Robert Peston posted this on Twitter three hours ago:
And for the record, here's the link. And, also for the record, it's hard to see how a man who has got so far can be so wrong on tax avoidance.
As Peston puts it:
Blairmore's tax avoidance does not in and of itself prove that Ian Cameron and his family avoided tax
I beg to differ.
So first, let's be clear what the objective of tax compliance - that is tax honesty - is. It is seeking to pay the right amount of tax (but no more) at the right rate, 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.
So what is tax avoidance? That is using loopholes within and between laws and legal systems to make sure that tax payments are not compliant (as defined above) in ways that do not breach the law.
In this case is what Ian Cameron did tax avoidance? Yes, of course it is.
Panama is the wrong place: nothing really happened there, or in the Bahamas. So using it is avoidance.
And was tax paid at the right time? Almost certainly not. An offshore fund can most definitely be used to defer income and gains between years. So that was likely to involve avoidance as well.
And was the right rate paid? Well, not by Blairmore at least - which has paid nothing at all.
So in that case was the right amount of tax paid? Very, very unlikely if it is as defined above.
In other words, there was tax avoidance.
So did Ian Cameron gain? Yes, in two ways. First he was paid by this fund - so he gained from the avoidance, and it seems that this was his intent. Second, the family does appear to have had money in the fund at some time, at least. So they could also have avoided.
In other words, Robert Peston is just wrong.
I stress, I am suggesting nothing illegal happened. But to say that I an Cameron did not gain from tax avoidance when running such a structure is absurd and Robert Peston has a duty to do better than that if he is to be taken seriously.
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Seems quite simple to me. Why would they do it if there was no benefit to them? I do not think it unreasonable to start from there. Indeed it seems perverse to assume otherwise. I speak as someone with no knowledge of these arcane arrangements, so presumably I am Mr Peston’s target audience. But his proposition is at odds with general experience of life, and so is unconvincing to someone like me. Effectively he asks me to accept that these are honourable people, in my terms, not theirs. I just don’t.
I also wonder about wider effects. Separate from the direct benefit to families and individuals, is the question of jobs. Where companies are offshore, there must presumably be employment, however limited in a shell company. And if those jobs are in a tax haven they are not here.
Per wiki in BVI tourism accounts for 90% of employment, directly and indirectly. But it is not so clear cut, it seems to me. A big proportion of that tourism is private yacht charter and it is not ridiculous to suppose that some of that, at least, is not pure tourism. Perhaps those who can afford such a “holiday” go there to do business in off shore companies too.
However that may be, around 10% of total employment is in financial services and that is not chicken feed, since remuneration is much higher in that sector than any other. We lose the tax and the demand that generates, presumably. Things interact, do they not?
I am not sure I really understand – If a fund is set up in the Bahamas or wherever and that company pays the corporation tax and registration dues etc in that country, is that not the same as say a unit trust set up in the UK or an OEIC set up in Luxembourg or Ireland. If the fund in the Bahamas invests in shares say in india or Germany or wherever it as owner of those shares will be required to pay tax on gains and income in that country depending on the tax law of that country. If Bermuda has decided that it doesn’t want to levy gains or income tax on the gains or income made on those shares held by the fund in the Bahamas then that’s their governments choice isn’t it? If an investor in the Fund in the Bahamas sells his shares in the fund or gets income from the fund then don’t they have to declare it in their tax return? How is that different from an investor in say a UK unit trust or an Irish OEIC who will also get income and gains and have to declare it in their tax return. If they don’t that is obviously dodgy. It seems to me that the endowment policy was much more dodgy with no gains paid when it was cashed in – don’t see many people complaining about that or the dodgy UK bonds sold by IFA’s where gains were taken out as “repayment of capital”
So why use the tax haven?
Please explain
Isn’t Bermuda, BVI etc just as legitimate as say Ireland or Luxembourg. They have good fund admin services, good lawyers, good accountants and their fund rules allow funds to invest more freely that the regulated prodcuts in Europe and the US
Please do not waste my time with stupid questions
I think your question on WHY? is well answered by Graham Aaronson
https://www.politicshome.com/news/uk/economy/financial-sector/opinion/73541/top-lawyer-ian-camerons-investment-fund-was-not-tax
Graham was wrong
Perhaps you would like critique Aaronson’s opinion. He is after all legally trained, a QC and highly regarded.
