Cameron and Osborne did the Swiss tax deal to support tax evasion – there’s no other explanation

 Cayman, Guernsey, Isle of Man, Jersey, Switzerland, Tax evasion, Uncategorized  107 Responses »
Aug 252011
 

The UK – Swiss tax deal does not meet with my approval, as some will have noticed. The deal is outlined here. My objections are littered through the blogs preceding this one.

But let’s stand back for a moment and consider why the UK have done this deal – uniquely (because it seems unlikely that the supposedly similar German one will get parliamentary approval and so will not happen).

It’s important to say this deal was not needed. The revised European Union Savings Tax Directive is on the table. Twenty five EU states support it and it has looked very likely recently that compromise with the other two was possible and that Switzerland could have been pulled on  board. So deal that would have ensured there was automatic information exchange on all interest income and gains arising throughout Europe, Switzerland, Liechtenstein and the UK’s tax havens was on its way, covering not only individuals but companies and trusts as well and with names and addresses being supplied.

That deal would have ensured we’d have got all the information we needed to demand all the tax due by those who have been criminally evading their tax bills by hiding funds in Swiss banks that have been deliberately and knowingly helping them to do so.

And I think the UK- Swiss tax deal has been deliberately engineered to scupper that EU wide deal because it would have applied to Jersey, Guernsey, the Isle of Man, Cayman and all other British tax havens that comprise the branch offices of the City of London tax haven. And it would also have extended information exchange to companies and trusts – which would have shattered the tax evasion industries in these British tax havens.

So what have Cameron and Osborne done? They’ve as far as I can see absolutely deliberately signed the deal with Switzerland in an effort to destroy that EU deal. Even the FT says this morning:

We’re not experts in this field but we also wonder whether these bilateral deals mark a setback for international efforts, led by the OECD and EU, to force the Swiss into further transparency.

“The UK’s willingness to legitimise secret accounts on a ‘no-names’ basis is controversial because it treats users of secretive havens more leniently than other taxpayers,” notes the FT.

So how should we really interpret this deal?

What’s very obvious it is deliberate move by London. And it’s also very obviously deliberately designed to help tax evaders by making sure that the Crown Dependencies and others can remain in that sordid business.

So we have to conclude that this is not a move against tax evaders – all of whom will be laughing themselves silly about how easy it is to get around this Swiss deal.

In that case let’s not put too fine a point on this: this is the Treasury and our political leaders going out of their way to support criminality by making sure that a measure – the European Union Savings Tax Directive - that would blow tax evasion in British dependencies apart cannot now be implemented. And all, no doubt, at the behest of the City of London.

There’s no other reasonable interpretation for what they have done.

 Posted by Richard Murphy at 9:28 am

With the Tories at the helm the corporate ship will remain docked off Cayman

 Cayman, Corporation Tax, Economics, Tax avoidance  3 Responses »
Aug 082011
 

There was a stunningly good article in the Guardian on Saturday that I missed (well, it was my mother-in-law’s 80th, and these things take some organising). It was by Patrick Collinson and concluded:

When governments around the world are teetering into bankruptcy, and households are more indebted than ever, you don’t have to be a Marxist to acknowledge that the share of the national pie taken by profits is unsustainably high.

The City knows it. I was at a Mayfair asset management group this week, where fund managers were chewing over the risks of a steep rise in corporate tax rates. But they also expect corporates to indulge in as much profit-hiding as they possibly can. Expect more fake domiciling in Ireland and elsewhere.

We don’t need personal tax rises, we need to raise corporate tax and tackle the dodgers. But with the likes of the Tea Party and the Tories at the helm, the corporate ship will remain docked permanently off the Cayman Islands.

No wonder people are angry. The corporate looting of the UK goes on, unabated with official sanction.

Hat tip: False Economy

 Posted by Richard Murphy at 5:59 pm

The Office for Tax Simplification decided to keep the UK as a tax haven

 Cayman, City of London, Corporation Tax, Economics, PWC, Secrecy jurisdictions, Tax avoidance, Tax Havens  6 Responses »
Mar 072011
 

I am posting this here with the permission of the Progressive Tax Blog, which I strongly recommend.

