2011 November » Tax Research UK

The Cayman Islands’ director – almost as flexible as the Sark postman

Cayman, Corporation Tax, HMRC, Secrecy jurisdictions, Tax Havens, Uncategorized 39 Responses »

Nov 212011

Once upon a time the postman on Sark was the symbol of offshore farce: rumour had it he held more than 2,000 directorships and quite clearly knew little or nothing about any of them, each being held as a pure nominee to supposedly locate the company of which he was a director for tax purposes on that once idyllic and now rather troubled Channel Island.

Then the ‘Sark lark’ was brought to an end, the postman went back to the day job and examples of such farce, where nominees were so blatant that the sheer lack of likelihood that they really undertook the task supposedly entrusted to them was harder (not not impossible) to find.

Today the FT reveals the practice of nominee directors holding far more positions than they can possibly manage is alive and well and riddles the Cayman hedge fund industry, which claims to be resident in those islands even though it is very obviously likely that real decisions must be made elsewhere. As they report:

A small group of Cayman Islands “jumbo directors” are sitting on the boards of hundreds of hedge funds as demand for independent directors booms in the Caribbean tax haven.

At least four individuals hold more than 100 non-executive directorships each, and 14 have more than 70 – each worth as much as $30,000 a year.

One has been listed as on the boards of 567 Cayman entities, almost all of which were hedge funds.

The revelation of the figures, in a Financial Times investigation, comes amid calls from some of the world’s leading hedge fund investors for greater transparency in the Caymans as part of a global effort to improve fund governance.

This practice suggests three things. First of all, as I have often argued, the supposed centre of decision making that suggests these funds are located where their directors are is little more than a charade in many cases.

Secondly, any directors who can believe in this charade must have suspended their judgement: if you can believe in these structures it is highly likely that sound governance has flown out of the window.

Thirdly, and as I have again argued, often, the time for a change in the rules regarding the determination of residence on the basis of where the directors of an entity supposedly meet is more than overdue for reform. As is likely in these cases, real decisions are almost certainly taken in places like London and New York but ta x is not paid there as a result of playing games in Cayman. That has to stop. Pretending we can determine residence on rules written for the era of the steam ship and telegram when we live in the age of the internet is just madness, and is giving companies the most massive loophole to abuse the tax rules and revenues of major democratic states. The objections of business have to be ignored and such schemes have to be looked through now wherever possible.

Is this a case for the proposed GAAR? I think it should be, but I fear the hurdle has set been too high for it to be used in such cases. If so then specific legislation is needed. Either way, reform is possible and overdue.

Making aggressive tax avoidance illegal – what a new GAAR might do

GAntiP, HMRC, Tax avoidance 5 Responses »

Nov 212011

The proposed General Anti-Avoidance Rule, published today and written by Graham Aaronson QC, about which I wrote earlier today, attacks arrangements with one or more of these qualities:

(a) arrangements that would result in receipts being taken into account for tax purposes which are significantly less than the true economic income, profit or gain;

(b) arrangements that would result in deductions being taken into account for tax purposes which are significantly greater than the true economic cost or loss;

(c) arrangements that includes a transaction at a value significantly different from market value, or otherwise on non-commercial terms;

(d) arrangements, or any element of it, inconsistent with the legal duties of the parties to it;

(e) arrangements including a person, a transaction, a document or significant terms in a document, which would not be included if the arrangement were not designed to achieve an abusive tax result;

(f) arrangements that omit a person, a transaction, a document or significant terms in a document, which would not be omitted if the arrangement were not designed to achieve an abusive tax result; and

(g) arrangements that include the location of an asset or a transaction, or of the place of residence of a person, which would not be so located if the arrangement were not designed to achieve an abusive tax result.

All or welcome; the last especially so since it is clearly aimed at tax havens.

And all have another welcome characteristic: without exception the drafting notes that the arrangements in question are legal and would work but for the new GAAR. The idea that tax avoidance can be made illegal has been established. That is massive leap forward in thinking.

A GAAR for the UK – one step closer today

GAntiP, HMRC, Tax avoidance, Tax compliance 8 Responses »

Nov 212011

Graham Aaronson QC’s report for HM Treasury on the desirability of a General Anti-Avoidance Rule (GAAR) for the UK is published this morning, and I warmly welcome it.

There are two reasons for me saying that. First, in the days when Vince Cable and I used to talk he was quite a fan of my work, and as a result he and Matthew [Lord] Oakeshott put this idea, for which I had campaigned hard, into the LibDem manifesto on 2010. From there it went into the Coalition agreement and so I might, I think, fairly claim a small credit for the fact that this issue has reached this stage.

