I am well aware I could be accused of bias in writing this blog, but would like to recommend you watch tonight's edition of Dispatches on Channel 4, which had the above title.
It’s not because I appeared numerous times — as did John Christensen — although it’s true, we did — but because the programme revealed better than any documentary I have done before just what is going on in secrecy jurisdictions, how two faced they are, and how undermining of transparency, accountability and democracy their activities are.
And the former PM of Cayman did make a fool of himself as did BVI officials, which added to the amusement.
And one thing is very clear — despite all the claims we are “not in this together”.
Congratulations are due to the production team.
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I thought it was a great documentary – who were the production team by the way? I didn’t see the end of the credits.
The interview Anthony Barnett did with the former PM of Cayman was extraordinary – he was simply incoherent.
“We’re all in this together” – but some of us have a tax haven bolthole stashed away. A good campaigning slogan for Labour and the Greens next time… to file alongside George Osborne’s “deficit extension strategy”.
Kurt Tibbets’ “we are not a tax haven:” it is the unofficial mantra of the tax havens.
http://taxjustice.blogspot.com/2008/09/we-are-not-tax-haven.html
At the recent Conservative Party conference Isle of Man Government ministers, Chief Minister Tony Brown and Treasury Minister Anne Craine held talks with Chancellor George Osborne MP.
Highlighting the Island’s strong economic links with the UK Mrs Craine said: “We had a positive meeting with Mr Osborne who was very keen to learn more about the Isle of Man. We were able to reinforce the Island’s position as a leading business centre and our long standing record of compliance with international regulation.”
The long standing record of compliance with international regulation is complete balderdash — and the PSG has convincing evidence to support this statement which is more than can be said for any evidence the Isle of Man government can produce to support theirs.
They were going on abour Philip Hammond getting a dividend from his care home company rather than a salary and the amount of NI savings this led to. One question: isn’t it appropriate that the owner of a company receive dividends? Wouldn’t it be absurd for someone who doesn’t work for the company (or if he does, not much, I assume) to get a salary of above £1m?
I thought it was in areas such as that the programme fell down.
Also, why should a fund pay taxes in the jurisdiction where it is formed? It pays taxes where it invests and the members pay taxes on what they receive. Why should the vehicle itself not be tax neutral?
@mad foetus
MF – as I presume you well know, HM revenue and Customs do have serious problems with people paying dividends in lieu of salary. I was not responsible for advising on Philip Hammond’s case. I do not know the detail. But I note they say he never took a salary. That would be odd for a director. I think there was a case to answer.
As for your comments about funds – so channel islands, if I may say so. of course it is okay for funds not be taxed if they are look through i.e. the people investing in them are taxed upon the income as it arises. If they do not pay tax on the income in the fund as it arises, and the fund itself is not taxed, then there is a tax deferral as a consequence, which confers upon the person using the fund an unreasonable tax advantage, which is exactly the point that the program made. It did not say anything else. It did not infer illegality. There is none. But there is undoubtedly tax avoidance activity which means that tax was not paid at the right time and in the right place when it was due. That is sufficient for the suggestion of tax avoidance to arise.
You’re wrong Richard about tax deferral giving an unfair advantage. The gains are taxed on sale at income tax rates – now at 50% max in uk. Whereas gains on an onshore fund are taxed at the more favourable CGT rate of 28%. so HMRC already penalises people for investing offshore. I don’t think there was any suggestion inthe programme that the people invested weren’t declaring the gains on sale?
@Freeborn Man
The rate is irrelevant if rolled up
And that’s what the rich can do
Well done Mr Murphy, and all involved in this production. I too enjoyed watching the BVI man trying to evade admitting what was obvious! What a pity the program didn’t list the tax haven/ secrecy jurisdictions by name.. we could have had thousands of angry and indignant denials posted here by now!
Of course, much as I personally was happy to see Labour lose the recent General Election, I do so wish this documentary had been aired before election day!
I thought the program fell down in many areas, including:
– It was biased and full of innuendo, to the extent that if the BBC (even with its traditional “leaning”) tried to pull a stunt like that, the Director General would probably come under strong pressure to apologise,
– There was little evidence of any wrong doing by those it was quite implicitly “accusing” of wrong doing.
I had assumed that the two tax accountants on the program would both have been mightily embarrassed once they saw the final production, but having visited here – apparently not..!!
Now I come to think of it, I can think of an alternative Channel 4 Despatches – “how a journalist has enjoy a working holiday in the Caribbean and completely avoid paying tax” – ie by claiming the expenditure assessed on his P11D as being eligible under s336….
In not being more open about the differences between evasion (illegal) and avoidance (what every single citizen is legally entitled to do to reduce their own personal burden of taxation), in my view this program simply failed – it just came across as a cheap shot.
