This is worth another outing:
There’s more at the Tackle Tax Havens web site.
You can say it’s small beer that council tax is not being paid on more than half of the flats on One Hyde Park, the most expensive development in London and maybe the world. But it’s not. That’s because, as the Observer reports:
Only nine of the 62 apartments sold in One Hyde Park – the world’s most expensive residential block – have been registered for council tax.
The ownership of the Knightsbridge apartments, which range in price from £3.6m for a one-bedroom flat to £136m for a penthouse, is now under investigation by Westminster city council, which is determined to pursue the monies owed by the secretive owners of the apartments. However, the myriad offshore companies protecting the identities of residents are, according to sources at the council, likely to defeat them.
An analysis of the records by the Observer shows that 25 of the flats’ registered owners are companies in the British Virgin Islands. Other offshore tax havens used to purchase the properties include Guernsey, the Cayman Islands, Liechtenstein and Liberia.
Council officials are now expecting to canvass the apartments door-to-door, although sources said there were concerns that the building’s security, including its SAS-trained doormen, could prove an obstacle.
The sums involved are, of course, small – partly because council tax is so stupidly capped so that properties such as these are wholly inappropriately taxed. That is not the issue for the moment though: the issue is that the culture of offshore is to be seen writ large here. There is secrecy. There is tacit aggression: the SAS trained doormen are mentioned as an obstacle to entry. And there is the contempt for law that tax havens and their clients show. Plus the complete veil of secrecy that tax havens – or secrecy jurisdictions as I prefer to call them – throw round their clients to help them evade their responsibilities.
Remember, 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.
So what can be done? Here’s a list:
1) Require that no property can be owned through an offshore company without the warm-blooded beneficial owner being named. If there is no such owner the property cannot be acquired.
2) No offshore company can own property in the UK without appointing a UK agent – and a named, warm-blooded person and not a company at that – being named as being liable to pay the obligations it owes in the UK. They must be proven to be UK resident.
3) In the event of breaches of obligation the penalty should be a charge 10 times the tax owing, levied on the property as a charge with the right to foreclose on the charge and have the property sold if not settled in two years.
That should stop that abuse.
We need to tackle tax havens, now.
This is a small step. But an important one because it shows the importance of shattering their secrecy.
Nov 252011
The research the Tax Justice Network has published this morning on tax evasion is, I think, shocking.
The full report is here. I’ve posted a summary table of tax evasion for 145 countries, here.
The real question is why does this matter? What’s the problem with the UK losing £69.9bn a year to tax evaders? What’s the problem with Italy losing €183bn a year as a result of its 27% shadow economy – a shadow economy of the same size as that in Greece and more than twice the size of that in the UK?
The answer is that it matters for three reasons. The first is that we wouldn’t have a world economic crisis now if we hadn’t had tax evasion. The current crisis focuses on the Euro. Italy is at its epicentre. It has external debt of €1.9 trillion. If only it had suffered the UK’s rate of evasion in the last decade then its deficit would be less than half that sum now. The same would also be true for Greece, and only slight less so for Spain. In other words, if tax evasion in these countries had been taken seriously and been tackled in these countries we would not have a Euro crisis today. That’s how important tax evasion is.
Something similar could be said for the UK. The USA has an evasion rate about two thirds that of the UK. If we had reduced our tax evasion rate to US levels in the last decade we might owe £200 billion less in debt now. Alternatively, cuts of more than £20 billion a year could be avoided in the UK economy now with our debt still being tackled at the current rate. That could prevent most of the current stress in the NHS; sixth formers would still have maintenance allowances and we might not be facing a national strike next week. That’s how important tax evasion is. We wouldn’t need cuts if we tackled it.
Perhaps as important as either of those is, however, the long term impact of tax evasion. When tax evasion is widespread, and that’s obviously true in Greece and Italy but it’s also becoming the case in the UK too, then honesty goes out of the window. No one knows who to trust. No one can succeed running an honest business. Corruption becomes endemic. And with that all prospects for investment in growth, wealth creation, public goods, our future, the elderly, the young and the disadvantaged disappear too. In other words, tax evasion creates poverty.
That’s why tax evasion matters.
Nov 252011
Once upon a time the postman on Sark was the symbol of offshore farce: rumour had it he held more than 2,000 directorships and quite clearly knew little or nothing about any of them, each being held as a pure nominee to supposedly locate the company of which he was a director for tax purposes on that once idyllic and now rather troubled Channel Island.
Then the ‘Sark lark’ was brought to an end, the postman went back to the day job and examples of such farce, where nominees were so blatant that the sheer lack of likelihood that they really undertook the task supposedly entrusted to them was harder (not not impossible) to find.
