I mentioned recently I had written an opinion piece for the Isle of Man Examiner.
This is now available on line.
I note the paper’s front cover calls me “the island’s biggest critic”.
I remain surprised by that.
And I think what I had to say fair comment. I gather not all on the island agree.
FT.com / Personal Finance - IHT avoidance schemes face scrutiny.
As the FT notes:
As part of the new measures to clamp down on tax avoidance, UK residents will also be obliged to tell the British tax authorities when they open certain foreign bank accounts.
The new reporting requirement will apply to UK residents opening accounts in “certain” offshore jurisdictions, with heavy penalties of up to 200 per cent of unpaid tax for those who fail to comply.
Accountants believe the new rule is likely to be applied in tax havens, such as the Channel Islands, a popular financial centre for UK residents.
The Revenue have had enough of cheating in the Channel Islands and Isle of Man. And rightly so. So things are going to get tough for their banks and for their trust companies - because UK residents are going to have to report if they use them.
There’s no excuse now for a bank in these places saying it did not know that a customer was tax evading in the UK: I think they will have to ask in future and make sure declaration is made or not provide services.
But I bet they won’t do that, all the same. And if they don’t it will prove what I’ve always suspected - that they deliberately want tax evaded funds. If they don’t they’ve certainly been very good at getting them none the less.
From the blog of Richard Butt – editor of Isle of Man Today:
ONE reader of my blog, I was surprised to learn, is Richard Murphy.
Mr Murphy has been quoted in so-called liberal newspapers such as The Guardian and on the BBC decrying ‘tax havens’.
He is director of Tax Research LLP and a tax advisor to the Trades Union Congress and has a website that dishes out criticism to the Isle of Man and many other places.
He has been a bit of a running sore for the Island’s politicians, although whether they’d admit to that and give him further credence is quite another matter.
Anyway, he spotted me describing him as ‘the blogger who’s so angry about the Isle of Man’ recently. He responded.
The result was an email correspondence and he’s agreed to write a piece for our new Examiner Essay strand in the Isle of Man Examiner this week.
Of course, as with everything in any of our papers, the fact we’ve published opinions doesn’t necessarily mean that any of the staff here at Publishing House agrees with them.
It’s not our job to tell you what to think. We wouldn’t want to. After all, we’re not the Daily Mail.
I think that part of our job is our job to stimulate public debate.
I’m sure that some politicians and the great and the good will moan about our decision to give Richard Murphy a platform.
But he’s been in the UK media a lot. Whether he has had an effect on the customs agreement and the UK’s decision to unilaterally change it is something I don’t know. If he has, that damage has already been done.
If there are holes in what he says, I hope readers will point them out. Public debate is, after all, a continuing process.
When the article’s actually published I’ll link to that too!
There’s a new report out on the secrecyjurisdictions.com web site. It’s entitled Key Data Report 3: The Share of the Workforce Engaged in Financial Services. The report does exactly what its ttitle says: it looks at the proportion of the workforce working in financial services in each of the secrecy jurisdictions surveyed. As the report notes:
A high proportion of people working in financial services in the overall economic activity of a country is likely to indicate the existence of considerable political influence by the financial services industry on the government of the jurisdiction. It is almost universally true that the more reliant a territory is upon a particular economic activity the more deferential it is likely to be to the demands of that sector. Such influence can undermine democratic decision making processes, can facilitate corruption, in the case of financial services can create a strong orientation towards the needs of those outsides the territory who would not normally be the prime concern of its government, and can be (but we stress, is not always) conducive to a criminogenic environment.
This is especially so as the issue of employment is always emotive and totemic in politics. A financial services provider in many secrecy jurisdictions will only have to claim that new regulation to limit its activity is “business-damaging” and will therefore threaten employment and if that sector is one of the largest in the economy then politicians will take great heed and the more likely it is that appropriate regulation will be rejected.
Alternatively, and as is well known, abusive regulation may be introduced at the behest of the financial services sector if it has influence of this sort. It is well known that Ernst & Young and PricewaterhouseCoopers paid for the creation of limited liability partnership law in Jersey to suit their own purposes and to bring deliberate pressure to bear on the UK. It is also recorded that the Society of Trust and Estate Practitioners has been active in promoting what many consider abusive forms of trust, including the VISTA trust in the British Virgin Islands. When Jersey introduced broadly similar trusts in 2006 the law was passed without discussion by its parliament at the behest of local professional firms.
The problem is at the end of the day, as we note:
[I]f a high proportion of the labour within a jurisdiction works for the financial services industry there is likely to be considerable and increased tension between the conflicting goals and interests that the state must address. In extremis the end result may be an overt dependency of the government on the financial services industry. Political scientists call such a situation “state capture”, when narrow and particular interests impose their will onto the state and society at large.
There is no doubt that this is happening.
