The Isle of Man is beginning to smell the coffee – and doesn’t like it

 Isle of Man, Secrecy jurisdictions, Tax avoidance, Tax evasion  5 Responses »
Nov 012011
 

Isle of Man Today is reporting:

COULD there be a fresh threat to the Isle of Man from Europe as finance ministers from the world’s leading economies prepare to a launch their latest assault on tax havens? The European Council has announced it wants real progress at next week’s G20 summit in Cannes on ‘combating the existence of tax havens’.This agenda item is shown completely separate from another that seeks progress on ‘identifying and publicly listing non-cooperative jurisdictions’.

And as they note, this looks ominous:

Island-based lawyer Jonathan Smalley believes this separation of the two issues is a major new development, and one which sheds a new light on the real thrust of EU policy.

He said: ‘If this is not a declaration of war, it sound very like it. It is likely that the EU and the G20 will interpret “tax havens” broadly. The term is likely to include low tax jurisdictions, offshore/international financial centres and the Isle of Man.’

‘It seems in the modern world that being a cooperative jurisdiction is not enough. We may have outmanoeuvred the EU on the zero/10 debate by abolishing the attribution system, so that the island can keep its zero per cent corporate tax rate. The EU have now changed the game. It is our existence – along with other small jurisdictions and part of the UK’s tax laws – that really concerns them and they intend to combat it.’

So you’ve realised ’smart moves’ with the EU aren’t enough? Well, welcome to the real world; the one where abuse is not appreciated and where it is realised that is all you are about.

I’m aware that the OECD is making soft noises - but as I’ll note later today, they’re now part of the problem on tax havens and it is clear the G20 is beginning to realise that the OECD toothless approach is no solution to the revenue loss EU and other countries are suffering to tax havens.

The Isle of Man is right to be worried.

And I welcome this lawyer’s frank admission that they’re a tax haven. A little honest self reflection might go a a long way in Douglas right now.

 Posted by Richard Murphy at 9:33 am

Has the Isle of Man fallen in love with the Tax Justice Network?

 Financial Secrecy Index, Isle of Man, Tax Justice Network  1 Response »
Oct 072011
 

Some secrecy jurisdictions have got very upset with the Tax Justice Network about its new Financial Secrecy Index. Jersey, Luxembourg, Cayman and the UK are amongst those getting stroppy, but then they ranked highly. The universal reaction on their part? We got it wrong.

So now let’s note the reaction from a secrecy jurisdiction that saw its ranking improve quite a lot. That was the Isle of Man. Isle of Man today has said:

It’s been among the fiercest of critics of the Isle of Man as an offshore finance centre – branding us a ‘tax haven’ and ‘secrecy jurisdiction’.

But now even the Tax Justice Network has acknowledged the work the island has done in increasing financial transparency.

Tax Justice Network had produced its latest ‘Financial Secrecy Index’ which shows the Isle of Man well down the list at number 36 behind such mainstream onshore countries as Italy, Ireland, Canada, India, Austria, UK, Germany and the USA. Of our Crown Dependency rivals, Jersey comes in at seventh on the list and Guernsey at 21.

The previous Financial Secrecy index was published in 2009 when the Isle of Man was placed at 24th on the list with an ‘opacity score’ of 83.

This time the secrecy score has been reduced to 65.

Tax Justice Network adviser Richard Murphy, who was heavily involved in the construction of the index in 2009, said in his blog that the Isle of Man and Guernsey both got credit for increasing transparency.

So let’s get this clear: we get this right if you go down the ranking and we get it wrong if we go up.

I think the conclusion is obvious: of course we get this right. It’s just some do not like the answers. Being named as the facilitators of crime is I guess always going to be uncomfortable for a place. But let me assure those who don’t like it: we’re going to carry on doing it.

 Posted by Richard Murphy at 9:53 am

London is the consolidated #1 secrecy jurisdiction in the world

 Cayman, City of London, Financial Secrecy Index, Guernsey, HMRC, Isle of Man, Jersey, Secrecy jurisdictions, Tax Havens, Tax Justice Network, Uncategorized  11 Responses »
Oct 042011
 

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.

 Posted by Richard Murphy at 8:55 am

The Isle of Man is already denying what it said to the EU on zero / ten

 Isle of Man  Comments Off
Sep 152011
 

The Isle of Man Today web site is noting, as I have this morning, that the EU has given tentative approval to the revised tax system in that island.

It also notes:

Concerns have been raised by a former assessor of income tax Mark Solly, and the Positive Action Group, that the abolition of ARI will lead to the development of a two-tier tax system in the island.

Mr Solly, who will be guest speaker at PAG’s next public meeting at the Manx Legion Club in Douglas on Monday night, fears it will lead to a reduction in tax take and also make it possible for wealthy individuals to shelter income in companies, minimising their tax liability – and placing a further burden on the less well off.

Treasury officials insist that the ARI’s abolition will not lead to a significant loss in tax revenue as measures already in place will be sufficient to prevent tax avoidance.