Today the FT reveals the practice of nominee directors holding far more positions than they can possibly manage is alive and well and riddles the Cayman hedge fund industry, which claims to be resident in those islands even though it is very obviously likely that real decisions must be made elsewhere. As they report:
A small group of Cayman Islands “jumbo directors” are sitting on the boards of hundreds of hedge funds as demand for independent directors booms in the Caribbean tax haven.
At least four individuals hold more than 100 non-executive directorships each, and 14 have more than 70 – each worth as much as $30,000 a year.
One has been listed as on the boards of 567 Cayman entities, almost all of which were hedge funds.
The revelation of the figures, in a Financial Times investigation, comes amid calls from some of the world’s leading hedge fund investors for greater transparency in the Caymans as part of a global effort to improve fund governance.
This practice suggests three things. First of all, as I have often argued, the supposed centre of decision making that suggests these funds are located where their directors are is little more than a charade in many cases.
Secondly, any directors who can believe in this charade must have suspended their judgement: if you can believe in these structures it is highly likely that sound governance has flown out of the window.
Thirdly, and as I have again argued, often, the time for a change in the rules regarding the determination of residence on the basis of where the directors of an entity supposedly meet is more than overdue for reform. As is likely in these cases, real decisions are almost certainly taken in places like London and New York but ta x is not paid there as a result of playing games in Cayman. That has to stop. Pretending we can determine residence on rules written for the era of the steam ship and telegram when we live in the age of the internet is just madness, and is giving companies the most massive loophole to abuse the tax rules and revenues of major democratic states. The objections of business have to be ignored and such schemes have to be looked through now wherever possible.
Is this a case for the proposed GAAR? I think it should be, but I fear the hurdle has set been too high for it to be used in such cases. If so then specific legislation is needed. Either way, reform is possible and overdue.
Manoeuvring over Rubik is in full swing. The European Commission is pressuring Germany and the United Kingdom to change the bilateral fiscal agreements they have worked out with Switzerland. If they refuse to do so, it will open infringement proceedings against Berlin and London by the end of the year. The texts have already been drafted.
The UK – Swiss deal to which this refers was, of course, Dave Hartnett’s work, and gives up UK tax sovereignty to the Swiss in significant areas for good. As the report continues:
The Rubik agreements make provision for the introduction in Switzerland of a withholding tax in full discharge of all tax obligations on the assets placed by German and British residents in this country and on the income they continue to collect on these assets in the future in a variety of forms (interest, dividends, capital gains, etc).
The Commission’s Legal Service considers that Berlin and London have overstepped their competences by signing these agreements, which protect the anonymity of fraudsters and whose scope partly interferes with EU rules on the taxation of savings income – and the agreement between Berne and the EU in this area. There are also certain “technical problems” inherent to the Rubik system. The rate of withholding on income from these assets paid to Germans, for example, is set at 26.375%, compared with 35% under the savings taxation agreement. The tax will also constitute full discharge of tax liability. Germany and Britain have also agreed to give Swiss financial service providers easier access to their market.
The Commission’s legal experts therefore recommend the opening of proceedings against Berlin and London before the EU Court of Justice for failure to fulfil obligations.
Negotiations are, of course, going on, but that this outcome was likely was predictable from the moment these hideous and rather sordid deals that trade a little cash for exonerating criminal activity in the past without penalty whilst permitting it in the future were pout on the table.
So why did Hartnett do the deal? Is he really on the side of tax evaders? It looks like it. And now we know he’s even willing to break EU law to help them. Amazing.
Commission chief Jose Manuel Barroso unveiled his work programme for next year at the European Parliament in Strasbourg on Tuesday (15 November), calling it a “blueprint for stability and growth.”
Out of the list of 129 separate projects for new EU laws and assorted non-binding strategy papers and recommendations, he highlighted the publication of a commission Annual Growth Strategy; measures to put an end to tax havens and a “quick reaction mechanism” against VAT fraud; as well as laws to end fiddles in the disbursement of EU funds.
The reported continued:
According to commission papers, the tax-haven document, due in autumn 2012, will not be legally binding. But it will aim to “develop a reinforced strategy to protect the EU against the challenges of unco-operative jurisdictions outside the EU.”
Also welcome was the report that:
EU countries will next year be asked to create a pan-EU “framework” for freezing the funds of people involved in terrorist activity and build a joint electronic register to screen financial transactions for terrorist groups on the model of the US Terrorist Finance Tracking Programme.
The EU haw an impressive record in tackling tax haven abuse: in my opinion it has been the most effective agency in the world in doing so. Its European Union Savings Tax Directive is flawed, but is making progress, and even as it stands is a beacon for the importance of automatic information exchange whilst its EU Code of Conduct on Business Taxation has been enormously helpful in tackling tax abuse both on and offshore and is pushing the Crown Dependencies steadily out of business.
The new development looks like an update on the Code of Conduct on Business Taxation. That is also not law, but it has been extraordinarily effective. As such I warmly welcomne this move.
