As AFP reported late yesterday:
Europe's top court barred Britain on Tuesday from enacting a corporate tax reform in its tiny territory of Gibraltar, ruling the scheme would amount to illegal state aid for offshore companies.
The European Union Court of Justice found that the proposed tax system was "designed in such a way that offshore companies avoid taxation," making it "incompatible with the internal market" rules.
The ruling was a victory for the European Commission, which had stated in 2004 that the proposed system was incompatible with EU rules and would give companies in Gibraltar a lower rate than those taxed in Britain.
The commission's decision had been struck down by a lower EU court in 2008 following a challenge from Britain and Gibraltar.
But following appeals from the commission and Spain, the Luxembourg-based Court of Justice ruled that the lower tribunal had "erred" in finding that the reform did not confer "selective advantages" on offshore firms.
The system was "specifically designed" so that companies with no real physical presence could avoid taxation because it would be based on the number of employees and the size of business premises occupied in Gibraltar, the court said.
The assessment to levy the tax "excludes from the outset any taxation of offshore companies, since they have no employees and also do not occupy business property," the court said.
The court found in favour of the commission's view that "the proposed tax reform constitutes a scheme of state aid which the United Kingdom is not authorised to implement."
It's good to noite that the Tax Justice Network predicted this. As we noted in 2009:
Such a reform [as that now rejected by the ECJ] is likely to result in de facto horizontal ring fencing instrumented through taxing only locally bound activities (utilities, property, payroll, etc.). Additionally, it is noticeable that there is a special individualist tax regime applicable to High Net Worth Individuals which allows them to negotiate 'lump sum' taxes.
We were, as ever right.
More importantly, as ever it is shown that the UK is actively promoting this sort of abuse on behalf of the City of London which uses places like Gibraltar (population 29,000) as its branch offices.
The case for reform is overwhelming. Now when will it be done?
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Hang on a moment, not so long ago you were yelling for Europe to suspend competition rules. See:
http://www.taxresearch.org.uk/Blog/2011/10/10/if-europe-is-serious-about-reform-it-should-suspend-its-competition-laws/
And the problem is?
One is tax abuse
The other is creating faux markets
My points are completely consistent
How is it consistent when your argument consisted of suspending competition rules. Had what you suggested been done the decision of the ECJ wouldn’t have happened.
My argument for suspending competition rules related to free flow of capital
This relates to EU Code of Conduct on Business Taxation, in essence
Since EU Code is about stopping tax abuse and not about promoting artificial tax competition as comp rules do the two are in conflcit and so suggesting we scrap one and keep other is consistent – unlike EU itself
What you suggested was a suspension of comp rules, ie, all relevant parts of Lisbon. The rules under which this judgment is based is Art. 107 whereas the arguement in relation to abusive practices (the other article) is Art. 101-103.
I do hope you realise that the Code is not a piece of legislation. In other words it has no binding effect. The law is to be found in the articles.
Oh I understand all that
But when calling for reform – as I was – you’re allowed to believe change possible – after all, that’s the basis of the demand. Or has that possibility passed you by?
I have no doubt that change is possible and will happen, but be careful when you call for ill thought-out action (such as suspending competition law), when in fact it shows a lack of understanding of competition law. If you are to suggest a route it would probably be wiser to suggest a planned route with logical arguements, rather than make a proposition and then when you realise it wont work revert to “the demand is simply change”, rather than the change you suggested. Might make people (including the right) take you a little more seriously.
Good heavens – a quick blog can’t be confused with a full blown proposal
I have no problem with being taken seriously – the evidence shows that
But you and the right may have a problem with understanding the difference between a suggestion and what would be needed as the foundation for actual change
Or is it, like all on the right, pedantry is the only thing you’re good at – which is why Osborne et al reveal daily why they’re so bad at actually governing – as I argue in the Courageous State
So what do you do? Take a fist full of darts, chuck them at a board and hope something sticks?
What is the purpose of having someone propose change if he himself doesn’t really know, or hasn’t thought-out, said change. You behave a lot like the government you criticise.
I made very clear suggestions
Crack down on tax havens
stop the free flow of capital
Utterly consistent
Totally possible
And deliverable
Admittedly premised know changes in EU law
But change does require change
That’s inevitable
What is your problem with that?
I am utterly baffled by the lack of imagination I meet daily on the political right
Richard
The UK’s interest in this seems to me to be rooted in its constitutional relationship with its overseas territories: it has always promoted a high degree of self governance even well before your hated concept of the “tax haven” existed. I suspect the UK’s support of Gibraltar was more about that than wanting to see millions flow from UK tax coffers.
