THE ISLE OF THE BLESSED TAX EVADERS

Luxembourg has agreed to reduce the secrecy surrounding its banks, saying that it will implement rules on the automatic exchange of bank account information with its European Union partners from 2015. The country with a population of only 500,000 people, has banks and other financial institutions with assets worth more than 20 times the country's economic output. The Prime Minister of Luxembourg, Jean-Claude Juncker, plans to introduce the reforms in two years, in line with the EU Savings Directive. The rules of the Directive aim  to create greater transparency and minimise tax evasion. 

Since the financial crash Calls for a crackdown on bank secrecy have been increasing, as governments are increasingly desperate to raise more taxes to support their finances. Luxembourg will now move to strengthen co-operation with foreign tax authorities. Germany signed a tax evasion treaty with Switzerland - another European banking centre known for its secrecy – earlier in the month. The treaty aims to give the German tax authorities the ability to claw back taxes from their citizens who may be hiding money in Swiss banks. Austria, the only EU hold out against banking transparency, has attacked the UK as an “island of the blessed for tax evasion and money laundering". 

Austria’s finance minister, Maria Fekter, has been under intense pressure to put an end to Austria's long-held tradition of allowing foreigners to bank secretly. She has attempted to deflect attention towards the UK. Fekter, a member of Austria's governing coalition, says the European Union cannot force Austria to reform its controversial banking secrecy laws without also forcing the UK to crack down on tax havens in its jurisdiction. Across the pond, the US Government is trying to crack down on its citizens hiding money offshore and is due to start talks with Austria soon. These recent developments leave David Cameron and George Osborne, staunch defenders of the City of London and Crown Dependency Tax Havens, which coincidently happen to be centres of worldwide money laundering operations. 

NOT ON GEORGE’S RADAR...

Across the other side of the pond tax evasion remains an important issue, on this side of the pond you get the impression that the Conservative part of the Con Dem Westminster government just hopes it will quietly go away. As a direct result of the US government’s pursuit if tax evaders Switzerland's oldest bank is to close permanently after pleading guilty in a New York court to helping US citizens evade paying their taxes. The Swiss bank, Wegelin (established in 1741) will pay $57.8 million dollars (£36 million pounds or 44 million euros) in fines to US authorities.

Once the fine has been paid then Wegelin will cease to operate as a bank. The bank had accepted that it had allowed more than 100 American citizens to hide something close to $1.2 billion dollars from the Internal Revenue Service for nearly 10 years. Wegelin, based in the small Swiss town of St Gallen, was started 35 years prior to the US declaration of independence. It is the first foreign bank to plead guilty to tax evasion charges in the USA. In recent year other Swiss banks have taken steps to prevent US citizens from opening offshore accounts to avoid paying tax.

US President Obama was 100% right to suggest that the governments of the world should jointly tackle the issue of tax evasion and tax havens. The problem is that successive Westminster Governments are involved in tax evasion and indirectly support tax evaders, as a significant proportion of tax evasive activities revolve around the UK Crown Dependent territories. By tackling the tax havens, the tax avoidance and the questionable dealings of the derivative traders, hedge funds and the off balance sheet trading then we might go so way towards dealing with the consequences of the worldwide financial crash.

I am shocked to discover that there is tax evasion here?

However, I suspect that nice Mr Cameron and the other 18 millionaires in the cabinet will do nothing to close the tax loopholes – so much for all of us being in it together? Perhaps it's just that we are ordinary taxpaying citizens just expect too much from government.

As the UK Government continues to be heavily involved in aiding and abetting tax evasion worldwide via British Overseas territories (including the Cayman Islands) and will actively fight in Europe to prevent open and transparent accountability and regulation for the City of London but won't chase up tax evaders.

Expecting the Tories or the party formerly known as New Labour to seriously tackle tax evasion is perhaps a little naive as they are part of the problem. The Lib Dems might deliver on electoral reform or any of the three Westminster parities to have an honest debate about Party funding before tax evasion is dealt with. Westminster helps to hide some £ 1.6 trillion pounds from various nations’ tax authorities, and some of the city banks are hand in wallet with drug dealers, dictators and terrorists when it comes to money laundering. Hmmm...Over to you then George...

THE CONTENTS OF GEORGE’S IN-TRAY?

Tax evasion! Surely not!