The matte referred to is vital. As I an my co-autors explain in our book Tax Havens: How Globalization Really Works, this relief was at the heart of maiming the City of London a tax haven. And it still is. That’s why this issue is so important. And the OTS decided to ignore it. That, I suggest,. Was a political act. Also one in breach of money laundering obligations as the UK has no idea to whom these funds are paid. Why is that. In that context, please read this:

Anybody who has attempted to read the 191 report by the Office of Tax Simplification on simplifying tax reliefsshould be congratulated; it’s not exactly the most interesting document, and mainly deals with obscure tax reliefs that most people will not have heard of.

There is more interesting discussion over whether the income tax and national insurance regimes should be combined into a single tax (although no real conclusion), and the report recommends abolishing the £8,500 threshold for more generous treatment of employee benefits for low paid workers. However, to give you a taste for some of the other content, of the 191 pages, two deal with the duty treatment of angostura bitters and a specific black beer drunk only in Yorkshire. This is hardly the sort of complexity in the tax system that people complain of.

Nevertheless, there is one relief mentioned deep on page 179 related to relief from withholding tax for interest paid on so-called ‚ÄòEurobonds’ over which there is remarkably little discussion in arriving at the report’s conclusion:

Eurobond interest

P.79 This relief exempts interest paid on Eurobonds from deduction of tax so that the holder of the Eurobond receives interest gross rather than net of tax.

P.80 A quoted Eurobond is a security, including shares (in particular any permanent interest bearing share), listed on a recognised stock exchange, and carries a right to interest. Some of the major issuers are supranational organisations (such as the World Bank or the European Bank for Reconstruction and Development).

Is the policy rationale still valid, does the relief achieve it and what might be the impact of repeal?

P.81 The original policy rationale is to encourage the growth of the UK Eurobond market, as London is one of the centres of the worldwide Eurobond market.

P.82 If it were repealed, it could reduce investment in this area, and also reduce investment in the UK.

Taxpayer take up and awareness

P.83 This relief is targeted at any holder of Eurobonds.

P.84 In the year to November 2010, funds raised through Eurobonds issued on the main UK market totalled £393billion in over 3,300 issues.

Complexity, compliance costs and administrative burden

P.85 The relief is a simplification to the taxpayer as it removes the need to account for withholding tax.

Summary

P.86 The policy rationale remains valid and it is a simplification for the holders.

P.87 We recommend that this relief be retained.

The description of the relief from the OTS is brief and it is useful to put it in broader context.

In general, if a UK resident company borrows money from a non-resident company, it will obtain a tax deduction for the interest payable but under UK tax law is required to withhold UK income tax at 20% on interest paid to the non-UK company. The UK has entered into a number of tax treaties and is also obliged to follow the EU Interest and Royalties Directive which means that in many cases interest payable to an EU member state or another country which has a tax treaty with the UK (e.g. US) will in practice not be subject to UK withholding tax. However, interest paid to companies or individuals resident in tax havens will generally be subject to 20% withholding tax as no treaty will apply.

The relief referred to by the OTS is a specific exemption from withholding tax on interest if the debt on which the interest arises is a ‚Äòquoted Eurobond’. This may sound like a complex financial instrument but in practice this can include any loan agreement which is listed on a ‚Äòrecognised stock exchange’, even if the lender is a related party. The term ‚Äòrecognised stock exchange’ can appear to give the exemption legitimacy but in fact this includes the Channel Islands and Cayman Islands, among other exchanges.

Take the following example:

Eurobond illustrationIn this case, the UK subsidiary of a multinational group borrows significant debt from a group company resident in the Cayman Islands. The UK company decides to list the debt on the Cayman Islands stock exchange despite the fact that the lender is a group company and always will be (there is no prospect of a third party buying the debt). As a result of the listing, the UK company is still able to obtain a tax deduction for interest (reducing its UK taxable profits) but is not required to withhold any tax on interest paid. Meanwhile the Cayman Islands lender pays no tax whatsoever. The result is a significant UK tax saving all for the relatively insignificant listing fees and related legal costs associated with listing on the Cayman Islands stock exchange.

The OTS claims that the policy rationale is to promote investment in the UK, and that the relief is a “simplification to the taxpayer as it removes the need to account for withholding tax”. This is either naive or disingenuous. The relief is not a “simplification” but a complete exemption from UK tax for interest paid on these instruments, including to tax havens. The OTS only refers to the Eurobonds issued on the main UK market but neglects to mention that the exemption also applies for listings in tax havens and secrecy jurisdictions.

