Summary
I've studied tax havens and can say with confidence that there's no actual money in them.
The funds recorded in places like Jersey are just accounting entries, with the real money held elsewhere.
Tax havens exist to facilitate tax avoidance by creating secrecy, but the goal isn't to recover money from them—it's to ensure that income and wealth recorded there are properly taxed in other jurisdictions.
In this morning's video I address the topic that, long ago, really got this blog going, which is tax havens.
I note that I keep hearing people say that we need to get the money back from tax havens. That, though, is not necessary. There is no money in tax havens. All they do is record the ownership of money and other funds that are always actually deposited elsewhere, like the City of London. Instead, what we want back from them is the tax not paid on income recorded there as a consequence of this.
The video is here. And please accept my apologies, it will not embed in the post, for some reason.
This is the audio version:
The transcript is here:
There is nothing in a tax haven.
It's something I've said for a long time, and I have written a few books about tax havens and am considered to be, well, a bit of an expert on the subject, not least by many in tax havens themselves. And as a consequence, I can say with confidence, there is nothing in a tax haven.
What do I mean? Well, whenever I talk to people about tax havens, what they say to me is that we need to get the money back that is hidden in tax havens. And I have to tell them, there is no money there.
The money that is in a tax haven is actually not really a physical thing. It's actually just a record of a transaction and that no money is actually located in a tax haven, whichever tax haven you care to think of. Jersey, Guernsey, the Isle of Man, the Cayman Islands, the British Virgin Islands, Gibraltar. I'm just naming a few British ones there, but we could keep on going around the world. The point is, all of these places only exist to book transactions, the economic consequences of which do not happen in that place.
Let me explain that. I'm going to use some data conveniently provided by the government of Jersey because, quite surprisingly, in some respects, Jersey is quite transparent. It likes to boast about how much money there is supposedly held in the island when in fact there's none there at all.
In 2023, the government of Jersey liked to claim that there was, and I'm going to check the figure, £157 billion in the island in bank accounts at 19 different banks.
There were 103,200 people supposedly resident in the island in that year.
Think about that. How many towns in the UK with a population of 103,000 have 19 banks? The answer is, it's precisely none. Jersey is heavily over-banked.
But also think about it: if that £157 billion was split equally between every Jersey resident, from those just born to those in great old age, each of them would have near enough £1.5 million each in the bank, on top of anything else they had.
Well, that's not true. Children in Jersey are not that rich. People who are working in Jersey are, by and large, not that rich at all. In fact, there's a real problem with poverty in the island, because the cost of living is so high, and wages aren't actually that exceptional for most working people. So, people haven't got £1.5 million each in the bank.
And in fact, when we look at something that Jersey likes to promote even more, which is the value of investments in what they call funds in the island - these are by and large stock exchange-based funds by the way - of which there are no less than 624 in 2023, or one for every 165 people in the island, there are £452 billion in those funds, or £4.4 million per person, bringing the total average sum saved in Jersey to more than £5.9 million per person, which is of course totally ludicrous.
That's because this money is owned by people outside Jersey. That's why it's a tax haven.
Tax havens, or secrecy jurisdictions, as I prefer to call them, create legislation that is intended to undermine that of other jurisdictions - places like the UK, for example - and to provide a certain degree of secrecy for those who use those places so that they can get away with using these places without being known about by their domestic jurisdiction.
That's very hard now for Jersey to do with regard to people who live in the UK. When I started my tax justice campaigning 20 years ago, the secrecy around places like Jersey was almost totally complete. It's been shattered now as a consequence of the activities of tax justice campaigners of whom I was most definitely one, and I'm proud to notch that up as an achievement on my life scale of things that I've done.
But, it's still true that Jersey can do this for other jurisdictions, many of which will now be developing countries. And people in those places use Jersey to record the ownership of cash and funds that they do not want the rest of the world to know about.
The consequence is that Jersey records that ownership there. But the funds never stay there.