Second, and in the interests of full disclosure it is only fair to record I met Graham Aaronson twice during the course of his work, doing so on behalf of the TUC who I advise on tax. I did as a result have a chance to read drafts of this report and to input into the process, and both appreciated that opportunity and Graham’s receptiveness to ideas, many of which he took on board.

So what of the outcome? Well, this is more like a principle than a rule, and I appreciate that. It would be hard to see how a piece of legislation could more precisely enact the will of parliament without using those words than this draft does. It’s very clever in that respect, and I welcome that.

I also think that many appropriate checks and balances are built in to the drafting. HMRC cannot use this willy nilly, and that’s right. This should be a tool of last resort and not a battering ram for widespread use. Appropriate defences for action are built in. Safeguards to prevent HMRC over-using the provision are included. The result is that the rule will be used against egregious cases, and not be aimed at all tax planning. That’s right: where the law provides for choice planning is inevitable and right and I for one have never denied that fact.

But let’s also be clear: this suggested rule says very clearly that things that may be legal can also be morally unacceptable and the chance to prevent a person availing themselves of that abuse should exist. That is an enormous step forward in UK tax law if it comes to be enacted and I welcome it. So should all wise companies and tax professionals, not least because this means no one is now obliged, even in their wilder moments, to mention these egregious schemes any more: they can simply say they are sure they will fail and as such can recommend clients to ignore them. Companies can also do so with a clear conscience, knowing the chance of failure in using such schemes has now increased, a lot. Anyone who does not welcome this is simply saying they think abuse of the law is desirable: it will be a foolish person who does that. Certainty is, incidentally increased because such schemes will also now be unavailable

But that said there are compromises which I would not have embraced. For example, I think the burden of proof should rest with the taxpayer in all cases when an action is taken under these rules. It has been made so hard for HMRC to begin them I think that the right balance. Right now that’s not the case: in all but the cases most likely to impact on small business and individuals the balance of proof is on HMRC. That, curiously, is reversed in the case of what will arise for most small businesses and individuals and the impression that this is another measure that picks on the small player is reinforced as a result. That is unfortunate.

Second, I think there is real risk that the tax profession may have too much influence on the advisory board that will be established to run this GAAR. That would be a serious problem and more balance is required in my opinion.

Third, the scope is simply not wide enough. NIC and SDLT should be in from the outset.

I would hope that progress can be made on all these issues, but let’s have no doubt about it: this is a very big step forward for tax justice and I warmly welcome this report and hope it moves rapidly towards becoming law. The Tories will need to be held very firmly to account on that one.

Oh, so true

Conservatives 20 Responses »

Nov 202011

Just too good not to share, from Left Foot Forward:

Nick Shaxson talking to #Occupy London

Economics 2 Responses »

Nov 202011

Quakers and Business Support the global Occupy movement

Economics, Ethics 2 Responses »

Nov 192011

I was a founder member of the Quakers & Business Group and am still a member. It issued the following press release yesterday and I am pleased to share it:

The Quakers & Business Group stands alongside people of all religions and none who are resisting economic injustice with peaceable action. We recognise the concerns of those engaged in the occupation of financial centres throughout the world. We support this movement that highlights the failures of the current structures and systems, leading to behaviours that exploit people and oppress their fellow human beings.

We are concerned about aspects of the global economic system that divide people from the environment and from one another. Q&B has worked, and continues to work, towards new systems of economic activity that relieve the current oppressive nature of many of our business practices.

Our understanding is that the Occupy movement’s aims reflect the views of many of the people around the world, who seek fairness and right ordering in financial affairs. Quakers began as a grassroots protest movement. We know from our history that peaceful direct action plays an important and ethical role in resisting injustice and achieving change.

-ENDS-

The Quakers & Business Group is both a listed informal group within Britain Yearly Meeting and a registered charity whose purpose is ‘to promote Quaker principles particularly in the context of business and the workplace’.

The NHS – a guest post

NHS 8 Responses »

Nov 192011

This was written by my son, Thomas, aged 9, this morning, unbidden. I thought it well worth sharing:

THE NHS

The N.H.S needs your help. The government is taking money away from this service. They need you to help.

Have you ever had to go to hospital?

Was it because of a bad illness?

Was it because of a broken bone?

If so think about how you felt when it happened or when you were told you could go home. Because in 2013 the N.H.S might not be around. We take it for granted but if one day the N.H.S. isn’t around who will be there to help us?