Mark Solly is obviously right,  and the EU know he is right, of course, which is why they sought and got assurances from the Isle of Man. Let me quote some from what the Isle of Man said to the EU this week:

In the absence of the attribution regime for individuals, taxpayers availing themselves of the legislative choice to structure their affairs such that the 0% corporate tax rate applies will be doing nothing artificial, and nor will they be seeking to escape what is normally payable.

With such clear constraints, the general anti-avoidance rule provided by Schedule 1 of the Income Tax Act 1980 cannot be used to replace the attribution regime for individuals.

And let me note the examples given by the Isle of Man:

We would now like to present a small number of examples to illustrate better how we expect to apply our tax code following the abolition of the attribution regime for individuals.

1 An existing company, with activities or investments providing an annual income of 1,000 subject to the 0% corporate income tax rate and wholly owned by an Isle of Man resident individual, pays 100 per year in dividends.

The retention of 900 per year in undistributed corporate income is not a transaction, has no avoidance motive, and so cannot be challenged.

2 The same company as in example 1 is sold after five years for a market value to an unconnected third party.

At this point the company has a retained income reserve of 4,500.  However, it is the share capital which is being sold in a transaction by the shareholder, there is no avoidance motive and the sale cannot be challenged.

3 The same company as in example 1 is put into members’ voluntary liquidation after five years and its net assets are distributed to the shareholder.

This transaction does not have an avoidance motive and so cannot be challenged on that basis.  However, the retained income reserve of 4,500 is an income distribution and will be subject to income tax in the hands of the shareholder.

4 The same company as in example 1 is sold after five years to a connected party.

In this case a technical enquiry will be made because, depending on the exact circumstances of the disposal transaction, there may be an avoidance motive and the general anti-avoidance rule may be applied.

5 An Isle of Man resident individual transfers investments into a company in exchange for shares in that company.  The investments provide an annual income of 1,000 subject to the 0% corporate income tax rate and the company pays 100 per year in dividends.

In this case a technical enquiry will be made because, depending on the exact circumstances of the transfer transaction, there may be an avoidance motive and the general anti-avoidance rule may be applied.

In these simple examples, it can be seen that the Isle of Man Government will apply its general anti-avoidance rule in a restricted set of circumstances which bear no similarity to the operation or effect of the attribution regime for individuals.  Specifically, the retention of undistributed income from year to year by an Isle of Man company will be treated in exactly the same way for tax purposes regardless of whether the shareholders of that company are resident or non-resident persons.

So what the Isle of Man Treasury officials are telling the press is just not quite true. There will be a loss to the Isle of Man. and there will be exploitation of the form Mr Solly describes.

And as the Isle of Man also told the EU:

It is possible that national revenue may fall by more than [£2.4 million], but because any additional amount will be as a result of changes in taxpayer behaviour, we cannot estimate any further cost with confidence; either as a timing difference or as an absolute loss of revenue.  We will monitor national revenue statistics carefully following the abolition of the attribution regime for individuals.  Should there be a severe negative effect caused by the absence of the attribution regime for individuals, then our Government would need to re-examine its policy options.  But let me make it clear to the Members of this Group: any such options will not include a reintroduction in any form of the attribution regime for individuals or of measures with equivalent effect.

That does, I think, provide some clarity.

 Posted by Richard Murphy at 1:00 pm

Jersey, The Isle of Man and Guernsey

 Guernsey, Isle of Man, Jersey  11 Responses »
Sep 152011
 

The EU Code of Conduct on Business Taxation group met in Brussels this week to consider the measures Jersey and the Isle of Man are proposing to take to make their tax systems compliant with EU requirements following their being ruled unacceptable last year.

I will not relate the story of that unacceptability at length: suffice to say that the EU deemed that the corporation tax systems of the islands failed three of the five code requirements.

Removing what might be called the ‘deemed distribution’ requirements (ARI in the Isle of Man) was hoped by the islands to be enough to get round the problem although I had suggested a third problem remained.

Well, as it turned out the EU has accepted the abolition of these provisions subject to some pretty significant assurances, and with a sting in the tail (of which more in a moment). The condition is that deemed distribution is not reintroduced using general anti-avoidance legislation. It won’t be, the islands say. Now I have seen documents presented to the meeting via my usual sources in Europe I note that Wendy Martin for Jersey said, for example:

In summary, the general anti-avoidance rule cannot in our view replicate the effects of the deemed distribution and attribution rules. It cannot apply in such a way as to result in the profits of a company being taxed in the hands of the shareholder in the absence of a properly taxable dividend. It also cannot apply in any circumstances other than in respect of highly artificial and non-commercial transactions.

Which curiously gives carte blanche licence to Jersey local people to use companies to avoid tax, something Colin Powell said they could not afford to do, which is why he was not worried about it:

Outside the finance industry many general traders are branches or subsidiaries of UK companies and so are not affected by the removal of these provisions. Local traders face significant competition from external suppliers and even when their profits were subject to tax at 20% (prior to the introduction of zero/ten) the tax revenues generated were a relatively small proportion of the total. Even absent the low investment income climate that currently exists and which might otherwise provide an alternative source of income, many of the local traders rely on the income from their businesses as the main or sole source of funding. It is likely therefore that even if they did incorporate their businesses they would need to extract the profits in the form of a salary or a dividend.