The 624 funds that operate in Jersey don't invest in the local economy. There isn't that much to invest in, in Jersey, I promise you. And I know the place. I've been there fairly recently. Instead, of course, these monies are invested through the stock exchanges in New York, and London, and Frankfurt, and Paris, and so on. There's no money in those funds actually located in Jersey. The ownership is simply recorded there.
And it's exactly the same with regard to that £157 billion in the bank. A little bit might be owned by people in Jersey, but the vast majority is owned by people outside Jersey. And given that the figure in question is recorded in sterling, if those deposits are in sterling, the money in question will move instantly it is deposited from Jersey to the central treasury of the bank with which it's been deposited.
So, for example, if the funds are deposited with Barclays in St. Helier in Jersey, the money will be appearing very, very soon thereafter in a central bank account in Barclays in London. There is no money in Jersey as a result.
All there is is an accounting entry.
Remember that most of the financial services industry is only about keeping accounts to record who has a claim on what asset and who owes somebody else for that ownership. That's true of bank accounts but it's also true of shares and funds. And, therefore, the whole of a tax haven is just a giant double bookkeeping entry.
X from country Y placed money with us, which in turn we placed in country Z to buy asset B.
That's what a tax haven does. There's nothing that actually adds value there, nothing that justifies a low tax there, nothing of any literal contribution to the well-being of the world as a whole, unless you count avoiding tax as a contribution to well-being, which I don't.
But let's also be clear that when we talk about getting money back from tax havens that is not something that's going to happen because the money isn't there to be claimed back.
What is there are income and capital gains which could be taxed somewhere else.
So, when we talk about taxing the world's wealth, we aren't trying to get money back from these places. What we're trying to do is get our hands on the income and wealth that is recorded in these places that should be recorded somewhere else. And understanding that is really key if you're going to talk about how to tackle tax havens. And it's the basis on which I worked when I was focusing much of my attention on this and working with and alongside organizations like the OECD to achieve this goal.
If we can get hold of the income that is recorded in these places and ensure that it is properly taxed elsewhere, we will have achieved our goal because the wealth is never actually in a tax haven. But the income is recorded there to avoid tax and that's what we have to change.
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Well, I have learnt something new this morning then which when I reflect on it bit more makes sense but also makes me feel sick to my stomach.
So really, this way of ‘accounting’ it seems to me makes the most of the illusive (ephemeral even? ) nature of money and abuses geography.
How an earth do we put up with it?
Excellent question
I’m thinking that flags of convenience for registering ships may have similarities with tax havens in avoiding tax and regulation.
Panama, Liberia etc. – even landlocked Mongolia has a registry…
It does
I used to assume the governments of Liberia and Panama used the flags of convenience to make money. Then I wondered how.
Then I read Michael Hudson. Both of the countries use the US dollar and that was where their profits were registered. The Canal Zone of Panama was run by the USA from 1903 ? President Carter thought it right to hand it back to the local people. It probably accounts for the many attacks on him.
It is also striking how many American politicians have connections to the oil industry.
And the UK has long had a tonnage tax regime to encourage owners/charterers to register vessels here and pay just a little bit of tax instead of the proper rate of Corporation Tax.
Tax efficient jurisdictions exist so that funds can’t be headquartered in convenient places for investors from mutually countries to pool funds together for investment purposes.
Then those individuals pay their appropriate taxes in their respective countries when they bring income / gains / assets back to those countries.
But the truth doesn’t really provide the picture that you want to portray, does it?
Those ‘truths’ are universally known to be untrue.
I have spent countless years addressing them
I’m wondering why an ex Wimbledon FC goalkeeper would be taking such a keen interest in tax havens!?
It may be coincidence
I think you doubt that…..
If you’ve spent ‘years addressing them’ then you’ll be able to provide your peer-reviewed paper on the topic, compete with acknowledgments from credible sources about its accuracy – Rather than the usual, self-published papers, long on inciteful headlines, but short on insightful content.
