Guernsey » Tax Research UK

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.

Channel Islands’ VAT abuse can be ended by UK whenever it likes EU says

Guernsey, Jersey, Tax avoidance, Uncategorized, VAT 3 Responses »

Aug 042011

The Telegraph has reported that:

By the end of the year, CDs, DVDs and contact lenses will be among the hundreds of items that customers will no longer be able to buy cheaply via the internet as the government prepares to close the tax loophole that made it all possible, a source close to the EU has said.

As The Telegraph continues:

Up until now, the UK government was concerned about facing possible legal action if it attempted to stop the likes of Amazon, HMV and Play.com from exploiting a legal tax loophole that enabled them to ship goods to the Channels Islands and then back to UK customers minus the cost of VAT.

The EU has now given assurance to the treasury that it is perfectly within its rights to abolish the “abusive and restrictive” trade.

A change to the law that would see an end to the multi-million pound Channel Islands industry could be enacted as early as this autumn.

Exchequer secretary to the treasury, David Gauke, has maintained that he is determined to tackle the problem, although exactly how the EU’s support will manifest itself in UK law remains unclear.

So, now we know: this abuse is illegal and can be stopped without fear of legal challenge or claim for compensation against the UK arising.

And what will he spend the £200 million or so a year he will collect on? Youth services, maybe? Wouldn’t that seem just?

So when will we see action from George Osborne to stop tax abuse, end tax haven activity, support the UK High Street, maintain UK jobs and ensure that the valuable role of UK music shops in offering diversity to consumers is upheld? And what will he spend the £200 million or so a year he will collect on? Youth services, maybe? Wouldn’t that seem just?

No one yet knows the answers to these questions, but full marks to Richard Allen, the businessman who lost his online music company to LVCR abuse and has since led the campaign to have it stopped for getting the whole issue this far.

Channel Islands’ VAT abuse continues

Guernsey, Jersey, Tax avoidance, Tax Havens, VAT 5 Responses »

Jul 212011

From the Channel Online TV:

Online greeting card company Funkypigeon could soon become the latest fulfilment business to set up in Guernsey.

The business is recruiting on the island, but they will not yet discuss why they want to make the move over the Channel.

One reason could be that rules on Low Value Consignment Relief or LVCR mean their goods would be exempt from VAT, but that is not something the States encourage.

Three things are clear:

a) Osborne’s announcements clearly aren’t having an impact.

b) The ‘not encouraging’ stance of the States is toothless.

c) Radical action to stop this abuse is now needed.

Will Osborne deliver? Who knows?

Game ‘is over’ for Crown Dependencies

Guernsey, Isle of Man, Jersey 3 Responses »

Jul 152011

From the Guernsey Press yesterday:

THE three Crown Dependencies are in danger of going bankrupt, tax avoidance campaigner Richard Murphy claimed yesterday.

His comments follow an announcement that the Isle of Man will lose millions in its VAT subsidy after it was forced to change the terms of its agreement with the UK.

Mr Murphy said that the jurisdiction was now in a state of chaos, while Jersey had a deficit of around £80m. in 2010 and Guernsey was using its reserves with no prospect of growth.

‘This [the Isle of Man’s agreement] draws a line in the sand which says the game is over for the Crown Dependencies,’ said Mr Murphy.

‘Each of the islands’ politicians have to work out what they are going to do to sustain their economies and that can’t be on low rates of tax alone,’ he said.

But will they do that? That’s the big question.

Or will it still be ostrich time?

So now we know what the Crown Dependencies are for

Guernsey, Isle of Man, Jersey, Secrecy jurisdictions, Tax Havens 1 Response »

Jun 212011

There was a fascinating comment in the Scotsman newspaper this morning:

David Mundell, Scotland Office Minister, said that any comparison between Scotland and the [Crown] Dependencies was “completely misplaced”.

He said: “They are on a completely different scale to Scotland and their function is also completely different, that of providing a different tax environment. Scotland is an industrial country with an entirely different profile to the Channel Islands.”

So now we know: apparently it is UK policy that the Crown Dependencies provide a ‘different tax environment’.

Official confirmation of all Nick Shaxson has argued in Treasure Islands if ever I heard it.