However, even in these secrecy jurisdictions the listing is public (just ‚Äòpublic’ enough); anybody can visit the websites of the Channel Islands or Cayman Islands stock exchanges and view the listings for themselves. While we cannot definitively say that all of the listings of debt issued by UK companies on these exchanges are purely for UK tax avoidance purposes, it is difficult to avoid this presumption in many cases.

We thought it would be interesting to highlight some of the companies that have debt listed on these exchanges. Unfortunately the sham of these sorts of instruments being publicly traded securities means that information on holders is not made public – although some borrowers do disclose in their own statutory accounts.

Issuer Exchange Holder Debt amount Interest rate UK WHT saved p.a. (estimate)
British Telecommunications plc* Channel Islands Group company – unknown £3,611m LIBOR plus 10 bps (e.g. 2%) £14m
Everything Everywhere Ltd
(formerly T Mobile (UK) Ltd)		 Channel Islands Unknown £1,250m Floating (assume 5%) £12m
Ineos Holdings Ltd* Channel Islands Ineos US Finance LLC (group company)
(Note: LLCs are typically non-taxable entities under US tax law)		 $1,785m Floating (assume 5%) $18m
Taveta Investments (No. 2) Ltd*
(parent of Arcadia / BHS)		 Channel Islands Group company – unknown £180m 8% £3m
BlackRock Finco UK Ltd Cayman Islands Group company – unknown $3,450m 7.43% to 8.90% $55m
Hewlett-Packard Holdings Ltd Cayman Islands Hewlett-Packard Marigalante Ltd
(Cayman Islands)		 £3,721m 6.5% to 8.3% £50m
Transocean Drilling U.K. Limited Cayman Islands GlobalSanteFe Services (BVI) Inc
(British Virgin Islands)		 $1,075m 5.54% $12m
Transocean Drilling U.K. Limited Cayman Islands Transocean Inc
(Cayman Islands)		 $750m LIBOR plus 500 bps (e.g. 6%) $9m

These are just a few examples from only two offshore exchanges but is enough to illustrate the point. We would be interested to hear from the above companies to understand what the commercial reason for listing on these exchanges is if it is not to avoid UK withholding tax.

Unfortunately the fact that the OTS has glossed over the Eurobond exemption in its report means it is unlikely to be subject to any further scrutiny (at least until this blog post). One has to question whether the fact that the committee is comprised at least partially by ‚ÄòBig 4‚Ä? accounting professionals, and led by a former PwC tax partner (John Whiting) has anything to do with this. For good measure we have highlighted the PwC audit clients with a “*” in the table above.

Why has the Office of Tax Simplification given its approval to a tax relief which encourages multinationals to locate finance companies in tax havens and pay no UK withholding tax?

I would be willing of course to pass on comments from the companies in question.

I stress: these actions are legal, of course. The question is about avoidance. But that is of itself important. And given the interest in tax haven issues and tax avoidance in the UK, justified, I think.

 Posted by Richard Murphy at 4:47 pm

When will Cayman learn?

 Cayman, Secrecy jurisdictions, Tax Havens  1 Response »
Feb 212011
 

I note the new Chair of Cayman Finance seems determined to continue in the tradition of his predecessor.

Interim Chairman Roy McTaggart , who recently succeeded Anthony Travers OBE, has sent a letter to Ronnie Campbell, MP because he referred to the Cayman Islands as a tax haven during a debate in the House of Commons last week. McTaggart said, according to Cayman News Service, that:

Cayman is a fully transparent jurisdiction and not a place where individuals or corporations are able to “hide money”.

And of course the ritual denial that Cayman is a tax haven was delivered.

I’d have hoped that after the excesses of the Travers years that a new Chair of Cayman Finance might have toned down the rhetoric, and might even have realised the folly of tilting against windmills. But apparently not. If McTaggart does not realise that there’s as much chance of his argument that Cayman is not a tax haven being accepted in the House of Commons or in the UK generally as there is of a claim from the Libyan government this morning that it is an open, liberal democracy being accepted at face value then he very clearly does not understand first of all what a tax haven is, second what the generally accepted use of the term is and thirdly what Cayman is.

