There has been a great deal of traffic, and a lot of comments on this blog over the last day or two about whether the UK car or any other major developed nation has the right to interfere in the affairs of the world's tax havens.
The answer is simple, and straightforward. It is that we do have that right, and there we have it for a very particular reason. As I have demonstrated in my paper called Finding the Secrecy World tax havens are in fact best described as secrecy jurisdictions. Secrecy jurisdictions are places that facilitate the problem of illicit financial flows. They do this by creating regulation for the primary benefit and use of those not resident in their geographical domain. They support this process by creating a deliberate, legally backed veil of secrecy that ensures that those from outside the jurisdiction making use of its regulation cannot be identified to be doing so.
So, and for example, the vast majority of trusts and companies that are created in either Jersey, Guernsey or the Isle of Man are not resident in those places. We do, of course, know this true. There is no significant local market for these structures. That is something the British Virgin Islands demonstrates best. They have incorporated more than 800,000 companies, of which no more than 10,000 actually trade in the place.
Those companies that are actually incorporated in and trade in the British Virgin Islands can be considered for regulatory purposes to be located in what I call 'here' i.e. there is coincidence between their place of registration, which provides them with their licence to operate, and the place in which they trade to which they might pay tax. Obviously, this is the normal situation for a UK company.
However, I would add that there is nothing intrinsically wrong with creating a structure that can be used by a person in another location. I know, for example, that some Scandinavians used UK companies because minimum issued share capital of a company incorporated in the UK is much lower than that required for the Scandinavian equivalent. So long as those in Norway who use UK companies do so legitimately, place their accounts on UK public record, and pay their tax in the UK and in Noway as they should, then I cannot object to this. As I have again demonstrated in the Secrecy World paper these companies can be described as being regulated ' somewhere'. That place of regulation, which will primarily be the Scandinavian country where they trade, is not the same as the place where they are registered, but that leaves the place where they are registered knowing that that regulation is being undertaken in another place. The combination of location may make regulation are little harder, but it is in existence.
This situation must, however, be directly contrasted with the situation found in the Channel Islands and the Isle of Man, and Cayman, the British Virgin Islands and other secrecy jurisdictions, come to that. In those places it is normal for the structure created artificially by law to be run on behalf of the warm human being who actually directs it by nominees whose sole purpose is to disguise the ownership and control of the asset in question. In reality, most of those nominees would never, however intense the questioning, ever be able to answer a question about the true nature of the assets they managed. But nor will they be able to answer another question, because that is the question they will have deliberately failed to ask about where those assets are actually managed.
There is good reason for this. There is a long established principle in all these places that a company or trust may be incorporated and managed from that domain but not be tax resident within it. So be it, but in that case the obvious regulatory question is "where is it tax resident?" because it is of course in that other location that it should be regulated. But that question is not asked, as far as I can tell, ever.
The consequence is that it is simply assumed that companies and trusts incorporated in these places and managed by their professional nominees are regulated 'elsewhere' but without enquiry being made or record kept as to where 'elsewhere' might be. And that is because those nominees know that the structure in question is being used to undermine the taxation revenues of another state. If the professional nominees asked this question, and knew the real answer, they would of course have implicated themselves in the resulting fraud. They choose instead to turn a blind eye to the question, so that they can claim innocence. It is a perverted form of innocence.
An example might be found in the case of Lichtenstein where structures were deliberately created to undermine the taxation revenues of Germany, and many other places but were of absolutely no benefit at all to a Lichtenstein residence, and had to declare their total worldwide income to the local tax authorities. These will have been run by local professional people. That is why they are culpable.
It is this combination of deliberately creating structures that can only be of benefit outside their own domains, deliberately providing secrecy and being completely indifferent to the regulation of those entities outside their own domains (however well they might be regulated within them) that creates the legitimate basis for attack on the secrecy jurisdictions from places such as the USA, Germany, France and, I hope in due course, the UK. You cannot declare economic warfare on another state, as the secrecy jurisdictions do, and expect there to be no consequence.
Nor can you claim that the issues in question are only of your domestic concern when that is clearly not the case.
The secrecy jurisdictions have questions to answer. They refuse to answer them. They refuse to create the transparency that is required about the structures that they create for use in other domains. And they refuse to regulate the use of those structures in those other domains, however many entirely meaningless checklist are completed with regard to the actions of the nominees in the place in which these structures are incorporated. They do instead deliberately turn a blind eye to this situation and the actions of the professionals who are located within their domain who make their living from turning back blind eye. Whilst these situations persist the countries whose regulation is undermined as a result , such as the USA , will have no choice but to take action to eliminate this threat to their well-being, and that of their law-abiding citizens. And it is entirely legitimate for them to do so.
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And of course, as you’ve pointed out on more than one occasion, in the case of the tax havens that fall, nominally or directly under the British crown, the UK is frequently paying very generously to support them. You would think a little openness and willingness to share information wouldn’t be too much to ask in exchange!