It had to happen: the campaign to turn Scotland into a tax haven has begun

Guernsey, Isle of Man, Jersey, Scotland, Uncategorized 3 Responses »

Jun 212011

It was, I suppose, inevitable that the SNP’s recent victory in the Scottish elections would set the tax haven enthusiast free to argue that Scotland should join that pariah’s club, urged on by Alex Salmond’s call for Scotland to have the right to set its own corporation tax rate. And that has duly happened. As the Scotsman reports this morning:

Famously, the three islands [that form the Crown Dependencies] have used that autonomy to market themselves as offshore tax havens for the rich, turning them into some of the wealthiest places on the planet.

Their example is now coming under scrutiny, as the new SNP Government in Edinburgh presses ahead with its plans for an independence referendum – which has turned growing attention on to what the Nationalists these days mean by independence. A study by Professor James Mitchell of Strathclyde University proposed that the SNP is now proposing a form of “looser union” with the UK, where it would attain sovereignty but remain part of a “confederation” of British nations. Such a nation would control matters in its own borders, but would buy in services from the rest of the UK where it was deemed appropriate.

The examples of the three British Dependencies fall short of the what the SNP wants for Scotland – full independence. But they are linked into the UK in a way which the SNP also envisages.

So could Scotland follow suit? Ben Thomson, of the Campaign for Fiscal Responsibility, says that the UK should encourage the kind of tax competition shown up by the three territories.

“The game is not about dividing up the cake. It is about how do you attract a bigger cake within the UK by attracting businesses to come here. We in a global game competing against Geneva, Luxembourg or Dublin. If these businesses didn’t set up in the Channel Islands, they would end up in the Cayman Islands or Bermuda.” Thomson says that, given the powers of the Dependencies, a fiscally independent Scotland could set taxes in its own areas of strength – such as oil and gas, or whisky – to suit its own local circumstances.

Thankfully there are voices of reason in Scotland, and some from unlikely sources:

But turning Scotland wholesale into a tax haven would be near impossible, say tax experts. The three islands’ heavy reliance on financial services, and low levels of social need, are utterly at odds with Scotland’s own profile.

Rhona Irving, a partner with PriceWaterhouseCoopers, asks: “How would you replace the tax take if you reduced it to these levels? How would you fund public services? Are you going to attract enough businesses to make up the deficit you would have?”

She’s right – and for once good for PWC for pointing out the glringly obvious fact that the tax haven model is not viable.

In case they haven’t nopticed all the Crown Dependencies are in deep fiancial trouble, unable to balance their books and are in possession of tax susyems ruled illegal by the European Union. But what the heck, why let something like that get in the way of the tax competition mantra?

The Isle of Man and Jersey create opacity – according to H M Revenue & Customs

Guernsey, HMRC, Isle of Man, Jersey, Secrecy jurisdictions, Tax avoidance, Tax Havens 2 Responses »

May 272011

A couple of weeks ago I presented evidence to the House of Lords Economic Affairs Committee. My evidence will be published shortly. This week Dave Hartnett also gave evidence to that committee, and at least in part on the same subject: employee benefit trusts. As Accountancy Age reports:

[Hartnett] told the Lords Economic Affairs Finance Bill Sub-Committee: “Some of the offshore arrangements have been pretty opaque to us for some time.”

Hartnett said: “It is not always possible to use the exchange of information provisions under treaties and other things to expose those.”

The disclosure regime had done everything it could do “but where you have promoters outside the UK – there are a number of promoters of disguised remuneration schemes in the Isle of Man, in Jersey and in other low tax jurisdictions – the disclosure regime has no bite, and that has been the difficulty”, he said.

So much for the claimed transparency of these places: that’s shown to be a lie, as usual.

And of course the fact that they’re secrecy jurisdictions is confirmed. By my definition secrecy jurisdictions are places that intentionally create regulation for the primary benefit and use of those not resident in their geographical domain. That regulation is designed to undermine the legislation or regulation of another jurisdiction. To facilitate its use secrecy jurisdictions also create a deliberate, legally backed veil of secrecy that ensures that those from outside the jurisdiction making use of its regulation cannot be identified to be doing so. Unambiguously Hartnett is saying that is what the Isle of Man, Jersey and other low tax jurisdictions are.

So, let’s be unambiguous, here we have the head of H M Revenue & Customs saying the Crown Dependencies and others are seeking to undermine the UK tax system.

So let’s have no more claims from such places on their well regulated, open and transparent systems: the blunt fact is they’re being used by some in the financial services sector to undermine the UK tax system and in turn threaten the rule of law and the operation of the democratic mandate in the UK. That’s what these places are about.

