The Lord Mayor of the City of London is visiting the Isle of Man today to learn more about the Island as an international business and finance centre.
Alderman David Wootton will be given briefings on various sectors of the Island’s economy, and will also deliver the Chief Minister’s International Lecture.
I bet they’ve tidied things up to keep the boss happy. That’s what always happens when the Group CEO drops in.
Aon is to become the first ever US S&P 500 company to become domiciled in the UK after the insurance broker unveiled plans to shift its headquarters from Chicago to London.
Why are they doing that? First, because we now won’t tax them on their worldwide income. Not just, as in the US, if they don’t bring it here, but even if they do bring it here. And second, Tory laws are encouraging companies like Aon to come to the UK and use tax havens by saying they may set up their whole treasury function – tho which much of their profit may be allocated – in a friendly tax haven like Jersey and we’ll tax it in the UK, but only at 5.75%.
This is Tory tax haven policy – to make the UK a centre for the abuse of global capitalism at cost to the ordinary people of this country who will gain nothing from this move because Aon won’t be contributing hardly a bean for making use of the UK as the centre of its global non-taxation.
And what do the Tories get from this? Wait for the directorships to roll. Osborne won’t be in No. 11 for that long and the City of London will no doubt reward him handsomely (as it did Blair and Mandelson) when he retires to their pleasant pastures.
And so much for Osborne’s talk of rebalancing the economy – all he’s doing is bringing in more finance.
Ian Fraser is a journalist for whom I have a lot of time, and respect. I warmly endorse a blog he wrote this weekend on the subject of this week’d edition of The Economist in which he wrote:
I was surprised and disappointed when I opened my copy of The Economist on Friday morning.
The magazine is running a feebly-argued propaganda piece headlined “Save the City” as its cover story. The piece vaunts the “skills” that are to be found in the City of London and seeks to persuade us that having a powerful financial sector is critical to the future health of the UK economy and that the “Square Mile” must therefore be cherished and preserved at all costs. The cover image harps back to the Blitz, as if Hitler’s Lufwaffe is once again poised to carpet bomb a key part of our heritage.
Outside PR puff sheets like HBOS’s absurd “Deal Leaders” of 2005-08 and the Pravda-style advertorials inserted into newspapers and magazines to launder the images of evil dictatorships, I’ve rarely read such a farcical or misleading article.
That’s harsh criticism, but true.
There’s much to note in the piece, but I’d highlight this:
The magazine’s “Save the City” leading article is one-sided, snide, racist, xenophobic, and makes massive omissions. It doesn’t even start to acknowledge the multifarious failures of the financial sector, or the damage it has wrought on the UK economy in recent years. The article fails to mention the massive risks posed by “crony capitalism” and “regulatory capture”, including wilful blindness to fraud, and even includes the words –
“Finance—the funnelling of savings to their best use—is a vital industry. Britain is very good at it, leading the world in various financial markets, including foreign exchange and over-the-counter derivatives. “
Who wrote this garbage I wonder?
Yes, the City did once fulfil the function of efficiently allocating capital, but that stopped some ten to 20 years ago when the ‘zero sum’ game of financial speculation for the self-enrichment of the participants took over.
As I have said before the City has, with a few exceptions, become the cuckoo in the nest of the UK economy.
It has become gigantic skimming machine/casino. In addition to making taxpayer-underwritten bets, however absurd, it largely serves to diminish the savings and pensions of UK citizens, though outrageous fees, spurious and unwarranted trading and an intermediated structure that favours the interests of the people that work in its own, often-conflicted institutions (plus the people in their various suppliers including brokerages, law firms, accountancy firms, investment and actuarial consultancies, etc, etc) over and above the long-term interests of savers and the needs of the wider economy.
Of the City’s many crimes this destruction of an effective pension mechanism for the UK – where the future prospects of millions are literally traded away for the current gratification of a few in the Square Mile is perhaps the greatest. It is unsung, it is unchallenged and it is ongoing. And it’s time the politicians of this country changed that, because at the core of the crisis for the elderly in this country is the greed of a few in the City of London.
Fill marks to Ian for highlighting it.
The reason why places like Jersey became tax havens was to raise tax revenue from third parties. The tax revenues raised were, in effect, export earnings that kept their economies afloat.
Deputy Geoff Southern in Jersey has tabled an amendment to the current Jersey budget that shatters the myth that this is still the case. As his amendment says:
Geoff is right to acknowledge there is a race to the bottom in Jersey, Guernsey and the Isle of Man. Promoted by the pinstripe infrastructure of lawyers, accountants and bankers through such coordinating bodies as the Society for Trust and Estate Practitioners (who have their single biggest branch in Jersey but who are active in all three locations) the pernicious influence of these groups has driven these three jurisdictions on a destructive path towards shattering their tax base by eliminating corporate taxes for their clients.
The result is all too apparent. The tax burden has shifted dramatically from businesses using Jersey as a tax haven to the local population who are now paying for the privilege of hosting the tax abuse industry whilst at the same time their economy is facing ruin as local politicians realise they have no idea how to plug the continuing deficits they face and are now suggesting plundering the rainy day fund – a sure sign they are on the slippery slope to running out of money, as I have long predicted.
Geoff Southern has in this case study provided the evidence of what I and the Tax Justice Network have long argued – that the ‘race to the bottom’ in corporate taxes is simply an excuse to shift the tax burden from those able to pay tax (let’s call them the 1%) on to those less able or unable to afford them (again, for simplicity, let’s call them the 99%).