We await with interest.
He’s also at the heart of the tax establishment and no stranger to tax avoidance
Spot on again!!
This is tax avoidance according to definitions you have created to suit the outcome you pre-determined. Can you reference your definition to decided cases?
Neither you nor Peston have enough information at your disposal to make a qualified judgment.
And you need a spoonful of reality – location of investment funds, treasury centres and holding companies is more often than not dictated by favorable tax regimes and rates. There is tax competition. Are you then suggesting that companies that establish themselves in the UK are automatically tax avoiders because the rate in the UK is lower than that in other countries.
Nonsense: this definition is completely consistent with normal definitions, just expressed in fairly plain English
And we have ample evidence to decide on that basis
And the answer to your last point is implicit in the definitions: it comes down to economic substance
Candidly, you’re either a lousy accountant or lawyer as well as a lousy apologist and a lousy debater
You really need to up your game if you are to contribute here
And people claim you only post on your own blog because you are hostile ,aggressive and arrogant!…….Seriously RM, where do people get these ideas?
Let me guess…..it is all his fault?
I suspect so
Er, what other definition of tax avoidance is there?
When the comedian Jimmy Carr did this, David Cameron called it ‘morally wrong’.
What is the difference between that and what Ian Cameron did?
Good question
Yes, and I think Carr gained the money legally – not sure about the Camerons though- there seems not a moral bone in their bodies.
Sounds like the author struck a chord with a ‘ a spoonful of reality’ from Justin who I would imagine could get you the best deal on moving cash somewhere 😉 But does HMRC know Justin … er, whoever you are. Maybe a little panic is to ensue so I kindly left this for you in case you’re looking to escape, lots of lovely south sea islands, you’ll love it Justin. http://thespinoff.co.nz/07-04-2016/me-and-jurgen-mossack-how-kiwi-journalist-revealed-mossack-fonsecas-dodgy-pacific-deals/
Fascinating article Chris from this New Zealand journalist, it just gets even better to find out that Jurgen Mossack is the son of an ex-Nazi Waffen SS officer (who allegedly had connections with the CIA after he moved to Panama in the 1960’s).
And that the Mossack Fonseca data may not have been gleaned from a whistle-blower but perhaps an external hacker (who presumably had some idea what they were looking for).
This could be a conspiracy theorists wet dream!
http://www.independent.co.uk/news/world/politics/panama-leaks-the-mysterious-message-that-launched-the-panama-papers-scandal-a6972501.html
is the Michael Hudson mentioned in the link different from the Michael Hudson, economist, of the University of Missouri? A critic of neo-liberalism?
Michael Hudson at the ICIJ is not the economist.
https://www.icij.org/about
Michael Hudson
Senior Editor
Michael Hudson is a senior editor at ICIJ. He has been an editor and reporter at the ICIJ since 2012, working on ICIJ’s ground-breaking investigations of offshore financial secrecy and the global trade in human tissue, and leading ICIJ’s World Bank investigation. He previously worked as a reporter for the Center for Public Integrity, the Wall Street Journal and the Roanoke (Va.) Times and as investigative editor for Southern Exposure Magazine. His work has also appeared in Forbes, the New York Times, the Los Angeles Times, the Washington Post, Le Monde, El PaÃs and many other publications. His two decades of reporting on mortgage and banking fraud has prompted media observers to call him the reporter “who beat the world on subprime abuses,” the “guru of all things predatory lending” and the “Woodward/Bernstein of the mortgage crisis.” His reporting has won or shared many honors, including an Investigative Editors and Reporters Award, a Sigma Delta Chi Award, two George Polk Awards, a John Hancock Award for business journalism and accolades from the National Press Club, the White House Correspondents’ Association, the American Bar Association, the New York Press Club and the New York State Society of CPAs. His most recent book, The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America–and Spawned a Global Crisis (Times Books, 2010), was named Baltimore City Paper Book of the Year and was called “essential reading for anyone concerned with the mortgage crisis” by Library Journal.