Keep issuing such absurd letters of you want Cayman, but all you prove is how far removed from reality you are, and while you do that people will rightly realise that all you have to sell is a myth – the myth that tax havens firstly do something other than let people and companies avoid their obligations to society and secondly that doing so is useful, both of which are very obviously untrue.

When will you learn?

 Posted by Richard Murphy at 9:42 am

What will Cayman do without Anthony Travers – the man who called me the leader of the ‘Tax Taliban’

 Cayman  Comments Off
Feb 092011
 

Anthony Travers OBE, the head of Cayman Finance has resigned after two years in the job.

What will we do without him? And how will Cayman survive without the man who described me as the head of the ‘tax taliban‘ and Nick Shaxson as having ‘ the understanding of an 11-year-old’?

Shall we have such fun in the future? I doubt it. He will be missed.

 Posted by Richard Murphy at 4:09 pm

Turks & Caicos – the destination for all tax havens with deficits

 Cayman, ConDems, Guernsey, Isle of Man, Jersey, Tax Havens  41 Responses »
Feb 092011
 

The Times has reported (from behind its paywall):

The British taxpayer is to underwrite a loan of £160 million to support a Caribbean tax haven that is struggling to pay the salaries of its teachers, nurses, doctors and police.

The decision to provide financial support for a country that levies no income tax or capital gains tax, particularly during a period of severe austerity at home, has brought criticism.

The Government admits that there is a “risk”, particularly about ensuring that capital and interest repayments are made on time. But it believes it has a “duty” to intervene. The Turks & Caicos Islands, which have a population of 36,000, have been left on the edge of “financial ruin” by the global crisis. The deficit is $55 million.

Britain seized control of the territory in 2009, ousting the elected premier amid claims of “systemic corruption”.

Alan Duncan, the Minister for International Development, said: “As a British Territory we have a duty to the people of Turks & Caicos. Without our support the islands will slide farther into economic crisis and will be more reliant on UK support in the long run. ”

He said that the rescue package was likely to work and would support the islands without any additional cost to the British taxpayer. He said that action was necessary because the previous Labour Government had left a “mess” by failing to step in when it was clear that reliance on financial services made the country particularly vulnerable.

On the other hand:

Richard Murphy, director of Tax Research UK, said: “We are in the extraordinary situation that the British taxpayer is underwriting a loan to support a tax haven, which will take away our tax revenues. There is absolutely no sense to this. The condition of these loans must be that they strip these tax-haven practices.

” Brendan Barber, the General Secretary of the TUC, said: “The Turks & Caicos Government’s failure to pay the wages of public servants shows the human cost of a country that prioritises jet-setting tax dodgers over its citizens. ”

OK, now you can see why I broke my habit of refusing to pay for the Times on line. But let’s also get to the serious issues.

First, the Turks & Caicos are far from alone in being bust – so are Jersey, Guernsey and the Isle of Man – all of whom are running big deficits. Cayman, the Bahamas and Bermuda are also in the club. And as the report makes clear, they can be reckless because we carry the can. And they are being reckless as a result.

Second, if Labour was reckless for not intervening when reliance on financial services (which was actually relatively modest in the T & C’s case) left the islands vulnerable then there is now an undoubted duty to intervene in Jersey, Guernsey, the Isle of Man, Cayman, the Bahamas and Bermuda. Check out the Tax Justice Network site on secrecy jurisdictions for the facts, particularly here.

Third, who is going to ask how long it is before these other states come cap in hand for loans as well? Jersey has a deficit of £100 million a year.

Fourth, why in that case are Tories supporting their abuse?

Last, Labour take note: there is action required here.

 Posted by Richard Murphy at 11:53 am

Barclays, tax havens and how to describe it

 Banking, Barclays, Cayman, Country-by-country, Secrecy jurisdictions, Tax Havens, TUC  13 Responses »
Jan 122011
 

Bob Diamond was before the Treasury Select Committee yesterday. Chuka Umunna, MP fr Streatham, was one of those questioning him. And as the Daily Mail notes, he tabled some new evidence on the use of tax havens / secrecy jurisdictions by Barclays:

article-0-0CB99D77000005DC-622_468x216.jpg

I admit I spoke to Chuka’s office about this before the event, suggesting how they might find this data from the annual return forms of the bank.

