Tax avoidance

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How to beat tax cheating oligarchs

Published by Anonymous (not verified) on Wed, 11/05/2022 - 1:15am in

I addressed a meeting of the European Parliament sub-committee on Tax Matters today, addressing the issue of how Russian oligarchs abuse tax systems to avoid and evade tax and hide funds from view. These were the notes I supplied in advance of my talk to assist the translators. I( guessed correctly that other presenters would go for detail so I did a bit more theory. The notes broadly summarises my opening presentation:

As a result of the meeting I am now supplying the Parliament with more ideas on tax gaps and tax spillover. It was a useful session in my view.

Country-by-country reporting is beating transfer mispricing, as I always said it would

Published by Anonymous (not verified) on Wed, 04/05/2022 - 6:21pm in

As Accountancy Age has reported:

A 49% uptick in the amount of extra tax collected from investigations into large corporates shifting profits overseas is an indicator that HMRC is ramping up its scrutiny multi-national tax avoidance arrangements, according to specialist law firm Pinsent Masons.

“HMRC is now much more aggressive in tackling what it sees as artificial profit shifting, and much more stringent in its interpretation of what makes an acceptable transfer pricing arrangement,” said Steven Porter, partner and head of tax disputes and investigations at Pinsent Masons.

According to new figures from the 2020/21 tax year, the amount of extra tax collected from transfer pricing investigations into multinational corporates increased from £1.45bn to £2.16bn – HMRC’s highest yield on record.

So, why the uptick? Because country-by-country reporting data is available, of course.  I first created country-by-country reporting in 2003. I campaigned pretty tirelessly for it from then until 2015 when the OECD adopted it, very largely as I first proposed it. The aim was to beat transfer mispricing. It is.

I should ask for a cut (that's a joke, by the way).

Sunak: they non-dom hedge fund managers friend

Published by Anonymous (not verified) on Wed, 13/04/2022 - 6:46pm in

Rowena Mason noted in the Guardian yesterday that Sunak has not made many big statements on tax. Nor has he had a lot to say on tax havens.

But as she also noted:

Sunak … brought in a new low-tax scheme that is partly designed to benefit some wealthy non-dom investors, just days before his national insurance risehit millions of working people at the height of a cost of living crisis.

The new scheme – the qualifying asset-holding company regime – specifically mentions fund manager non-doms as a category of people who can benefit by not having to pay tax on foreign earnings through the new vehicles.

The point of the whole scheme is to try to attract asset managers from low-tax jurisdictions such as Ireland and Luxembourg. In the view of Richard Murphy of Tax Research UK, this is a first step towards “Singapore-on-Thames” in a post-Brexit Britain, the goal being to “encourage the flow of funds through a jurisdiction with little or no tax being paid”.

I am, apparently, one of very few to have actually commented on this scheme on the web. Where are the rest looking? The wrong way, by the look of it.

The fight against tax havens was worth it

Published by Anonymous (not verified) on Sat, 09/04/2022 - 6:28pm in

Back in 2o12 I leaked to the International Tax Review that the UK was finally going to crack down on the absence of tax transparency in its tax havens. The story is here.

Why did I get the leak? Because I had spent years before then working to shatter the secrecy in those tax havens that was used to help tax cheats. This blog was called Tax Research UK back then. for a good reason: that was most of what it was about.

Yesterday the FT reported that:

The number of people who admitted not paying tax on their overseas assets to the UK tax authority jumped by more than a third last year, prompted by warning letters sent by HM Revenue & Customs.

They added:

A freedom of information request revealed that 4,443 people confessed to not paying enough tax on their foreign assets to HM Revenue & Customs in 2021-22. The figures were 35 per cent higher than the 2020-21 year, when 3,301 individuals admitted failing to meet their tax obligations on foreign assets.

As they noted, £56.9 million was raised as a result.

None of that would have been possible in political-economic terms without the work of a very small group of tax justice campaigners back then, of whom I was one.

I am delighted we succeeded because remember that not only was this recovered, but vast amounts were legitimised as a result as well.

