The UK government marked Brexit and its new ability to legislate without bothering to consult Parliament, or anyone else come to that, to announce changes that relax rules on preventing tax abuse last night. As tax lawyer Dan Neidle, who us no friend of tax justice, noted on Twitter:
It is now clear that all the allegations on social media were correct, and Brexit was motivated by a desire to repeal the EU DAC 6 Directive of 2018. https://t.co/NAFFuQeTlp
— Dan Neidle (@DanNeidle) December 31, 2020
None of the following tax abuse arrangements, excepting item D, now have to be reported to HMRC, when that was required yesterday:
An arrangement will be reportable if it meets at least one of the Hallmarks. For Hallmark categories A, B and certain elements of category C, an arrangement will only be reportable if it is also captured by the so-called ‘Main Benefit' test. This test means that one of the main objectives of the arrangement is to obtain a tax advantage.
The five Hallmark categories are the following:Category A — Generic hallmarks linked to the main benefit test: arrangements that give rise to performance fees or involve mass-marketed schemes.
Category B — Specific hallmarks linked to the main benefit test: this includes certain tax planning features, such as buying a loss-making company to exploit its losses in order to reduce tax liability. Another example would involve arrangements aimed at converting income into capital in order to obtain a tax benefit.
Category C — Specific hallmarks related to cross-border transactions; some of these hallmarks are also subject to the main benefit test: for example, deductible cross-border payments between associated enterprises where the recipient is essentially subject to no tax, zero or almost zero tax. Another hallmark is about deductions for the same depreciation on an asset claimed in more than one jurisdiction.
Category D — Specific hallmarks concerning the automatic exchange of information and beneficial ownership: an arrangement is reportable if it has the effect of undermining the rules, or the absence thereof, on beneficial ownership or Directive 2014/107/EU or any other equivalent agreement on automatic exchange of financial account information.
Category E — Specific hallmarks concerning transfer pricing: these include the use of unilateral safe harbours; the transfer of hard-to-value intangible assets when no reliable comparables exist and the projection of future cash flows or income are highly uncertain.
What is the net outcome? Macfarlanes argue very little has changed because these arrangements had to already be reported in UK law under the 2004 Disclosure of Tax Avoidance Schemes (DOTAS) arrangements. I admit I do not agree. I think these measures added clarity that has now been lost as a result of this appeal, and that loss will always permit abuse.
More important though is the timing and subliminal messaging attached to the measure, because this leaves no doubt as to the future attitude to be adopted to this issue. It is clear that the aim is to indicate that the UK is, at the very least, to now be considered a ‘light touch' regime with regard to the investigation of international tax abuse arrangements. This is deeply troubling.
It would appear that the creation of Singapore-on-Thames is now the intention of the government. The UK clearly wishes to become an even bigger tax haven than it already is, and a pariah state on the world stage. This is very bad news indeed for tax justice, the cause of beating global tax competition that is dedicated to undermining the right of the democratic state to tax, and to fair markets that require a level playing field in tax. It also sends a terrible signal to Brussels. I do wonder how long it will be before retaliatory measures will be considered if the UK is dedicated to heading down this path. It's a dreadful start to this new relationship.
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Expect reductions in corporation tax rates very soon
This is no great surprise and fits with the general rhetoric and direction of travel towards deregulation across other aspects of the economy – tax, employment, environment, etc. It was always the ambition of the Brexiteers.
The question needs to be asked though: why does the Conservative Party believe that British business cannot compete on equal terms (i.e a level playing field?) globally?
Why do they not want to invest in innovation, productivity etc so that UK firms can make things of higher quality and value and are better equipped to compete?
Their main view seems to be that we have to undercut the rules and to cheat.
This basic point needs repeating over and over until people understand it. There is no public support for cheating.
We can only hope that attempts to further undermine the tax system will backfire on the Brexit leaders. UK was one of the countries that consistently held back the EU from stricter tax reporting and compliance measures. With this constraint gone after Brexit, the EU could move forward faster. The UK might then face a choice between implementing the EU mandated controls or losing free access to EU single market.
I agree with you
Does mean the tax avoidance practised by countries like Luxembourg , Holland and Eire all with the acquiescence of Brussels? These countries have allowed tax avoidance within the EU and in defiance of EU ‘rules’ for decades , never to be punished.
These arrangements apply there – but have not done so for long, and so the impact may haven been limited
But now we have lost that impact altogether
Hoist the Jolly Roger eh?
That statement is more accurate than you might think it was!
This fits right in with Duncan Smith’s publicy wishing he was 21 and buccaneering.
I am not a fan of Alastair Campbell but this is interesting-in the same way as a tarantula crawling up your leg.
a quote Governments’ ability to control money by printing it will be transcended, the authors say — this is 1997, remember — by mathematical algorithms that have no physical existence…. ‘Payment will be rendered in cybercurrency. Profits will be booked in cyberbanks. Investments will be made in cyberbrokages. Many transactions will not be subject to taxation…. Extraterritorial regulatory power will collapse…. Control over money will migrate from the halls of power to the global marketplace. Any individual or firm with access to cyberspace will be able to easily shift out of any currency that appears in danger of depreciation…. ‘Only the poor will be victims of inflation.’
full article -the second half is the important bit
https://alastaircampbell.org/2020/12/the-brexit-revolutionaries-have-barely-begun-britain-needs-to-wake-up-fast/?fbclid=IwAR3ZbOhXVvX4D-w7R3s24ILfzZdsJVtvb69hRkzg1FD1sVK0NNyR5p1Y2mo
Well worth reading
It’s great so many people are picking up on this. It’s clear Baker Street Herald @bakersherald who appears to be behind much of the research is greatly concerned and sounds near to the end of his (I assume his) tether.