One way or another, tax evasion and tax avoidance is rarely out of the headlines especially as many heavily indebted governments are increasingly keen to hunt down every tax dollar / euro or pound that is owed. Considering that the Conservative elements of the Con Dem coalition government continues to looks slightly uneasy whenever tax avoidance and tax evasion comes up I cannot help wondering whether or not the National Audit Office report on tax evasion will make it out of George Osborne’s in tray.

A National Audit Office report has revealed that of HM Revenue and Customs (HMRC) is struggling to curb aggressive tax avoidance schemes is costing the UK billions of pounds in lost tax.  HMRC is faced with a backlog of 41,000 cases with potentially up to £10.2 billion pounds worth of evaded tax at stake. The National Audit Office (NAO) said tackling tax avoidance was difficult but HMRC had to do better. In the last two years HMRC has successfully challenged 40 tax avoidance schemes.

The NAO revealed that between 2004 and 2011 some 2,300 avoidance schemes were disclosed to the tax authorities, but as around 100 new schemes have emerge every each year. It has been estimated that there are potentially some 30,000 users of what are known as employment intermediary schemes and partnership loss schemes - where partnerships that make record a loss to shelter their other income from tax. The loss is artificially inflated via "circular loans" (or deferred expenditure) which are never actually incurred to exceed the amount actually invested in the partnership.

HMRC has tried to tackle the practice with enforcement action in a few “lead" cases, but investigations can take years to resolve and any rulings cannot always be applied successfully elsewhere.  Despite this since April 2010, HMRC has been started 110 avoidance cases and despite being successful in the vast majority of cases where judgements have been reached the NAO suggested that there was no evidence that litigation was proving an effective deterrent to tax evasion and avoidance.

Tax evasion is only part of the problem, as Tax Research UK estimated that the Exchequer loses out to the tune of £64 billion pounds per year through shadow economic activity, which is 16 times larger than the estimated £ 4 billion pounds that the UK Government misses out on due to tax evasion. That works out at roughly about £1 pound out of every £8 in the economy.

Despite this the Con Dem Government continues to pursue a reckless slash and burn (cut) approach to the public sector. They have reduced the number of staff in Revenue and Customs from around 100,000 to 65,000 and there are further plans to reduce the numbers to around 50,000 by 2015.

To expect the Tories or New Labour for that matter to seriously tackle tax evasion is perhaps a little naive as they are part of the problem. It would be a bit like expecting the Lib Dems to deliver on electoral reform or any of the three Westminster parities to have an honest debate about Party funding.

Perhaps the ordinary tax paying citizens just expect too much, I mean the UK Government continues to be heavily involved in aiding and abetting tax evasion worldwide via British Overseas territories (including the Cayman Islands). They help to hide some £ 1.6 trillion pounds from various nations’ tax authorities, and some of the city banks remain hand in glove with drug dealers, dictators and terrorists when it comes to money laundering. So clearly we are not all in it together.

TAX EVASION.GOV.UK?

Most of us pay tax, one way or another and indirectly via democratic elections we have some form of impact on the way tax within these islands is set, collected and spent. Some people, who hold directorships of companies based or operating in tax havens, also as Peers and MPs, hold office within the UK Parliamentary system and can have impact and influence on the UK Tax system. This surely is a blatant conflict of interest and should not be acceptable anytime, let alone during a recession.

A full list of 68 UK Peers and MPs with directorships or controlling interests in companies linked to tax havens has been published by the Guardian (21.09.2012). It appears that some of the UK’s Parliamentarians who are able to influence tax laws have positions as directors and non executive directors in major companies with offshore links. There are 27 Tories - six of whom are MPs – 17 Labour peers, three Lib Dem peers and another 21 are either crossbench or non-affiliated peers.

The Guardian examined the Parliamentary registers of members' and Lords' interests to identify companies where Parliamentarians are registered as directors or a non-executive directors. They then cross-referenced this with accounts or other financial records to find out if the companies were registered, or had a parent company or subsidiary, in a jurisdiction known as a tax haven.

Tax havens tend to be masked by secrecy and low taxes, and there have been few attempts to identify them. UK Revenue and Customs does not provide a list of tax havens. While there is nothing wrong with a company being based in a tax haven does not necessarily mean that a company is avoiding tax or taking advantage of the secrecy that tends to surround tax havens, even if the tax jurisdictions are closely associated with tax evasion.

Across the pond, in America, there has been a great deal of ongoing irritation with tax evasion, back in March 2009, the 111th US Congress (2009 – 2010) brought in House Resolution 1265 (111th): Stop Tax Haven Abuse Act, which aimed to restrict the use of offshore tax havens and abusive tax shelters to inappropriately avoid Federal taxation, and for other purposes., it originally died (was referred to committee). Yet this issue won’t go away, the bill was reintroduced as HR 2669 on July 27th 2011 and again referred to committee and the report stage is awaited.