Twitter: @michaelwhudson
And he is a very good journalist – worth following in Twitter
“So what is tax avoidance? That is using loopholes within and between laws and legal systems to make sure that tax payments are not compliant (as defined above) in ways that do not breach the law.”
What if the reason tax isn’t paid by the fund is because of a specific rule in the UK on which Parliament’s purpose is very clear, and the fund qualifies for the very clearly set out conditions for that exemption to apply? That wouldn’t count as a loophole, surely? Isn’t Parliament’s intention the way we define what the “right amount”, the “right place” and the “right time” is?
Doesn’t my definition make that clear?
I thought it did, but I’m not clear because you disagree with Robert. The fund filed returns with the UK tax authorities, and the UK investors paid tax on their share of the income. So what’s the problem? That’s exactly what Parliament intended.
Read the article
It’s really not hard to see what I am saying
The reality is that every tax law passed will need a judge, an appeal judge, a supreme judge (and probably a few more layers after that) to actually agree what the words mean in the context of the overall laws in the jurisdiction concerned.
Add into that the fact we’re talking multiple jurisdictions and several international treaties, you’re now into such a legal minefield that it is not surprising that there are vast army of lawyers, accountants and bankers playing merry hell with the whole system.
The real problem (in my view) are the objectives of those who seek to game the system to their advantage, which can be summed up as increasingly concentrated wealth and power. You can tinker with the laws as much as you want, but I am absolutely certain it won’t change the objectives and the whole perverted game will continue in some new form or other.
I just don’t like the game that’s being played, no matter how good the rules or the referees or the punishments for foul play really are. To me it’s like saying we can make fox-hunting, bear-baiting and bull-fighting all decent and fair sports by changing the rules, policing the events and cleaning up the worst offenders so that all the masses will enjoy and benefit from participating or watching them.
If a game is morally and socially corrupt it cannot and should not be tolerated.
Competition means winners and losers, fair competition is an oxymoron because it ignores the raw human desire to be the winner and not the loser which means every trick in the book will be used to make it an unfair game.
Tax competition is the same, it just makes no sense to me?
I can’t see that there can be a single legitimate usage of a corporate ownership obsvication haven. They may be used for tax avoidance but there primary reason for existence is to get round corporate ownership transparency laws. We should simply ban all fiscal transactions to those countries until they adhere to the norms of corporate transparency that the rest of the world has. And I’m including the USA in this as they allow similar hidden incorporations. Without transparency for those in charge how can we allow ourselves to be ruled over by them and trust that there isn’t corruption.
I see Mr Cameron says that the trust was set up so they could own shares denominated in dollars. Can you not do that if based in the UK? Why not? I thought anyone could buy shares in a company if they are traded. What stops that?
Of course that could have been done in the UK
It’s all excuses for unethical behaviour. The main purpose of these countries is hide ownership and to allow the laundering of money. If they wanted a fund that was traded in dollars then create it in new york, not in a country deliberately setup to hide who you are.
Thanks Richard. That is what I thought. So it is another implausible tale. Why did Mr Peston not call him on that, I wonder. He had the chance
Peston has been over-rated for a long time. I have never taken him seriously – even less so than after his wife died. He just seemed to become more deluded.
Paul Mason and the Asian gentleman from Channel 4 News however are worth listening to thank goodness and are the only reason I continue to watch it.
I wonder what our auguste accountancy periodical “Economia” will have to say on all this Richard?
I suspect nothing as usual
And of course there is no way the ICAEW will seek to discipline member firms associated or implicated
Makes me feel ashamed to have ever called myself a Chartered Accountant.
Oh how the once mighty fall
They never talk to me
And despite being one of the most public chartered accountants in the UK it is long time siunce I have written for them
“…And of course there is no way the ICAEW will seek to discipline member firms associated or implicated…” And the same applies to ICAS…I know, I pay hefty fees for the (dubious) privilege!
It is seeking to pay the right amount of tax (but no more) at the right rate, 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.
