I took part in a BBC programme entitled 'Why do Tax Havens Still Exist?', broadcast this week.
My argument was that tax was not the primary reason for their existence anymore and that, to some extent, measures designed to tackle this issue, in no small part designed by and introduced under pressure from civil society, have already had some impact on this aspect of their existence. What I instead argued was this (taken from the BBC web site for the programme):
"Tax havens are now serving a different purpose from tax abuse. The tax abuse is to some degree, in some of them certainly, virtually history, and it certainly isn't why large companies are now using them.
"Regulation is still stacking up in favour of large companies hiding away from view in these places, so they can get away, commercially, with lower costs than they could otherwise achieve.
"Let's be clear about what tax havens or secrecy jurisdictions mean when they say they have complied with regulation. The regulation that takes place in a tax haven is different from the regulation that might, for example, take place in the UK or Germany.
"In countries like the UK, if we say something is regulated, it takes place here and is regulated here. The characteristic of a tax haven is the transactions that are recorded there take place elsewhere. That means that whilst the tax havens are very good at regulating what takes place within them, the truth is that almost nothing takes place within them.
"Suppose we have a company that is registered in the Cayman Islands, but which trades in the UK. If the UK wanted to ask a question about that company, first of all it has to find a good reason why it needs the information, and secondly the Cayman Islands have to have a good reason to link that company to the UK.
"But if you're trying to actually open up the fact that there is a trade recorded in Cayman but happening [in the UK], you've got to be able to identify both ends, but the whole structure of it is designed not to. And also Cayman, when it undertakes its regulation, only asks about what happens in Cayman.
"Successive governments have believed it worthwhile for the City of London - and, bluntly, Wall Street - to have the advantage of having part of their activity beyond regulation, so that they could compete in ways which are considered to be innovative and which make money for the world financial markets beyond the regulatory environment.
"It is down to politicians to decide: is that a risk still worth taking? They've got to take on the vested interests in their own jurisdictions, the large companies and so on who still use tax havens."
What the quote does not make clear is that the risk of not taking action is, of course, that 2008 repeats itself.
Margaret Hodge also took part in the programme, also suggesting use would decline for tax reasons in the face of pressure already taking place.
The other participants were Anthony Travers from the Cayman Islands Monetary Authority and Jamie Whyte from the pro-market fundamentalist ACT party in New Zealand.
Travers talked predictable nonsense coupled with an admission of what I was saying. He said:
The reason why corporations go to the Cayman Islands is not necessarily to avoid tax. [They] will pay taxes in the jurisdictions in which taxes are due to be paid. Corporations, particularly hedge funds, that trade out of the Cayman Islands domicile there for various other reasons relating to quality of the legislation, stability, absence of intrusive regulation.
First, there is no guarantee at all that tax haven companies will pay tax elsewhere: Google continues to prove the point, so that claim is wrong.
Second, he agreed that it is now the absence of regulation that matters. Tax havens are creating the wild west for finance, not by chance, but entirely deliberately.
Jamie Whyte admitted the key point in their reason for doing so, saying:
I celebrate the anti-democratic aspects of tax havens.
Explained contextually as:
Of course it's not democratic: the mob far outnumbers you. But until quite recently, no theorists of democracy ever believed that it should be untrammelled, that simply because a majority of people want your money they have a right to it.
I think you have to admire his honesty. At least he says what those who provide services via these places - including all the big banks and big four firms of accountants - will not admit, which is that they are seeking to undermine the choices made by democratic states and take capital out of their regulation so it can roam free as it pleases, ignoring the will of the world's people as it does so.
This is where the frontier of this debate now is. Tax may have been the starting point but now it's a fight for democracy, the rule of law, the power to regulate and the survival of society as we know it.
The cards are face up on the table.
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“Suppose we have a company that is registered in the Cayman Islands, but which trades in the UK. If the UK wanted to ask a question about that company, first of all it has to find a good reason why it needs the information”
If a Cayman Islands incorporated company trades in the UK then it has a tax presence here, a tax liability on its profits made in the UK and a tax return filing requirement.
That gives HMRC all the reason to ask all the questions it needs to ask to quantify the tax liability.
I’m not sure what the problem is.
It has to be able to show it does have a presence here
There is no guarantee that, if the company wants to hide that fact, that HMRC will be able to find it
But Cayman will never ask where the company trades so it will not be able to help HMRC find it
The result is Cayman creates a regulatory gap which abuses the UK by permitting unregulated and taxed trade in this country
If you don’t think that’s a problem I suggest you gave a problem
Cayman knows this is possible
That is also a problem
And no doubt you would deny that too
“It has to be able to show it does have a presence here.
There is no guarantee that, if the company wants to hide that fact, that HMRC will be able to find it”
Well, your first point shows you either haven’t read or don’t understand the UK/Cayman Island tax treaty as there is no ‘presence’ test in it.
As for the second point, you seem to be suggesting tax evasion in which the Cayman Island tax authorities would collude. You will of course have no evidence of this and it seems just another of your wild unsupported accusations.
If anyone has a problem here, it is you, not Karl.
