Tax Research UK

Sometimes it’s worth mentioning what I’ve been reading. I always intend to do this more than I do. It’s not I don’t read – I just run out of time to mention it.

A recent read has been Londongrad: From Russia With Cash by Mark Hollingsworth and Stewart Lansley, published by Fourth Estate, 2009

The book is topical and touches themes addressed here often. It is no coincidence that the return of the era of ever deepening recessions has coincided with the emergence of a domestic and global mega-rich class, a group with minimal national ties who move their multi-billion fortunes around the globe in search of the best short-term returns. As the book argues, there is perhaps no more dramatic example of this breed and the ‘exuberant` behaviour of the world’s newly enriched than the Russian oligarchs who built vast personal fortunes out of the ashes of Soviet communism, not by creating new wealth from scratch, but by seizing a good deal of Russia’s historic wealth that had been built up over decades.

Londongrad tells the story of the wealthiest London-based oligarchs and how they manipulated the chaos of the Yeltsin years to engineer one of the most blatant transfers of national wealth in recent times.

There is a good deal of detail on how their newly acquired wealth was, as the book describes, ‘secreted abroad in a labyrinth of offshore accounts in an array of tax havens in the world’s most secretive tax havens. Stashed away it has been almost impossible to trace.’ This was, of course, one of the appeals of the book to me, but so was the fact that it was London that proved the final destination for much of this money.

As the authors explain, successive British governments along with the City turned a blind eye to the provenance of the wealth while bending the rules on tax, visas and corporate governance to ensure the money came here rather than elsewhere. In turn, the avalanche of money acted like an economic shock on the British economy. It made many individual Britons – playing the role of the ‘financial bag-carriers of the world` - rich themselves, while also creating destabilising grey markets and contributing to the mass flow of international money into the City that fuelled the bubble that preceded the inevitable crash.

This book provides a real life case study of the rise of the world’s multi-billionaires, Britain’s remarkable compliance in Russia’s capital flight and of the impact of the transfer on London where most of it landed. It mixes analysis with the narrative of a thriller – the twist being that it relates to real people.

Richard Murphy Domicile, Tax avoidance, Tax evasion

Polly Toynbee and the Guardian have followed up on my Comment is Free on the non-doms yesterday with more comment today. Polly said:

The revelation that Zac Goldsmith is a non-dom comes as no surprise. .. To David Cameron’s acute embarrassment here is yet another duck-island reminder.

Once Labour and the Lib Dems get this message across in next year’s election campaign, Cameron’s tax plans will look increasingly toxic – and politically inept.

Labour will draw its red lines in the pre-budget report next week. Darling needs to match the Liberal Democrats’ radical measures: taking the 4 million lowest paid people out of tax which is paid with a charge on the wealthiest properties is a not-too-subtle reminder of Gordon Brown’s hit on the low paid when he abolished the 10p tax band.

Labour has much to atone for in the tax system. After 13 years of wooing the City and enriching the rich, Labour finds the nerve to raise the top income tax rate only a month before it may leave office. Less noticed restrictions on top pension relief will yield even more – but all this is riskily late for Labour to reap the rewards.

A radical pre-budget report would catch Cameron on the back foot, his own tax plans leaving him damagingly vulnerable to charges of rewarding his friends and donors. Escaping his tax cut pledges will be as hard as spelling out how he can pay down the deficit faster than Labour’s already eye-wateringly foolish plan. Suddenly being Dave doesn’t look as much fun as it was.

The editorial hits different theme – of accountability:

[A]t the weekend it emerged that the man who must be the richest would-be Tory MP, Zac Goldsmith, is non-domiciled in the UK for tax purposes. This is not, as the Conservatives say, a minor and private matter. It exposes an obvious hypocrisy: that while the party preaches austerity, in practice that may mean austerity for everyone other than the rich. In his defence, Mr Goldsmith says he intends to change his status next year, and that he does pay tax in this country on his UK income. But that is not sufficient. Voters have the right to expect every Conservative candidate to meet their obligations as citizens.

For the Conservatives, just as for Mr Goldsmith personally, political morality comes as a whole; any retreat from consistency casts a shadow. A party that led the rhetorical charge against non-doms in Britain should not put a non-dom forward for election. A party that says the budget deficit is the priority should not be planning to cut inheritance tax. And a party that has spoken out against corporate excess should not, as the Tory treasurer did in a Financial Times interview yesterday, also promise to "cherish the City" and cut corporation tax.