One of the things the bill did was list the 34 states and dependent territories seriously involved in tax evasion.

1) Anguilla.
2) Antigua and Barbuda.
3) Aruba.
4) Bahamas.
5) Barbados.
6) Belize.
7) Bermuda.
8) British Virgin Islands.
9) Cayman Islands.
10) Cook Islands.
11) Costa Rica.
12) Cyprus.
13) Dominica.
14) Gibraltar.
15) Grenada.
16) Guernsey/Sark/Alderney.
17) Hong Kong.
18) Isle of Man.
19) Jersey.
20) Latvia.
21) Liechtenstein.
22) Luxembourg.
23) Malta.
24) Nauru.
25) Netherlands Antilles.
26) Panama.
27) Samoa.
28) St. Kitts and Nevis.
29) St. Lucia.
30) St. Vincent and the Grenadines.
31) Singapore.
32) Switzerland.
33) Turks and Caicos.
34) Vanuatu.

Now oddly enough more than a few of them are UK Crown Dependent territories. A couple of months ago the Treasury Minister David Gauke said that it was "morally wrong" to pay tradesmen such as plumbers, builders and cleaners in cash in the hope of avoiding tax. He said that the practice came at "a big cost" to the Treasury and meant other people had to pay more to help balance the books. The Westminster government may have highlighted this in its desire to clamp down on tax avoidance, the problem is that it will hit those who can least affords to tax evade.

US President Obama was 100% right to suggest that the governments of the world should jointly tackle the issue of tax evasion and tax havens. By tackling the tax havens, the tax avoidance and the questionable dealings of the derivative traders, hedge funds and the off balance sheet trading then we might go so way towards dealing with the consequences of the worldwide financial crash. However, I suspect that nice Mr Cameron and the other 18 millionaires in the cabinet will do nothing to close the tax loopholes – so much for all of us  being in it together? Hmmm...over to you George...perhaps not!

SUMMER RECESS READING?

The Treasury Minister David Gauke has said it is "morally wrong" to pay tradesmen such as plumbers, builders and cleaners in cash in the hope of avoiding tax. He says that the practice came at "a big cost" to the Treasury and meant other people had to pay more to help balance the books. The Westminster government has highlighted this in its desire to clamp down on tax avoidance. The minister’s pronouncement may indicate a desire by the Westminster government to hit out on those who can least affords to tax evade.

On a similar theme, a report written by James Henry, a former chief economist at the consultancy McKinsey, for the Tax Justice Network, ‘The Price of Offshore Revisited’ makes interesting reading. The report estimates that the global super-rich elite had the best part of some $ 21 trillion dollars (or £ 13 trillion pounds) stashed away in secret tax havens by the end of 2010. The figure is equivalent to the size of the US and Japanese economies combined. Why do I somehow suspect that this interesting document will probably not be on George Osborne, David Cameron or David Gauke’s summer recess reading list.

MAGIC MOMENTS

Prime Minister David Cameron’s criticism of some of the tax arrangements of some of the rich and shameless as "morally wrong" certainly caught the headlines. Perhaps it can be put down (from a Conservative perspective) to the PM going off on one again. it was certainly a bizarre ‘Conservative’ moment - what’s next Japanese whalers endorsing the virtues of Greenpeace? Certainly from where I have been sat, this side of the bridge, ‘Conservative’ and ‘tax evasion’ have been happily juxtaposed for many years in the public perception.

I noticed that David Cameron appears to have rapidly clammed up, after his unexpected outburst. Perhaps he is now engaged in managed withdrawal (aka ‘retreat’) following his condemnation of celebrity tax avoiders yesterday, no doubt after less than coded warnings from Tory donors that his attacks on Jimmy Carr could open a world of tax avoidance related hurt.

After further thought DC may have decided to cut his losses and keep his head down, certainly the PM has declined to criticise the tax affairs of Take That star Gary Barlow (a recent recipient of a gong), happens to possibly involved in a similar tax evasion scheme to the one Carr used to cut his liabilities. No doubt some pretty senior Tories are fearful that Cameron’s comments could lead to an unwelcome media spotlight on the tax affairs of senior party donors and government (and not doubt former New Labour) ministers.