It is probably worth reporting that the judgement of the ECJ does not actually affect Gibraltar’s current tax system: its impact was on a tax system proposal which was abandoned many years ago. The real threat, whether Gibraltar could have a tax system different to that of the UK (referred to as “regional selectivity”), was not actually ruled upon. See paragraph 110 of the judgement.
As ever I think your use of emotive language, such as “sordid” is not really necessary and doesn’t really help your cause: in my view it just turns off those reasonable readers who otherwise have an interest in what you have to say, like me for example.
Best regards
Peter
The case was vital
It proved the ring fence was wrong
I proved the UK should not have supported it
The UK’s support for such measures is sordid – it encourages and supports illicit activity
If you’re offended by may saying that supporting tax haven abuse permitting crime is “sordid” then ask yourself about your own ethics but don’t challenge mine, because it’s you who is utterly unreasonable in your attitude
This judgement is moot. This is a case about a tax reform which has never been implemented. Companies are taxed at 10% in Gibraltar and as for tax haven, the OECD doesn’t think so… So much for Tax “Research” UK.
The key thing about this case is that Gibraltar is free to set its own tax rate – just not at 0%.
Just for the record, companies have only been taxed at 10% in Gibraltar since the start of this year. Before that “exempt” companies (that is those that paid a £450 licence fee to the Gibraltar government) were not taxed at all. Gibraltar has been a “tax haven” for decades. Surely 10% corporation tax compared with UK levels of corporation tax would suggest it still is a tax haven?
Of course it is!
Gibraltar might have been a tax haven for decades but you can’t say that any longer.
Just because Gibraltar has lower than the UK’s doesn’t make Gibraltar a tax haven. What a ridiculous idea. Where do you draw the line? Are jurisdictions with a 15% tax rate also “havens”, or is it below 18% or would 20% be the level where a jurisdiction becomes a haven? Anyway, one could easily argue that UK corporate tax rates are way too high.
A 10% corporate tax rate might be relatively low, but it certainly does not make Gibraltar a “tax haven”. Anyway it is Gibraltar’s democratically elected government’s right to set its own tax rates and that is the key thing to come out of this ruling.
Oh, and BTW, the Tax Justice Network link in the post is so out of date it’s laughable. The latest information referenced is from 2008. There’s a whole lot of countryside between 2008 and 2011.
The post in question was published in 20909 – and says so
It’s been updated now in the latest Financial Secrecy Index
But you were too lazy to check that http://www.secrecyjurisdictions.com/PDF/Gibraltar.pdf
The same as you lazily excuse tax abuse – and Gibraltar is deeply mired in illicit financial abuse and is emphatically a tax haven
As are most states with 10% and even sub 20% tax rates
So 20% is where you set the bar then?
It doesn’t really matter that the post link to dates from 2009. As I said the latest information it references is from 2008. I’m really at a loss to explain how pointing out the obvious regarding that link makes me me lazy.
I can’t say I put much store in the secrecyjurisdictions pdf you link to either, just going through the indicators it becomes clear that it too is out of date.
You said we had made no reference to the period after 2008
I pointed out we had – the PDF dates to 31.12.2010
You’re wrong
It’s a simple statement of fact on my part which is unassailably correct
If I’m wrong I’ll quite happily apologise, so perhaps you could point out exactly which reference, note or source underpinning the information given in that link in the post above dates from after 2008. I certainly can’t find one…
I pointed out the data in the first link was from 2008
You said we showed no awareness of change thereafter
I showed we have, linking you to new data published a month or so ago and if you want you can go to our full database – on line at http://www.secrecyjurisdictions.com/sj_database/Gibraltar.xml
You can’t find a reference, but politely, that’s because like most with an affinity for offshore you’re decidedly selectively blind
So now I am not just lazy but blind? At least my comprehension skills are up to speed, which yours don’t seem to be.
This is the link in question:
http://www.secrecyjurisdictions.com/Archive2009/Database/Gibraltar.xml
Absolutely nowhere the post do you point out that the link in question “was from 2008”.
I did not say that you “showed no awareness of change thereafter” – talk about putting words in my mouth. I simply stated, in my first comment, that the link in question was laughably out of date, which is, as none of the underlying data is from later than 2008.
Was archive 2009 a clue?
Or the fact that you said yourself it dated from 2008?
