I spent some time last night wondering why it had taken me time to comprehend what George Osborne was really trying to say about domicile yesterday. The observant will have noted that it took me three attempts to get to what I think is a best estimate of the revenue that this charge might raise.
Let me assure you, I acted throughout in good faith. Let me add that many of the commentators in this morning's papers seem as confused. That said, I prefer to get things right first time - and admit I did not.
So, why not, I asked myself? And then the answer dawned on me. It hadn't occurred to me that George Osborne would do something illegal.
Let me explain. A few years ago Mohamed al Fayed had a deal with the Revenue as a result of which he paid them £240,000 a year instead of paying tax on his worldwide income. That seems expensive compared to the Conservatives proposals, but he was one of about 12 people to have such an arrangement at the time.
In 2002 that deal was ruled illegal - after the Revenue took the whole thing to Cort to argue that they had acted outside their powers in granting it. This proved to be correct. They had. As Justice Gill rather nicely put it:
In a true sense the Al Fayeds .. became a privileged group who are not so much taxed by law as untaxed by agreement.
And that is exactly what George Osborne is now proposing.
It so happened I helped make the BBC2 programme on the al Fayed debacle. I guess that yesterday my mind just could not accept that Osborne would create what Lord Gill, again, described as a payment that had given Al Fayed:
"carte blanche" to pay off the tax man - then bring as much cash into the UK as he wanted.
But that's what he is doing.
And it's repugnant.
And ultra vires since the Revenue do not have the power to not tax.
And it should not be treated as a tax payment for double tax treaty purposes - because it isn't. It will be an agreement not to submit a tax return on certain income. And that's not the same thing. Not by a long way.
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I’m sure you’ve studied this more than I have Richard. I originally assumed that the £25k would be payable by anyone claiming non dom status and no liability to UK tax as no remittances of taxable income. That wouldn’t work though as presumably they would then arrange small remittances to bring them within the scope of UK tax but at a lower level than the £25k being proposed here.
The detail will be key of course.
Richard,
No, you can’t use the Fayed case to show that Osborne’s plan would be illegal.
The Fayed deal allowed him to remit offshore income to the UK withour paying tax on it, even though the law said that it was taxable. The court held that the Revenue had no statutory authority to waive the tax due.
Under the Tories’ plan, Fayed’s remitted income would still be taxable – and the Revenue still couldn’t do that sort of deal – but he would also (by statute) have to pay £25,000 to keep his non-remitted income tax-free.
You can argue about whether it’s sensible, but there’s nothing illegal about it.
Richard
Richard
I disagree with you
This would be a charge to not be taxed because if it were not paid tax would be due
In that case the al Fayed case is relevant
Richard
Richard,
But in the Fayed case there was no statutory authority for the Revenue’s deal with Fayed. Under this plan there would be a specific statutory provision, therefore it would be legal.
Richard
Richard
Legitimised evasion then?
That should appeal to some.
Richard
If it’s legitimised, it ain’t evasion!
That’s subjective Richard
A lot that happens offshore is legal there, and not here
As the Italians have noted, legal in the UK does not stop evasion elsewhere
Richard
I am surprised that you are suggesting that an elected Government cannot enact Bills? In the Fayed case it was an HMRC agreement that was deemed illegal – not the same thing at all.
I’m not convinced a Bill could change this – although I might be wrong.
The decision was that the Revenue had no power to collect a charge to not pay tax because it only had the power to collect tax, which is aincient and not, as far as I know, based on statute
It would be interesting to see how a Bill could be enacted to not pay tax
So, I think there is substance to this
Richard
Richard,
I’m sure you’re mistaken on this point.
The Fayed case is irrelevant, because that involved the Revenue waiving tax that was due in law. The Tories’ proposal is presumably for a statutory provision under which non-doms could qualify for statutory tax exemptions on paying a statutory fee.
Therefore provided they qualified and paid the fee, there would legally be no tax liability on their offshore income. Just like there is, by statute, no tax liability on ISA income.
By coontrst, Fayed had a legal tax liability, but the Revenue agreed (without statutory authority) not to enforce it.
There can’t be any illegality there (unless the statute breaches the Human Rights Act or EU law, which is another issue).
Richard
Richard
I think we’ve bashed this one enough
My point is simple – this is a fee to not pay tax. I think that is not acceptable, and cannot be legitimised.
It is, for example, a harmeful tax practice is defined by the EU and OECD.
Richard
Richard,
Agreed. As I said, I don’t think the current system is morally acceptable, and adding a £25,000 fee doesn’t make it any better. I just think that under our legal system we can’t say that it’s actually illegal.
Also agreed on EU / OECD; it’s a disgrace that the UK has been allowed to get away with the non-dom rule, and hypocritical of them to do so whilst pressuring other jurisdictions.
Richard
Richard
I always find it disconcerting when we agree!
Richard
Richard,
Not half as disconcerting as our audience does!
Richard
(I’m off to catch a train soon, but thanks – it’s been an interesting debate)
[…] I wrote earlier this week that George Osborne’s domicile plan could be illegal. I happen to think that right, but some have objected that Parliament can legislate that black is white if it wants and there’s nothing we can do about it. […]