Channel Islands’ VAT abuse: the end is nigh

 Guernsey, Jersey, VAT  13 Responses »
Oct 122011
 

From Channel Online, yesterday:

Channel Television can reveal that Jersey’s fulfillment industry have been warned that Low Value Consignment Relief could be reduced or even scrapped.

LVCR is a tax loophole by which UK consumers can buy goods from the islands and not pay VAT.

We have learnt that at a private meeting, Jersey’s Economic Development Minister warned the island’s companies to prepare for the worst.

And so another campaign against Crown Dependency tax abuse looks to be heading for a successful close.

I’ve begun to forget the scopre now, except I know they’ve got zero.

And yes, I know this one is not over yet. I just emphasis the ‘yet’.

After all, if you were a Chancellor looking at £200 million extra a year right now would you turn it down? Not even George Osborne could do that. Surely?

 Posted by Richard Murphy at 8:07 am

Jersey flips its lid

 Financial Secrecy Index, Jersey, Tax Justice Network  3 Responses »
Oct 052011
 

Jersey has, according to the Daily Telegraph, not taken kindly to the Tax Justice Network Financial Secrecy Index, in which it came seventh. As they report:

The CEO of Jersey Finance has criticised the 2011 Financial Secrecy Index, in which Jersey ranks seventh, as ‘nonsensical’ and nothing more than ‘lobbying disguised as research’.

Geoff Cook added:

The report is presented as though it is based on accepted international standards. The reality is that it is a selective interpretation of subjective information designed to further the Tax Justice Network’s specific agenda.

Sure it is Geoff: why should we use someone else’s when we’re more than capable of creating our own.

But Geoff doesn’t get that point. He added:

Jersey’s ranking in the Index is nonsensical. Jersey is one of the safest and best regulated international finance centres (IFC), as demonstrated by credible, independent assessments by internationally accepted organisations like the OECD and the IMF.

But we criticise the OECD, and rightly so: it’s laughable that having 12 tax information exchange agreements makes you compliant in their eyes. So we point out the weakness in their agenda, which was to exonerate these places far too easily for giving a sop to the OECD.

Although we’d also agree with them on one issue – Jersey has almost no experience of information exchange which is exactly why we say it’s secretive.

But let’s see just how daft Cook’s opinion is. As the Telegraph notes:

The new index contradicts the findings from last week’s Global Financial Centres Index, which ranked Jersey as the world’s top offshore finance centre according to how it performed against its competitors and how it is rated by financial services professionals.

So by using a simple rule of thumb - asking a select group of people who are looking for secrecy on behalf of their clients – Jersey comes out top and Jersey is proud of the fact but when we point out t comes on top with these people because it sells the what they want – which is secrecy – we’re told we’ve got everything wrong.

You can’t have it both ways Geoff. We’re either right that you’re secretive or the Global Financial Centres Index is right that you’re really secretive. But whichever way you spin it Geoff we’re still right.

And you’re wrong.

Now admit what it is you sell (because, let’s be candid Jersey has nothing to offer London hasn’t but secrecy and tax abuse) and stop wasting journalists time with your false cries of protest which no one believes.

 Posted by Richard Murphy at 11:57 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

There are many things Jersey can say about me but wrong isn’t one of them

 Jersey  19 Responses »
Sep 302011
 

I note the Jersey Evening Post reported yesterday that:

EUROPE could force Jersey to introduce a capital gains tax, one of the UK’s foremost critics of tax avoidance has warned.

The introduction of such a tax, which could mean Islanders would have to pay tax on the sale of property and businesses, could be the ‘sting in the tail’ of Europe’s ruling on zero-ten, says Richard Murphy, of the Tax Justice Network.

He said that a source within Europe had told him that tax officials were still not happy with changes Jersey had made to the its zero-ten company tax policy.

However, Treasury Minister Philip Ozouf dismissed the claims as nonsense. He said that Mr Murphy would not stop attacking Jersey until it was fully integrated into the UK and that he had been proved wrong many times in the past

All I can say is that I have been told what is reported: of course my sources may be wrong. To date they have proved very reliable.