It’s not the first time I’ve offered that advice to someone interested in banks and tax havens. The TUC did something similar in 2009. I note they say I did the research, which was kind of them but a little unfair because as I recall it was actually done by Markus Meinzer and all I did was review it and explain why banks were required to disclose this information. As Chuka’s team showed, it’s not a hard exercise.

But it is revealing. First, it shows Diamond does not know the structure of the bank of which he is CEO. As the Mail notes:

Diamond was reduced to replying, ‘I don’t know’ to a series of questions about how many subsidiary firms the bank had in countries such as the Cayman Islands and Isle of Man.

What does that say about its governance?

Second, we get back as ever to the language of such structures. Again, as the Mail notes:

‘I can assure you Barclays is not evading taxes,’ Diamond said.

But Umunna pointed out that Diamond knew all too well that he was referring to ‘tax avoidance’, not illegal evasion. Diamond preferred to categorise it as ‘tax efficiency’.

So, we’re back to tax efficiency. I can do no better than quote the Tax Justice Network on this issue, with a few changes to suit the context:

Tax efficiency is a term we hear rather frequently from the tax avoiding community. It does not mean that there will be any improvement in manufacturing productivity. No energy will be saved. No new jobs created. The quality of products will not improve, in fact, in conventional economic terms there will be no efficiency gain whatsoever.

When tax lawyers and corporate spokespersons utter the term “tax efficiency” what they really mean is that corporate shareholders will pay less tax as a result of shifting profits to tax havens. The inevitable outcome of such “efficiency” gains is that British citizens will either face further public service cuts or higher household tax bills.

What this reveals is a major flaw in the current structure of globalisation. Companies and rich people can locate wherever they are “tax efficient”. Ordinary people lose out from the process. There is a term for this: its called the Bono Defence. Named after the Irish rock musician whose band shifted its tax base from now bankrupt Ireland to the Netherlands in the name of “tax efficiency”, the Bono Defence provides stark warning that tax dodging doesn’t promote better economics; it promotes failed states.

That’s the nub of it. Barclays is taking your money.

And Diamond then has the gall to say that the tax his staff pay is paid by Barclays. From the Mail, again:

The American banker was also unable to produce figures for the amount of corporate tax the Barclays pays in the UK. He boasted that it paid £2bn of tax last year, but admitted that this included payroll tax paid by employees.

Of course, if we had country-by-country reporting Barclays would have to report how much tax they really paid in the UK, and that’s why this is such a core demand for those wanting tax justice.

The evidence that Diamond heads a bank that is out of control – and about which he has remarkably little knowledge – seems compelling based on this performance. In that case maybe he too should understand the demand for country-by-country reporting – he might know a lot more about his own operations if the bank used it for its own reporting purposes.

 Posted by Richard Murphy at 11:46 am

Not everyone likes ‘Treasure Islands’

 Cayman, Secrecy jurisdictions, Tax Havens, Tax Justice Network  2 Responses »
Jan 122011
 

It seems not everyone is convinced by Nick Shaxson’s new book, ‘Treasure Islands’.

Anthony Travers of Cayman Finance is one of them.

I guess his argument would be more credible if he didn’t resort to words like ‘imbecile’ or suggest that every criticism of Cayman is the politics of envy. But he’s allowed his opinion, and having published favourable comment I thought I should be balanced and give him a shout too.

Update: Nick Shaxson has answered the accusation here.

 Posted by Richard Murphy at 9:31 am

Now I’m their “arch nemesis”

 Cayman  Comments Off
Dec 132010
 

Last week Anthony Travers, head of Cayman Finance described me as the head of the “tax Taliban”. Given he seems to think this apparently includes “onshore Treasury, and supranational and domestic regulatory bodies, British politicians such as Emma Reynolds and former Prime Minister Gordon Brown and even US President Barack Obama”. Some list. Morning all!

Now I note that according to Cayman News Service I am Travers’ “arch nemesis”.

All, however, is OK for Travers as apparently:

these movements were ‚Ķdiminishing Travers claimed as he told his audience their claims “are a heresy and are unlikely to withstand the tax transparency” that he said Cayman demonstrated.

Heretics, eh? Am I to be burnt at the stake then?

Or is it time for Travers to get a grip on reality? Not least the fact that I have nothing against him personally, at all. I can oppose what he stands for and still recognise his right to say it. Apparently that sentiment is not mutual. That’s not to the credit of his argument.

 Posted by Richard Murphy at 9:49 am
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