In addition, the moves on terrorist financing simply won’t work without bettr company registries and registries of trusts. Might they be on the way
Nov 162011
The pedants are already out in force seeking to attack The Courageous State. One of the unexpected challenges relates to the fact that the book is on sale on Amazon. The Kindle edition is on sale now at £7.15 and the book will be there in the next few days, just as soon as they have physical supplies.
Why the challenge? As one commentator said on the blog this morning:
I’m a supporter of what you’re trying to do but this time your two-faced hypocritical attitude stinks. Not only do Amazon use tax havens but they also use LVCR through the Channel Islands thus making thousands of people poorer. If by selling your book through Amazon is not supporting companies using tax havens, I don’t know what is. Shame on you! Now post this if you dare?
Another on Twitter reads:
Inspired by your pragmatism, I shall keep using BVI and IOM subsidiaries whilst praying for someone to shut them down
Well, to the first commentator, if you think I wouldn’t dare post that you underestimate my courage, by a very long way.
Second, and more importantly, I really do think those making such comments really do show a profound misunderstanding of what I say, and what I propose.
The simple fact is I could, I suppose, become a monk and live wholly self sufficiently in some remote place to try to avoid all the harm tax havens cause. And no one would notice. And nor would it help. I would not change a thing.
I do seek to change things. Indeed, I can fairly claim I have. Many in the Crown Dependencies will more than readily testify to the impact I have had on them and their economies. The latest such impact is active involvement in and support for the campaign to end Channel Islands’ VAT abuse – which is another campaign now successfully concluding.
These changes, and many others would not be possible without using a computer – supplied I know via offshore entities, using software supplied in the same way, powered by electricity supplied by companies who use offshore, and on, and on and on in all aspects of my life.
I could sweat about this stuff and devote all my effort to trying to avoid companies relating to offshore but as Action Aid have shown, using my methodology, in the modern economy that is going to be very hard indeed.
So I have to make another choice. I sek to be tax compliant. Tax compliance is seeking to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes. Selling books and Kindle editions through Amazon is tax compliant on my part. My refusal to sell through these media would reduce the chance of my message being heard. And it would make no difference to Amazon at all. If I thought it would I’d do things differently, but I know it won’t – and meaningless gestures don’t get us far. So given I’m compliant, I move on and instead devote my effort to changing the system, not the minutiae within it.
And that is fundamentally different from the hopelessly hypocritical position of the Twitter commentator (who is hiding behind a pseudonym , of course). He is consciously choosing to be non tax compliant. I’m not. I’m being completely tax compliant – and am at the same time making it harder for companies like Amazon to abuse.
In the messt real world in which we all live that’s the best I can do. You can call me a hypocrite if you like. But since I never claimed to be a saint I’m really not sure how that helps you. But systemically opposing tax abuse by major corporations will change things.
No doubt those raising the question would like me to spend my time worrying about the small stuff. Well, bad luck: we’ll continue changing the system. That’s much more important, and we’re good at it.
As AFP reported late yesterday:
Europe’s top court barred Britain on Tuesday from enacting a corporate tax reform in its tiny territory of Gibraltar, ruling the scheme would amount to illegal state aid for offshore companies.
The European Union Court of Justice found that the proposed tax system was “designed in such a way that offshore companies avoid taxation,” making it “incompatible with the internal market” rules.
The ruling was a victory for the European Commission, which had stated in 2004 that the proposed system was incompatible with EU rules and would give companies in Gibraltar a lower rate than those taxed in Britain.
The commission’s decision had been struck down by a lower EU court in 2008 following a challenge from Britain and Gibraltar.
But following appeals from the commission and Spain, the Luxembourg-based Court of Justice ruled that the lower tribunal had “erred” in finding that the reform did not confer “selective advantages” on offshore firms.
The system was “specifically designed” so that companies with no real physical presence could avoid taxation because it would be based on the number of employees and the size of business premises occupied in Gibraltar, the court said.
The assessment to levy the tax “excludes from the outset any taxation of offshore companies, since they have no employees and also do not occupy business property,” the court said.
The court found in favour of the commission’s view that “the proposed tax reform constitutes a scheme of state aid which the United Kingdom is not authorised to implement.”
It’s good to noite that the Tax Justice Network predicted this. As we noted in 2009:
Such a reform [as that now rejected by the ECJ] is likely to result in de facto horizontal ring fencing instrumented through taxing only locally bound activities (utilities, property, payroll, etc.). Additionally, it is noticeable that there is a special individualist tax regime applicable to High Net Worth Individuals which allows them to negotiate ‘lump sum’ taxes.
We were, as ever right.
More importantly, as ever it is shown that the UK is actively promoting this sort of abuse on behalf of the City of London which uses places like Gibraltar (population 29,000) as its branch offices.
The case for reform is overwhelming. Now when will it be done?
