G8 summit: don’t bank on Britain’s territories revealing all on tax
David Cameron has a delicate line to tread this weekend. He’s going into the G8 summit talking tough on tax yet knowing full well it’s his own overseas dependencies that are the biggest culprits when it comes to facilitating tax evasion and avoidance on a global scale.
And while the territories have all written nice letters to the prime minister promising a new era of openness and transparency, many believe it’s just that – promises. Because to force the likes of Jersey, Bermuda and the Caymans to fully open up would signal their death knell. Sure they would have beach tourism left, but the legions of accountants, lawyers and bankers would soon find themselves idle if the wealthy individuals who banked there believed their identity and the whereabouts of their secret stashes would suddenly appear on a global excel spreadsheet for all to see.
Can you imagine? Oh yes, let me just search for Philip Green to check how much tax he’s paid this year. Or, that funny-named company in Jersey, can I just click on the details and find out exactly who owns it and how much cash is squirrelled away under the bonnet? Sorry, what’s that? For technical reasons some of the funds are held as shares in a separate offshore jurisdiction under another name you say? That’s fine, I can just click on this line below and check out all those gory details too. I mean, come on. Is that really going to happen?
For sure that would be a real game changer if it did, but the task to get the territories to open up to this level of information sharing is gargantuan, to put it mildly. They might be happy to provide names of account holders (those foolish enough to allow their names to be attached to accounts in the first place), but the idea they will peel away the lucrative layers behind secretive company shells to unveil the beneficial owners is another thing altogether.
They might talk the talk about doing it, but talking is one thing, doing is altogether another. Cameron knows this and it’s interesting he’s not even including a demand for transparency around trusts – what one lawyer once described as the “ultimate secrecy weapon”. In Jersey alone, there’s more than £400bn parked in offshore trusts, and across the overseas territories they are the cornerstone of offshore financial structures.
So just how serious is Mr Cameron with his crackdown? For one, it’s the same KPMGs, PWCs, Barclays and so on operating on the sunny shores of Bermuda (being paid to hide all this stuff) as it is operating in the City. So there’s a perverse incentive not to crack down quite so hard. It’s not for nothing London is known as the mother of all tax havens when it has the far flung branches of the City’s best known firms feeding in profits from “tax affairs” offshore.
Our biggest high street banks between them have more than 300 offshore vehicles alone – for their own use! – never mind the ones they set up for others. So to imagine they will over night all sign up to flinging the doors open is – to my mind – totally unrealistic.
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No wonder then that only a handful of those attending Saturday’s meeting have so far agreed to sign up to achieve greater exchange of information between tax authorities. They include the crown dependencies of Jersey, Guernsey and the Isle of Man, while Bermuda and the Caymans appear to be selecting their words very carefully indeed. They all are. Because there is much to lose from transparency.
But there is, of course, much to gain for countries in the developing world which don’t get the taxes they are owed because foreign companies shovel their profits offshore and pay low or no tax at all. And even in the developed world, we’ve all seen the public outcry when taxpayers finally caught on to the profit-shifting shenanigans of Google, Starbucks and Amazon et al. On Thursday, we were in Jersey, where income tax is set at 20 per cent for nationals while foreign companies pay zero on corporate profits and bankers drive round in shiny new Jaguars.
If David Cameron is serious about putting an end to tax avoidance he’ll clamp down on everything. Bank accounts, shell companies, trusts, foundations, the lot. He’ll insist on country-by-country reporting (not say it’s voluntary) so we can all clearly see how much profits are made where and how much tax is due (and that applies equally to Google and Apple, as it does to GlaxoSmithKline and Rolls Royce). Because as he himself says, without going after everything, the bad guys will simply move somewhere else and use another opaque financial instrument.
Christian Aid released an extensive report today detailing hitherto unknown details about the global impact and huge role that British Overseas Territories (BOT) and Crown Dependencies (CD) play in channeling money around the world.
For example, it reveals for the first time that, taken as a total, Britain’s tax havens, including places like the British Virgin Islands, Bermuda and Jersey are now the largest source of foreign money going into the developing world.
This may sound like “good” investment but its not at all clear how this money is generated or whether any tax is paid on financial activities in the developing world. Christian Aid say “While there may be legitimate reasons for using these jurisdictions, there are also potential problems as Kofi Annan has highlighted: “When foreign investors make extensive use of offshore companies, shell companies and tax havens, they weaken disclosure standards and undermine the efforts of reformers in Africa to promote transparency.
“Such practices also facilitate tax evasion and, in some countries, corruption, draining Africa of resources that should be deployed against poverty and vulnerability”.
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