This is happening everywhere but Jersey’s clearly leading the way.
This is what the Tax Justice Network is about.
This is what #occupy is about.
Beating this pernicious process is what re-engagement in democracy should be about for many who feel disenchanted by it.
And this is what beating the exploitative activities of the City of London – the most undemocratic local authority in the UK – has to be about.
London features heavily in the Tax Justice Network’s new Financial Secrecy Index. Whilst the UK comes in at number 13 places for which the UK is wholly responsible also feature prominently on the Index. The overall scores for London and its satellite offices are:
RANK Secrecy Jurisdiction FSI – Value Secrecy Score Global Scale Weight 2 Cayman Islands 1646.7 77 0.046 7 Jersey 750.1 78 0.004 11 British Virgin Islands 617.9 81 0.002 12 Bermuda 539.9 85 0.001 13 United Kingdom 516.5 45 0.200 21 Guernsey 402.3 65 0.003 36 Isle of Man 230.4 65 0.001 38 Turks & Caicos Islands 218.9 90 0.000 43 Gibraltar 174.6 78 0.000 65 Anguilla 36.0 79 0.000
Pu that lot together – and that’s the fair treatment of them since ministers in the UK and these places always say their value is as conduits to the City – and London is number 1 secrecy jurisdiction in the world.
But the Treasury denies it of course. As the Guardian notes:
The UK, with the City of London and a network of overseas tax haven territories and dependencies including Jersey, Bermuda, the British Virgin Islands and the Caymans, also features prominently in the index’s dirty dozen of top offenders.
The UK Treasury said it did not recognise the picture presented in the index, adding that the UK government had demonstrated a clear commitment to tackling all forms of tax avoidance and evasion.
And as it added:
A spokesman for the Treasury defended the UK record on tax havens, saying: “At the budget this year we published Tackling Tax Avoidance, on tackling avoidance at the root. The Global Forum on Tax Transparency set up by the G20 in 2009 now has over 100 participating jurisdictions and over 600 bilateral tax information exchange agreements have been signed. The world has changed over the past three years and continues to do so, and the government is committed to keep up momentum.”
Respectfully, that’s nonsense. The document in question is a weak re-hash of what was already being done: the one thing it actually made clear was that nothing had changed at all. And much of secrecy jurisdiction activity is evasion anyway.
As for those bilateral tax information exchange agreements: as the Guardian TJN notes saying:
The problem with many of the new tax information agreements, according to TJN, is that they have taken the weakest form possible, in effect requiring tax authorities to know what they are looking for before they ask for information, rather than requiring full disclosure.
Precisely so. And that’s a choice on the part of the UK and others: a smokescreen to hide what’s really happening – as the Treasury and tax authorities well know.
Indeed, as Dave Hartnett once said to me, he thought he had to sign the deal he did with Liechtenstein because the a standard OECD style tax information exchange agreement would never have produced any data at all, and on this occasion he was right – which is exactly why the Treasury know that what they’re saying is wrong and deliberately wrong.
So for those looking to tackle tax havens in the UK the problem is near at hand – and focused in London EC3.
Liberal Conspiracy noted this – I missed it:
The Financial Times today has an astounding editorial comment.
It is also very spot on. An excerpt:
While everyone pays lip-service to the need for a safer system, not everyone’s commitment runs very deep. In recent months the financial sector has been lobbying ever more fiercely against structural change or higher capital requirements, arguing that the banks are pretty much safe as they are.
Institutions have warned that further regulation would simply result in defections to less onerous jurisdictions. HSBC is talking to its shareholders about whether it should move its domicile to Hong Kong. Standard Chartered has hinted that it might do the same.
Such threats should be faced down, not just because they are unreasonable but because they are of questionable credibility.
It is not clear what “moving abroad” actually means. Were a bank such as Barclays to shift its headquarters, the impact on the UK would surely be minimal as it would still do much of its business and pay taxes in the country.
What is more likely anyway is that rather than upping sticks altogether, some banks may reduce their new investments in Britain. This might make the City slightly less of a hot spot, but it would not be a disaster. And were it to be the price of financial stability,this would be a price worth paying.
This is the argument many on the Left had been making for years – that the City was holding governments hostage to low regulation and massive bonuses by threatening to move.
For the FT to say the government should call their bluff shows not only how shallow this threat is, but illustrates how little the FT thinks the banks have changed.
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:
In 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.
Nick Shaxson has done more digging on the City of London.
They tell him they’ve only got £3 billion of assets.
That’s £3 billion they don’t need to promote banking and £3 billion we need to save libraries, and so much more.
It’s so obvious what needs to be done – and the last thing that this money need do is promote global banking, but that’s what it’s being used for.
It really is time this tax haven within the UK was abolished.
Somehow there’s little surprise in the news that the Guardian reports that:
Financiers in the City of London provided more than 50% of the funding for the Tories last year, new research revealed last night, prompting claims that the party is in thrall to the banks.
A study by the Bureau for Investigative Journalism has found that the City accounted for £11.4m of Tory funding – 50.79% of its total haul – in 2010, a general election year. This compared with £2.7m, or 25% of its funding, in 2005, when David Cameron became party leader.
The clutches of the City state extend to the state as a whole.
It is the tax haven enemy within.
Is there any surprise that the Tories are promoting the most extraordinary tax cuts for big business, and big business alone in the UK?
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