And let’s put this in context – tge evidence was what I needed for my case
It was you who said we were out if date
I showed you were wrong
And you have not had the grace to admit we probably have tge most comprehensive up to date data in the world – which is why we are constantly right
Please do nt waste my time again
Under the Treaty of Utrecht signed in 1713 Spain ceded Gibraltar and Minorca to Great Britain And Spain also had to agree to giving the British the “Asiento”, a valuable monopoly slave-trading contract.
The conditions detailed in the contract/treaty between Britain and Spain are quite clear — including that there should be a non-aligned strip of land between the two jurisdictions. The British first built an isolation hospital for contagious disease on it (with Spanish permission providing it was short term) and “forgot” to remove the buildings and later an international airport. The Treaty also specified that their should be only one religion in the territory — Christianity. Britain is in breach of treaty in these and other matters and the territory should by law of contract revert to Spain.
Instead the “colony” holds “referendums” which result in the Gibraltarians always voting to remain “british” — by means of blackmail including much low petrol prices, low rates, low taxes and other “incentives”.
Like all tax havens Gibraltar is a dark and secretive place.
Steer clear!
!
In order to qualify for “exempt status” it was necessary to declare that you didn’t actually do any business in Gibraltar. The “economic substance” had to be elsewhere. So the thousands of companies that used to have exempt staus and now pay 10% corporation tax probably still don’t do any business in Gibraltar. So why are they still there?
Matt
They have.been restructured as foreign ie non-Gibraltar companies which are merely administered in Gibraltar. EU law and the EU Code of Conduct therefore don’t apply. So its all pretty academic!
Let me answer my own question. They are still there because – although “exempt status” no longer applies – it is still the case that “as long as income is not accrued or derived in Gibraltar, no corporation tax on profits is payable, even if the profits are remitted to Gibraltar (ie Gibraltar bank account)”. This now applies to all ordinary Gibraltar resident companies. So unless there has been a more recent change to this then Gibraltar still very much ranks as a full-blown tax haven with zero corporation tax to pay if your economic substance is elsewhere. Not even the £450 annual exempt licence fee has to be paid. Confirmation of this would be most welcome, but I don’t think I’m wrong.
Ignoring Richard’s unfounded comment about my ethics (you do not even know me Richard, I don’t believe we have ever met), in answer to Matt Stevens, the essential point to note is that there is no tax distinction between companies owned by persons based outside Gibraltar and those based inside Gibraltar. This is the “ring fence” to which Richard constantly refers (which was never enacted in Gibraltar) and which so offends him (amongst other things).
So if a company owned by a Gibraltarian resident invests in, for example, real estate outside Gibraltar, the company will pay no Gibraltar tax. It is called a territorial basis for taxation. Not everywhere in the world taxes worldwide income. Even the UK has made proposals to move to territorial taxationin several respects. The gamble for Gibraltar in changing their tax system in 2010 was the potential reduction in tax base. Looking from budget figures, I think it has paid off, mainly because it is a diversified economy of which over 70% has nothing to do with financial services (tourism, shipping and services such as insurance and gaming being some examples). Gibraltar is in a completely different space to Channel Islands, IOM and Cayman.
Peter
Come on – you really are pushing the boundaries of credibility on your excusing tax abuse, which you obviously understand and promote
If a company incorporated in Gibraltar trades elsewhere how does that other place know? You know it ius unlikely to do so and Gibraltar makes sure it never asks so evasion is automatically facilitated
And candidly – ask yourself the simple question – why would someone incorporate in Gibraltar to trade elsewhere without tax abuse in mind
My comments on your ethics are wholly justified
And as for your comments on Gib’s economy, insurance? Gaming? Classic offshore abuse activities only possible because the UK subsidises the place to survive.
I understated my previous comments, clearly. You’re not reasonable. You’re part of the problem.
Richard
Peter did not mention a Gibraltar company “trading” elsewhere. He referred to one investing into real estate in another country. That is not trading – it is investing. 99% of the reputable offshore jurisdictions these days actively discourage “trading company” activity.
If a Gibraltar company makes an investment in another country, such as buying property, then its activity in doing so is hardly going to go unnoticed! Ditto if it was in fact trading – payments would be made to it by local companies which are already on that other countries’ radar, making it impossible to escape detection. VAT and VAT returns would then also come into play – the payer of the invoices issued by the Gibraltar trading company would have to deal with it. In practice, this really is a most unlikely scenario indeed. In many cases (eg the UK), a foreign company with any sort of trading presence needs to register as a foreign branch in any event.