As far as I can see according to this definition, receiving a dividend on 5 April and declaring it in that tax year (economic substance and reporting being perfectly aligned) rather than receiving and paying tax on a dividend on 6 April would not be tax avoidance; when (given that changes in treatment of dividends this difference of date would be an advantage) most people would think this was tax avoidance.
Conversely, taking a tax credit for investment in year one when the economic substance of the benefit of investment accrues over a number of years would, on this definition, be tax avoidance when most people would not regard it as such.
If you control the dividend date it may be avoidance
If you don’t it can’t be
The law governs when tax credits are due: this is never going to be avoidance
Your definition says nothing about what the law provides; it is about matching economic substance and tax incdidence. Or are you saying that if the law sanctions a mismatch between economic substance and tax incidence that is fine; but otherwise not.
And the economic substance of a dividend receipt to the taxpayer can only be when it is received. I agree with you- and that was my point – that if it can be manipulated between tax years most people would think that was avoidance. But that is not what your definition provides for.
I am saying if the law sanctions that it is OK, yes
A also make clear that avoidance is circumventing the intent of law
As I have made clear, if the recipient of a dividend cannot control the date of its payment they cannot be accused of avoidance (assuming they did not also create the structure that paid it)
Your issue is?
Isn’t the key to this – ‘was tax paid at the RIGHT time?’ Presumably David Cameron et al took money when and as it suited them in order to pay least tax – depending on their own income in any one year and prevailing tax rules.
That is not something ordinary people can do. They get taxed in the year they earn the money.
Somehow feel the ‘right time’ argument has to be made crystal clear as it is a compelling reply to say income tax and capital gains tax were paid in the right place – Britain – by Cameron when he received money where he lives. Obviously that would be part of his riposte to your ‘right place’ point, since he does live in UK.
The other thing is that offshore investment funds can invest in things that onshore funds are less able to. This is one big reason for going there. But it would be good if we could be specific about what these investments really are? Are they more exploitative or unethical than would be allowable onshore? Or is that too simplistic?
As the fund had hundreds of investors it is highly unlikely that those investors would have had any say in the timing of their distributions.
I accept that
Doesn’t sound like avoidance to me.
If I have £10,000 (say) to invest, I can choose (legally) to invest it in any country in the world where there is freedom of movement of capital. We don’t have exchange controls any more, and I certainly wouldn’t support any government that sought to restrict where I could move my money.
Then, as a UK resident I have to pay tax on any money I make from my investment anywhere in the world. The investment could be in an Irish company that pays very low corporation tax, or in a US company that pays very high corporation tax, which would indirectly affect the value of the investment, but that doesn’t affect the tax I have to pay (morally or otherwise). I, like any other UK resident, have to pay tax on the money I make when I make it, and this is in the form of income tax (on the dividends) and capital gains tax (on the profit I make when I sell it). That’s all. As long as I declare all the money I receive from the investment, I consider that I have met all my legal and moral obligations; it’s up to the UK Government to decide how much tax I should pay and I conform to that, but it’s not up to anyone to decide for me where I should invest my money.
You are ignoring all that I wrote
That does not create an argument
No-one seems to have looked into CaMoron’s claim that Blairmore Holdings was set up ‘to enable people to buy “dollar-denominated companies” and shares.’ Which “people” and how many customers did this “fund” have over the years? What profits did the “fund” make over the years? If Ian Blair was making all the arrangements whilst in the UK and none of the customers lived in the Bahamas does that not indicate that he was liable to tax in the UK? Those who reside in the UK but sell things on the internet to the USA and other countries have to pay UK taxes; why is it different for the CaMoron family?
He used the electric telephone to do it!!
(shock horror)
I wonder if the tweet/story from Peston was a pre-requisite of getting the mea culpa interview with the PM, or whether the No 10 press office saw the whitewash and decided that Peston was a useful ally for the PM?
The key to all this is that most people (like myself) have no options as to how much tax they have to pay, because it’s collected via PAYE. We pay our fair share, and we expect everyone else to do the same. Shifting investments into tax havens is done for one reason only – to reduce the amount of tax you pay, which means that you feel you shouldn’t have to pay your fair share. What’s more galling is that most of these investment vehicles don’t actually invest in anything useful, like machinery or technological innovations; they exist only to make their investors richer.
