2011 June » Tax Research UK

So now we know what the Crown Dependencies are for

Guernsey, Isle of Man, Jersey, Secrecy jurisdictions, Tax Havens 1 Response »

Jun 212011

There was a fascinating comment in the Scotsman newspaper this morning:

David Mundell, Scotland Office Minister, said that any comparison between Scotland and the [Crown] Dependencies was “completely misplaced”.

He said: “They are on a completely different scale to Scotland and their function is also completely different, that of providing a different tax environment. Scotland is an industrial country with an entirely different profile to the Channel Islands.”

So now we know: apparently it is UK policy that the Crown Dependencies provide a ‘different tax environment’.

Official confirmation of all Nick Shaxson has argued in Treasure Islands if ever I heard it.

It had to happen: the campaign to turn Scotland into a tax haven has begun

Guernsey, Isle of Man, Jersey, Scotland, Uncategorized 3 Responses »

Jun 212011

It was, I suppose, inevitable that the SNP’s recent victory in the Scottish elections would set the tax haven enthusiast free to argue that Scotland should join that pariah’s club, urged on by Alex Salmond’s call for Scotland to have the right to set its own corporation tax rate. And that has duly happened. As the Scotsman reports this morning:

Famously, the three islands [that form the Crown Dependencies] have used that autonomy to market themselves as offshore tax havens for the rich, turning them into some of the wealthiest places on the planet.

Their example is now coming under scrutiny, as the new SNP Government in Edinburgh presses ahead with its plans for an independence referendum – which has turned growing attention on to what the Nationalists these days mean by independence. A study by Professor James Mitchell of Strathclyde University proposed that the SNP is now proposing a form of “looser union” with the UK, where it would attain sovereignty but remain part of a “confederation” of British nations. Such a nation would control matters in its own borders, but would buy in services from the rest of the UK where it was deemed appropriate.

The examples of the three British Dependencies fall short of the what the SNP wants for Scotland – full independence. But they are linked into the UK in a way which the SNP also envisages.

So could Scotland follow suit? Ben Thomson, of the Campaign for Fiscal Responsibility, says that the UK should encourage the kind of tax competition shown up by the three territories.

“The game is not about dividing up the cake. It is about how do you attract a bigger cake within the UK by attracting businesses to come here. We in a global game competing against Geneva, Luxembourg or Dublin. If these businesses didn’t set up in the Channel Islands, they would end up in the Cayman Islands or Bermuda.” Thomson says that, given the powers of the Dependencies, a fiscally independent Scotland could set taxes in its own areas of strength – such as oil and gas, or whisky – to suit its own local circumstances.

Thankfully there are voices of reason in Scotland, and some from unlikely sources:

But turning Scotland wholesale into a tax haven would be near impossible, say tax experts. The three islands’ heavy reliance on financial services, and low levels of social need, are utterly at odds with Scotland’s own profile.

Rhona Irving, a partner with PriceWaterhouseCoopers, asks: “How would you replace the tax take if you reduced it to these levels? How would you fund public services? Are you going to attract enough businesses to make up the deficit you would have?”

She’s right – and for once good for PWC for pointing out the glringly obvious fact that the tax haven model is not viable.

In case they haven’t nopticed all the Crown Dependencies are in deep fiancial trouble, unable to balance their books and are in possession of tax susyems ruled illegal by the European Union. But what the heck, why let something like that get in the way of the tax competition mantra?

If the Isle of Man is so sure free markets works why are its financial services marketed at government expense?

Isle of Man 5 Responses »

Jun 212011

International Adviser notes:

The Isle of Man government has unveiled a radical shake-up in the way it promotes its financial services and related industries, which will involve the creation of a new “public private sector promotion model”.

This new promotional model will provide for the sharing of resources and funding between all parties, the IoM’s Department of Economic Development said in a statement.

The total budget for financial services promotion will be more than £2m and less than £5m, spread out over two years, an Isle of Man spokesman said. This is a marked increase in the budget from last year, he added, without giving further details.