The Daily Telegraph (no great lover of Cameron admittedly) says that DC under mounting pressure to pay back cheap loans of £1.2 million to the Conservative Party from companies registered in tax havens before the last election. One £250,000 loan apparently came from Juniper Trading (which is registered in the British Virgin Islands). It was given in 2004 at 0.25 per cent below the base rate, to be repaid in 2029. Another £950,000 loan was apparently made by the Medlina Foundation, (based in Liechtenstein), at the base rate plus 1 per cent in the same year. Oops!

Now it does seem a bit rich for the Conservative Party to be taking advantage of loans from offshore firms, while the PM slags of celebrities, for using a tax avoidance scheme in Jersey. Most reasonable people accept (by now) that there is a real need to deal on a global basis with the problem of off-shore companies and those individuals who are actively engaged in tax avoidance, tax evasion and / or money laundering. The problem is that the UK is at the heart of the problem as it has consciously chosen not to regulate some of its crown dependencies.

The scale of the off-shore problem takes your breath away. The Cayman Islands; are currently home to some 12,000 corporations and have a population of 50,000, yet are home to 70% of the planets hedge funds. The British Virgin Islands (population 22,000) is home to 823,502 registered companies. General Electric paid no tax in 2010, yet made a $14.2 billion dollar profit. Barclay's has 181 subsidiaries registered in the Cayman Islands and paid little UK tax on its worldwide profits. The Dirty Digger's News Corp has 152 subsidiaries in tax havens across the planet (according to the US Government) and paid no UK corporation tax between 1998 and 1999.

US President Obama was absolutely right to suggest that the governments of the world should jointly tackle the issue of tax evasion and tax havens. The US President was spot on, if we actually tackled the tax havens, the tax avoidance and the questionable dealings of the derivative traders, hedge funds and the off balance sheet trading then we might go so way towards dealing with the consequences of the worldwide financial crash. I suspect that rhetoric aside hell might have a better chance of freezing over before that nice Mr Cameron and the other 18 millionaires in the cabinet actually do anything to close the tax loopholes – were that to happen then perhaps we would all be in it together?

SAME OLD, SAME OLD?

It can be said that New Labours "ethical foreign policy" expired in the House of Lords in the early hours of a dark and windy night in 2005 at around 2am,  any idea that "we are all in it together" expired in broad daylight live on television something between 12.30pm and 13:30pm  today. In many ways the Conservative dominated Con Dem Government’s decision to scrap the 50p tax rate for high-earners should not been much of surprise, they have in many ways simply reverted to type.

One principle that George Osborne clearly does not subscribe to is that of progressive taxation. The Con Dems plan from 2013 onwards to cut a further £10 billion pounds worth of welfare. Rather more alarmingly it can be said that cutting taxes for high earners whilst slashing support for those less fortunate has merely highlighted the fact that the Westminster seems to have become a plaything of the rich elite and their friends.

We live in one of the most unequal societies in the developed world as a direct result of thirty years of Tory-New Labour government in London. One of the main reasons why the 50p tax rate hasn't worked is because enough of those who should be paying it have been able to use various tax dodges. If you believe in a fair society then everyone needs to pay their fair share. As a society we need to crack down on tax havens, tax avoidance and off-shore finance so that everyone pays a fair and correct amount of tax, not to mention cutting back on pension perks for high earners. .

SOMETHING WE WILL NEVER SEE...

President Obama

The USA and England may not just be divided by a common language and the Atlantic Ocean, there is the issue of tax evasion and tax avoidance. Last week President Obama, during his State of the Union Address to a joint session of the US House of Representatives and the US Senate, briefly lambasted those who sought to pay as little taxation as possible.

The gist of his comments ran along the lines of everyone needed to pay their fair share of tax, otherwise the American dream was broken, and that hard work was no longer rewarded and that unnamed others should be required to play by the rules and do their bit too – and pay their fair share of taxation, the same as everyone else does.

That is about as close the an American President can get to having ago at tax evaders and even then he may get accused of playing the ‘class war' card. Tax or its apparent avoidance briefly became a big issue in the US Republican primaries as Newt Gingrich effectively forced Mitt Romney to publicise his tax returns, which revealed the fact that he made $20m (£13m) last year in unearned income.

Newt Gingrich's supporters then funded a series of adverts labelling Mr Romney a "vulture" and "corporate raider", and accusing him of making his millions by asset-stripping and firing workers. He openly mocked Mr Romney's bank accounts in Switzerland and the Cayman Islands.