However, what I do think (and every offshore jurisdiction would benefit massively from this in terms of their own credibility and reputation) is that all payments for goods and services provided (or purportedly provided) by an offshore company should suffer an automatic deduction at source of the amount invoiced, which could be recovered only on the receipt of a satisfactory amount of information about that offshore company. That would drive out the remaining 1% of “trading company” activity from the reputable jurisdictions, and would drive out 100% of the trading company from less reputable jurisdictions (typically Panama, Delaware, Seychelles, to name but a few). The regulators in all of the reputable jurisdictions would undoubtedly support this.
Most onshore jurisdictions of course have double tax treaties to adequately deal with investments made by offshore companies – i.e. there are no double tax treaties with such offshore jurisdictions and so maximum withholding taxes are deducted at source from investment income and are not recoverable. If onshore jurisdictions choose to exempt capital gains made by overseas investors from capital gains tax in order to encourage overseas investment, and many of them do just that, then there is no tax leakage if the investment is made by an offshore company.
“Territorial” is undoubtedly the way that corporate tax is heading, almost certainly in the Crown Dependencies as well as in the UK. Its impossible to deem it illegal as there is no ringfencing – all companies are treated exactly the same. Even the EU Code of Conduct accepts that territorial systems are OK. They don’t like sub-10% corporate tax rates but that’s absolutely fine – the tax rate can be set at 10% or more on a territorial basis. Companies only pay corporation tax in the jurisdiction if they have income (and in some cases capital gains) arising within the jurisdiction. What’s wrong with that? Why should a country tax income and gains which arises elswhere? Surely that income and gains belongs to other countries to tax, if indeed they choose to do so. In most cases they are happy to collect the full rate of withholding tax, without any treaty deduction.
I am sorry – you utterly misrepresent th truth
Vast numbers of offshore entities own proprty in the UK without ever complying with UK regulation or tax law
I know that
I suspect you know that
Offshore is intended to facilitate that
So shall we drop the pretence?
Richard
I thought you would know as an accountant how the UK tax system works, but obviously not.
If an overseas company buys a UK property then it either has to be registred under the Non Resident Landlord scheme or the tenant must deduct 20% basic rate tax at source. Its on the HMRC radar in any event as the landowner. Not easy to cover up. If there is no rent then there is no tax being avoided let alone evaded. Capital gains tax does not apply to nonresident investors.
You make it sound as though there are thousands of tax evading UK residents hiding unlawfully behind illegal and undeclared structures to buy UK property. I think you must be stuck in a timewarp pre 2000.
I know how the tax system should work
I also know Matt accurately describes how it does work
But for the sake of doubt let me explain
First, yes the landlord should register but as far as I know none have ever been prosecuted for not doing so
Second they are trading here so they file accounts with Reg of Companies, but they don’t
Third, if they do register they’re always given exemption from tax withholding as there are no staff to allocate to the job
Fourth they are never followed up
So people know they can lie about ownership and control of Gib company and pay no tax including CGT which in my opinion on a territorial basis is made here and so payable here
It’s just one continual round of abuse
Richard
I am not so sure from your comments that you do know how it works!
It is not mandatory for an overseas buyer of UK property to register under the NRL scheme. Therefore nobody can be prosecuted for not doing so. That’s why nobody has been prosecuted for not doing so. But it is invariably in his/its interests to do so. If he doesn’t register then the tenant (or usually the managing agent) MUST deduct basic rate tax at source based on the gross rent and pay it over to HMRC. If the overseas landlord doesn’t register under the NRL scheme, then it means that he cannot wait until the end of the year to pay his tax liability, by which time he can deduct interest paid, depreciation etc as an allowable expense. He therefore suffers the cash flow disadvantage of paying 20% basic rate tax on the gross rental income, rather than much later paying 20% basic rate tax on the net sum after all allowable expenses. But in either case, the tax paid is merely a payment on account – the overseas landlord is still liable for any higher rate tax which may be due and has to file tax returns. HMRC know who the overseas buyer is because the overseas buyer will be registered at the Land Registry.
As a matter of the law of the land, they are not “trading” in the UK just by virtue of buying an investment property. HMRC distinguishes between “trading” and “investment” and often refers to the “badges of trade”. If there is no trade, then there is no corporation tax to be avoided.
You are correct that it is very rare indeed (I have never seen it) for HMRC to decline a NRL application, but why is that the overseas buyer’s fault?
Categorically not true that the are “never” followed up. I have seen it at first-hand on several occasions.