So where is the problem most serious?:
This really is a case of ‘the usual suspects’. And a fairly comprehensive list of those likely to be subject to ’state capture’.
There are, of course, places with more employees:
Powerful as the influence of financial services is though inn a place like the UK it will not be as serious as is the impact in places like the Crown Dependencies.
Note that the UK cannot even make the top 20 by proportion of work force.
Which does, however, make it important to note that data was not available for all secrecy jurisdictions for which we sought data. Full details are in the report.
Accounting, Banking, Cayman, Guernsey, Isle of Man, Jersey, Secrecy jurisdictions
I challenged the growth figures for the Isle of Man earlier today. A commentator has said:
IOM Government GDP figures are audited and you’ll need more than a conspiracy theory before they can be tossed aside. Competitive tax rates in times of panic are very popular you know
So I did just a little research on this hypothesis using Isle of Man data.
I have questioned data since 2006. Since then total cash deposits have moved from £54 billion to a high of £70bn at end of 2008 since when they have fallen to £63bn. It’s hard to know how much currency impacts on this but since (rather tellingly for calculating loss of tax to the UK) two thirds of all deposits in the Isle of Man are in sterling (so much for being an international finance centre) the answer is probably not that material.
On the other hand loss of funds under management – where people can make serious money from selling services – have been spectacular:
There’s no evidence there to support the claim made.
Nor to support growth in the economy if it is really as heavily dependent on financial services as we think – they being 41% of its economy.
Sorry – your claims don’t stack.
Mine do.
So where did the growth come from? And is it real?
I have been sent a Freedom of Information request made in the Isle of Man concerning the new VAT sharing agreement with the UK. I publish here what is, for my purpose, the most relevant page – the illustrative calculation. The rest of the document has been put on line. This calculation is new.
Let’s talk about what is known in this new document and what is speculation. The 2006/07 income is known. The subsequent uplifts and adjustments are not yet confirmed – and it’s very hard to believe that a) the IoM really did have 8% growth in 2007 and b) has continued to grow through the recession. That is certainly not true of the UK, almost any other economy I know of, and Jersey, so why of the IoM claims to have done so I do not know. I take the claim with a considerable pinch of salt as a result.
The data for expected VAT and duty is based on the UK budget for 2009/10. The figures are for adjustments to that data are, of course purely speculative. I have, therefore, ignored them.
Let’s be clear what this shows: it is that at most the Isle of Man might expect to enjoy VAT income under this agreement of £156 million this year.
Use the more reliable 2006 income data to apportion benefit and the income due to the Isle of Man would be £135 million.
The actual expected VAT income of the Isle of Man under this agreement this year, before revision, was £338 million.
That means, depending on the final proven level of national income in the Isle of Man, the level of subsidy was between £182 million and £203 million. I, of course, predicted a figure of £230 million: but I was using 2008/09 data and I used GDP not GNI for the UK in doing so.
But, the maximum sum that we learn is to be withdrawn from the Isle of Man is £140 million a year. Which means that, quite categorically, the subsidy remains. It has simply been reduced to a sum now running at between £40 million and £60 million a year.
That remains a scandalous use of UK taxpayer’s money. It also gives a complete lie to the claim that the Isle of Man neither was subsidised, and will not be in the future. It still is being subsidised.
But I should make clear: I can live with that. The Isle of Man may need to be subsidised, but I utterly reject the idea that a subsidy should be given without conditions being attached. My conditions would be simple. The Isle of Man should earn this subsidy by:
1. Definitely becoming a full information exchanging member of the European Union Savings Tax Directive as soon as possible;
2. Supporting current proposed extensions to that directive;
3. Requiring that details of the beneficial ownership, real management and full accounts of all IoM companies be put on public record;
4. Requiring that the Isle of Man match any developments in the UK requiring details of trusts to be put on public record;
5. That the Isle of Man proactively seek to sign Tax Information Exchange Agreements until it reaches a target of at least 60 – the average number for a G20 state;
6. the Isle of Man actively seeks to pioneer automatic information exchange agreements with other states.
That’s worth a subsidy. But the current arrangement is not worth a penny.
And as that for that statement that I made that I accepted that the Isle of Man was no longer subsidised – I withdraw it forthwith. It was wrong. The evidence, now available, simply does not support it.
So the debate goes on.
Did we really hoodwink them? - Isle of Man Today .
From today’s editorial:
Once again the tax black hole is dominating the news.Lord Bach, the government minister who’s responsible for the Crown Dependencies, has been in the Island.Our reporter, John Turner, interviewed him.
Lord Bach was very complimentary about the way the Manx negotiated the VAT agreement two years ago. In fact, you might be tempted to draw the conclusion that he thinks we outflanked the UK and got a much better deal than we deserved.
That conclusion would, I am sure, be hotly disputed by our political leaders.