You talk about the right rate.
The right rate is NIL.
This is because accounts are declared in Panama.
You seem to be confusing everybody about the difference between aggressive avoidance and avoidance. The fund is distributor – 85% income paid out annually.
In my CII manual, it’s normal avoidance – just tax efficiency as appropriate for non-doms and non res persons, of which there are hundreds and thousands, at least 500,000 in spain.
This is something a good Financial Adviser should recommend to the appropriate client.
I think you are stirring this for political reasons, and Cameron doesn’t know this stuff, or what’s hit him.
Yours Aye
But the avoidance was in making sure the accounts were not declared in the UK
And please explain the bearer shares
I have not per se said using such a fund is avoidance – I have said the creator and his family may have gained from the avoidance in creating and running it
The problem is you cannot read an argument
Ed comment:
Your comment was deleted
I read your recent client email and its references to me
Pleased to learn you subscribe! Shame you’re happy to “fisk” Peston, but duck proper dialogue.
Dialogue is impossible with people like you so I can’t be bothered to waste my time
I do not subscribe
I was sent it by a source who thinks as much of you as I do
For my education … if these off shore trusts accumulate funds that are invested in stocks and shares which if they give rise to gains, are tax free … are they not just stocks and shares ISAs for the rich?
ISAs are specifically encouraged
Although I confess I would consider abolishing them as they serve no useful economic purpose at all
Richard, dialogue is impossible if one side censors the conversation.
Or you are publicly abusive
Of course companies set themselves up where it makes most economic sense for all sorts of reason (local tax issues being just one of them). There appear to me to be two points which people often confuse using the “avoidance” word which has evolved into one of those generally derogatory terms and has just turned into rhetoric. One person’s aggressive tax avoidance is another’s reasonable tax planning. Where one places the “acceptable practice” position involves a lot of subjective assessment and interpretation of parliamentary legislative intentions.
In this case there is the personal (does it allow the individual to avoid personal income and capital gains tax?) and second is the corporate (is the incorporated body itself avoiding tax which ought, but dint of where it’s economic activities actually took place, be due to be paid in a tax regime – or regimes – other than the place where it’s domiciled?).
The two are, of course, connected, but to deal with the first (as it’s surely easier). UK tax law appears pretty simple (at least for the UK domiciled) in that any income or capital gains on realisation is taxed in the UK after, of course, any withholding taxes in the place of incorporation. There are certain aspects of Blairmore which could facilitate evasion (namely the now outlawed use of bearer certificates), but that is clearly illegal. There are, of course, more general issues about the use of tax havens to facilitate such evasion (such as lack of transparency, registers of beneficial owners and the like), but this does not appear to be what Cameron is accused of. Those then that decry the (currently legal) ownership of shares in bodies incorporated in tax havens (however we might classify those) have a question to ask over what they want the legal position to be? It might be possible to draft a law to ban share ownership in countries that won’t provide for transparency (to HMRC) of beneficial owners, but what if that is dealt with? Will tax payers in the UK be allowed to own shares in tax havens if they do abide by such transparency rules on beneficial ownership?
Then there is the second issue of whether the incorporated bodies in the tax haven are avoiding tax that ought to be paid, by dint of the where the relevant economic activity took place in another tax regime. In some cases it’s pretty obvious where the economic activity is taking place, and complex structures which artificially move profit to low tax regimes by instruments such as inflated brand licensing, administration, transfer pricing, financing arrangements and the like are taking place. It’s still tricky, but it is at least feasible where there is obvious economic activity. In the case of Blairmore it seems to be completely opaque as to where this economic activity took place? Was it commodity trading? Was it bonds? Was it capital assets owned elsewhere in the world? Most likely it was a mixture of things. In any event, it’s potentially extremely difficult to define where this sort of economic activity is taking place? Inside the heads of those making the investment decisions? Where are they based? The investors do, of course, gain from this by higher income/capital gains. I think it’s pretty well impossible for us to know given that the operation of Blairmore and its investments are opaque to the UK tax authorities by the nature of not being incorporated in the UK.