At what point is anybody “lying” about the Gib co ownership? The NRL form only requires the person or entity as the property owner to register and provide details. The form itself does not anywhere require beneficial ownership of the company to be stated. If the Gib company is buying in its own right, for its own balance sheet, then its the name of the Gib company which is correctly entered.
The Gib co cannot pay “no tax”. It has to file a return and pay any tax due or suffer the tax deduction at source. CGT is not applicable as non-residents do not pay CGT on capital gains realised from the sale of UK property, whether its an individual living in France or a Gib or Panamanian company. Why mention CGT when you know its not payable in the first place? Your opinion that CGT whould be payable on a territorial basis is totally irrelevant. That’s not what UK tax law requires. You cannot infer wrongdoing when there is none!
If what you are saying is that a UK resident COULD set up a Gib co and buy a UK property through it and not pay any tax then that would be blatant tax evasion and therefore a criminal offence by him and by the Gibraltar company administrators. What makes you think that this is going on, and to what extent?
As a practicing accountant I am familiar with NRL. I think my account correct – my point is I suspect no company is chased up if no return is submit – as almost no UK company is chased either and I have researched that, here http://www.taxresearch.org.uk/Documents/500000Final.pdf
And my point is simple – that theory and practice do not coincide here. You can say what you like about how the system should work, but it does not work as you describe and given the loopholes you agree exist and the fact that offshore nominees never ask questions then I think I am right
But if I am not then if such investment by Gib companies is commonplace then of course they should be registered with Companies House – they trade here for Companies Act purposes – having a permanent establishment here in the form of a branch owning the property. Would you like to tell me how many do file accounts in all here? And then reconcile it with your claims that they comply
Richard
I’m sorry but I think you are just wrong. An investment property is not a PE by any stretch of the imagination. In fact even trading assets such as building sites are not if the project lasts less than 6 months under the OECD definition, you know that. Much less does it need to register under the companies act as a branch. Let me find the appropriate authority for that when I have the time.
Anyway we digress a lot from the main issue which is whether Gib PLC itself is promoting avoidance, and falls within your bucket of “sordid” jurisdictions. Clearly:
1. Assisting overseas tax evasion is an offence in Gibraltar;
2. All advisers I know would shy away from blatant avoidance;
3. Most of the GDP here is generated from actual business activities with people undertaking legitimate business here by living here and undertaking substantial business. We are not an island, and we are not limited in numbers in the same way offshore centres are, so “brass plating” is just not our business model;
4. The tax ring fence does not exist in our tax legislation;
5. Whether you have a moral objection to activities such as online gaming, it is not a tax offence and has not to date (as far as I am aware) been the focus of your crusade;
I think you owe Gibraltar an apology.
Peter
p.s. any guess I make about the number of existing property holding structures would be just that, a guess. Sorry. How many UK companies own Gibraltar property I wonder?
p.p.s Re exchange of information requests and assistance to foreign tax authorities, I am sure they are coming, don’t worry about that.
I will tell you – according to Companies House just 170 Gib companies are registered in the UK
And I do not share your view on the need to register for companies Act purposes
I confess I have not checked this as yet – but if I am wrong I will be campaigning for change, I can assure you
I can see no way an overseas company can trade here and not file accounts
And an apology, to Gibraltar? You mean an apology to a place that has facilitated crime and tax evasion that has been dragged into having legislation it will use with the utmost reluctance. No way!
Richard
It is a fact, nothing less, that the mere ownership of a UK property for investment rather than development purposes, is NOT a trade. HMRC have always accepted that and continue to accept that. The owner of the property is not carrying out s trade and therefore does not need to register as a branch.
The development of a property WOULD be a trade. In some cases it would be treaty protected and therefore not taxable.
The carrying on of letting of property is a “business” not a trade. A subtle difference but in tax terms a crucial one. Both taxable but in different ways.
You admit that you haven’t checked it out – fair enough- but you are unequivocally wrong about it being a trade and if its not a trade then there can be no branch.
I hope you got this right when you were practising as an accountant.
I never dealt with offshore companies undertaking such activities – and would not have sought to do so
But I would have required them to register if I had – I believe in transparency
You clearly believe in playing the rules – to hide from view that which should be on record
That’s so unedifying and exactly why the world does not trust accountants and rightly so
@ Peter: You write:- “Gibraltar is in a completely different space to Channel Islands, IOM and Cayman”.
As a member of the PSG who has lived just up the road from Gibraltar for the last fourteen years we can assure that its reputation (amongst many British and Spanish people) STINKS!
At risk of Richard censoring this post by being too specific we read and learn about all sorts of nefarious activities occurring in and around the “Rock” — not least financial shenanigans.