It’s an odd idea that Jersey says locals simply can’t afford tax avoidance, and an indictnment of the contempt that Jersey offcials hold for the local economy that they can structure their argument in that way.

Despite which Wendy Martin reognised that if any could manage it the opportunities were now legion to do so:

Taking this example further, say the individual built up substantial profit in the company over a number of years and then decided he no longer wanted to run the business. He sells the company on an arms length basis for a profit. There is no capital gains tax in Jersey and so that disposal would be tax free. Effectively the profits that arose in that company would not be subject to tax.

This transaction could not be challenged under the general anti-avoidance provision on the basis that it is a commercial transaction. The main purpose of the transaction, that is the sale of the company, is for the individual to exit from the business and to make a profit – it is not for the avoidance of tax.

In other words, Jersey admits that there is a masive loophole in their tax system now because of the absence of a capital gains tax.

Which is where they and the Isle of Man are now to suffer the sting in the tail – which is that I am told that the EU will be demanding a capital gains tax of them - because its absence now makes their system on-standard in itself.

That should ‘go down well’ in St Helier and Douglas.

And candidly I really do hope they do this to Jersey and the Isle of Man – because remember they both remain out on a limb with these tax systems which have been, I think it fair to say, grudgingly approved. And Jersey remain out on a limb on other issues too – like automatic information exchange under the European Union Savings Tax Directive.

But EU attention might move elsewhere for a moment for what, I might hear you say,  of St Peter Port? Well, the EU’s now turning its eyes their way and is asking for evidence of what they’re going to do, which so far seems to be ‘not a lot’.

 Posted by Richard Murphy at 10:52 am

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.

 Posted by Richard Murphy at 9:28 am

Jersey and the Isle of Man – back before the European Union

 Europe, Isle of Man, Jersey, Uncategorized  2 Responses »
Aug 222011
 

As I have noted (more than once) Jersey and the Isle of Man failed the requirements of the EU Code of Conduct on Business Taxation last year.

On 13 September their proposed revisions go before the Code of Conduct group for review.

I gather both are appearing.

I also gather the Code Group has considerable doubts about representations being given: after all, the history of both places is that they have done all they can to abuse the requirements made of them with a veneer of compliance covering blatant attempts to get round the rules so they could continue to offer tax haven ring fencing. Given that the Code Group rightly notes that both Crown Dependencies are in parlous financial state I suspect few believe they won’t try such abuse again.

It could be an interesting meeting. And there’s no certainty either will walk away with an approval – because there are doubts, as I’ve previously mentioned, that they will. The islands both failed on three counts last time. They look to be addressing two concerns but there is doubt about the third. They may pass, but my doubts definitely remain. But I could be wrong. It’s possible.

 Posted by Richard Murphy at 7:44 am

Most people in Isle of Man want a referendum on VAT deal with UK

 Isle of Man, VAT  2 Responses »
Aug 152011
 

Isle of Man Today reports:

A LARGE majority of the Isle of Man’s voters would like to see a referendum on any future proposals the government might put to the UK over VAT, according to an election survey.

As Energy FM puts it:

Four out of five feel the Isle of Man has been treated unfairly.

The majority are in favour of a referendum before accepting the new deal with the UK, and this feeling is strongest amongst the 16 to 24 age bracket.

What’s vaguely interesting about this is that they actually think the Isle of Man has a negotiating position. The truth is they’ve been told ‘take it or leave it’. And rightly so.

I’m not quite sure what they don’t get about that. At least they’re not being asked to repay past over-payments.

 Posted by Richard Murphy at 2:07 pm

The Isle of Man’s VAT agreement – getting close to reality at last

 Isle of Man, Uncategorized, VAT  3 Responses »
Aug 152011
 

This issue still rumbles on.

Whilst issue was focused elsewhere last week the detailed reasons for the new arrangements between the UK and the Isle of Man crept out.  As I suggested a long time ago (back in 2007) the likelihood is that the Isle of Man has a very different VAT output structure to the UK - because so many of its sales relate to financial services which are VAT exempt and which therefore have no VAT due on them. In that case to simply pro rata VAT receipts on the basis of total turnover of the two places was always going to be wrong: if the turnover of one party was heavily dependent on VAT exempt outputs it would in that case recover too much VAT  if that was done. The party benefitting was, of course, the Isle of Man

The UK has now realised this (at last) and has used this as the basis for, correctly, renegotiating the arrangement with the Isle of Man.

There is still opposition in the Island to the new deal which will, I am sure justifiably, take another £75 million from the Island each year, bringing the total adjustment now in line with my original estimate of the annual subsidy the UK was giving the Isle of Man each year.

But it’s time for the Isle of Man to shut up – asking for a subsidy to be a tax haven is not going to win them any friends right now, and the sheer hypocrisy of the critics who want to use UK taxpayer’s funds to subsidise the abuse they permit is extraordinary.

When will the Isle of Man realise it is time for plan B?

 Posted by Richard Murphy at 9:37 am
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