A correspondent on this site using the name Tom (which I’m pretty sure is  not his real name) has responded to the blog I wrote yesterday on the tax abuse that is growing through Denmark, He said this, and I think it so relevant that I reproduce it in full:

This problem as I am sure you are aware is utterly endemic in London. I audit a number of UK companies which hold loans and equity in private companies in other parts of Europe. For as little as a few thousand pounds a off-the shelf structure can be set up and run by fiduciary agents to:

-Form a UK company with shares held by a parent company in a tax haven

-Buy controlling shares in a trading company in a 'high' tax area.

-Load up the company with loans from the UK company, which thanks to our treaties usually attract no withholding taxes in the source country

-Mop up any excess profits of the subsidiary with 'management charges'

-Wipe out the whole UK profit by loading up the UK company with loans from a third party country which we have a treaty with(e.g Switzerland)

-Remit the cash back to the parent in a tax haven (thanks to the lack of withholding taxes from Switzerland).

In a typical EU or Russian trading company, you only need profits chargeable to local taxes in excess of £25k - 30k to make this structure pay for itself.

The use of the UK as a 'shop window' for extraction of profits from our neighbours and abuse of our tax treaties is rife. And what is worse, is that the government wont act for fear of cutting off the meagre economic benefits to London. Is it really worth screwing over our neighbours for the sake of what little benefit we get? I think not.

Lets get the EU finance ministers to sit down together and simultaneously tear up our respective tax treaties with Switzerland and Cyprus. The boost to the tax takes of Italy, France, the UK, Germany and many eastern European countries and Russia would be immediate.

I fear he is right.

It’s an interesting perspective: the advantage of a Tax Information Exchange Agreement as opposed to a double tax agreement is that the advantages h notes for transmitting real funds in abusive fashion are not created.

It suggests that they have a positive contribution to offer.

But as worrying is the fact that at least some in the tax profession think stuff like this acceptable: shouldn’t the professions be driving these people out of business?