Then there is the opaque tax status of Lord Ashcroft, the Victoria Cross-purchasing billionaire Tory deputy chairman. He promised to take up permanent residence in the UK when he took his peerage in 1999, but it remains unclear whether he pays tax in this country – and if so, how much. Senior Conservatives look uncomfortable when asked about his position and activities and that in itself is telling.

In a speech last Friday, the shadow chief secretary, Philip Hammond, said that Conservatives need to show "honesty and a clarity, with ourselves and with the electorate". He is right about that. Perhaps he should have a word with Mr Goldsmith, and Lord Ashcroft.

Both are on target and show that in addition to the outright discrimination on which I focussed there is much more to this issue.

Now it is time for people to see just what the new Tories are. Unfit for office is one description.

Richard Murphy Conservatives, Domicile, Ethics

I have the following article on the Guardian’s ‘Comment is free’ section today under the heading “The non-dom rule is racist”:

Zac Goldsmith’s embarrassment about his non-domiciled tax status is more important than it seems. It cannot be dismissed as simply being an effective blow landed by the Lib Dems in their campaign to retain a key seat; underpinning that blow are a much wider range of issues that relate to fundamental injustice and even illegality within the UK tax system.

The concept of domicile, like so much in UK tax law, has no legal definition. Your domicile is, in effect, your natural home. It is not your place of citizenship, or your ethnicity, or even where you live: it is the place to which you owe your long-term affiliation. To put it another way, your domicile is the place you consider to be your place of national origin.

The concept as used in UK law is, at its core, racist. It was of considerable value in the colonial era. When there were no passports and a quarter of the world was pink on the map, domicile made clear who you were; part of "Blighty", or not, as the case may be.

And, in a very real sense, that remains the case – except the tables have turned. Because domicile is a concept quite separate from tax residence (itself a concept in need of radical reform), the trick now is to be tax resident in the UK, but non-domiciled. That way, you get all the advantages of living here, but don’t have to pay all your taxes for doing so. Only your UK-source income and gains, and those income and gains you bring to the UK from abroad are subject to UK tax if you’re non-domiciled.

This is, of course, only of benefit if you have non-UK-source income and gains. For the vast majority of those temporarily resident in the UK – for example, the 3.8 million current non-UK-born UK employees representing 12.9% of the UK workforce – the domicile rule will be irrelevant. Their only earnings will arise in the UK, and if they are involved in remittances, they will be sent from the UK, not to it. But for a small minority of about 100,000 people, the rule provides something quite different: a unique advantage to structure their affairs so that they can pay very little or no tax in the UK, bar an annual membership fee for joining the non-dom club of £30,000 per annum, introduced in 2008.

Whether Goldsmith is exploiting this situation is not the real question. The real questions are fourfold. First, why do we let an elite who are as resident in the UK as anyone else pay less tax than others who are also resident here? Second, why do we allow non-domiciled status to be claimed by people who are born here, have lived here much of their lives and are so integrated into UK society that they are even MPs and peers here? Surely, better policing is needed when the loss to the UK from this rule is, in my current estimate, about £3bn a year? Third, why do we allow the UK to continue to operate as a tax haven in this way, at considerable cost to our international credibility and at cost to the credibility of the anti-tax haven campaign the UK is spearheading? And finally, and most importantly, why do we tolerate a tax law that is illegal?

As I have argued for some time, the terms of the Race Relations Act 1976 and the Race Relations Act (Amendment) Regulations 2003 make clear that unlawful indirect race discrimination takes place in the UK if a public authority provides a service that affords a person of one national origin a social advantage over a person of another national origin, unless there is a legitimate and proportionate objective that justifies that different treatment. The granting of non-domicile status is the provision of a service by a UK public authority and it does confer considerable advantage on those who are granted it without there appearing to be any legitimate and proportionate reason for doing so.

Those who lose are, of course, UK-domiciled people who cannot enjoy the tax advantage that non-doms have and which society could most certainly not afford to grant to all of us. The fact that it is the majority who are being discriminated against does not stop this being an abuse of the law, as it has been since national origin become a grounds for discrimination in 2003.

As Richard Wilkinson and Kate Pickett have shown, the more unequal a society is, the less successful it is. The UK domicile is about creating inequality on the basis of national origin – itself an illegal act. What better reason to get rid of it as an economically and ethically unjustifiable anachronism from a bygone age, exploited now only by the richest in our society so that they can get richer at cost to all the rest of us?

