My friend and now Task Force on Financial Integrity and Economic Development colleague Nick Mathiason also works for the Bureau of Investigative Journalism where he has exposed a new type of tax avoidance activity centred on the City of London today. As he wrote today in a story that also featured in the Observer:
Some of the city of London's biggest banks are behind a huge tax avoidance trade ‘cheating' European countries of hundreds of millions of euros a year in a development that sheds fresh light on David Cameron's decision to wield Britain's EU veto to protect the Square Mile.
A two-month study by the Bureau has uncovered a discreet $102bn market in European shares whose ‘central' purpose is tax avoidance. The Bureau's analysis suggests the European tax loss — mainly to France, Germany and Italy — is up to €595m a year. The scale of tax avoidance will fuel further anger within the EU towards the Square Mile, where the vast majority of the trade known as dividend arbitrage is conducted.
The number, like all such numbers, is an estimate. The point is it's happening. And London's arranging it. And UK banks are doing it. And David Cameron's defending it. As Nick notes:
Dividend arbitrage is complex. But at its heart, a bank or hedge fund lends equities in often high yielding French, German or Italian companies to another institution. The receiving institution then passes the equities through a network of low or no tax jurisdictions before returning the equities to the original owner using a subsidiary in another tax haven. In this way, banks can avoid the 15% average withholding tax levied on dividends in European countries.
For hedge funds based in the Cayman Islands or Bermuda, the trade is particularly useful in slashing tax bills.
There had, of course, to be a tax haven dimension. There always is in London. And a Swiss dimension too. As Nick again notes:
Credit Suisse, the giant Swiss financial services institution, is among a host of international banks and hedge funds involved. The Bureau has seen a Credit Suisse document that details how to implement dividend arbitrage strategies and has received confirmation from a senior derivative executive that the bank was an active participant. When asked whether Credit Suisse engaged in aggressive tax avoidance, the bank declined to comment. Among other banks said by City sources to be major dividend arbitrage players are Barclays Capital, Bank of America and Morgan Stanley. All declined to comment.
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Richard,
Is this new tax avoidance activity legal or not?
Georges
As has now been accepted in the UK, legality is not and never can be the crieria for acceptability
Only those without morals rely on such a fundamentally unsound moral compass
for RM’s answer read “yes its perfectly legal”.
Most treaties have anti-treaty shopping clauses in as well…………… shame there arent more details in the article, rather suggests it might be another sensationalist headline…………
Perfectly legal will be blockable if we have a GAAR
You really don’t get it, do you?
Morgan Stanley, Credit Suisse and Bank of America are not Britsh institutions and are therefore not subject to whatever GAAR may be introduced in the UK.
Sorry to have to deliver some blunt facts here.
Oh they are
If they use the UK for such deals they’re as bound as anyone else
And nothing changes the principle – unless you have none
I am intrigued as to how a witholding tax can be avoided in this way, and unfortunately there are no facts in the actual article to back up the accusations. Surely if the dividends are paid net then the tax can’t be avoided?
This is done through treaty shopping
The withholding depends on where paid to
Interesting, does not surprise me , although it’s probably best not to be precious about,
as “Europe” are probably jealous they can’t do the same thing, as well, themselves.
Well, well, what a surprise, our ‘great national asset’ that so many of our politicians rush to defend has devised yet another way to filch wealth from the rest of us. Is there anybody with any ethical standards left in the City? Given the manifest failings of the City how can politicians who claim to represent the population of Britain still defend it?
These are presumably the same people who complain about the public’s dislike of politicans, or their apathy towards politics. As an increasing number of people are saying, rule by the 1% for the benefit of the 1%, at the expense of the 99%.
“The number, like all such numbers, is an estimate.”
No, it is not an estimate and at very best it is merely a guess.
The article is bare assertion without a single solitary fact to support it. It might be true, it might be complete fiction — without facts nobody knows.
Nonsense
The facts are explained
And all macro economic management is based on estimated data so your point makes no sens at all
If only the Times and Telegraph would carry this story. Today the Telegraph headlined the EU want £25 billion from us via the IMF.
Perhaps the BBC could carry this story? They are supposed to be neutral. Sorry, I’ve fallen asleep and been dreaming.
come on RM dont be lazy, the article is suggesting that non-uk or EU treaties are being used not the UK treaty (the uk has no treaties with havens anyway as you well know), so it has nothing to do with the UK and a UK GAAR will have no effect as a result.
As is so often the case, the UK Revenue have plenty of ammo at their disposal to counteract this already – look up the Indofoods case for example
I referred to the gaar s a point of principle that was of relevance to the debate that could be replicated – not that by itself it might work here
Though do look at that point in the gaar about the place of a transaction and wonder why it is there
you said “would be blockable if we had a GAAR” which suggests that you thought the GAAR itself would block this – apologies if i misunderstood what you were trying to say
i cant see a GAAR principle blocking something in the UK if there is no UK tax loss however.
It was made in a response to a question on legality being the sole criterion for acceptability of a tax scheme and I was pointing out that was not true – then the confusion arose