Clive Parry, who appears to actually know about this stuff, appears to confirm my views, rather than yours, but you’ve not challenged his claims – why not?
I think a reasonable questions would be ‘why should investors from different jurisdictions not be able to pool resources to make investments in an efficient way, providing that relevant local taxes are paid (which they are).
It’s just about sensible efficiency.
Given I have spent most of the day with vertigo because of an ear infection doing anything has been a challenge.
I acknowledge that things are better now than in 2003 when I began on this, but the reality is that regulatory abuse fuelled by those who want to undermine the role of government around the world. The r a haven world is a far-right creation to achieve that goal, and they undermine any notion of fair markets in the process.
And re my work, one of my books on this has 1,059 academic citations. https://scholar.google.com/citations?user=mTN3a10AAAAJ&hl=en
Correct. All money (bar notes and coins) always resides with the relevant Central Bank. If a German pays an American in GBP it’s recorded at the BoE by a movement between the UK clearing banks the German/American’s local bank uses.
I also think you are right to emphasize secrecy as the key issue. That, along with a “level playing field” for local firms is what matters rather than tax rates.
It does give rise to issues of taxation within the jurisdiction… but fundamentally this is a (hopefully) democratic process for the country to deal with.
Note.
I am a non-exec Director of a Cayman company that a friend runs. It’s is so much simpler and cheaper than running it elsewhere and tax does get paid “where it should” on any sensible measure. Frankly, I would trust Cayman Authorities over Companies House.
Clive
Please could you explain the commercial link between the Cayman Islands and your firend’s company? Is that where they do their main business? Do they do any business there? Do they have an office there? Do they have staff there? Why is it simpler (as opposed to cheaper) to do business there?
A Cayman company holds the money. The directors (I am one) are responsible for ensuring all Cayman rules (money laundering, beneficial ownership etc) are followed. We employ local firms to assist with that. They will pay tax locally. My friend’s company directs how the money is invested. This is incorporated where he lives and the fees he earns are taxed in that jurisdiction. Profits for the investors (capital gains) occur if they withdraw money and this is payable where they live.
All end investors are known to me, all hold the investment in their own name, they come from 5 different countries.
I don’t invest and I don’t get a fee… It’s a favour to a friend.
I admit it’s not a favour I would have done
The remittance basis is the problem for me
Any payments are reported to the beneficial owner’s local tax authority. Transparent ownership and cross border reporting by tax authorities are the in key to eliminate tax evasion.
The question is, can Cayman still compete without secrecy? So far, yes.
As I said, Companies House is far more of a problem.
All aceoted, except I cannot get the accounts of Cayman companies still
I would also add that this transparency is, in part, due to a decade or more of your efforts.
I agree, it is
There is no doubt the efforts of a very few people, of whom I was one, changed the offshore world
Cllive. And how is that simpler?
If you try this in the UK as an ordinary company then corporation tax is due before any disbursement….. unless you are an “Investment manager”. To meet the rules costs a lot…. about 100k a year when I looked at this about 17 years ago. No doubt it’s more now. At that time the cost in Singapore was about 15k for a small “exempt” fund…. Although this increased to about 50k once “exempt” was abolished (about 10 years ago). The cost in Cayman is about 50k to do it properly and they are good at it. The UK and Singapore want to discourage small investment managers… Cayman encourage.
The answer is there should be no exemption from corporation tax, but a credit for tax paid on distribution.
Not sure what you mean. I suspect it would end the UK fund management business.
A Singaporean investor in a HK equity fund would be miffed if UK corporation tax were levied on profits. Even if it could be claimed back it would be very cumbersome. In fact they would just invest in the equivalent fund run outside the UK.
The aim is surely that the investor in a fund should be taxed as if they invested directly in the underlying assets.
Fine
But in that case tax then on a full distribution basis as inc8me and gains arise
You can’t have a deferral / remittance basis and no corporation tax. It is either / or, but not both
And given the fund management industry seems to perform remarkably poorly overall, what would be loss be without much of it? We might get proper long term investment decision making instead.