As far as I am concerned, the Tax Justice Network have no authority to demand any information and that is why they are ignored by the UK Government as well as the offshore jurisdictions.
I actually think this ‘club’ is a waste of time being in existence now. If I trawl back a few even a few years the TJN have not been able to accomplish a thing. Their demands now go on deaf ears.
And yet they do “share information” (I love that would “share” as it brings up something 2 parties share). In this case you mean ‘give’ information.
It’s funny you use the word secrecy. Is you bank using secrecy to stop ID theft, or are they using confidentaility as the OFC use.
And on the Lichenstein case, the German and UK government paid the “whistle blower” for this stolen information. As are the US by offering 30% of any taxes claimed. This is essentially paying people to break another countries laws and traffic stolen information. Sounds like Spying to me.
Secrecy? Not people confidentiality?
People have a right to have their personal financial affairs kept private. What right do you have to challenge that? The TJN seems to want to be the saviour of the world, yet it is becoming so stupid now that it is hardly surprising the authorities take no notice.
Matt
Tax Justice. It sounds quite a good thing to me. I have no idea what they have “accomplished”. As a non-governmental research group, I don’t see how they can “accomplish” anything. Anyway, it’s early days yet. No doubt, in the early 1960s, you might have said the American Civil Rights movement had “accomplished” nothing. In 1800, you might have said that the anti-slavery campaigners had “accomplished” nothing. I could bang on and on, but you see my point?
Anyway, the subject of this blog is evidently important enough to get you really quite heated. Your enthusiasm to dismiss these matters rather undermines the point you seem to be trying to make.
Hi Richard
Just noticed your statement “the vast majority of trusts and companies that are created in either Jersey, Guernsey or the Isle of Man are not resident in those places. We do, of course, know this true”
This is a lie, the residence of a trust is where the Trustee is situated as they legally own the assets of a trust although there are a few exceptions to this they are the minority, and as an accountant you know this
Creg
As seems your normal practice, you have again wholly misrepresented the truth.
Of course in theory Jersey trusts are resident in Jersey if that is where their trustees are. But we also well known that does not involve the creation of a taxation liability if the settlor and the beneficiaries are outside Jersey.
In addition, as we well know, companies that meet every OECD criteria for being tax resident in Jersey have for many years been deemed to be resident ‘elsewhere’ ( about which no questions asked) so that no tax may be paid in that island.
But in either case you entirely avoid the issue, which is that so-called professional persons who lend their names as trustees and directors are in fact no such thing: I well know from my own experience that they are in practice mere nominees who exercise no discretion in the conduct of their roles and as such are neither trustees or directors but are mere paid clerks to undertake the actions decided upon by persons resident elsewhere who actually control the entities which these Jersey persons claim for the sake of their fee to control. This also means that those entities are in fact resident elsewhere and should be taxed elsewhere, a fact to which Jersey turns a blind eye but which I will not ignore.
If you doubt me, look at the exchange of correspondence on this issue by high-ranking jersey civil servants which I published on this blog a year or so ago. They recognise the reality of the situation which is exactly why trust law in Jersey was changed to allow reservation of powers in 2006.
You can play the game of charades if you wish – but none of us believe you. You are wasting your time. Your party is nearly over.
Richard
I think you will find that reserved power trusts where the settlor or protector reserve powers over the trust while onshore are now taxable in the UK as they are in the US as Grantor Trusts, as in fact the defacto residency of the trust moves onshore, and as such the Settlor will pay income and CG taxes on those assets himself
An offshore trustee knows this and if based in Jersy is commiting tax evasion. I’m not denying that some trusts in the past have been informal and formal shams. Just look at Rahman v’s Chase Bank as the classic example.
But nearly all professional trustees or trust company will not take a trusteeship on, that is run as a sham, the potential liabilites are huge in terms of Monetary and Reputation. Nor will they take on a reserved power trust with an onshore settlor, due to the tax implications but Of course there are always bad eggs
From my seat you are misrepresenting the OFC, as only being used by tax evaders which we both know is simply not true, this bias can be seen in the articles you link too.
Of course there are always bad eggs
Richard you still do not understand what goes on. So professional people acting as Trustees are just nominess now are they?
You have a chip on your shoulder about the Channel Islands, you have no teeth to do a thing about it so it is now personal, why not just admit it?
Yes, you are right, Mr Murphy.
my comments are the following links:
http://www.gopetition.com/petitions/pour-denis-robert-contre-la-crise.html
http://survie.org/article1288.html
very interesting , isn’t it ?
I think offshore finance is great. I earn twice as much money working in Cayman and its tax free. Tax litigation is essential to some companies anyhow.
Malcolm
Have you noticed that Gordon Gekko’s philosophy has brought the world to its knees?
Richard