Oh and I meant Henry the 8th the other day – damn my fading eyes 🙂
Horrifying on many levels. Trying to look ahead, will they continue to need national governments? Up to now they have used vast resources to capture government and politicians.
The media is so low on detail none of this will surface in a significant way until they have unravelled the whole regulatory framework and the fallout is felt on the streets, by then will it even be linked to brexit?
It is like the prevalent idea that the deficit is the same as household income, they want to keep people financially ignorant, so they can be manipulated in to supporting detrimental policy. Look at the situation with the $2000 stimulus cheques in the USA, the republicans have weaponised financial ignorance, so called ‘deficit hawks’ couldn’t possibly give public money to the PUBLIC!!
BBC radio reporting on brexit is hopelessly devoid of any significant analysis in general, a vox pop from a brexiteer from grimsby complaining about devolution was enough for me to switch it off.
Gibraltar and Northern Ireland being in a significantly different arrangement, isn’t on the radar either, from what I have heard.
The BBC coverage is utterly hopeless
So it goes. We must keep a list of their pillaging. For history’s sake. Because the victors will lie as they always do.
The MSM and a wholly controlled by DS media moles are busy celebrating this morning having delivered their DINO hard BrexShit that had allowed the long planned Great Escape from non-exceptionality.
The Groans super deep cover wolves Harris and Elliot already marching the readers towards the piratical Freedom Of BrexShit.
We really must learn to be more critical about these worm-tongues who are merely a bunch of Uriah Heeps with their ‘ever so ‘umble’ act. Whilst shepherding us towards our own doom.
Dickens in 1850’s with his writings led us towards breaking from the aristo slave owners and not questioning our betters!
More than Marx ever did – who was the most notable inauguration of the now classic ploy of controlled opposition.
Our FULLY controlled media has completely reversed that Dickensian impetus. It will take an extraordinary effort of shaking off our mesmerised delusions, to stop us willingly marching fully back into serfdom.
We have already slid down that slope for the last four decades.
So my (our?) instincts were right and info like this just adds the detail. The UK/England is to be a major thorn in the side of the EU after all – pettiness writ large with a smirking face.
Having just read ‘Putin’s People’ and ‘Kleptopia’ (both point London’s major role as a place to launder money and help avoid tax), maybe we’ll poke the EU once too hard or too often to get away with it without consequence? But who will pay?
However, I’m none to impressed with how Switzerland is implicated. The EU must surely start poking around there (unless of course the Swiss banks get away with more in their offices in London).
The major issue with tax and wealth now is how that untaxed money affects sovereign democracy and law and order.
The Americans post Trump seem to have grasped this. Even if it is still old cold war thinking, it’s to be welcomed.
It seems that Boris is not going to allow us to do the same. You’d think Starmer would see this as an opportunity.
As for cyber currencies – is there a risk/intention that untaxed wealth in sovereign currencies can be converted into these cyber currencies to avoid tax? That the UK will become ‘cyber-currency’ central and hide these under the veil of its respectable bona fide state sovereignty?
Cyber currencies are not real currencies – they do not have the characteristics to really be so
But they can be used for tax evasion, without a doubt
It’s the potential clandestine use of cyber-currencies that worries me taking that the thinking of that book that Alistair Campbell mentions in his blog.
Thank you for answering my question.
I know plenty of Labour supporters who are having second thoughts about Starmer’s stance.
But how could you agree to support something knowing what we know now about how the BREXIT vote was won? That the vote that has just taken place is signing something off that has its source in some very dubious and anti-democratic practices?
Oh for a proper opposition party!!
Indeed
Dan Neidle has made it clear on Twitter that his comment was sarcastic.
And perhaps you would like to give some examples of transactions that would have been caught by DAC6 that are not covered by DOTAS?
That rather confirms my view of Dan Neidle
And re what is caught, the government clearly agrees there is a difference by keeping D. So do I. Why? Because the EU version is more broadly based, making avoidance of the DOTAS definitions harder.
Perhaps the excellent question of Andrew James could be refined – given what you described as the broader base of the EU version, could you perhaps give one example of a transaction that would have been caught by DAC6 that would not be covered by DOTAS?
Asking the question shows you do not understand the issue. The whole point of such abuse is you do not know it until it is seen. And then you need every weapon you can get to defeat it. And you clearly want one to be taken away.
United States makes move to clamp down on anonymous shell companies:-
https://www.independent.co.uk/news/world/americas/us-passes-historic-anti-corruption-legislation-that-effectively-bans-anonymous-shell-companies-b1781380.html
In theory we already have
In practice we are a million miles from it
Back in the day, I did an MBA and, oddly, focused on international taxation, or as we called it “applied deviousness”. Back in the 1980s, the Belgians cooked up “coordination centres” which were basically profit washing machines that allowed corporations to recycle profits almost permananetly (there were loads of coordination centres in Bx). I can see the same thing happening in the UK – the provisions (income – capital gains) will encourage this – by foreign corps. The problem the UK will face is that DG TaxUd is already looking at this. Indeed I will ask if they need any help (assuming that you are interested Richard?)
New legislation is already being designed to achieve this
I’m not sure if it’s the practice area I work in (private equity M&a) but I’ve spent the past year doing dac6 analysis on all my advice and not triggered a single reportable transaction
The tax practice of a big 4 firm (of which I’m a part) has less than 10 reportable transactions across its entire practice
Maybe the boutique “film finance” firms are being impacted? But for me it’s been a monumental waste of time.
People said the same of DOTAS
In other words – what you are confirming is precisely that it is working
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