Prime Minister David Cameron

Mitt Romney then duly gave as good as he got and laid into Newt Gingrich by focusing much of his attack on Gingrich’s political and personal integrity and he attacked the way he has made money, and accused him of being a lobbyist.

So tax, tax evasion and tax avoidance in times of austerity may well be a big issue in the forthcoming US Presidential election amongst other things. After all we are all supposed to be in this together. David Cameron used to make much of saying we were all in it together, but, that no longer seems to be, nor ever was the case.

This is something that David Cameron will no doubt go out of his way to do his best to avoid making any reference to this issue now or any-time soon. Some of us (its now pretty apparent) are in it a great deal less than most of us.

I mean, its awfully awkward, having gone out to bat in Europe for the square mile and conveniently forgetting the UK’s other 5,999 square miles. I think for most of us, despite the increasingly desperate Tory spin, it is now pretty clear where David Cameron stands (or squirms) in his position, it would make dinner with Lord Ashcroft awfully embarrassing.

NOT ON OUR BEHALF...

So David Cameron is to travel to Brussels for a major EU summit on the eurozone debt crisis. Both Germany and France are keen to have a new EU treaty which would include measures to stop a repeat of the problems threatening the euro's future. Cameron is under increasing pressure from the anti-Europe wing of Tory MPs who want him to resist moves to strengthen the power of Brussels over EU members.

The PM has pledged to stand up for Britain, he will display some of the tenacious bulldog spirit, etc. Some old same old you might think, but there is more to this than meets the eye. Not quite, in a joint letter, France's President Nicolas Sarkozy and German Chancellor Angela Merkel have called for the 17 eurozone countries to have common corporation and financial transaction taxes.

This is something Cameron (“the bankers friend”) is obviously set dead against. Cameron has cleverly hidden the real reason, why and on whose behalf he is actually going to the Brussels summit for, by playing the Tory patriotic card, saying he would fight for the UK national interest in any EU Treaty talks.

Cameron's real concern is the issue of corporation tax and the proposed financial transaction tax – something that could seriously hinder the effective money laundering that goes on in the City of London. The last thing Cameron wants is any bright light shone on the questionable financial practices that operate in and around the City of London. Cameron will be busy in Brussels acting on the banker's and the tax evaders behalf not on behalf of the inhabitants of these islands.

Interestingly enough, the previous New Labour government made much of its light financial regulatory touch, at least until the wheels came spectacularly off the wagon. It's a tad difficult for the Con Dems to make anything positive out of their refusal to take any action over banking regulation (at least until 2019). In the wake of the banking collapse and at a time of real financial austerity when we are all supposed to be in it together, this is pretty rich.

There is a real need to deal on a global basis with the problem of off-shore companies and those individuals who are actively engaged in tax avoidance, tax evasion and / or money laundering. The European transaction tax initiative favoured by France and Germany is long overdue and a small step in the right direction.

What a surprise! it turns out that the UK is at the heart of this problem as it has consciously chosen not to regulate some of its crown dependencies. The scale of the off-shore problem can take your breath away. The Cayman Islands; are currently home to some 12,000 corporations and have a population of 50,000, yet are home to 70% of the planets hedge funds.

The British Virgin Islands (population 22,000) is home to 823,502 registered companies. General Electric paid no tax in 2010, yet made a $14.2 billion dollar profit. Barclay's has 181 subsidiaries registered in the Cayman Islands and paid little UK tax on its worldwide profits. The Dirty Digger's News Corp has 152 subsidiaries in tax havens across the planet (according to the US Government) and paid no UK corporation tax between 1998 and 1999.

So much for all being in it together, if developed countries exchequers lose out then it's significantly worse for developing and underdeveloped countries. Tax dodging costs developing countries around $160 billion dollars per year (Christian Aid). Around $ 1.2 trillion dollars was illicitly removed from poor countries in 2008 (US Integrity Research Centre).

President Obama rightly suggested that the governments of the world actually got together to tackle the issue of tax evasion and tax havens. The US President was entirely correct, if we actually tackled the tax havens, the tax avoidance and the questionable dealings of the derivative traders, hedge funds and the off balance sheet trading then we might go so way towards dealing with the consequences of the worldwide financial crash.

There again, perhaps if that nice Mr Cameron and the other 18 millionaires in the cabinet were to work with other governments worldwide to close the tax loopholes then perhaps we truly would all be in it together? Perhaps not! So over the next few days when Dave (and no doubt the Daily Mail) makes much of standing up for Britain in the Brussels summit its worth remembering that he is actually there on the bankers behalf not ours.