The very wealthy in the UK really do pay much less tax than they should

Published by Anonymous (not verified) on Thu, 07/04/2022 - 5:38pm in

The Institute for Fiscal Studies has issued a new report this morning which is firmly in their own tax territory and appears to make recommendations that make sense for a change.

As they note:

Concerns about how much income ‘the rich’ have, the activities from which it is derived, and how much tax is paid on it are central to debates about inequality. In part, this is driven by the fact that the share of income flowing to the top of the income distribution has risen and is now much higher than in the early 1980s.

As they add:

In this chapter, we use data from tax records, which provide better information on top incomes than is found in survey data, to set out what is known about who has top incomes in the UK and how much tax they pay.

The executive summary is worth sharing:

  • The top 1% of UK adults received 15% of fiscal income in 2018–19. This is more than flows to the bottom 55% of adults combined. The top 1% share was around 6% in 1980 and 10% in 1990.
  • The majority (65%) of fiscal income for the top 1% of adults comes from employment. (Employment generates 77% of income outside of the top 1%.) Top 1% wage earners work disproportionately in the financial sector, which is very geographically concentrated in London. The financial sector has been important in driving the growth in the top income share.
  • Business income – from either self-employment or from owning and running a company – is much more important in the top 1%, and especially the top 0.1%. It accounts for 21% (29%) of income for the top 1% (0.1%), compared with just 9% for those below the top 1%. The broad composition of top incomes has changed relatively little since at least the early 2000s.
  • The self-employed in the top 1% work disproportionately in professional services partnerships, including large legal and accountancy practices. Mean fiscal income of a self-employed person in the top 1% is £423,000, more than 30 times the UK median. In comparison, company owner-managers in the top 1% have a lower income on average (£294,000), but are much more evenly spread across a range of industries.
  • Taxes on UK incomes are progressive – those at the top of the income distribution pay a greater share of their (fiscal) income in tax than those at the bottom. The top 1% of adults paid 34% of income tax in 2018–19. They paid 28% of income tax and National Insurance contributions (NICs) combined – a substantial increase from 20% in 2003–04. Taxes are less skewed to the top when including NICs because the marginal NICs rate falls from 12% to 2% for higher-rate taxpayers.
  • Income taxes reduce post-tax top income inequality, and have done so to a larger degree since 2010. The top 1% (0.1%) received 11% (4.6%) of post-tax income in 2018–19, compared with 14% (6.1%) in 2009–10. The fall in post-tax top income shares is in part due to policies that raised more tax from the top, most notably through a new ‘additional rate’ of income tax.
  • Average tax rates vary significantly within the top 1%. For example, the average tax rate on wage earners in the top 1% is 42% (49% if including employer NICs). Company owner-managers will be able to access a rate of just 27% on income taken in the form of capital gains – or of 0% if the realisation of gains is deferred until death.
  • There is a strong case for aligning the tax rates on different forms of income, while reforming the tax base so that taxes on business income do not discourage investment. This combined approach would directly improve horizontal equity, and allow more revenue to be raised from the top 1% if desired.

I have written extensively on what those reforms might be. A collection of material on this issue is available here.

Is the Chancellor’s wife really a non-dom? It’s a question needing an answer

Published by Anonymous (not verified) on Thu, 07/04/2022 - 5:19pm in

I have campaigned on domicile related issues ever since I began working on tax justice and have written newspaper articles and broadcast on the issue. I helped advise Ed Miliband on it in 2015. There are 192 posts here on the issue. So I admit the news that the Chancellor's wife is a non-dom is not welcome to me. I have written this Twitter thread this morning which does, however, take the passion out of this and simply asks fair questions that need answers:

It’s been reported that the Chancellor’s wife, Akshata Murthy, is not tax domiciled in the UK. This has been confirmed by a statement issued on her behalf. But I think the statement of facts issued by her is wrong. And I also suggest HMRC could challenge this claim. A thread….

I need to report what a spokeswoman for Murthy has said, which was: “Akshata Murthy is a citizen of India, the country of her birth and parents’ home. India does not allow its citizens to hold the citizenship of another country simultaneously. So, according to British law, Ms Murthy is treated as non-domiciled for UK tax purposes. She has always and will continue to pay UK taxes on all her UK income.” I would have hoped that Ms Murthy could buy advice that was right, but this statement is wrong.