Robert Peston’s point is manifestly not that the investors did not gain from where the investment trust was incorporated, but that the UK exchequer might not have lost out or even made a net gain as the beneficiaries will often be paying marginal tax rates at a higher rate than corporation tax. A moot point, but that’s the basis of his argument, not that the investors didn’t gain.
In any event, the current level of the debate, which is largely about mud-slinging, and precious little about what is or is not legitimate at any level which might actually be applied as tax regulation, is not exactly productive in any real sense. What is required is clarity of regulation and not subjective and fuzzy statements of “fairness”. There is a very good case to be made about transparency. There is also a very good case to be made about obvious repatriation of profits from the place of economic activities. I think there is a much weaker case about overseas investment or the location or the location of economic activity inside people’s heads. What if, for instance, Blairmore had been managed from Monaco, or Switzerland or the British Virgin Isles?
You entirely miss the point, which is not DC’s tax, but his endorsement of what his father did as far as I am concerned and the fact the tax havens are the instrument used to deliberately undermine democracy, free trade and the rule of law
So Monaco, Switzerland or the BVI would make no difference
I really don’t think I did miss the point as I think I covered the relevant issues the question is what is to be done about them.
There seem to be two main points regarding investment funds in tax havens. The first is transparency to UK tax authorities whilst the second is the nature of the tax regime in the haven in question. Should we ban those domiciled in the UK for tax purposes from investing in funds set up in tax havens which won’t exchange information? If that’s not enough, then should we impose unilateral sanctions on those regimes?
Then there’s the tax regimes themselves. Should we go so far as to band those domiciled in the UK for tax purposes from investing in funds incorporated in tax regimes we deem to be running unacceptable tax policies (like having unacceptably low rates of corporation tax?
In short, what are the proposals?
nb. whilst this particular fund (moved to Ireland in 2012) was setup by a UK national, I’m sure banning that practice would make any substantive difference as similar funds set up by other nationals are available.
I have made clear these are not my primary issues of concern
It is clear Ian Cameron did intend to avoid tax
It is clear David Cameron says he is proud of what his father did
That’s my concern
Cameron has said he will be publishing details of his tax returns after 2010.
1. So how much confidence can we have that the details will be accurate and comprehensive. After all we have no way of checking because of HMRC confidentiality rules. In any case the information only relates to a period after he sold his investments in Blairmore. It seems worth noting that he only sold enough units to put him in the exemption limit for capital gains tax.
Is it possible that he has other investments in the fund, possibly shielded by bearer certificates?
I believe they will be in the papers tomorrow
Isn’t there a conflict of interest in that MPs pass laws which contain loopholes and then take advantage of those loopholes? I thought MPs had to declare possible conflicts of interest.
Peston has a point this time. Blairmore seems to have been structured so that it ensures that any UK investors pay UK tax on its income and gains. I don’t pretend to be a tax expert but you can see that it is included in the offshore funds UK tax regime here (https://www.gov.uk/government/publications/offshore-funds-list-of-distributing-funds) and the successor regime here (https://www.gov.uk/government/publications/offshore-funds-list-of-reporting-funds) so it would have been filing UK tax returns and paying income to UK investors in the way that offshore funds have been required to do by HMRC since the ’80s. UK investors would have had to declare the income on their tax returns and be taxed accordingly.
I can understand why you might choose to set up a fund offshore (e.g. to attract non UK investors who do not want to suffer UK tax in the fund and then be taxed for a second time in their home jurisdiction or who prefer a different regulatory regime to the UK funds regime) but usually these funds would go to Ireland or Luxembourg. Panama seems an odd choice but from the HMRC documents the fund seems to have been moved to Ireland more recently.
Isn’t an answer to put all the various Tax Avoidance loopholes (and HMRC know what they are) on a ballot paper and let the electorate decide which should be closed and which work for the good of the majority? Or would that be too close to being democratic for our politicians? Such a referendum should save far more than it costs and arguments for and against should not be publicly funded (or the government publish a view). At least it would be interesting to see who argue for what loophole.
This is not how government works
Let’s not be silly