Ed Miliband\u2019s announced a new initiative today that is sure to resonate around the offshore world.<\/p>\n
As I understand it he, in essence, has said three things. The first is that the UK should push as hard as possible for the European Union Savings Tax Directive (ESTD)<\/a> upgrade planned for 2013 to be implemented as soon as possible. Second, in the process he suggested George Osborne had put back the whole process by negotiating the Swiss tax deal over which the EU is now threatening to pursue the UK because it does not comply with the requirements of the existing ESTD, let alone the revised one. And third he said that if for any reason the EU can\u2019t deliver the ESTD on time because Austria and Luxembourg continue to try to block it then the UK should go ahead and demand that its Crown Dependencies and Overseas Territories enter into deals equivalent to those required under the ESTD with any reasonable country that wants one.<\/p>\n Now this is radical stuff. The ESTD is about tax evasion, that\u2019s all. It has no other purpose. So this initiative extends the whole debate about corporate responsibility from the issue of company tax into the whole arena of the tax evasion that some companies \u2014 and notably banks \u2014 facilitate through their offshore operations, whether knowingly or not.<\/p>\n Second, whilst the ESTD has been in operation since 2005 it has been widely acknowledged \u2014 even by the EU itself<\/a> since 2008 -\u00a0that there are gaping loopholes in it. The Tax Justice Network view of this is here<\/a>. The key points are simply though. First, the existing directive only applies to cash deposits \u2014 and based on my research of offshore portfolios<\/a> that\u2019s rarely more than 20% of offshore asset holdings - \u00a0meaning 80% or more of all income escapes the arrangement and so remains untaxed in most cases in the country where it should be declared for tax purposes whilst, second, the ESTD only applies to income held in an individuals name so that cash and other assets held in companies, trusts and other arrangements also avoids or evades tax as well. Put the two facts together and I estimate well over 90% of all income that should be known about in tax havens like the Channel Islands is not advised to HMRC.<\/p>\n Those are loopholes too big to tolerate at a time when tax revenue is the scarcest commodity in the UK economy.<\/p>\n The big question then is, can Miliband do this? My thinking is yes, he could. First, this is about the international relations of the Crown Dependencies and overseas territories, and we are responsible for them, and as such can legislate them if we wish to do so, and opinion that the House of Commons Justice Committee<\/a> came to in \u00a02010 when reviewing this issue, basing their opinion on the Kilbrandon report. Second, knowing this the Crown Dependencies have actually done all we have ever asked them to do on such issues. That is exactly why they have adopted the European Union Savings Tax Directive and the EU Code of Conduct on Business Taxation despite their reluctance to do so. In practice they knew they had no choice but do so. Third, if they really want to be awkward we could simply remove the exemption from tax being withheld on payments of interest, royalties, dividends and other sums to these places that are in operation at present and they cease to be tax havens overnight and lose their entire financial services industry at a stroke. Given they publicly say they don\u2019t want tax evaders to use them there is no way on earth they\u2019d risk that, but we could impose it, and they know it.<\/p>\n So Miliband, if he were prime minister, would hold all the cards in his hands, and the Crown Dependencies would have the 2,3 and 4 of spades when hearts are trumps. In other words, this threat isn\u2019t hollow; this threat is for real.<\/p>\n