I shall be making my own separate complaint to Channel 4.
@John W Smith
No I’m not the slightest bit embarrassed. And I would be surprised if John Barnett – who I know, but not well – is either
Why should we be?
We made clear we were talking avoidance – and you are quite wrong in your comments
And we did not say “wrongdoing” and nore did C4
We questioned judgement
And we questioned politics
And quite rightly so
But all you are saying is utterly without foundation – but does contain a lot of prejudice
I am of the opinion that this Dispatches was utter rubbish. The accusations made towards Phillip Hammond are ludicrous. He has not done anything illegal or even morally wrong. It would have been nice to hear from an independent chartered tax adviser to fully comment on all of the tax issues – not just pick out the ones that look unfavourably on the accused. Very poor, Channel 4.
@Mad Foetus – I am not sure anyone expects companies necessarily to pay tax in the country where they are formed. I believe the HMRC rules state that a company pays tax in the country where there is the control of the company. Philip Green may live and pay UK tax on his “salary” but obviously the control of the company is in Jersey. Incidentally, it appears that Philip Green does not know the difference between PAYE and NI deducted from his companies’ employees and Corporation Tax. When interviewed on TV about his report into procurement cost cutting he stated that his company pays £12 million per week in tax – that is the PAYER and NI bill not corporation tax.
He also implied that he employs many employees and all his employees pay tax. That ignores the fact that if his company didn’t employ them then some other company in the clothing business would employ them.
@thudson
Hmm … “an independent chartered tax adviser to fully comment on all of the tax issues.”
Preferably an “advisor” based in a “secrecy jurisdiction” then?
@thudson
I am an independent chartered accountant
What are you implying?
Do you mean you’d have liked a chartered accountant with right wing bias who promotes tax abuse? Is that what you mean by “independent”?
The program can be seen here
http://www.channel4.com/programmes/dispatches/4od#3129949
@Richard Murphy
“Do you mean you’d have liked a chartered accountant with right wing bias who promotes tax abuse?”
No, just one who could make it clear that what Hammond did was perfectly legal and acceptable.
And it’s laughable to claim contrast your “independence” to a hypothetical “right wing” chartered accountant. You are not independent, you have left wing bias. No problem with that, but don’t expect yourself to be taken seriously when you call yourself “independent”.
@John Deakin
No one is independent!
WE all have political bias
My politics mens if anything I am less biased – and much more transparent than most
@John Deakin
Everyone has some vested interest in either continuing with offshore “secrecy jurisdictions” or dissolving them.
The vast majority of people support dissolution.
The sooner the better.
Independent chartered accountant you may be,but all I am asking for is the public to be told of all tax implications. It is not the job of an independent adviser to only tell one side of the story.
@Thudson
I objectively answered the questions I was asked by C4
That’s the whole of it
Richard
Re your comment #7 to Freeborn Man above, tax deferral from investing in funds is not exclusive to the wealthy. Many offshore retail funds are open to investors with as little as £5,000 or even £1,000 to invest and they receive precisely the same tax deferral advantages.
I watched this programme and must say I was left speechless. My work involves finding alternatives to Aid, so was shocked to learn that the secretary of state for International development is implicated in tax avoidance a practice that affects the very people that his departments purports to help.
I would be interested in your view on the film schemes – was it tax avoidance or (by your definition) tax planning?
I watched this a day late as I saw it on your blog and then pulled it off UKnova today .
To be honest most of what I saw was people making use of vehicles that were set up in response to initiatives put in place to encourage investment ..
The film industry tax perks were always a scam to push money to the luvvies, the scheme was set up with the express aim that films would get 40p of free government money per 60p of true cash … the reality is these schemes don’t work and simply are used by special interest groups to get free cash without it appearing like they are and the reality is 20p of free money goes to the luvvie and 20p to the guy looking to avoid tax.
The offshore bvi stuff , why not just tax all UK rent or profit as taxable income , simple , then there is no need to own the asset offshore etc etc , by giving offshore ownership a better tax situation than onshore we create this situation, if you create a situation where you always make the domestic investor the lower tax payer all the bvi nonsense will vanish, it is only when by trying to offer a good deal to offshore investors that you encourage your onshore ones to pretend to be offshore ….the non dom and no capital gains to offshore rules are the root of all this , to create an incentive for something and then criticize people for making use of that incentive is nuts …
@ Richard Murphy
After reading your website it would appear that your “objective” responses to C4’s questions were altogether rather subjective! Clearly you have a fundamental problem with tax avoidance which is a perfectly legal concept. Are you saying that I should seek to pay the maximum amount of tax possible, as anything other would be tax avoidance and thus immoral?
@thudson
I am completely objective. I want people 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. Tax compliance is almost utterly inconsistent with the use of tax havens.