Don’t you just love it when the wheels of the international free movement of capital that the Isle of Man facilitates have to be oiled by state subsidy?

The word ‘hypocrites’ comes to mind.

New on Forbes: The Greek Accounting Tragedy

Accountancy, Accounting, Economics 2 Responses »

Jun 202011

New on Forbes – my blog on why the Greek crisis could have been avoided if only we’d had proper government accounts.

Media job at Task Force on Financial Integrity

Task Force on Financial Integrity and Economic Developm Comments Off

Jun 202011

GuardianJobs is carrying the following advertisement:

JOURNALIST/MEDIA OUTREACH

The Task Force on Financial Integrity and Economic Development is looking for an experienced journalist in a fast-paced, exciting field which is now attracting major international media attention worldwide. The Task Force is a consortium of governments and research and advocacy organisations seeking greater transparency in the global financial system.

The journalist will be expected to work closely with experts who are working to promote financial transparency and accountability for the benefit of developing countries.

The journalist will consult with experts to prepare materials, and will connect journalists with experts. This position will based in the UK, ideally in London or with easy access to London

A counterpart journalist will be based in Washington DC, and close liaison will be important. The post holder will be supported by a supervisory group.

This initiative is supported by the Tax Justice Network and the person appointed will work closely with the director of its International Secretariat and other team members, as well as other members of Task Force member organisations.

Main responsibilities

Turn Task Force materials into lively, readable copy for journalists and for public audiences
Write and place timely op-eds and blogs relating to current news items
Identify and cultivate media contacts on Task Force issues
Inform journalists about illicit financial flows, bank secrecy, tax evasion and corruption, and help them with story ideas
Coordinate closely with task force members

Knowledge required

Excellent general knowledge of target media markets
Significant contacts in print, broadcast and online media
Working knowledge of new media
Some familiarity with (and high enthusiasm to learn about) illicit financial flows, tax evasion, corruption, bank secrecy and related issues

Skills/ Personal Qualities

Strong news sense
Ability to write clear and accurate copy to deadline
Ability to respond and work well under pressure and to prioritise workload and to multi-task
Proven team player with a ‘can-do’ approach
Strong networking and interpersonal skills
Ability to work without close supervision and take the initiative

Other requirements

Extensive experience working as a journalist
Experience of pitching stories to journalists and editors across a range of media
Fluency in English is essential; French, German, Portuguese and/or Spanish would be a plus

If interested, please email a cover letter, résumé and list of published work. Applications should be submitted by 1 July, 2011 to liz(at)taxjustice.net.

George Irvin on the Greek crisis – suggesting this is a crisis of choice

Economics 8 Responses »

Jun 202011

Prof George Irvin is a man I have a lot of time for. He’s written about the Greek financial crisis today, saying:

Was this necessary? Clearly not; the EU could have borrowed money at 3% and lent it to Greece at the same rate or lower. Similarly, the harsh conditionality imposed was not merely unnecessary but, as many have argued, deeply counter-productive. Greece did not need to cut social spending then, nor does it today. Rather, it needs to raise productivity, particularly in the export sector. This can best be done by means of new investment.

A sensible EU bailout plan would direct cheap funds at productive expansion rather than insisting on punitive contraction. Indeed, Greece needs concessional lending (at less than 3%) —which could be financed by means of a new E-bond, a Tobin tax, un-sterilised quantitative easing, or some combination of these and other instruments.

In short, the real lesson of the Greek debacle is not that that peripheral countries should exit the eurozone (although that is now a distinct possibility); rather, it is that the current situation results from the increasingly rightward drift of Europe and the short-sightedness of our political class. Sadly, most European social-democrats have been complicit in this deplorable state of affairs.

Spot on George – which also makes clear that too many social democrats have lost their way.

HMRC moves to tackle tax evasion welcome – but it will not work without more people to enforce it

Uncategorized 2 Responses »

Jun 202011

I welcome this initiative by HMRC to tackle tax evasion:

Businesses and individuals avoiding tax payments are to be targeted by new software launched by HM Revenue & Customs (HMRC).

