payable.		6. Alchemy on income received: Convert the character of income into a tax efficient payment at a later date, such as charity, capital gain, wage, loan, etc.
7. Present a restricted view of structure to bank: The bank holding the structure’s account is the Paying Agent responsible for applying the savings tax. However, with a restricted view presented to the bank, a beneficial owner cannot be identified. As no-one supposedly owns the assets, the bank cannot apply the savings tax.

How the EU savings tax amendments will tackle Liechtenstein tax avoidance structures:

I. Structure becomes the Paying Agent Upon Receipt: To circumvent the bank’s limited view of the structure, the savings tax directive amendment moves the Paying Agent responsibility away the bank and onto the structure itself. The logic being the structure has an unimpeded true view of all parties involved.
II. The Principal Contributor is the beneficial owner : The amendment takes into consideration that it will be highly unlikely to identify a beneficiary immediately entitled to the payment received. In this case, the principal contributor of assets will be deemed the beneficial owner. The logic being that tax liability remains yours until transferred to someone else with a tax liability. In limbo doesn’t qualify for exemption.
III. Agent / Nominee is transparent: The savings tax directive looks through the nominee settlor / shareholder. A lawyer used to establish a foundation is merely an agent founder acting on behalf of the principal founder. The beneficial owner is deemed to be the individual who initially contributes the assets, directly or indirectly. According to the EU directive on money laundering and anti-terrorist financing, a nominee is a trust and company providing service and sand is therefore a candidate for Paying Agent Upon Receipt responsibilities.
IV. Paying Agent Upon Distribution if no contributor identifiable: In the event that a principal contributor is not identifiable, e.g. for a deceased settlor, then the structure becomes a Paying Agent Upon Distribution and must apply the savings tax to any individual who become entitled to the payment within 10 years
V. No more dummy charities: Trusts or foundations set up for charitable purposes will only be exempt from Paying Agent Upon Receipt responsibilities if they serve:- exclusively for charitable purposes, and for the public benefit. Mixed purpose or private charity foundations will thus be in scope.
VI. Bank accounts in Singapore / Dubai / Bahamas, etc also in scope: A knee-jerk reaction to move the structure’s bank account to beyond the savings tax territory will not avoid the savings tax provisions. The Paying Agent Upon Receipt must apply the savings taxirrespective of where the assets are held. This is similar to am economic operator securing interest from anywhere in the world.
VII. Run but you can’t hide: A fiduciary structure fleeing to outside the savings tax territory, e.g. to a Singapore trust, will not help the trust and company providers based within the savings tax jurisdiction. If the new structure is still effectively managed from within the savings tax territory, e.g. trustee, council or director is based in Liechtenstein, then the management will be a Paying Agent Upon Receipt, and consequently the structure will be in scope.

In summary, the EU savings tax amendment should end opportunities for tax avoidance using Liechtenstein structures for EU residents, as described in this PDF document guideline on Paying Agents Upon Receipt.”

Now you know why I am so keen on reform.

And why every honest taxpayer in Europe should share that enthusiasm.

Note to Policy Exchange: when you promote full employment you can call the unemployed undeserving. Until then you look and sound nasty

Conservatives 7 Responses »

Apr 252011

According to the Telegraph:

Tough schemes in which the long-term unemployed are forced to do community work in return for benefits are backed by an overwhelming majority of voters according to a new poll.

The poll was for Policy Exchange – supposedly David Cameron’s favourite think tank.

What they and The Tekegrpa sought to say as a result of their survey on fairness was:

The YouGov survey uncovered a widespread public belief that benefits are too generous, with voters blaming the easy availability of welfare payments for joblessness.

The public also backs a stronger sanctions scheme – particularly for claimants who are drug users or have criminal records – and a “cap” on child benefits, with people who have three children not getting payments if they have a fourth.

The “fairness” poll, commissioned by the Policy Exchange think tank, finds that most voters believe that the state should actively discourage people from becoming lone parents, although they do not back tax breaks for married couples.