To claim that it is any different from the Isle of Man or other tax havens is nothing but nonsense semantics formulated by UK government and Gibraltar so-called government “officials”
The PSG policy is to recommend to everyone:-
NEVER INVEST OR DEPOSIT A PENNY IN /ON GIBRALTAR
Editor note:
This comment was deleted for containing gratuitous abuse to another commentator
You can try that on me but not anyone else
Let me get this straight.
You would have declared that the offshore company was undertaking a branch from a PE when under HMRC’s rules they clearly were not, thereby negligently exposing your client to a tax liability that it would not otherwise be liable for.
Your accountancy practice would be unable to afford PI cover after so many negligence claims.
There would have been no extra tax due, at all
I deliberately chose not to do such work
No doubt those undertaking such activity would not have chosen to use me
My firm never had a PII claim
And since I mad very clear the basis on which i worked to clients and that transparency and full accountability and tax due being paid were a condition of using the service no one was under any illusion
Gibraltar is incorporated into the European Union by virtue of the United Kingdom’s membership. Under Article 299(4) of the Treaty of Rome — which established the European Community — the provisions of the Treaty of Rome are applied throughout the European Territories for whose external relations a Member State is responsible for. Firms who are authorised by the Gibraltar Financial Services Commission (FSC) have the right to passport their, banking, investments and insurance services throughout the European Union & European Economic Area.
Within the European Union there are various treaty provisions, directives, regulations and decision which require competent authorities to communicate with each other. For these purposes the FSC is the competent authority in terms of regulated financial services activities. Whilst, as the competent authority, the FSC would normally communicate directly with other competent authorities within the European Union.
In fact I do not do artificial tax schemes: it is not part of my business model and not something I condone. There’s plenty of other international business which doesn’t rely on abuse. You show your general ignorance by targetting gaming in particular. Have you any idea how many people are employed by the major gaming players in Gibraltar in order to set up and maintain the systems? They have little presence elsewhere so why should they pay tax elsewhere (other than gaming duties on individual transactions in individual states, which is fair enough)?
Oh come on – they are extracting revenue from other countries and you ask me to ignore the fact?
I won’t
Gaming is sordid abuse
Internet gaming solitary abuse
Offshore just abuses society too
That came out wrong – didn’t mean to imply you were ignorant on everything, just Gibraltar, sorry. You can take that bit out.
Here is a working example of how easy it is for a territory like Gibraltar to facilitate tax evasion. A UK taxpayer (individual or corporate) incorporates a company in Gibraltar and uses that company to buy and sell property in the UK. Irrespective of any issue regarding the ownership of the company, no tax is payable in Gibraltar as the activity takes place outside of Gibraltar. But management and control of the company takes place inside the UK and so the Gibraltar company is technically a CFC (controlled foreign company). This would normally result in a charge to corporation tax in the UK. However this assumes that the UK taxpayer declares the situation as such or that HMRC otherwise get to know about it. If the UK taxpayer maintains his secrecy then he will manage to escape UK tax as well as Gibraltar tax. To complete the setup the Gibraltar company will be owned by a trust set up in Gibraltar, for example by the same lawyer that sets up the Gibraltar company. The UK taxpayer (or his family) will be the trust beneficiary. Such trusts are not required to be registered in Gibraltar, so there is no way of knowing who actually owns the Gibraltar company and therefore there is no visible connection between the UK taxpayer and the property transactions. This is capable of surviving as a business model for many years.
Exactly
Matt
Any reputable adviser I hope would not take on the business you suggest, if the person setting up was UK resident/domiciled, and if it was a trading as opposed to investing activity. You are also confusing tax concepts – CFC legislation with central management and control.
So making profits on cross border transactions without a PE is wrong Richard?
Well there’s an awful lot of disreputable advisers then
Putting aside the niceties and distinctions of 1) reputable or disreputable advisors, 2) trading or investing, 3) CFC legislation and central management & control – putting these aside, the activity that I have just described is happening here and now and happening big time.
I know that
I’ll highlight today and get questions asked in parliament
you mean putting aside the fact that you clearly have no knowledge of either the CFC rules, or the corporate residence rules (which is a central management and control test)…………
I dont believe it is as huge as suggested, but it does go on.
I think you Steve are also ignoring that I still think of as s749 and s740 rules….
If you are then you’re remiss: they are de facto CFC rules if you like
I agree with Peter. The structure described by Matt is out and out criminal tax evasion. Are there still advisors or more crucially fiduciaries still writing that sort of business? I haven’t seen one of those for about 15 years.