Where is there a lack of objectivity in that?
My concerns do not lie with the abuse of tax havens as I recognise the problems here. My main point following C4’s Dispaches is that Phillip Hammond was accused of tax avoidance merely by using the tax allowances avaliable to him and his wife.
Your insistence that you are completely objective is quite baffling, especially as in an earlier post you state that “no one is independent.”
@thudson
In other words I am as objective as anyone else
So may claim and is true
@Richard Murphy
Richard, no I wasn’t embarassed (except by being called an accountant!)
Like you, I answered the questions which Channel 4 put to me. Like you, I was subject to Channel 4’s editing which did, I feel, change the tone of some of my answers, but not so as to embarass me.
To put my own views on record:
1. I thought the programme made good knock-about TV, but could have been a bit more objective. They focussed entirely on Conservative politicians and could have done with someone to put the opposite point of view. I had thought that there would be someone from e.g. the Taxpayer’s Alliance to give the opinion piece. As such I was told that my role was to be neutral and simply answer the questions without giving an opinion. In retrospect, I might have given more of an opinion.
2. I did a lot of analysis behind the scenes and obviously persuaded Channel 4 that some of the other things they might have said, weren’t permissible. I’m perhaps proudest of this achievement!
3. Tax evasion vs Tax avoidance is the wrong debate. The distinction is well known and (generally) pretty clearly defined.
4. Tax avoidance vs Tax mitigation. It was a shame that this debate wasn’t aired as it’s the more interesting one. There’s a muddy area in the middle here, but some obvious examples at each end. Artificial capital loss schemes at one end; ISAs and pensions at the other. A good working definition is what Parliament intended, or rather, what Parliament would have intended had it been in full possession of the facts.
5. What of the four case studies compared to this test? Answer: they all did nothing more than Parliament clearly intended – making gifts to their spouses; paying dividends rather than salary; investing in funds whose central management and control is outside the UK. I can’t see any of this as any worse that setting up Tax Research LLP rather than Tax Research Ltd and presumably, Richard, paying class 4 NICs rather than class 1?
6. Should these laws be changed? That’s a separate debate and too long a one for now. The programme might have made it clear that this was a separate question – but they only had 45 minutes. For what it’s worth there’s a case for changing the 7 year rule for IHT, but there’s a case for revisiting IHT’s purpose generally. There’s a case for disallowing spouse exemption between spouses resident in different jurisdictions. And there’s certainly a crying need for a proper definition of residence in the UK rather than the mess of case-law and practice we currently have.
7. Another more interesting question. Even if all that these four did was tax mitigation, should politicians (the very Parliament whose intendment is at point) be subject to a higher standard? Utmost good faith (uberimmae fides) rather than just good faith (bona fides)? I think I’d say yes.
8. But this doesn’t apply to Philip Green who’s not an MP, nor to George Osborne (who can hardly be blamed for what his father did when he was 13 and which was, in any event, overtaken by law-change in 1992)
9. Andrew Mitchell? I can’t see investing in a fund which, like all funds, is based offshore, as anything different to an ISA or pension – but others may disagree. I thought that one of the best hits of the programme, however, was getting Andrew Mitchell to incriminate himself out of his own mouth.
10. Philip Hammond? He’s only mitigated tax, but if so why not admit it. I’m not sure I buy his line that he gave 40% of the shares to his wife because he was about to enter government. He’s still got 60% (a controlling shareholding). Not sure how the Parliamentary rules work here, but this seems an odd answer.
11. Finally, should we bash people who are wealth creators simply for being rich? I’d hope not, but I fear that the programme pandered to our baser instincts here. I don’t see any difference morally between Philip Hammond paying a £1.75m dividend and a nanny setting up her own service company (I believe your own suggestion, Richard, back in 2006).
@John Barnett
Thanks for commenting, and at such length.
Like you, I actively sought to change some of the things that Channel 4 asked. I also refused to answer some questions when I was not sure that their drift was appropriate – in my case I did not know the cases that were to be discussed on air when I recorded bar Philip Green.
But I do disagree with you on many issues. To suggest that the Tax Payers Alliance know anything about tax, or represent taxpayers, or have an opinion worth listening to is a little far-fetched. They are an extreme right wing organisation whose sole aim as far as I can see it is to undermine the effectiveness of government in the UK. Channel 4 very wisely steered clear of them. I suggest you would be wise to do the same.
As to the tax debate: I support purposive legislation. I support a general anti-avoidance principle. I am opposed to income shifting. I do think there is a serious problem with all director’s remuneration being paid the company by way of dividend if that person cannot show that they have other income to reflect their return to labour and therefore subject to National Insurance when it is clear that they are using their human endeavour to generate that income.