Domicile has nothing to do with a person’s nationality. Nor does it have anything to do with not being able to have a British passport because a person holds citizenship from another country. And non-domiciled status is certainly never given for that reason.

The first thing to note about non-domiciled status is that it is given to no one if they do not apply for it. In that case the implication in Ms Murthy’s statement that she has to be treated as non-domiciled is simply wrong: she is only non-domiciled because she asked to be so.

Second, she can also give up the claim to be non-domiciled at any time. Just because she was non-domiciled when she arrived in the UK as a newly married person does not mean she has to keep the status now. So the fact she’s still non-dom is also a choice.

In other words, the claims made in the statement issued by Ms Murthy are wrong, and as evidence, just because a person has Indian citizenship will never automatically grant them non-dom status in the UK. It might help, but never be enough.

That’s because non-dom status is about where a person’s natural home is. Essentially, it is a test based on the evidence that they are only temporarily resident in the UK because they retain the intention to return to another place, which is their natural home.

There are many ways to prove where your natural home is. Family ties are a big issue. So too is retaining strong ties with the country you claim to be your place of domicile. For example, you own a house there and only rent in the UK because you intend to leave sometime soon.

Making no strong ties with the UK is another way of proving this is not your domicile. Choosing to educate your children in your natural home and not in the UK might be another. So too might holidaying their frequently be a good indication.

Having a source of income in the place that is your natural home helps, but only if you actively manage it.

What the Revenue here think – and legislation now backs this up – is that the longer you’re in the UK the less likely it is that you are domiciled elsewhere. The evidence of your behaviour then suggests that your home is really here.

The law on this relates to what is called ‘deemed domicile’. If as a matter of fact you have been tax resident in the UK for 15 of the last 20 years, you’re deemed to be domiciled here whatever you say. It seems very unlikely that Ms Murthy is at this point, as yet.

But the Revenue can challenge anyone’s non-dom status whenever they wish (if only they had the resources to do so, of course, which is another issue). I suggest that they could do this in the case of Ms Murthy.

She is reported to have four homes around the world, with her husband Rishi Sunak. Three are in the UK and one is in the USA, which is called a holiday home. I have heard no reports of a home in India, which does not help a domicile claim.

The fact that they choose to holiday in the USA and not India does not help either.

And being here for a long time, married to a man whose current career is only possible in the UK is not a good look for someone who claims to plan to leave sometime. As far as I know the children of this marriage are also educated here.

And we know that Ms Murthy is a donor to Winchester School, which shows a commitment to the UK and its establishment, which is often considered a sign of where you think your home might be.

I am not saying that any of these facts are persuasive in themselves. There might be other facts to consider, of course. But could they be enough for HMRC to open an enquiry to ask why she continues to think herself domiciled in India? I think so.

The evidence that as the wife of a senior government minister who very clearly has ambition to further his career in UK politics she is likely to remain in the UK, quite probably forever, looks to be particularly compelling to me.

So, my question is a simple one, and is whether Ms Murthy is really non-domiciled at all now? I stress, I cannot answer the question. All I am saying is that there enough evidence to ask it.

And what I am also saying is that the claim to be non-domiciled is one she has made by choice that she can withdraw at any time (albeit at significant financial cost). In that case I think it her job to justify it, and the statement she’s issued so far does not do that.

I will leave the ethics of this aside. The reaction in the media makes clear where most people stand on that issue. I am just addressing facts here. And I suggest the Chancellor has a duty in this case to get his wife to put the facts on the table or drop her claim that save tax.

Why is it that those who live off financial speculation are taxed so much less in the UK than those who work for a living?