Went to your YouTube channel and watched “There’s nothing in a tax haven”.
Excellent video.
I barely noticed the advertisements.
Thanks
It seems to me that there must be penalties for secrecy over ultimate ownership of companies/corporations, within Britain’s own jurisdiction, with severe financial penalties for non-compliance. The problem with the cocktail of money and corporate bodies is that they provide lawyers and accountants with the capacity to arm corporate money with two lethal powers; the power of flight, and the invisibility of a Stealth bomber. Accountants and lawyers specialise in a form of magic; now you see it, now you don’t.
In the end people own or run corporate entities. Only the ultimate ownership matters. The identity of anyone with a foothold (personal or asset) in our jurisdiction, should be subject to identification. That should be a sine qua non. People become fired in hysteria by immigration; but the irony is Government is entitled to know who enters or leaves our jurisdiction. The same should apply to all corporate entities that people create. Nobody should be able to render their money (an IOU of the State, redeemable and taxable by the State), completely, and permanently invisible to the State. The entitlement of people to keep their taxable IOU’s is a matter of politics, it should not ever be reduced to a squalid matter of corporate sleight of hand.
As is often the case, much to agree with
As you say, secrecy is the enemy.
More journalists need to ask MPs about tax havens: what is their justification?
Because most journalists are paid Editor’s sycophant. Most politicians and Spads are paid Party sycophants.
Both species of sycophant are easily replaced. There are thousands of useless sycophants eagerly waiting at the end of an Editor or Party Chairman’s speed-dial.
I think a reasonable questions would be “why should investors from different jurisdictions not be able to pool resources to make investments in an efficient way, providing that relevant local taxes are paid (which they are).”
You didn’t answer a very reasonable question, Richard?
You know this is what stock exchanges do, don’t you?
And your language is disingenuous. ‘Efficient’ means ‘low tax’ and ‘local tax’ is assumed to be in a place of choice.
I have met far too many people devoid of ethics to ever be deceived
And what has £157bn of cash got to do with that?
No, it is not ‘what stock exchanges do’.
Stock exchanges provide companies with an opportunity to list, allowing them access to capital/investors. Most investors don’t want to hold individual shares, they want a specialist investment manager to construct portfolios of shares.
Plus of course most types of asset are not listed in a stock exchange – corporate bonds and government bonds for example.
So you really couldn’t be more wrong.
So, given this new information, perhaps you should be reconsidering your opinion on this?
Or perhaps find a valid reason to support your views?
Not at all
Those options always exist elsewhere
And none of them are created offshore – that always plagiarises onshore
Now stop ending abuse and apologise for the denial of resources to people in need around the world that tax havens deliberately facilitate
Very well explained using everyday language, thank you Richard. I appreciate it.
I certainly think you should stick to your preferred term, “secrecy jurisdictions” too.
Calling them tax havens implies that tax is something to take refuge from, as though it were a terrible affliction and not something that is actually good and a necessary part of a well-oiled economy.
Thanks
Richard,
What ‘other options’ are you referring to? Given that what you’ve said about ‘stock markets’ makes no sense and doesn’t address the efficiency aspects for investors in different justifications?
You mean you need me to explain investment management to you?
I think your time here is up
As a portfolio manager of corporate bonds with over 20 years, involved in a company that manages around £400bn of assets, we have not been able to trade corporate bonds on any ‘stock exchange’.
Can you give us a clue which stock exchange we can use to trade corporate bonds on. Many thanks, Jeff
You really are boring aren’t you?
You know perfectly well that corporate bonds are listed on some stock exchanges, those of Guernsey and Luxembourg being examples, and the the trading of bonds is readily available in all major economies, so why make a complete fool of yourself by asking a stupid question?
Although, most likely you are another sad troll. Maybe you’re what you claimn and a troll. Either way find something better to do with your life.