If Jersey fails the EU Code of Conduct rules so will the Isle of Man

Europe, Guernsey, Isle of Man, Jersey 14 Responses »

May 182011

I’ve just explained why I think Jersey will fail the EU Code of Conduct for Business Taxation rules, again.

Since it is replicating the behaviour of the Isle of Man and the Isle of Man is refusing to budge on this issue, even though it too has failed the EU Code’s tests, it seems certain the Isle of Man will also fail the EU’s rules.

Remember that if they do the UK has to intervene in the Crown Dependencies’ affairs. It has no choice.

Of course they could all say they’re becoming independent. But they have no chance of surviving economically if they do, most especially in the case of Jersey. So that’s not an option.

The fat lady has definitely not yet sung on this one yet.

NB: Guernsey will not fail if it introduces a 10% corporation tax – as it has said it will. I think that’s EU compliant. 0% tax is not. That’s the issue.

Jersey will fail the EU Code of Conduct rules – again

Europe, Guernsey, Isle of Man, Jersey 5 Responses »

May 182011

Philip Ozouf, Jersey’s finance minister said on his blog yesterday:

Supported by the Council of Ministers, I have today announced my intention to repeal those elements of Jersey’s corporate tax regime which were deemed harmful by the EU Code of Conduct Group. A proposal has been lodged to remove the deemed distribution and attribution rules with effect from January 2012. This means that “Zero-ten”, which means most companies pay tax at 0%, will be retained.

Some more followed, but that’s the nub of it. This is an interesting development, backed by interesting claims.

Leaving aside the fact that Jersey could (as on so many other issues) have saved itself a lot of trouble if it had listend to my advice on this issue in 2005, advice which has proved the be exactly right despite all the abuse thrown at me from within the island since then, let me add another note of caution now.

The claim that getting rid of the deemed distribution rules will satisfy the EU is a little rash. To put it another way: I think it may well be wrong. Nothing is certain. It is just possible that this is all the EU requires, but Jersey has hung on vain hope about Europe before to its cost.

What the EU actually said was Jersey failed the first three parts of the Code of Conduct on Business Taxation. The Code has five tests:

1. Whether advantages are accorded only to non-residents or in respect of transactions carried out with non-residents

2. Whether advantages are ring-fenced from the domestic market, so they do not affect the national tax base

3. Whether advantages are granted even without any real economic activity and substantial economic presence within the Member State offering such tax advantages

4. Whether the rules for profit determination in respect of activities within a multinational group of companies departs from internationally accepted principles, notably the rules agreed upon within the OECD

5. Whether the tax measures lack transparency, including where legal provisions are relaxed at administrative level in a non-transparent way

Removing the deemed distribution rule clearly satisfies test 2. It probably clears test 1.

Test 3 is another issue altogether. Test 3 looks at the motivation for construction of the tax system as a whole: it asks if the the whole system is designed to be abusive? Is it, as a whole, designed to offer advantages to those not present in the island? Note it doesn’t require differentiation between people within and outside the island as do tests 1 and 2. This one is about whether the system is designed to artificially relocate transactions for tax reasons.

This is, of course, reflected in my definition of a secrecy jurisdiction. I say that secrecy jurisdictions are places that intentionally create regulation for the primary benefit and use of those not resident in their geographical domain. That regulation is designed to undermine the legislation or regulation of another jurisdiction. I usually add that to facilitate the use of that regulation secrecy jurisdictions also create a deliberate, legally backed veil of secrecy that ensures that those from outside the jurisdiction making use of its regulation cannot be identified to be doing so, but that’s not key in this situation.

What is important is that if it is considered that zero/ten as a whole was designed to artificially induce relocation of transactions to Jersey when there is no economic substance to their being recorded there then getting rid of deemed distribution does not keep the EU happy. Far from it in fact. The system can still fail under test three.

That is why the EU quite specifically did not say that deemed distribution was the problem it was addressing when making its decision last November. That is also why it has not said getting rid of deemed distribution will solve this problem. And that is io doubt why the UK has not said that either.

What the EU said was that Jersey has to correct all three failures before its tax system is considered acceptable by the EU. It is addressing two. It seems to be ignoring the third, entirely. I think the reforms to which Senator Ozouf refers will fail to satisfy the EU on Code test 3.

That could be very costly. Not just to Jersey but to its international clients and so to Jersey’s long term reputation.

I hope Sen Ozouf has a plan in place for when that happens. Jersey can’t keep having a tax system ruled unacceptable internationally and keep its status as a well regulated place. But that’s the prospect it faces.