Respectfully, you entirely miss the point
If Cayman does not ask it cannot share data
If the UK does not know it cannot tax, whatever a treaty says
Cayman deliberately creates that possibility
And yes, I am suggesting Cayman colludes with the evader
Just as the UK does by turning a blind eye to UK companies not trading here
Both are deliberately guilty of assisting evasion
“And yes, I am suggesting Cayman colludes with the evader”
You are accusing the Cayman Island tax authorities of deliberately colluding with people trading in the UK from the Cayman Islands and evading UK tax?
That is indeed a serious accusation.
Do you have any evidence of this? Have you reported it to HMRC or do you think they are part of the conspiracy too?
Of course I am making that accusation
I accuse HMRC of it too when they refuse to collect tax returns from UK companies that say they only trade in other countries
“I accuse HMRC of it too when they refuse to collect tax returns from UK companies that say they only trade in other countries”
This must be a new development as when I worked in HMRC up until my recent retirement, any UK incorporated company was automatically UK tax resident and would have had a filing requirement. Now, if they traded exclusively abroad and had a permanent establishment where they traded they may well have had tax liabilities abroad and off-set these against UK tax liabilities under an appropriate tax treaty. There may have been issues of dual residency. But these issues would still have had to have been resolved by the filing of a UK tax return.
A UK company which is trading anywhere in the world would have a UK tax return filing requirement. You are accusing HMRC of knowingly ignoring UK tax law. I never came across such a situation in 35 years in HMIT (as was) and then HMRC.
Quite frankly I find your accusation astonishing and, as with your accusations against the Cayman authorities, I would ask what proof you have.
HMRC has confirmed to the PAC it never asks for a tax return from companies only trading outside the UK
Lets be honest it never asks for a tax return from hundreds of thousands of UK resident companies
And does not pursue the 300,000 a year it asks for and does not get
Since HMRC directors (Jim O’Hara) have confirmed this is the case publicly I guess you are the one not telling the truth
Or that you are the one wholly ignorant of what is happening
But I agree with you – HMRC is deliberately ignoring UK tax law
As for Cayman – there are no tax returns, deliberately. Do you really think that by chance?
Sorry Richard you are talking nonsense.
Even if a company has made a s18A branch exemption election it must still file a UK tax return. I know, I have examined some. You clearly miss-understood whatever it was you heard.
Karl
Please explain why half of all UK companies do not file rax returns each year without HMRC objecting
And I precisely understood exactly what was said
It was explicit
Richard
More arguments for local currencies. They won’t be siphoned off into tax havens so let’s all implement them.
More and more the big banks and their helpmates are ruling the world. They must be masters of persuasion, but have the willing ears of the developed countries. Follow the money they say, like Alice in wonderland, down a big hole and adventure begins
Keep on their trail Mr Murpy, continuing to tell us what mischief is afoot.
Glad to see you on the BBC again Richard – I had almost given up on them given their neo-liberal bias.
The ACT website says ” help us build a free trading, entrepreneurial, prosperous and compassionate nation.”
Given that Whyte talks about the majority in society with the collective noun ‘mob’ and approves of tax havens he’s clearly without compassion, approves of wealth syphoning and minuscule minority prosperity and trading that is rigged and not free.
As you say, at least we have visible vileness!
Low tax existence certainly is not a primary and most important criteria to tag a country as a tax haven – in this case it is merely a tax competition of various financial services centres. Tax havens are all about a lack of transparency, corruption, poor regulation, non-cooperation.
A hard hitting piece – I’d better watch the programme
When folk like Karl question whether the likes of the Cayman authorities collude in tax evasion, it seems to me to be a bit like questioning whether FIFA is corrupt. It’s obvious except to those who do not wish to see it. If there is a difference it is that FIFA does have an underlying honest purpose
The anti-democratic argument is a powerful addition to existing arguments. It would be good to see it being picked up by a lot more politicians.
Mmm… And Karl as an (albeit retired) HMRC employee is defending a tax haven; therein may lie part of the problem eh ?!
Travers stated that there were no reports of malfeasance in Cayman. What about Jeffrey Webb, FIFA?
There are no reports a) because no one asks b) everything, as I say, is elsewhere
Surely Karl is talking serious nonsense here. The point, surely, isn’t to set up UK Companies which trade in the Caymans but to set up Cayman Companies which may trade, or may merely hold property, in the UK?
I’ve never heard of anyone setting up a UK Company to trade through the Caymans. Am I missing something?
BTW Karl, now you’ve “retired” from HMRC are you working for an accountancy firm?
Lea
The Seychelles are quite explicit in saying that, whilst they offer a zero tax rate, that is a small token of their charm. The Seychelles stipulate that they actually don’t want to know who is the ultimate owner of a Seychelles Resident Company. They, therefore, can’t possibly pass that information on even under a Court Order.
They also say that if a foreign Court Order sequestrates the value in a Seychelles Company they will happily & immediately pass a Seychelles order restoring it to the original owner.
I suspect the latter isn’t legal in International Law, but the point may be null as I suspect the “owner” will take the intervening period to withdraw the value in cash.
If I were a Narco-gangster, (& who hasn’t at some point wanted to be?), I should definitely be making friends with the bankers of the Seyychelles.