In addition:

The poll, however, shows that a startling 80 per cent of all voters thinks that people who have been out of work for 12 months should have to do community work before they get benefits – as long as they are physically and mentally capable of working.Furthermore, half of all voters (50 per cent) think that someone on JSA should have to spend between three and eight hours a day searching for work in order to get welfare payments.

But the stupidity of these responses is made clear when a question was asked on the reason for long term unemployment. As was noted:

- the most popular answer (33 per cent) was “benefits are too generous or easy to claim,” comfortably beating

- ”there are not enough jobs available” (20 per cent.);

- 12 per cent believe the long-term jobless are “lazy or lacking in willpower” while

- 14 per cent say “the rewards from working are too small”.

(I added the bulleting).

This is much more telling. First, note the benefit in question (Job Seekers Allowance) is £67 a week. Perhaps the respondents would like to try living on it?

Second, extraordinarily just 20% had noticed that with 2.5 million people unemployed there weren’t enough jobs to go round. For the unemployed, let alone the 500,000 or more now on disability benefit the government wants to force into work.

And why is that mistake so easy to understand? Well, because these people reveal by their own answers how little they really know about their own position or that of others in the economy. Whwen sakes about their own positions (again, bulleting added):

- 61 per cent believe they are in the middle 30 per cent of earners.

- Only two per cent think they are in the top 30 per cent

- 9 per cent think they are in the bottom 20 per cent.

I have no idea what happened to the other 28%.

But the point is clear: if you ask people who have no clue about an issue what they think, and then suggest that this should be the basis for policy you will actually simply base policy on prejudice.

That no doubt is what Policy Exchnage want to do.

Indeed, the nasty commentary piece by Janet Daley shows just that -0 and is no doubt exactly what Policy Exchange (and I suspect cameron) desired: as she said:

After all these years of being morally blackmailed by the poverty lobby, harried by socialist ideologues and shouted at by self-serving public sector axe-grinders, the people are not cowed. Even after being bludgeoned by the BBC thought monitors and browbeaten by Left-liberal media academics with the soft Marxist view of a “fair” society – from each according to his abilities, to each according to his needs – they have not bought it. They do not believe that if people are poor, it is necessarily society’s fault, and therefore society’s duty to deal with the consequences.

This is, of course, the libertarianism that is destroying the USA being imported to the UK. The logic is simple: it’s “let them sink”. That is what the Tories want to do: that is what their friends in the media want. And it plays to a nastiness that is, I am afraid, compounded by fear.

And yes, there is real fear in our society: fear of unemployment, fear of not getting housing, fear of not getting access to education, fear of old age and the poverty it might bring. Fear that therefore says hoard all you have for yourself for fear someone else might get it. Fear that this government deliberately generates. Fear that the Policy Exchange seek to promote. Fear they want to exploit.

But it’s odd that when they turned from asking deliberately leading negative questions and asked what would make the UK fairer a different picture emerged from this survey:

Given a choice of various options on how to make Britain a fairer place, the most popular choices were reducing unemployment, cutting tax for low earners and reducing the cost of living.The least popular were reducing university tuition fees, banning private education and increasing welfare benefits.

So although people attacked these who were unemployed they knew that a lack of jobs was a real issue. And they only see tax as an issue for the low paid – as it is, because they have the highest overall tax rates – compounded by Tory VAT rises. And the cost of living has, of course, been put up by the Tories.

But nothing disguises the misinformation in this story – a misinformation that Policy Exchange are, I am sure well aware of. And that’s the simple fact that with 2.5 million unemployed, and with hundreds of thousands more to be sacked as a result of Tory policy this year, for may there is no chance at all of getting a job. Ity’s government policy that they should not have one.