I happen to think that LLPs are in this case extremely effective, being tax transparent, not allowing deferral, and ensuring that the owners pay tax at their highest marginal rate. It also so happens that I have to operate through a limited liability structure because my professional indemnity insurers for my professional practice asked me to do so that confusion could not arise between the two: motivation is a factor as I made clear in my definition of tax compliance – which seems to me to be the goal we should be promoting, and which removes that uncertainty to which you allude. 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.
Tax compliance does not seem to embrace any form of tax haven activity. As I noted on the program, one of the clear defining features of the tax haven is that nothing really happens there. I think that is non-ambiguous reason for suggesting that to locate income in such places is artificial. I think the programme made that point very clearly.
And you are right – Hammond’s comments made no sense given that he retains 60% whilst Mitchell shot himself in the foot. Green is in reality a much more complex issue.
And what were the programme makers really saying? That there is a reason for progressive taxation. If you do not support that then I am surprised.
As for your illusions to my discussion of nanny service companies – I really presumed rather better of you than to make such a silly comment- and I use the word wisely. It is about as naive as suggesting that the Tax Payers Alliance have useful to say on the subject of tax: both reveal a lack of judgement.
Firstly you should know that this scheme was outlawed by 2006. I wrote much earlier. Secondly, I have discussed very openly why I publicised this scheme which was actually the creation of Tim Good, or at least that is who I heard it from. I did so before I had access to things like blogs. My belief was simple, straightforward, honest and appropriate. I believed that if this scheme was given publicity HMRC would close it. I was right. They did. The outcome suited my goal and I have absolutely nothing to apologise for. My aim has been consistent – and has been to stop tax abuse. The great shame is that so many in the profession do not share that objective.
@Richard Murphy
Thanks, Richard, I’m glad that we disagree as the programme might inadvertently have given the opposite impression!
the Taxpayer’s Alliance. I’m not a member and take what they say with a large pinch of salt. But not even to allow them (or someone from that persuasion) 2 minutes of air time was unbalanced.
LLPs. Like you I’m a member of one. And I’m glad we agree that the lower NICs their members pay can be justified by their other tax attributes – perhaps a bit like dividends vs salary? It is sometimes perhaps galling, however, that I have to earn £208 in order to reinvest £100 in the business, whereas a Limited company only has to earn circa £125 to do the same. Would it amount to tax abuse to set up a hybrid structure involving both LLPs and companies, allowing the retained profits to be taxed in the same way as any other company?
Tax compliance. A worthy goal, but I’m nervous of any system based upon motivation (always difficult to prove). I’d rather have a few rough edges and objective criteria. But we can disagree about this.
Tax havens. If a German subsidiary of a US parent ships a product via a French ship to the Indian factory of a UK company, which country gets to tax it? Straightforward international transactions like this throw up all sorts of complications for those trying to do business. Why not allow a neutral country in the middle to facilitate the transactions and then divvy up the tax once the money is repatriated?
You may say that that wasn’t what Andrew Mitchell did. But I don’t see the difference between a BVI fund and a REIT.
progressive taxation. The man in the street earns 100, pays 20 of income tax, 10 of NIC and spends the remaining 70, paying 14 of VAT. Total tax 44. Philip Green’s company earns 100, pays 30 of corporation tax and dividends the remaining 70 to his wife. She spends it in the UK paying 14 of VAT. Total tax 44. This is one definition of fairness.
Alternatively the man in the street does exactly the same. Total tax 44. Philip Green instead earns 100 in his company and pays 30 of corporation tax. The remaining 70 is paid as a dividend and Philip Green pays 25 of income tax on this. He spends the remaining 45 in the UK and pays 9 of VAT. He dies owning the remaining 36 and pays another 14 of IHT. Total tax 78. According to progressive taxation this is also fair.
I don’t know which definition of fairness I adhere to, but I think there’s a genuine debate to be had.
Nanny companies. Sorry cheap shot. I wasn’t aware of the circumstances and accept your explanation.
@John Barnett
Apology accepted – and yes, it as a cheap shot
And I’m sorry – but so is much of the rest
If you can’t see capacity to pay is a definition of fairness then I am sorry – but there’s some pretty basic economics, let alone ethics adrift here to start
And why LLps should be adjusted down to company rates, and not companies up to LLP rates beats me. Not least because one of the biggest problems in the Uk right now is that companies won’t invest whatever the rate
Re company tax – the easy answer is unitary apportionment
And why is no tax neutral?
I’d like to debate – but these are not good starting positions
@PeterMorris
Spot on Peter about Philip Green,
Green has created a monopoly which prevents companies which are less unscrupulous from being able to compete in the market. You’re right, if he didn’t employ them another company who pays its fair share of taxes would. Or to put it another way, we’d have a fairer more competitive business climate in the UK if the monopolies were curbed.