The very act of buying and selling property (as opposed to investing) would be a trading activity by the Gib company and would almost certainly generate an HMRC enquiry. The Gib company should surely self-assess anyway.
Richard – on what possible basis can you day that there must be an awful lot of disreputable advisors? How many Gib companies own UK property and how many are non-compliant? I’m very intetested to know those stats and you clearly have them to be able to make such a claim.
If there any Gib fiduciaries still operating that way then they deserve to be closed down. Worse than that, as its tax evasion they should face criminal charges for handling the proceeds of crime.
We know this happens every day
And we know and you know HMRC do not have the resources to challenge it
So stop pretending
The abuse is commonplace
And tell me this:
a) How many companies in Gibraltar trade in the UK
b) Do local nominee directors in every case tell HMRC?
c) Do they file accounts in UK as required in that case?
d) If not, why not?
e) How many prosecutions have their been for assisting tax evasion outside the territory?
f) Is tax evasion outside the territory actually a crime?
a) No idea. Should Gibraltar legally be tracking that? I imagine it could actually, under Income Tax Act 2010.
b) if the company has a PE in the UK, I bloody hope so.
c) As b)
d) N/A. I would bet there are tax evaders everywhere, not just offshore. Doesn’t mean it is condoned.
e) The Commissioner got his powers of investigation in 2010 following an overhaul of outdated tax legislation. Give him a chance! Really RIchard, you should do a proper analysis before condemning a jurisdiction, although I appreciate that is time consuming, that is what a journalist/novellist should do.
f) Yes.
It seems rather perverse to discuss, deny and/or acknowledge the arsenal of tax evasion products/vehicles that are in fact secreted in Gibraltar; while meanwhile back home thousands (and fast approaching millions) of UK pensioners are having to make the choice between dieing of hunger or hypothermia.
Which leads us back to the greedy 5% elite resorting to every grubby dodge to become even richer, while the man-in-the-street progressively becomes poorer.
And whilst on the subject of contemptible financial “advisors” and property take a look at:-
http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/8879041/Expats-take-on-Rothschild-over-equity-release-schemes.html
Oh nearly forgot. Gibraltar’s PR has improved in recent years, and its financial activities are now better concealed. Don’t go there; in fact give it back to Spain who will make a far better job of running the place.
And that’s saying something!.
NOTE:
The PSG is composed of hundreds of elderly pensioners who were misled into transfering their life savings to the Isle of Man based Premier Low Risk Fund plc — and as a consequence lost a considerable amount of vital capital.
Views expressed by the PSG are those of individual pensioners who can’t possibly be named singly on a blog. These views are collated and formatted by the group secretary Robin Corner.
It should be remembered that many of the pensioners spent most their working life in a world without computers and have no access to the internet; indeed many could not differentiate between a laptop and a scanner. Some do not even own a mobile phone.
Just the sort of vulnerable people who are/were mercilessly targeted by unscrupulous, unqualified and unregulated “financial advisors” who were recruited and motivated by large commissions paid by product providers based in offshore tax havens.
Richard, read my comment again, I was abusing Spain not the commentator (since I do not know who he is)! Lol!
That was not at all how it read
And I deleted it because it seemed direct and personal
So you just got powers? In 2010? Would that have happened without the likes of work by people by me?
And have you used them? Tell me – you really should find out, you say, before commenting.
And tell me – how many Gibraltar companies do you think have property in the UK. A guess will do. 100, 500, 1,000, 10,000, 20,000? Give me a ball park. I’d be interested
At the risk of adding fuel to the fire, perhaps I could put a little flesh on the skeletal business model I described earlier.
But firstly — and so as not to offend “reputable” advisors — I would like to refer to the distinction between reputable and disreputable. What may be disreputable now may well have been reputable pre 2000. As the idea of what is acceptable behaviour – and legislation – changes over time, so does the notion of what is reputable change with it. Business models that may have been started following “reputable” advice in 1999 are not necessarily dead and buried in 2011 — although they may have a lot more difficulty getting started in 2011.
So why do they continue? This is explained firstly by long established confidence in being able to continue to get away with it on the part of the taxpayers concerned – together with an HMRC that has been unable – for whatever reason – to correctly identify many of these offshore entities and their board meetings (sometimes with voluminous minutes) for the sham that they are.