But it does seem to be what Lord Bach is saying. It’s only now, after Alistair Darling’s buddies (and perhaps Richard Murphy, the blogger who has been so angry about the Isle of Man), looked at the books again that they decided that we were being subsidised by the UK.
I wonder if heads will roll at the UK Treasury if they really believe their negotiators were hoodwinked by the Manx in 2007?
The man responsible for the Isle of Man at the United Kingdom’s Ministry of Justice has confirmed the VAT arrangement was changed because the Island gained too much from the previous deal.
Under the re-drawn revenue sharing rules, the Manx government will lose almost £100 million from its budget next year, and £140 million annually after that.
The reasons behind the change have been the subject of intense debate in Tynwald this week.
Lord Bach spoke to journalists before giving the Chief Minister’s International Lecture at the Hilton Hotel last night.
He said the Island had benefitted from an extremely good deal which had to end
Of course it had to end: it was a wholly unjustified subsidy – as I always said.
There’s a new report out on the secrecyjurisdictions.com web site. It’s entitled Key Data Report 2: Financial Services-to-GDP-ratio
The report looks at the contribution of the financial services sector to the overall economy of each secrecy jurisdiction surveyed. As we note:
A high share of financial services in the overall economic activity of a country is likely to indicate the presence of considerable political influence by the financial services industry on the government of the jurisdiction.
It is almost universally true that the more reliant a territory is upon a particular economic activity the more deferential it is likely to be to the demands of that sector. Such influence can undermine democratic decision making processes, can facilitate corruption, in the case of financial services can create a strong orientation towards the needs of those outsides the territory who would not normally be the prime concern of its government, and can be (but we stress, is not always) conducive to a criminogenic environment.
There was one major problem with the research: so opaque are many of these secrecy jurisdictions that we could not get the data. This is the list of those where we failed to secure reliable data:
Of those where we could get data this is the result:
It’s a considerable indictment of the Crown Dependencies that they are so dependent upon financial services. It is right that the UK has demanded that this change in the Foot report. Their economies are collapsing as the offshore world falls apart under the pressure for reform.
And it is essential that they and other states where this dependency is high get the support they need to break the spiral of abuse of the world’s financial system that they facilitate. The cost to the UK of doing that is going to be high. The benefit will be higher.
As I have shown, the cost of these locations to the UK might be up to £4 billion a year, the indirect cost much higher still. Giving them subsidies to reform makes straightforward economic sense, and means it will be so much easier to pick off those places that remain in the secrecy world.
Economics, Foot Review, Guernsey, Isle of Man, Jersey, Secrecy jurisdictions, Tax Havens
It was reported only days ago that my comments on the Politics Show about the Isle of Mn and its VAT arrangements were to be the subject of questions in the Tynwald (Manx Parliament).
Now the order paper has been published and it would seem the focus has changed. This question is typical:
2. The Hon Member for Michael (Mr Cannan) to ask the Chief Minister –
(1) Whether he will confirm that in past years the Revenue Sharing Arrangements of the Common Purse Agreement have been weighted in favour of the Isle of Man and that the United Kingdom has now taken action to rectify or correct the situation;
(2) whether he will confirm the Revenue Sharing arrangements are now correctly apportioned and that there will be no further adjustment in calculation; and
(3) whether it had previously occurred to the Treasury Minister and Treasury officials that the present ratio of direct taxation (£160M) to indirect taxation (£399M) was suspect and whether this fact had been reported to the Council of Ministers?
This is also indicative:
8. The Hon Member for Onchan (Mr Karran) to ask the Minister for the Treasury -
(1) Who authorised the signing of the “Arrangements for the Sharing of Common Duties” by a Treasury official on 15th October 2009, recently published on the Government website;
(2) when the “Arrangements for the Sharing of Common Duties” was signed on 15th October 2009 whether the financial consequences of the agreement were fully appreciated;
(3) if the financial consequences of the “Arrangements for the Sharing of Common Duties” were fully appreciated, why Tynwald was not officially informed of the financial consequences before the agreement was signed;
(4) in view of the financial impact on the Island, if he considers that an informal briefing to some Tynwald Members on 14th October (ie one day before the document was signed) gives adequate notice to Tynwald Members of the revised arrangements;
(5) on what date the Common Purse Agreement update of 24th October 2007 was renewed/extended and whether this preceded or came after the “Arrangements for the Sharing of Common Duties” signed on 15th October 2009; and
(6) if he will supply Tynwald Members with full details of the 2009 update of the Common Purse Agreement?
There’s no mention of the BBC, me or the Politics Show.
Could it be the Members have realised that their ire should be aimed at the people whop conned them and the people of the Isle of Man all along – that is their own government who, in typical Manx fashion hid behind secrecy, non-disclosure and obfuscation to deny the glaringly obvious – that they had been subsidised all along? It certainly looks that way to me.
