When I was 17 The Members released a single "Offshore Banking Business", a catchy post punk number which describes in simple terms how the offshore taxation system works. This system is one of the main reasons that Britain's citizens are facing a impending financial meltdown, note I say citizens not companies. Privatisation has meant that utility companies are now mainly owned by foreign entities with shareholders offshore. The main reason for using an offshore company is to hide their identity and obviously to pay low rates of tax. In my current in progress book, "50 things wrong with Britain and how to fix them", Ok that title is a work in progress , I detail how this cycle needs to be broken if as a country we will come out of the other side. By the way offshore taxation is not the number one item that needs fixing but it comes very high on the list.
These tax havens now span the entire world, serving all the major financial and commercial centers. Modern tax havens are still largely organised in three groups. the largest is made up of the UK-based or Old British Empire-based tax havens. Centered on the City of London and , it consists of the Crown Dependencies, Overseas Territories, Pacific atolls, Singapore, and Hong Kong. Also as an aside the amount of Russian money that has been filtered through London is a major casue of concern and this hasn't really been stopped with the current santions on Russia because of their war in Ukraine.
The second consists of European havens, more specialized as headquarter centers, financial affiliates, and private banking. The third consist of a disparate group of either emulators, such as Panama, Uruguay, or Dubai, or new havens from the transition economies and Africa.
By grouping tax havens in this way we begin to appreciate the difficulties, as well as the opportunities, for developing a coordinated international campaign to fight them. The OECD is clearly ill equipped to deal with tax havens, not least as many of its members, including the UK, Switzerland, Ireland and the Benelux countries are themselves considered tax havens. In addition, the financial crisis has weakened the United States and Western Europe, and given greater room for manoeuvre to creditor countries, such as the Gulf States, some of which are emerging as significant tax havens, and Singapore and Hong Kong; the latter protected by China. Nevertheless, the pressure on public finance is intense, and while governments can ill afford to raise taxation, fearing further decline in domestic consumption, recovering any taxes lost through tax havens will be an attractive proposition. The pressure on tax havens, therefore, is likely to continue. My view is that a future government is going to have to go out on a limb, it is going to have to risk the loss of some business coming to the UK but if little tax is paid what is their to lose, Ok maybe PAYE, but it may be a price that needs to be paid. My view would be pretty draconian;
a) make any interation with a business that is located in a low tax area ( less than the newly agreed 15% tax rate ) as an illegal receipt/ payment and subject to arrest/ fine/ imprisonment and 50% taxation deducted at source.
b) a new monthly "offshore taxation" tax form that needs to be submitted by the recipient/ payer with the tax payment above.
c) all assets held in offshore companies subjext to same monthly charge of 5% of the market value per month, failure to file 3 returns in any 12 month will find the asset seized and conficated by the state.
d) A means fof transferring assets from offshore to UK, but subject to CGT and stamp duty.
The UK is clearly critical to any future international efforts to combat tax havens, not least as half-a-dozen of the most important tax havens are dependencies of the UK. The EU is already clamping down on the Belgian co-ordination centers and other special provisions of this sort. And if the EU, the US and China come to an agreement on tax havens, it is more than likely that Honk Kong and Singapore will succumb as well. The Gulf States, meanwhile, with their commitment to Islamic banking, clearly aim at a specialist, regional market rather than the non-Muslim majority of tax haven users.
But what exactly should the struggle against tax havens consist of? Traditionally tax havens differentiated between residents and non-residents; they have tended to tax, sometimes heavily, their own citizens and local businesses, while offering low taxation to non-residents.
The EU business directive has put paid to that, with the result that all countries in the EU, as well dependencies of EU countries must treat residents and non-residents the same way for tax purposes. WAS THIS A DRIVING FACTOR FOR THE FINANCIERS OF BREXIT ?, better read my book.
Tax havens have created systems and regulations that help to hide the true owner of assets deposited in their domains. As long as secrecy is maintained, potential tax avoiders and evaders, as well as money launderers are likely to try to take advantage of these countries to hide their assets. The key issue, therefore, is now secrecy, and the way identities are hidden from view of even governments. We need an internationally agreed code of conduct that ensures transparency of ownership and traceability of assets to their ultimate owners. The UK needs to lead the way otherwise nothing will be done.