The Isle of Man Today website noted last week:
MOVES by the UK Treasury to introduce a general anti-avoidance tax rule could impact negatively on the Isle of Man.
KPMG island director Greg Jones said it was by no means a foregone conclusion that we would get a general tax anti-avoidance rule (GAAR) in the near future.
But he added: ‘If we did, however, there's no doubt that it would impact negatively on places like the Isle of Man.
‘Even if the GAAR were targeted as narrowly as the working party report recommends, in my view it would strike out a number of (what has to be admitted are) fairly contrived tax planning arrangements I am aware are promoted from the island.
‘There may be some work for tax practitioners in advising whether a particular planning idea falls within the GAAR's scope, but on the whole I think we'd lose a certain amount of the business currently being undertaken by some niche service providers.'
As he also explained:
Last year a working party under Graham Aaronson QC was established to look at the scope for introducing such a rule and what form it should take. The working party was comprised mostly of judges and tax academics.
The report produced by the group last November concluded that a GAAR would be a good idea but it should be targeted at situations in which people undertake what are obviously highly artificial arrangements with no real purpose other than to avoid tax — and not at situations in which a taxpayer simply exercises a choice to do something in a more tax-efficient manner.
Good to see that KPMG admit that the Isle of Man is used for such schemes. And remember the GAAR as drafted only tackles the most egregious - or abusive - of schemes.
And they should be worried. The GAAR includes as one of its trigger events:
(g) that the arrangement includes 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
That might be targeted straight at tax havens.
Disclosure: I represented the TUC in discussions with Graham Aaranson on the GAAR's drafting including detailed discussions of its scope.
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“‘Even if the GAAR were targeted as narrowly as the working party report recommends, …….” – talk about letting the cat out of the bag!
Meanwhile, Chief Minister Allan Bell is doing his best to stay one step ahead. Welcoming a film crew from the (South!) Korean Broadcasting Company (KBS) to the Isle of Man last week, he said:
“… the Isle of Man can offer an attractive corporate package to facilitate business for Korean companies exporting into Europe. We are a small and nimble country with the ability to identify niche sectors that could be mutually beneficial. We already have strong business connections with Korea through our shipping industry and I believe there is potential to develop that relationship into other areas.”
http://www.gov.im/lib/news/cso/isleofmansettobe.xml
This follows recent similar high profile jollies with delegations of ultra wealthy Chinese businessmen, no doubt eager to find a safe haven for their ill-gotten gains.
Anti Avoidance Agreements need to hit upon these three vital points in the definition: 1.Location of an asset 2. Residence of person and 3. Sub-stratum of the transaction. Most of the arrangements are entered into to abuse the tax systems of major jurisdictions by twisting the matters around these parameters. One such just happened in India in the case of Vodafone through their transfer of shares through related parties outside India even though it involved huge asset transfer in India which India Tax Department could successfully contest.The GAAR is well crafted with those points indeed.
You’re right
That’s why I say tax compliance is seeking to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes.
Thanks Mr.Richard Murphy for your reply and valued views. Last time I heard from you was when I wrote on Satyam Computers bungling with your instant reply on the same.
I’m an undergraduate Economics student and my experience of the discipline has told me that one seldom mentioned reason why such “egregious tax avoidance” has not been challenged until recently (mainly as a wake up call and as fallout from the Financial Crisis) is because the Economics profession have actively looked to justify this sort of tax avoidance as “economically efficient”. Keynes said that the power and influence of economists is not widely understood, and this as true today as it was in his day.
Sure, the financial industry does yield a lot of economic and political power, and politicians, through extensive deregulation in the last 30 years have made tax avoidance much easier for firms, but without economists publishing pseudo-scientific papers justifying tax avoidance in leading journals and influencing policymakers at the top, I don’t think this would have happened. In a lot of circumstances, these same economists were being paid by lobbying groups representing the interests of MNCs or business groups, so there was an enormous conflict of interest there.
Economists themselves realise this. Look at this academic paper to understand the sociology of the economics profession and the damage it has wrought on society.
http://www.econ.qmul.ac.uk/papers/doc/wp686.pdf
Some neoliberal economists even openly admit that they teach the subject to effectively indoctrinate their students into believing in free market capitalism:
http://www2.warwick.ac.uk/fac/soc/economics/staff/academic/mcmahon/research/reflections_on_my_teaching.pdf
“…While I enjoy the opportunity to mould the minds’ of students (how I “spin” the
subject can determine how my students think about economics and policy)…”
I know this isn’t completely related to your blog post, but it’s needs mentioning IMO. I’ve sat through 3 years of lectures, being taught about how free markets, deregulation, privatisation and flat taxes are good, while minimum wages, redistribution and public services are drags on economic dynamism. Arguing against this would be going against the mainstream and would probably result in you failing. This is not necessarily because my lecturers themselves are biased, but the discipline of economics is so inherently biased towards justifying far right wing free market ideas, that they are constrained in what they can teach.
For people on the left who want to forge a new society, one of the things you must do is highlight the pervasive and negative effect of economics, and how it’s impossible to put through socially humane and desirable policies (like combating tax avoidance) when we have economists always reading to counter your argument, and given that people treat them like experts, we can’t expect to have our arguments heard.
Personally, I would close every single economics department the world over, strip the discipline of it’s “nobel” privilege and try and consign the discipline to the gutter. I don’t think any other subject has caused more human suffering than this pseudoscience, apart from eugenics and racial “science”. The discipline actually evolved out of the industrial revolution, that caused a huge amount of pain and suffering to the poor, which explains a lot.
Thanks,
A disillusioned economics student.
I well remember that feeling of disenchantment with all I was being taught as an undergraduate.
Thanks for sharing this
I hope you’ve read Steve Keen’s Debunking Economics.