Published by Anonymous (not verified) on Fri, 01/04/2022 - 6:00pm in

My old friend and long term colleague in tax justice and accounting reform campaigning, Prem Sikka, who now sits in the House of Lords, said this in that House yesterday as part of a longer speech on the injustices within Sunak's Spring Statement:

The Government’s tax policies are loaded against work and workers. I will give your Lordships an illustration of how they work and how unfair they are; hopefully noble Lords have a pen and paper handy to note down the numbers I am going to call out. Let us look at a case with two individuals who each have an annual income of £30,000. One is a worker in a factory and the other speculates on shares and makes capital gains. The worker has £30,000 gross income and will receive a personal allowance of £12,570 from tomorrow; that leaves a taxable income of £17,430. This worker then pays income tax at a rate of 20%, which comes to £3,486, and will now also pay 13.25% of national insurance, which comes to £2,309. Their total deductions are £5,795 and their take-home pay is £24,205 out of £30,000 gross.

Now let us look at the speculator, who speculated on shares and made capital gains of £30,000. They will receive a capital gains allowance of £12,300. Chargeable gain—the phrase used—is then £17,700. This is not liable to 20%, as the worker pays in income tax, but to only 10%, so their capital gains tax is £1,770. The national insurance payable is zero because no national insurance is charged on capital gains. The total deductions paid by this speculator are £1,770 and their take-home pay is £28,230, compared with the worker’s £24,205. Why on earth are workers penalised with higher deductions?

Prem is right to ask the question.

Why is it that those who live off financial speculation are taxed so much less than those who work for a living?

In what sort of society is it thought reasonable that this is the case?

What are the ethics that drive this?

Why should we tolerate it?

I am aware of how angry Prem is about this. So am I.

Trust registration starts from 1 September: another barrier to tax transparency is falling

Published by Anonymous (not verified) on Tue, 22/03/2022 - 7:27pm in

In 2005 John Christensen and I wrote this in Tax Us If You Can - the manifesto of the fledgling Tax Justice Network that went on to become the de facto manifesto, then and now, of that movement.

Trusts are a principal vehicle of tax injustice:

  • They are used to hide wealth from tax.
  • Discretionary trusts hidden behind nominee trustees create a secrecy space that is hard to regulate.
  • In common law countries, trusts are equivalent to secret bank accounts. This is a valid complaint of those countries that are being asked to remove their banking secrecy laws.
  • Incredibly, charitable trusts own many of the offshore ‘special purpose vehicles’ that are used by so many companies as part of their international tax planning. This is an abuse of the concept of charity.

Trusts have been widely abused and they clearly need to be better regulated. They serve useful functions in such areas as:

  • The promotion of genuine charities.
  • The protection of children and the disabled who are unable to look after their own affairs.

There is, though, no reason why every trust should not be required to disclose on public record the following:

  • who created it
  • what the trust deed says
  • who the trustees are who the beneficiaries are, and in the case of discretionary trusts any potential beneficiaries listed in the settlement
  • trust accounts

Trusts are given rights and privileges similar in many respects to those of limited liability companies. These rights and privileges should be balanced by a requirement for transparency and social responsibility.

I was therefore pleased to note this in the Financial Times this morning:

As many as 1mn trusts in the UK could be caught by a new requirement to register on a government list, with the risk of fines and difficulties accessing professional advice for those failing to sign up, tax experts have warned.

New rules due to come in on September 1 will require most new and existing trusts to register on HM Revenue & Customs’ online Trust Registration Service.

As they add:

The list will be accessible to people with a “legitimate interest”, including journalists, leading some to worry about an erosion of privacy.

There will be much wailing and gnashing of teeth about this, but if we are to beat offshore secrecy we have to lead the way, which the EU did with this requirement, which we had to adopt last year as a result.

No one thought of doing this until Tax Us If You Can was published. I'll take some credit for those gnashed teeth. This is a step forward for tax transparency in a world that so obviously needs it.

The UK has been corrupted and accountants, lawyers and bankers are to blame

Published by Anonymous (not verified) on Mon, 21/02/2022 - 7:02pm in

Andrew Rawnsley wrote this in The Observer yesterday:

Once upon a time, Britons would have been astonished and appalled to find scandal simultaneously bespoiling their royal family, prime minister and largest police force. We are less shockable now. There’s a good reason, which is that there is much less naive reverence for institutions than there was in the past. There’s also a bad reason for our diminished capacity to be scandalised by scandal. We have become wearily accustomed to seeing the public trust betrayed. Where once jaws would have dropped, grotesque misconduct in public life often provokes no more than a fleeting furore or a resigned shrug. That makes us part of the problem, too. When we expect to be let down, we settle for further decay. The British won’t get better service from their institutions until they start demanding it and so insistently that they can’t be ignored.