The software, set to be launched later this year, will work by searching the internet to identify small businesses and personal ventures, such as private tutors and eBay traders, who may be operating a business and not declaring their income.

HMRC said that websites including Amazon, Gumtree and eBay would be looked at and that any discrepancies, such as traders not being registered for self-assessment, would help the tax body identify those who have failed to pay the correct amount of tax.

Mike Wells, HMRC’s director of risk and intelligence, said the purpose of the software was to “reduce the tax gap and help customers pay what they owe”.

That makes complete sense.

But note too what I said last week at the National Pensioners Convention:

In 2005 there were 100,000 people working at HM Revenue & Customs. By 2015 there will be 50,000. And I’ll tell you something very simple, very straightforward, and obvious to anyone.

You don’t catch tax cheats with a computer.

You don’t catch tax cheats by sending a letter and asking them to send a cheque by return.

You trap tax cheats by hard work, by real people, using real skills, to ensure that the tax that is owing, the tax that is paying your pensions, is collected.

And the last government to its shame, and the current government to its discredit, have chosen to cut the number of people at HM Revenue & Customs doing just that.

I stand by that, because it’s true.

This new software can find who it likes – but only people will resolve whether tax is due.

And I’d add – if small business is picked on and big business continues to get away with cosy deals none of this is going to work: there will be too great a sentiment of alienation amongst the business community for any effective cooperation to exist - and all tax is eventually imposed by consent.

The domicile rules on tax are illegal discrimination on the grounds of national origin

Domicile, Uncategorized 17 Responses »

Jun 202011

I wrote the blog reproduced below in March 2007, but nothing of substance has changed on this issue since then. Except that the government has now announced a review of the domicile laws as they relate to taxation – promising token gesture changes in exchange for a guarantee that non-doms will then be left alone. Except, as this blog and the related report shows that should not be the case: the domicile laws are illegal discrimination on the grounds of national origin. The time when accidents of childbirth created difference in tax treatment should be history: it’s to the shame of this government that it intends to perpetuate them.

Tax Research LLP has today published a new report in association with the Tax Justice Network in the UK. Entitled ‘National Origin, Equality and the UK’s Domicile Law as it relates to Taxation’ this is a contribution to the protracted debate on the future of the UK’s domicile laws.

Put simply, the report makes clear there is no basis for that debate. These laws discriminate between people living in the UK on the grounds of their national origin because that is the basis on which a person’s domicile is determined. Since 2003 discrimination on this basis has been illegal under the Race Relations Act. It should however be stressed that ‘national origin’ is not the same as race, ethnicity or nationality. It is defined by theCommission for Racial Equality as:

‘National origins’ are not limited to ‘nationality’ in the legal sense of sense of citizenship of a nation state. The Scottish Court of Session has defined ‘national origins’ as ‘… identifiable elements, both historically and geographically, which at least at some point in time reveal the existence of a nation’.

This is the precise point about domicile. This term is not defined in UK law, but broadly speaking a person is domiciled in the country in which they have their permanent home. That is their place of national origin, irrespective of their race, ethnicity or nationality. It is the fact that both terms rely on this differentiation from race, ethnicity and nationality that makes clear they relate to the same concept – a person’s natural home and community of association. Indeed, it is precisely these factors that the revenue looks for in determining domicile.

In so doing HM Revenue & Customs contravenes (even if unwittingly to date) the terms of the Race Relations Act 1976 and the Race Relations Act (Amendment) Regulations 2003. In law this constitutes unlawful indirect race discrimination which 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 provision of agreeing a person’s tax liability to be lower than that which might otherwise be the case is the service that affords a person of national origin outside the UK with a social advantage over a person whose national origin is in the UK. We doubt very much that people will disagree with the idea that paying less tax is a social advantage and although discrimination against a majority might seem odd, it has a clear precedent. Women are, after all, in that position.