I will leave others to debate the question of whether it is ever “reputable” to assist clients to “preserve their wealth” by manoeuvring through gaps in the legislation, the opportunities offered by offshore territories such as Gibraltar and a traditionally (perhaps even necessarily) re-active fiscal authority – at the expense of those less fortunate members of society. Other people have plenty to say about that and quite rightly so.
Secondly, what is trading and what is investment.
Let us — as a non-UK resident company — buy, say, a shopping mall in Grimsby with a big commercial mortgage and a consequent high LTV (loan to value ratio). The rent will probably deal with the repayments on the mortgage. So there is no difficulty in obtaining a NRL (non-resident landlord) number and submitting a non-resident company income tax return to HMRC (as indeed we would be obliged to do). Probably there will be next to nothing to pay in income tax due to the loan interest that will be offset against the rental income. Now we will sell this shopping mall after a year or so. There will be no tax to pay on this gain (assuming a gain — which there certainly would have been for much of the last decade) as we have said to HMRC that we are non-UK resident and are an investment company. But is this trading or is it investment? How can this be determined? Motivation is no guide — naturally we would say that our motivation is to invest — not to trade. But the facts are that the largest part of the overall profit obtained during our ownership of this shopping mall will go untaxed. So we will go on and buy another one. etc. etc.
Hopefully this sheds a little light amongst the shadows.
i have no idea what point you are making here to be honest.
you could acheive the same result using UK entities and selling the company that owns the shopping mall and getting substantial shareholdings relief (ie paying no tax on the gain)………….
i suspect you have picked a bad example to use.
Steve –
Substantial Shareholdings Exemption (not relief) does not apply to investment companies, only to trading companies or the holding companies of a trading group.
So, Matt’s example works really rather well.
Hope that helps you understand his point.
Geearkay –
Thank you for that. I had pretty much given up trying to get the point across. As I think you understand, I have been doing my best to illustrate what I personally know happens in practice and to suggest reasons why evasion of this kind can still escape HMRC scrutiny. I suspect that tax havens would need to be dismantled in order to adequately align the theory with the practice… That may take rather a long time unless there is a greater public awareness of the issues.
Matt
Your tale is correct
Your critics are spinning a yarn – and a convenient one. They may sincerely believe it. It is still a yarn
Changing mood is what I seek to do
Richard
i see the UK uncut mob have been found guilty of aggravated trespass in Fortnum and Mason
I believe you were defending them previously – committing criminal acts in the name of “protest” rather undermines the message in my view.
I was an expert witness whose evidence was presented at the trial
I am quite satisfied that there was no crime committed
I believe in peaceful protest and support it
If no crime was committed, how they were charged and found guilty?
I assume you are taking the view that just because you don’t think it should be a crime, then it isn’t, in the same way that you ignore what is and is not a crime under tax law.
I quote this from the Guardian:
In judgment, District Judge Michael Snow said that the 10 were involved in a joint enterprise and became responsible for the actions of others in the store by their presence.
“The prosecution case is that each defendant did take part by encouraging others with his or her presence.
“I am satisfied that each of the defendants attended the store with the intention of intimidating the staff, police, security and customers so that they could take control of it.”
He said that although none of the defendants were themselves intimidating towards staff, they were aware, he said, that methods of intimidation were being used and refused to disassociate themselves from the action by leaving the store.
“It was the intention of each defendant, by his or her presence to encourage others. [And] that each defendant by his or her presence, encouraged others to commit the offence.”
After the occupation on 26 March, police arrested and charged 145 members of the group but later dropped 115 cases, claiming that those still charged had played an organising role in the protest.
During the case police and shop staff witnesses characterised the protest as peaceful and sensible.
In a written judgment read out to the court, Snow described the scene inside the store, which is patronised by members of the royal family, as chaotic.
“Protesters were shouting and screaming at a very high volume. There were chants of ‘If you don’t pay your taxes, we’ll shut you down’ … Megaphones were used … Some protesters were masked.
The basis for an appeal is obvious: the evidence is that the protest was peaceful, the police said so. In judgement it was said otherwise.
And in judgement it is said these ten were selected as ring leaders for intimidation but none were actually so, at all. So who were? And can you be liable for the intimidation of others? How? Especially when the police say the protest was peaceful, which must therefore be non-intimidating.
I note there will be an appeal. I think it will find serious errors by the judge – they appear manifold.
out of interest, what were you giving evidence about? assuming you werent there as an eye witness?
I made a written statement as an expert witness on the nature and extent of tax avoidance and evasion in the UK
An interesting and illuminating summary.
Could well be overturned on appeal but as of today they have been charged and found guilty of a criminal offence.