I added the emphasis.

I agree with Andrew Rawnsley. As I argued yesterday, corruption is now so pervasive that the blind eye that we have turned to it has now led to the possibility of war.

But it is worse than that, serious as the situation in Ukraine is.

The weary tolerance of tax abuse as if it is normal has led to the corruption of public standards to such an extent that it is normal to think people are going to break rules.

The deliberate provision of opacity, which has become such a feature of UK company law over the last thirty or so years (and Labour is not without blame here) has been accepted as if dirty dealing behind closed doors is acceptable.

The idea that opaque financing is acceptable has led to the presence of think tanks whose funding is unknown on television, providing who knows what causes with platforms for which they need not account.

The idea that Russians can pay small fortunes for tennis matches with the prime minister has become a joke, and not a cause for concern.

That cash can be used to acquire access is considered normal.

Corruption has become endemic in the UK in other words and is a pandemic around the world.

And underpinning it all are the accountants, lawyers and bankers who think that their first job is to undermine the rule of law by finding ways to avoid the impact of regulations for their clients.

When will those pursuing these professions say that this practice is no longer acceptable?

When will we see action by them to promote transparency and not opacity?

When will the avoidance of regulation be considered professional misconduct within these professions?

These are questions that those professions need to answer, because the three of them are at the heart of the degradation of values in public life in UK and around the world.

Credit Suisse: what we need to know is whether there are problems now so that the corruption threat we face today can be eliminated

Published by Anonymous (not verified) on Mon, 21/02/2022 - 6:47pm in

The Guardian and other newspapers around the world are going to town this m morning on the fact that they have another leak from banks that suggest nefarious and tax haven activity. This is the Guardian headline:

This time the target is Credit Suisse. The pattern is familiar, as if there is a routine to these things now. The leak was made to SudDeutsche Zeitung. The data was shared amongst news organisations. A planned release of news followed, starting last night.

Let me be clear that all attempts to clean up banking are welcome to me. As I said only yesterday, if Ukraine teaches us anything this is where our focus of attention needs to be. Cleaning up banking is a vital part of the war on corruption.

I have one word of warning though, and it comes from this paragraph:

While some accounts in the data were open as far back as the 1940s, more than two-thirds were opened since 2000. Many of those were still open well into the last decade, and a portion remain open today.

I have warned, quite often, that tax justice organisations and those who feed off them are now very good examples of the Shirky Principle - which suggests that organisations can perpetuate the problem to which they suggest that they are the solution.

What we know is that there is a real problem in the relationship between corrupt practices and banking, as there remain real problems in accounting and the legal profession. But what we need to do when appraising data is work out what is the problem that needs to be addressed now. My suggestion is that looking at old account opening practices and arrangements long closed down is of little benefit in the case of Credit Suisse. It might let us say that this was a bank with a problem. What we actually need to know is whether this is a bank with a problem now.

In other words, I seriously hope those looking at this data are not going to extrapolate past dirt into present accusations. That will help no one. That the Swiss had a problem with managing tax abuse and corruption is not news to anyone. What we require from this analysis is a solution focus that asks three questions:

  1. What is the problem now?
  2. How big is it?
  3. What can be done to eliminate it?

The last option has to include closing the bank if necessary. The indication that serious action will be taken if problems exist has to now be on the cards. There has been ample enough time for banks to clean up their acts. The only relevance of looking at past data is to prove that they have.

It is now time to deal with current events. We need a world free of corruption to eliminate the risk that it creates for us all, from the threat of war in Ukraine to the threat to democracy in the UK. But let's not muckrake for the sake of it. Let's look for real analysis and real solutions. I hope the newspapers involved in this process understand that this the need.