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Cayman Islands

Tax abuse – global Britain’s greatest achievement?


A report from Tax Justice Network identifies the UK as top of the league when it comes to facilitating tax abuse.  

17th Nov 2021
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Whenever this column focuses on tax evasion, tax avoidance and other similar topics, respondents jump in to defend what is often indefensible.

Nobody argues with the principle that tax evasion is wrong, but many do seem to think that nothing actually falls within that category.

Tax Justice Network, which works alongside the Global Alliance for Tax Justice, presents an annual collection of State of Tax Justice documents, which take a very different view.

Countries losing billions to tax abuse

The 2021 report, published on 16 November will undoubtedly make those in the tax avoidance industry very proud.

They will be delighted to learn that “Countries are losing a total of $483bn in tax a year to global tax abuse committed by multinational corporations [$312bn] and wealthy individuals [$171bn]”.

As the network points out, this would be enough to fully vaccinate the global population against Covid-19 three times over. Instead, the starving and disadvantaged are unlikely to get a vaccine for years, if they survive that long.

Such statistics represent major levels of achievement for those who facilitate avoidance, evasion and, quite frankly, fraud. Expressed in slightly different terms, one imagines that the fees raked in by accountants and other professionals as a direct result will now be reaching into the hundreds of billions, at least in dollar terms.

Some might point out that the OECD decision to impose a minimum corporation tax rate of 15% will help. That is undoubtedly true, but given these figures will be a mere drop in the ocean and doesn’t touch the wealthy individuals.

Indeed, the network is so frustrated at the failures of the OECD to address the issue seriously that it suggests responsibility for setting tax rules must be shifted to the UN, which should establish its own tax convention. Such a view might be connected to an uncomfortable statistic that OECD members were allegedly responsible for 78% of the tax losses.

UK is the worst culprit

Just in case anyone thinks that our own country is in the clear, “The worst culprit among OECD members is the UK, which is responsible for over a third (39%) of the world’s tax loss. The UK is by far the world’s greatest enabler of global tax abuse, which it facilitates through a network made up of British Overseas Territories like the Cayman Islands, Crown Dependencies like Jersey and the City of London. Known as the UK spider’s web, the UK government has full powers to impose or veto law-making in these territories and dependencies and key government positions in these jurisdictions are appointed by the Queen.”

Worryingly for the United Kingdom, if the network had its way there would be national accountability for illicit financial flows and tax abuse suffered by others.

One hopes that Rishi Sunak does not read that section of the report, as it could give him sleepless nights.

There are a couple of other very oft-repeated recommendations.

Excess Profit Tax

The introduction of an excess profit tax on multinational corporations that have benefited from the pandemic. This would include global digital companies and is intended to help cut through profit shifting abuses.

The idea is that multinational corporations would have their excess profit identified at a global rather than national level. This will prevent them from under-reporting profits by shifting them into tax havens.

Wealth Tax

In addition, governments should introduce a wealth tax, which will be directed to funding the Covid-19 response and addressing long-term inequalities exacerbated by the pandemic.

There would be punitive rates on opaquely owned offshore assets and the commitment by governments to eliminate strategies for hiding assets offshore. This writer feels sure that he has read regular assertions by our government that it would introduce measures to address such abuses but has not spotted the legislation going through Parliament yet.

Given that the City of London benefits massively from its involvement, directly and indirectly in many of these arrangements, it seems unlikely that Sunak will do anything to help.

One imagines that he must also have influence over those countries that run the British-controlled offshore tax industry, fsuch as the Cayman Islands and the British Virgin Islands. But once again, it seems unlikely that the will to close what many might regard as a pernicious industry once and for all is ever going to be there.

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By Hugo Fair
18th Nov 2021 00:05

I have sympathy with the ethical standpoint being preached, but there's some rather worryingly lazy assumptions ... viz "One imagines that he (Sunak) must also have influence over those countries that run the British-controlled offshore tax industry."
Why would one imagine that, especially if you remove the pejorative phrase "British-controlled" which "the Cayman Islands and the British Virgin Islands" are not.

[Following the Lords' decision in Ex parte Quark, 2005, it is held that the Queen in exercising her authority over British Overseas Territories does not act on the advice of the government of the UK, but in her role as Queen of each territory, with the exception of fulfilling the UK's international responsibilities for its territories. The reserve powers of the Crown for each territory are no longer considered to be exercisable on the advice of the UK government. To comply with the court's decision, the territorial governors now act on the advice of each territory's executive and the UK government can no longer disallow legislation passed by territorial legislatures.]

There is a far more direct (and frankly disgusting) laxness over things entirely within the control of this country and its government - such as the flow of laundered money from international sources of organised (and state) criminal operations, and the complete lack of cross-checking of CH filings, and the OBN that still runs most audit or remuneration committees in large corporations. I'm sure others could add plenty more examples.

For instance, there's nothing to stop the UK introducing tougher regs to prevent (or at least penalise) ownership of British property or businesses from being transferred to BOTs, along with the taxable profits ... irrespective of what each BOT sets as it legal & fiscal framework ...

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