According to reports of the Revenues own estimates the tax saved is at least £1 billion and their own calculations suggest that this is an average reduction of at least 16% on the tax bills of those not domiciled. Many believe the estimate of the tax saved far too low: there is no reason for a non-domiciled person to report this data to the Revenue and as such any data they hold is bound to be an underestimate. The loss to the UK could, therefore, be much higher.

Awareness of this situation presents the government with three options:

1. It can seek to ignore its own law, and continue to discriminate as it is clearly doing at present;
2. Those of UK domicile must be provided with the same basis of taxation as those who are not domiciled in the UK, or
3. Those who are not domiciled must be given the same tax status as those who are domiciled in the UK.

The first option can at best be a short term solution, and hardly a desirable one at that. The second could not be afforded so the third option is the only one available.

The domicile laws must go.

Larry Elliott on Greece – default is the only option – but that inevitably means our banks fall over again

Economics, Uncategorized 5 Responses »

Jun 202011

Larry Elliott’s article on Greece in the Guardian this morning deserves to be quoted at length becasue it is just about the clearest piece written on the subject – and every banker needs to read it:

The European Central Bank will not countenance the idea of [Greek] default. That just leaves deflation, and lots of it, as a way of putting the Greek economy back on track and ensuring the single currency remains intact.

This is a crackpot idea for two reasons. First, it runs counter to the basic principles of democracy; the Greek people are clearly not in the mood to bear the spending cuts, the reductions in wages and the sweeping privatisation being demanded of them by the European Union and the IMF as the price of a fresh bailout.

Second, deflation has already made Greece’s debt problem worse and more deflation will make it worse still. It is worth spelling out exactly why this is so. The public finances of a country are made up of two components – the annual current budget and the stock of national debt. The national debt is simply the total of all the previous budget deficits or surpluses and is measured as a percentage of overall output. As an example, the UK ran a budget deficit of about £140bn last year, pushing up national debt to just over £900bn. The output of the economy was just short of £1.5tn so the national debt is about 60% of GDP.

In Greece’s case, the position is much more serious. At the end of 2010 its national debt was in excess of 140% of GDP. The interest payments on that debt are colossal, and will become ruinous if the national debt continues to rise. But to stabilise Greek debt at 140% of GDP, the country has to run a very large budget surplus once interest payments are stripped out. Charles Dumas at Lombard Street Research calculates that this so-called primary budget surplus has to be in the 7-10% of GDP range. To illustrate the scale of that challenge, in 2010 Greece appears to have run a primary budget deficit of at least 4% of GDP.

Running a primary budget surplus requires revenues from taxes to be higher than government spending. What then are the chances of Greece running a primary budget deficit of 7-10% of GDP if subjected to further austerity measures? None whatsoever, which is why either default or devaluation – and perhaps both – seem increasingly likely.

These are not good options for Greece, either, because there are no good options for Greece. But it is clearly not going to deflate its way to solvency. Providing a second, or even a third or fourth, bailout cannot disguise the fact that monetary union is fundamentally flawed, with zero chance that the weaker members can become as competitive as those at the core. In his discussions with European leaders this week, Barroso may be tempted to raise spirits with the Kinks’ Better Things. Who’ll Be the Next in Line or Dead End Street would be wiser choices.

Supposedly rational politicians and supposedly rational bankes talk about new bailouts.

Real people on the ground – the sort Aditya Chakraborrty is writing about in the same paper today - can’t and won’t take that.

This is the reality – and yet it is being ignored.

This blindness led to 2008 and the collapse of the banking system.

It will do so again if we are not careful – and very soon. Not least because as the Mail notes:

But where Greece leads, bailed Ireland and Portugal will surely follow. Both of these bailed-out nations are splintering under the weight of their debt mountains – and few economists believe either will be able to repay their creditors in full.

Under that nightmare scenario, it would be British banks left nursing fresh wounds. UK lenders have an eye-watering £120bn in exposure to stricken Ireland, with bailed-out Lloyds and Royal Bank of Scotland saddled with the biggest loan books.

This is enough to topple the UK’s banks all over again.