As indeed have I. Philip Ozouf may like to say I’m wrong but the list of things I’ve got right about Jersey is long:

-  The first zero / ten proposal would fail. It did

-  The revised zero / ten proposal would fail. It did.

-  20 means 20 would not raise significant funding. It did not.

-  The introduction of zero / ten would leave a black hole in excess of £100 million which Jersey always denied. It did leave a black hole of that size.

-  GST would not stay fixed at 3%. It did not.

-  The States would not be able to cut spending to fix the black hole. They haven’t been able to do so.

I’m sure there is more, but that will do.

Indeed, my problem is that I’m having a problem thinking what I’ve got wrong so far in the predictions I have made over many years. And if the capital gains information is right (and all I can say is it has come from a reliable source) then my latest prediction that issues would still be raised with zero / ten will prove to be right too.

It’s juist a shame Philip Ozouf does not enjoy the same record of success on predicting what will happen in Jersey. If he had they wouldn’t be in the mess they’re in now.

 Posted by Richard Murphy at 6:56 am

Jersey’s proud to say it’s the number one place for hiding your money

 Jersey  9 Responses »
Sep 282011
 

As the Jersey Evening Post says today:

JERSEY is now ranked in the top ten worldwide locations for providing wealth management and private banking services.

It is ranked in eighth position overall and is fifth placed in Europe behind London, Zurich, Geneva and Frankfurt, according to the latest Global Financial Centres Index released this week.

Now if you had just been ranked the best place to hide the world’s money from view would you want to shout about it? No, nor would I. But then – you don’y have that distorted mindset and nor do I. Thankfully.

 Posted by Richard Murphy at 5:55 pm

The Channel Island and Low Value Consignment relief – getting the facts straight

 Guernsey, Jersey, Uncategorized, VAT  15 Responses »
Sep 222011
 

There was a recent discussion on this blog about the history of Low Value Consignment Relief – the VAT system that has been systematically abused by companies round tripping goods with a value of less than £18 into the Channel Islands for almost immediate return to the UK without VAT being charged.

Richard Allen, who has done more to campaign against this abuse than anyone, sent me a note as a result, and I think it well worth sharing as it sets out all the facts on this issue. I reproduce it here with his permission:

With the recent sale of Play.com, the stalled floatation of Thehut, the failed sale of Healthspan and the sale of Moonpig.com I am sure many of your readers may have come to the conclusion that the sale of these Channel Island based retailers may have some connection to the UK Governments announcement that it intends to end the abuse of Low Value Consignment Relief later this year. For what seems like an eternity now online retail in the UK has had to quietly suffer a growing market distortion caused by the abuse of this EU import VAT relief. The resulting market distortion has gradually pervaded every aspect of music retail ballooning like a giant oppressive elephant that nobody wanted to admit was crushing the very life out of our long established UK music retail. Over time UK music retail merrily skipped off to Jersey and Guernsey leaving those retailers unable to make the same journey, to their VAT enhanced demise.

LVCR, contrary to the popular myth was not introduced to help the horticultural industry. That myth has arisen due to the fact LVCR was confused with the VAT prepaid scheme that was introduced to help the Channel Islands horticultural industry in 1973. This prepaid scheme allowed Channel Islands companies to prepay VAT in advance, originally with VAT prepaid stamps but later through a computerised system. Another urban myth concerning this trade is that LVCR was introduced to help the Channel Islands economy. Neither of these assertions are true and the simple fact is that LVCR is an administrative relief intended for the use of member states to reduce their VAT collection costs. It would be entirely illegal to apply it for the benefit of the Channel Islands as that would be an abuse contrary to the EU Treaties and its purpose.

What went wrong with LVCR and the Channel Islands is that since it is an administrative relief and since the Channel Islands already had a pre-paid VAT scheme the application of LVCR in 1983 was entirely unnecessary. There was no administration to be relieved since VAT was pre-paid and there was no cost for the collection of VAT. Today the entire pre-paid system is computerised and even more efficient.