But these people – unemployed through no fault of their own – are being made the victims of policy – and then being vilified. This is right wing politics at its worst – always choosing elements in society too weak to defend themselves due to misfortune as the supposed cause of wrongly identified failure – and then seeking to firstly vilify and then punish them for it.

Expect policy initiatives soon saying there will be absolute limits on the amount of unemployment benefit anyone can claim, either in a period or over their life.

And then expect policy that will ban anyone who has taken drugs (which would include most of the Cabinet, I suspect) from claiming benefits if they had ever been caught (and ‘nice’ people aren’t, of course).

And follow that on with compulsory unpaid work for benefits (call it the workhouse if you like).

And then for good measure, because these people won’t then be able to look after their children as benefits to let them do so will have been denied to them, plan a programme of mass children’s homes, with children forcibly removed from their parents to prevent their influence.

And then follow on with big scale prison building to handle the crime epidemics that will follow.

All creating private sector contracts for the supply of the necessary services to contain those affected, of course, so that the cabinet’s friends can prosper from this policy.

And then you get some idea where all this is going.

Who said the Tories weren’t the nasty party?

All the evidence is they’re very nasty, indeed.

As is Policy Exchnage, who are doing the dirty work.

This is the narrative we’ve got to beat.

More on Mr Fothergill’s and Jersey

Guernsey, Jersey, VAT 1 Response »

Apr 252011

The Telegraph highlighted concerns about seed and horticultural companies abusing the Channel Islands’ for VAT purposes yesterday.

Mr Fothergill’s seems to have spent some time and effort on setting up its Jersey tax structure. So much so that it’s advertised as a case study on the web, here.

Note it says that advice was provided on:

ensur[ing] the preferable VAT arrangements already in place were not compromised

But I should add in all fairness that there is some evidence of local sourcing too.

So maybe a case of ‘mix ‘n’ match’ to secure the best tax outcome? It certainly has that feel about it.

I have no problem with locally sourced product using the exemption. It’s the round tripping I object to – and that article did imply it was Thompson & Morgan doing that.

More information would be appreciated.

But one interesting thing: the local Fothergills partner is called Blooming Direct, of which it is reported:

With many years experience in the mail order garden retail industry to offer, Blooming Direct is an evolving family run business, offering a unique selection of plants, flowers and garden accessories. Founded in 2007, the business is situated in St. Martin (Jersey) and also offers a rich source of advice in its popular Gardeners Blog.

That’s an interesting interpretation of ‘many years’.

It’s also odd that the company was set up only three months before Fothergill’s signed an agreement with it. That’s might confidence on their part even if the team were clearly experienced elsewhere.

One other odd thing: the same web site says:

The company is a family run horticultural business and is totally committed to maintaining high standards of quality. Blooming Direct attracted funding support from the States of Jersey (local government) by way of a “Rural Initiative Scheme” aimed at promoting diversification and enterprise within local agriculture and horticulture. This funding has enabled the company to bring quality garden products to their customers in and out of Jersey.

So the States of Jersey went out of its way to help establish a business that would exploit the VAT scheme when local ownership became a condition of its use? And Fothergills reorganised their business by chance at that same time to make sure the ” preferable VAT arrangements already in place were not compromised”? All very odd. And just a coincidence? Or indication that the States was going out of its way to encourage business that exploited this loophole?

What, above all else, this does suggest is that the horticultural industry, for which VAT low value consignment relief was first set up, looks as though it has also joined in exploiting it. And if that’s true that is yet more reason for reforming it.

NB: Thanks to sources in Jersey who researched some of this

Tax information exchange agreements don’t work – even the lawyers say so

Information exchange, OECD, Tax justice Comments Off

Apr 252011

As Nick Shaxson notes on his Treasure Islands blog:

The April edition of the Journal of International Taxation (not available online) has a provocatively titled article on ‘The Death of Information Exchange Agreements?’ about the G-20 / OECD project for tackling tax evasion with tax information exchange agreements (TIEAs). Bottomline, the authors share TJN’s view that TIEA’s just don’t cut the mustard, so powerful countries like the USA and EU member states use other tools:

“The major countries of the western world have clearly started to focus on other means of obtaining data because TIEAs in practice do not work.”