And knowing that this is the case is, no doubt, the cause of Goldsmith’s rightful embarrassment. We should save him his blushes: let’s abolish the rule, now.

What’s the reaction? That I’ve pushed the envelope too far: that the term racist cannot be applied here.

I’d ask, why not? Is discrimination on the grounds of national origin not racist when defined as such by our Race Relations Act? If it isn’t, what else is it?

I stand by my argument: I am convinced its right. The more the libertarians who like to comment on Comment is Free think otherwise the more I am convinced of it.

Richard Murphy Domicile

The Guardian reports:

Zac Goldsmith, the prominent environmental campaigner and Tory parliamentary candidate, was tonight forced to deny opposition claims that he had "dodged" paying taxes in Britain.

As it notes:

Goldsmith, who is standing in the key marginal seat of Richmond Park, west London, confirmed that he retained the non-domiciled tax status inherited from his billionaire father, Sir James Goldsmith. He said he had derived "very few" benefits from being a non-dom and had already decided to give it up.

British citizens with interests abroad can register for non-domiciled status, meaning they do not pay tax on earnings made outside the UK.

Although his father was Anglo-French, Goldsmith grew up in Britain. The bulk of his inheritance remains in a Cayman Islands-based family trust which bought his UK homes, in Richmond and Devon, where he farms organically. In his statement, Goldsmith said he paid UK income tax on UK-generated income.

After consulting his accountants, PricewaterhouseCoopers, Goldsmith, 34, said: "My annual tax returns are all signed off by the Inland Revenue and there are no outstanding matters between us … despite having been non-domiciled because of my father’s tax status, I have always chosen to be tax-resident in the UK."

There are three things to say. First, you basically can’t claim non-domiciled status unless you have tax reason to do, so he is bound to get benefit. Second, if the trust from which he benefits is discretionary (and I have little doubt it is) then his statement is true and completely misleading at the same time: he gets no benefit from his non-dom status but the fund from which he benefits is clearly abusive. And third, there is no way in which Goldsmith can be an MP and be non-domiciled. How can anyone say the UK is not his natural home, his allegiance is elsewhere, and use that to avoid tax, and then want to be an MP supposedly upholding our tax system and holding our executive to account?

One of the essential reforms that are long overdue with regard to our tax system is the abolition of the domicile rule, something for which I have long campaigned. Another long over due change is that all MPs and Lords should be deemed domiciled and fully tax resident in the UK.

I’d suggest Darling puts it in the pre-Budget report. it’s a vote winner.

Richard Murphy Conservatives, Domicile, Ethics

I was on the Politics Show on BBC1 yesterday countering arguments that a combination of the 50% income tax rate and the changes to the domicile rule will undermine the competitiveness of the City of London.

This is not exactly hard to do. Let’s be honest – any so called entrepreneur who a) thinks tax is sufficient reason to change business location and b) thinks paying a fair contribution back to society for the opportunity to make considerable profit is not an entrepreneur at all. They’re either a) a wealth preserver – which is an entirely different mindset and from a completely different stage of the wealth cycle or b) so lacking in empathy that they have no chance of understanding the need of customers and so is almost bound to fail in business. I made those points, I think. Of course – individual bankers can think these things – but then they are neither entrepreneurs or in business: nor is there evidence they add value to society so that is another issue, and I did not have time to make that point.

But I also said the domicile rule was racist and blatantly discriminatory, partly in response to Digby Jones who supported it, he said as a matter of principle. I have been challenged since doing the broadcast to say why it is racist. I did so because I am entirely convinced that the domicile rule contravenes the UK Race Relations Act as amended in 2003 because it blatantly discriminates on the grounds of national origin – and under that Act this is illegal. Using the criteria that something that contravenes the Race Relations Act is racist I think my use of language correct. My full argument is here.

But whichever way you look at it Digby Jones is wrong. Not paying tax is not a principle – it is an abuse.

Richard Murphy Domicile, Ethics

Tax Justice Network: Non-doms: Britain’s integrity postponed.

I worked with David drew MP to try to get non-doms banned from making political donations to UK political parties.

A number of other MPs also worked the issue.

We thought we’d won. But Jack Straw has sold out on the issue in a most underhand way. The law will not come into effect before the next general election.

As the Lib Dems said:

To support an important piece of legislation stopping this underhand practice and not bring it in before a general election is like banning a drug-taking footballer but allowing him to play in the cup final

TJN has all the links.

But I just wonder what more the Cabinet can do to commit electoral suicide?

Richard Murphy Domicile