It was clear from the very start that the position of the Channel Islands – an English speaking territory with UK currency – within the EU free trade area and within the UK postal system would probably result in the abuse of LVCR. The LVCR directive allows member states to exclude mail order goods and it would not have been difficult for the UK to have excluded the Channel Islands from LVCR right from its introduction in 1983, since VAT could have been collected at no cost with the existing pre-paid scheme. Quite why LVCR was allowed to the Channel Islands is a mystery. I’m sure the current abuse was deliberately engineered allowing the Islands fulfilment industry, which at that time thrived on cheap subsidised postage, to gain a further advantage from its introduction.

For many years the use of LVCR to avoid VAT was a well kept secret and flowers and plants already in free circulation in the EU were being exported to the Islands from the UK and other EU locations (mainly Holland) so they could be sold by mail order VAT free back into the UK. The 1997 HMRC VAT Assurance Review of Channel Island Goods reached the staggeringly unsupportable conclusion that nobody would circular ship goods via the Channel Islands to take advantage of LVCR because it would not be viable! Exactly how this document reached this ludicrous conclusion is unclear but no doubt somebody with an interest was exerting influence. I understand that the Channel Island Postal services regularly wined and dined senior UK civil servants.

By the late 1990s Play.com had taken advantage of LVCR and the cat was out of the bag. A fairly well kept secret was now becoming common knowledge. By 2005 the practice was so widespread and so out of control that the market distortion it was causing in the UK was forcing everybody offshore. At this point the UK Government really should have acted and removed LVCR from the Channel Islands… but they didn’t because it was politically embarrassing to have to end it (voters like cheap CDs).
Another urban myth is the suggestion that the UK will lose money if LVCR is removed. This incorrect and misleading statement has been propagated by The Channel Islands and incredibly by the previous UK Government. Firstly nobody bothers sending much over £18 from the Channel Islands anyhow since the fraud is now so sophisticated that items over £18 are shipped from a UK warehouse. Why would anybody send an item that had VAT due on it on a round trip via the Channel Islands to a UK customer? Secondly if LVCR is removed and all VAT is prepaid in the Channel islands under the pre-paid scheme, then there is no cost of collection and no loss of VAT. It is only the existence of LVCR abuse that is losing VAT and the market distortion it has created has skyrocketed the loss of VAT over the last 15 years. Originally only a small amount of VAT was lost as the result of a few horticultural retailers scamming the system but now a vast amount is lost as a result of every major retailer in the UK having located to the Channel Islands. How can that possibly be a cost benefit to the UK ?

The main effect of the removal of LVCR will be the collapse of the Channel Islands fulfilment industry because there would be no reason you would want to fulfil anything from the Channel Islands as there would be no advantage to it. I’m sure there will be few tears shed over that. Once the deliberate circular shipping has been ended there would be few packages for HMRC to inspect. More importantly the cost advantage arguments have always been based upon the argument that LVCR can only be altered unilaterally i. e . not just for The Channel Islands but from all locations outside the EU. That is not so, as I will explain.

The LVCR directive was first introduced because member states wanted the option of excluding low value imports from VAT if the cost of VAT was greater than the cost of collection. However in giving member states of the EU the right to exempt items from VAT the EU included in the LVCR directive a non-discretionary obligation (Article 1) for member states to prevent LVCR from being abused by retailers wanting to evade or avoid VAT. Mail order goods are specifically highlighted in the directive and member states are allowed to exclude them. The result of allowing evasion and avoidance is distortion and in the recital to the LVCR directive the member states obligation to prevent evasion and avoidance is put in context; “whereas the exemptions on importation can be granted only on condition that they are not liable to affect the conditions of competition on the home market”. This sentence on its own is not an obligation however the overall result prescribed by the directive is clearly an obligation. The intended prescribed result of the LVCR directive is the application of an administrative exemption from VAT on low value imports into the EU that is not likely to affect adversely the conditions of competition on the home market. That result has clearly not been reached in the case of the Channel Islands where LVCR has been abused for many years and to an extreme degree seriously damaging competition on the home market.

