Tax Research UK

I have for a long time said Guernsey and will go broke over the next few years because of the black holes in their budgets as a result of their introducing 0% tax rate on non-resident corporates’ profits, on which until 2008 they were heavily dependent. They had to do this because of competition from the Isle of Man, which could of course afford a 0% tax on corporate profits because of the £200 million (or more) subsidy it receives from the UK Exchequer each year.

Now Tax-News.com reports:

Guernsey’s Treasury and Resources Department is taking draft legislation for a General Sales Tax to the States for approval this month. The government has however insisted that it does not seek to introduce a GST, but instead is merely considering its options.

So the burden of tax is, once again, being transferred from the tax avoiding corporate community onto ordinary people.

What is clear is that this is unsustainable. Of course a modest GST could be imposed in Guernsey, but let’s be clear, the capacity to do so is limited, not least because the cost of living in the Channel Islands is already very high and at some point people in Jersey and Guernsey (and Cayman and elsewhere) will reject the option of being a tax haven when the pressure upon them for being so becomes to great.

This GST in Guernsey is another step in that direction. Tax haven’s days are numbered.

Richard Murphy Economics, Guernsey, Isle of Man, Tax Havens

The Jersey VAT issue I noted here very recently appeared in the Observer today:

The billionaire Barclay brothers are poised to join a fast-growing band of retailers exploiting a controversial Channel Islands tax loophole in order to sell VAT-free CDs, DVDs and video games over the internet, undercutting prices in struggling independent high street stores and depriving the Treasury of millions of pounds in lost revenues.

The planned move comes after Treasury minister Stephen Timms privately assured struggling high street businesses unable to compete with offshore websites offering VAT free prices, that there are "only two major exporters in the audio visual market in the Channel Islands".

In fact, contrary to Timms’ claim, all household-name CD and DVD retailers - including HMV, Amazon, Play, Tesco, Asda, Argos and WH Smith - run substantial "free home delivery" internet export operations from Jersey or Guernsey in order to exploit the tax advantage. An Observer investigation has found a Scottish government quango is even a shareholder in one of the most established VAT loophole companies.

The article goes on to note that:

According to market research firm TNS, 28% of DVDs purchased by customers in Great Britain are bought on the internet. The figures for CDs and games are 23% and 25% respectively.

The Barclays get in on the act like this:

Shop Direct, the Barclay brothers’ mail order empire, which includes Littlewoods, Great Universal and Kays, will this month - possibly this week - start offering VAT-free products on its Woolworths website, acquired from administrators earlier this year after the high street store chain went bust. Sir David and Sir Frederick, proprietors of the Telegraph newspaper titles, are Channel Islands residents for tax purposes.

The Observer has not taken Timms assurances at face value:

Timms [has claimed]: "There are now only two major exporters in the audio visual market in the Channel Islands, and one of these is a company indigenous to Jersey, over which the UK government has no jurisdiction." But an Observer investigation has found all but one of the companies involved in the VAT dodge, are controlled by UK-registered parent businesses. Maidenhead-based HMV Group and Swindon-based WH Smith, both stock exchange-listed, push much of their online sales through subsidiaries HMV Guernsey and WH Smith Jersey.

Amazon has an arrangement with Indigo Starfish, a Jersey company owned by Glasgow-registered parent Indigo Lighthouse, while Tesco, Asda, Argos and WH Smith have struck outsourcing deals with Cheshire-based The Hut, which operates through Jersey and Guernsey subsidiaries.

The only genuinely Channel Islands-owned company using the VAT loophole is Play.com, founded by Jersey islanders Richard Goulding and Simon Perree.

Scottish Enterprise, a government quango, became a shareholder in Indigo Lighthouse after investing in 2004. Asked about the investment it said: "We are pleased with Indigo Lighthouse’s contribution to the Scottish economy."

Clearly they have a  flexible interpretation of where Scotland is. Maybe they need country-by-country reporting.

It’s curious that the Observer concludes:

[A] senior tax partner at one "big four" accountancy firm, who asked not to be named, said this argument [that it would cost more to collect VAT on these imports than it was worth] was increasingly untenable. "It [the EU directive] is being used in a way that was not envisaged and the Treasury really needs to take another look," he said.

Quite right.

This problem could be solved overnight. If every packet from Jersey and Guernsey was opened to check values were under £18 and a £5 handling charge for doing so was levied on all who received those packets then the market would be closed in days.

The threat would be enough to ensure that Jersey and Guernsey could instead be required to ensure that VAT was charged on all goods shipped from them to the UK irrespective of value if the goods had been previously shipped into Jersey in substantially similar condition. I know substantially is open to abuse, but if it was made clear that in the case of recorded media any form of repackaging did not constitute a change in the state of previously imported recorded media this abuse (for it is nothing else) would be stopped.

Richard Murphy Guernsey, Jersey, Tax avoidance, VAT

 HMRC caps offshore penalty at 10% - Accountancy Age.

The new tax amnesty has a 10% tax rate - but not for the customers of the Big 5 banks covered by the previous one.

Of course Jersey, Guernsey and the Isle of Man say there is no evasion there.

Doesn’t look like HM Revenue & Customs ageree to me.

Time will tell.

Richard Murphy Guernsey, Isle of Man, Jersey, Tax evasion

FT.com / Companies / Financial Services - Private equity faces investor exodus.

Guy Hands is leaving for Guernsey. It’s claimed those who add value are leaving the UK.

But his investors are quitting in droves. 

Follow the money - the answer lies there in this case.

Richard Murphy Guernsey

Guy Hands moves to Guernsey to join tax exiles | Business | guardian.co.uk .

Given the mess he’s made of what he’s invested here it’s hard to call this a loss.

Ask anyone associated with EMI.

Richard Murphy Guernsey

The Bermuda Royal Gazette (where else could have such a paper?) reports:

Offshore financial centres (OFCs) are facing a "Doomsday scenario" as the world’s major economic powers try to put them out of business.

That is the view of consultant Rodney Gallagher, who was a leading adviser to the UK Government on Caribbean financial affairs for more than a decade.

Speaking at the OffshoreAlert Financial Due Diligence annual conference in Miami this week, Mr. Gallagher predicted a particularly bleak future for OFCs that are British Overseas Territories, including Bermuda.

Sitting on a panel discussing the future of OFCs, Mr. Gallagher said such jurisdictions were facing a "perfect storm", due to the severe financial crisis, large countries seeking ways to find badly needed extra revenue after the crash of credit markets and the clampdown on tax havens.

"These three things represent almost a catastrophe for offshore financial centres," Mr. Gallagher told delegates.

He added:

"I am in no doubt that the next five years will see dramatic change and a considerable reduction in the volume of business being done," Mr. Gallagher said.

"Some in the private sector have seen the impact of this already during the first quarter."

I am sure that is true.

It’s the second year in a row that this sort of scenario has been presented at this conference. I was there last year. Things have got worse for them since then. The direction of travel predicted then is happening. I think there is real substance in this.

I’ve long said that for Jersey and Guernsey going bust is the most likely scenario. It’s clear the same is likely in the Turks & Caicos, Bahamas, Bermuda and maybe Cayman. It would happen inn the Isle of Man but for its massive UK government subsidy.

The writing is on the wall. I hope Michael Foot realises.

Richard Murphy Bermuda, Cayman, Guernsey, Isle of Man, Jersey, Secrecy jurisdictions, Tax Havens