Also millions of people would loose their jobs.

By Thomas Murphy 18.11.11

Sam Brittan – offering a Keynesian solution

Economics 45 Responses »

Nov 182011

Samuel Brittan has written in the FT today, saying:

The shock rise in UK unemployment in October cannot be dismissed by the usual warnings about not going by one month’s figures. The size of the jump may be exceptionally large, but it marks an accentuation of a trend that has been evident since April. Previously surprise had been expressed at how modest an effect the sluggishness of the economy had had on unemployment. That surprise is rapidly disappearing.

He’s right. And this is his suggested economic policy:

Five simple steps could be taken to facilitate such an increase. First, the Bank of England should announce immediately the extra quantitative easing at which it is already hinting, but widen its asset purchases beyond the conventional gilts. Second, having sold off Northern Rock, the Treasury should retain its other bank holdings as a basis for a state lending bank for small and medium- sized enterprises. Third, the government should give in to political pressure and postpone indefinitely the increase in petrol duties due in 2012. Fourth, it could introduce a temporary cut in value added tax. Fifth, and most heretically, there should be an anti-savings drive.

I agree we need more QE. I’d prefer it was Green QE, but we need it.

I agree we need a state lending bank.

I’m not sure on petrol duties: I’m green. I think there are better taxes to cut, but that moves me straight to VAT cuts, where 15% makes sense right now – as Alistair Darling did.

And let’s look at the fifth idea, because that is fascinating.

What Brittan is saying is that the paradox of thrift is in play – people are saving far too much, and companies too. Since exports are also affected we’re ending up with recession. I agree we need to spend more, but not on consumption for the sake of it.

The Green New Deal suggests we create a ‘carbon army’ to insulate Britain and install solar and other alternative energy. This is spending now to deliver a long term difference. That’s what we really need. And yes, I do have solar panels on my roof and even today they’re generating nicely (plenty enough to power the house where I’m working and be sending into the grid right now).

Ed Balls also had this idea in suggesting cuts in VAT on house improvements. That’s also completely logical.

So let’s not have it said there is no alternative to what Osborne is condemning us to and on false premises. As Brittan also says:

Of course, Britain’s problems are aggravated by the world, and particularly the European situation. But the UK is part of the world and its government has worsened matters by throwing its weight behind a restrictionist approach. Now it is urging on the eurozone a fiscal union of which it wishes to form no part. No wonder French and German leaders occasionally allow their irritation to emerge.

Quite so. The UK’s problems right now were made by Osborne and the solution has to start here too. No excuses. Just get on with it George – or accept the consequences.

The Courageous State at Plurabelle Books, Cambridge

Courageous State Comments Off

Nov 182011

The following comes from the Plurabelle Books blog:

Please join us at 6pm on Tuesday 29 November 2011 at Plurabelle Books, Cambridge for an evening with Richard Murphy, author of The Courageous State.

His new book argues that neoliberal economics has led to weak governments who assert the supremacy of the market. This has created cowardly states: states that shun responsibility and leadership. Worse, the weak politicians who preside over such states encourage the use of tax revenue for the benefit of the private sector: Is there a way out of the “democracy” of capital which creates poverty with a click of a banker’s mouse ?

That’s the question Richard addresses and in doing so he raises one of the most urgent issues for today – What is the alternative that Occupy Wall Street, Occupy London and others should be demanding? He argues there is an alternative – and that it’s all wrapped up in the contested notion of The Courageous State

Richard Murphy is a chartered accountant and economist at Tax Research UK. He has been called an “anti-poverty campaigner and tax expert”. He was voted the seventh most influential left wing thinker in 2010/11 in a Left Foot Forward poll, making him the highest ranked UK based economist on the list. His blog taxresearch.org.uk is probably the most influential economics blog in the UK.

Plurabelle is books you don’t need in a place you cannot find. Our premises are well hidden on the old Rattee & Kett site, next to Hills Road Sixth Form College. Plurabelle Books (Grey Barn, Michael Young Centre, Purbeck Rd, Cambridge CB2 8QL) has an extensive stock of more than 50,000 academic books in all subject areas. The discussion with Richard Murphy will take place in our browsing bookshop where great deals can be had for little money. We also have an extensive list of books on economic subjects, many currently offered at reduced prices

Snacks and drinks provided by searchingfinance.com,

a new publishing venture set up by Ashwin Rattan. Ashwin will offer Richard Murphy’s book at a specially reduced price of £ 11.- Searching Finance is currently soliciting proposals for new publishing ventures, and he looks forward to meeting authors and researchers.