There is a myth that Channel Islands retailers like to circulate which argues that the UK could not just remove LVCR from the Channel Islands as it would be illegal. If LVCR were being applied correctly and circular shipping was not taking place then that could be argued. However circular shipping is taking place and on an industrial scale and LVCR is being abused by mail order from the Channel Islands. Because of that blatant abuse the UK is perfectly within its rights to exclude the Channel Islands mail order goods from LVCR in order to uphold its obligation to prevent evasion avoidance and abuse. My understanding is that the EU has clarified that point to the UK and reading the legislation it seems clear that such an action would be entirely legal and justified.

The basis of the complaint that RAVAS put into the EU Commission in 2007 was that UK Government had failed to prevent LVCR being abused. It took a while to work its way through the system and deal with the inevitable denials but in the end the evidence was overwhelming.

Hopefully we are about to see the end of LVCR abuse although the current abuse of LVCR in relation to platforms such as Amazon Traders and eBay also needs to be addressed. It’s about time the UK Music industry worked with the UK Government to prevent VAT avoidance being used as a method of competition. As we have seen its ultimate effect is to devalue the product and reduce margins to unsustainable levels.

Ultimately by working with and supplying tax avoiders both distributors and record labels only have themselves to blame. The tears shed for HMV by major record labels who are supplying TV advertised offshore tax avoiders are hard to take seriously and the resultant negative effect on UK retail should hardly be a surprise.

Regards

Richard
RAVAS

 Posted by Richard Murphy at 2:19 pm

Will play.com be turfed out of Jersey?

 Jersey, VAT  12 Responses »
Sep 212011
 

The following was announced this morning on TechRadar:

Play.com, one of the UK’s biggest e-tailers, has announced that it is to be bought by Rakuten, a Japanese company that specialises in e-commerce.

The surprise takeover was announced this morning with news that the two companies have entered into a ‘definitive agreement’, where Play.com will be acquired by Ratuken for £25 million (approx. 3.3 billion yen) in cold, hard cash.

I hope the purchasers know what they’re doing. Pay.com is one of the biggest abusers of the UK’s VAT system through it’s abuse of low value consignment relief where goods worth under £18 are sent to the UK VAT free.

Now that is still legal (although wait for reforms this autumn) but some time ago Jersey agreed to stop the island being used by non-Jersey owned companies for this purpose precisely because it’s considered abusive.

Now play.com won’t be Jersey owned.

So will they be turfed out now?

Interesting idea. One for the new owners to watch out for maybe. I’d have a warranty on it in the deal if I was them.

 Posted by Richard Murphy at 12:01 pm

Who is Jersey kidding when it comes to withholding taxes?

 Jersey  12 Responses »
Sep 202011
 

As Tax-News.com has reported (straight from a press release, so I feel happy to copy it):

Jersey’s Comptroller of Taxes has remitted to EU member states a total of GBP4m in retention tax for the year 2010.

Retention tax is applied by Jersey paying agents and passed to the Comptroller of Taxes in accordance with the EU Savings Tax Directive, which requires withholding tax to be applied to the deposits of the residents of EU member states.

Under the terms of the Directive, 75% of the tax retained (GBP4m) is sent to the individual member states and the remaining 25% (GBP1.3m) is to be retained by the Jersey government. Due to the fuller effect of low interest rates, the amount of tax retained in 2010 is significantly less than in 2009 when GBP8.85m was remitted to the Member States and GBP2.99m was retained by the Treasury.

The collection of retention tax relies upon the co-operation of local paying agents. The Comptroller of Taxes and the President of the Bankers’ Federation are both happy that the process of exchanging information and the payment of retention tax is continuing to work extremely well.

Comptroller of Taxes, Malcolm Campbell, said: “I am extremely grateful once again for all the help received from paying agents, in particular banks, which bear the greatest burden as a result of these agreements.”