And as Nick notes, what’s exceptional about this support for the position TJN and I have taken for some time is that the author’s of the article all comes from international law form Baker & McKenzie.

So why are the OECD persisting with their failed policies?

You can’t even buy your seeds without VAT abuse

Guernsey, Jersey, VAT 1 Response »

Apr 242011

The Telegraph has reported massive VAT abuse of the Channel Islands’ by horticultural companies – naming Thompson & Morgan and Mr Forhergills in the process.

As they note:

During peak season from March to June, it is not uncommon for 40ft articulated lorries carrying up to 42 trolleys of plants to board the twice daily ferries to Jersey and Guernsey.The goods are then unloaded in packing sheds, repackaged and sent back to UK consumers or kept in greenhouses until ready for sale.

Martyn Langlois, the general manager for Ferryspeed, the company responsible for shipping plants belonging to horticultural company Thompson & Morgan’s plants from the UK to packing premises in Guernsey, said that Ferryspeed’s business with the company was one of its core contracts.

Last year Thompson & Morgan turned over £40 million.

And as they also report:

John Fothergill of Mr Fothergills, one of the handful of large horticultural companies with packing sheds operating out of neighbouring Jersey, accepted that the company was based there purely for tax reasons.

“To be blunt we are here for the VAT benefit and we would have to rethink things if this changes.”

I liked this quote to:

Derek Jarman, director of Hayloft Plants Ltd, a nursery that sells new and unusual plants, paid £400,000 in VAT over the course of last year and said that companies 20 times his size are operating out of the Channel Islands and pay no VAT on goods under the value of £18.

“As a businessman I congratulate these companies on being entrepreneurial. As a person who is conscious about the environment, I am seriously concerned about the amount of fossil fuel which is being used to take garden plants from mainland UK to the Channel Islands to be packed and then sent back immediately to mainland UK consumers.”

“As a Conservative member and supporter, I cannot believe this Government cannot see what is happening. The annual loss of VAT would fund many nurses, teachers and civil servants – the very hardworking people who are currently losing their jobs as the Government is short of money.”

He can see it because it’s staring him in the face.

But all use of tax havens – or secrecy jurisdictions as I prefer to call them precisely because so much of this stuff is deliberately hidden from view – is as pernicious.

Secrecy jurisdictions are places that intentionally create regulation for the primary benefit and use of those not resident in their geographical domain. That regulation is designed to undermine the legislation or regulation of another jurisdiction. To facilitate its use secrecy jurisdictions also create a deliberate, legally backed veil of secrecy that ensures that those from outside the jurisdiction making use of its regulation cannot be identified to be doing so.

It’s time to close them down.

Now.

Even Tories see the sense in that when it stares them in the face. They just need to look a little harder.

They should start here.

Labour v Tory

Conservatives, Labour Comments Off

Apr 242011

I’ve just looked at my ballot paper for my local council election. I always have a postal vote.

It’s a straight Tory v Labour fight.

No doubt the Lib Dems could not find a candidate.

No guessing which way I’m voting!

And although Norfolk South West normally weighs the Tory vote maybe, just maybe, knocking the Lib Dem out can change the scenario.

Especially as the Labour candidate looks very good and is a local mum.

I won’t hold my breath – but I can hope.

Labour: the resistance to the commodification of human beings

Economics, Ethics, Labour Comments Off

Apr 242011

Maurice Glasman in the the Observer argues:

Labour politics is rooted in the democratic resistance to the commodification of human beings.

The organised workers who resisted their dispossession and exploitation called their party Labour to remind us of that.

He is right.

This is what we should be fighting. And what we’ve forgotten.

But Blue Labour needs an economic core as well.

That’s when it really becomes credible.