The Treasury and Resources Minister, Philip Ozouf, said: “As in previous years this shows that Jersey continues to honour the commitments that it entered into voluntarily with member states.”

Oh dear, who are you kidding Mr Ozouf?

Jersey Finance say that in December 2010 there was over £366 billion held in Jersey of which more than £160 billion was in cash and at least £30 billion of that was for EU depositors.

Let’s apply a rate of 2.5% to this cash (which is low for the balances in question) and generate a return of £750 million. Tax was withheld at 27.5% on average during the year. So tax withholding applied to £14.5 million of the interest paid and the rest avoided the tax charge.

So, applying tax to less than 2% of deposits counts as full cooperation does it Mr Ozouf? And opposing all measures that might extend the scope – or even opting for full information exchange like the Isle of Man and Guernsey also counts as full cooperation does it?

Please pull the other one. No one believes you, and the evidence as to why is clear for all to see. We can all see why you think this process is working well - because it’s very obvious it’s hardly really working at all whilst giving you an essential fig leaf of respectability.

And then you wonder why people are sickened at the continuing abuse you promote. Well, you shouldn’t be: the world can spot a sham when it sees one and your press release and all that lies behind it is just that.

 Posted by Richard Murphy at 4:41 pm

VAT consignment relief and the Channel Islands – it’s time for the final whistle

 Guernsey, Jersey, Uncategorized, VAT  32 Responses »
Sep 162011
 

It seems worth reproducing the following exchange from Hansard this week in full:

Jonathan Edwards: To ask the Chancellor of the Exchequer what assessment he has made of the potential effects of the provision of low value consignment relief on entertainment products sold by mail order from the Channel Islands on independent high street entertainment stores. [70987]

Mr Gauke: We have not performed an assessment but we are aware of the impact on high street stores, and the Exchequer. The Treasury is currently considering further measures to stem the impact of LVCR.

Jonathan Edwards: To ask the Chancellor of the Exchequer whether he plans to remove low value consignment relief for(a) music and (b) other entertainment products sold by mail order from the Channel Islands. [70989]

Mr Gauke: The Government have not finalised their plans for changes to the low value consignment relief for goods imported from the Channel Islands at this time but is reviewing options.

VAT: Entertainments

Jonathan Edwards: To ask the Chancellor of the Exchequer what discussions he has had with (a) the European Commission,(b) multiple retailers and (c) independent stores on the effects of low value consignment relief on (i) music and (ii) the general entertainment industry. [70988]

Mr Gauke: The Government have been in contact with the European Commission to discuss their options to restrict the low value consignment relief and has received representations from a number of trade sectors affected by LVCR. Ministers are now reviewing what options are open to the Government to make further changes to LVCR.

VAT: Imports

Jonathan Edwards: To ask the Chancellor of the Exchequer what estimate he has made of the revenue foregone by the Exchequer due to the provision of low value consignment relief in each of the last five years. [70990]

12 Sep 2011 : Column 1045W

Mr Gauke: The estimate of the revenue foregone by the Exchequer due to the provision of low value consignment relief in each of the last five calendar years is as follows:

Loss of VAT (£ million)
2006 90
2007 100
2008 130
2009 140
2010 130

For consistency and ease of comparison, the figures in the table assume a constant standard rate of VAT of 17.5%. The actual cost for 2009 is slightly different from these figures reflecting the temporary cut in the standard rate of VAT.

The position is clear, massive, organised abuse is going on.

I’ll tell you – although Gauke is not doing so – that the EU has said the UK has carte-blanche to act to stop this abuse altogether – so the only question now is when will they do so?

The Isle of Man’s VAT abuse has been stopped. Now this one needs to be closed too.

Yes I know it has consequences for Jersey and Guernsey. But that’s something they will have to come to terms with. Promoting tax abuse is not the basis for an economy, and they should have realised that by now. The message has been spelled out loud and clear.

So, when are we going to get an announcement? That’s the only question left.

 Posted by Richard Murphy at 7:09 am
 Older Entries  Newer Entries