Offshore Madness

The 31st of October 2011 is the deadline for submitting your personal tax return on paper, which in the digital age seems rather quaint, a relic of a bygone age where people use fountain pens to write cheques,  denominated in guineas, for life's essentials such as top hats, shooting sticks and steamer trunks (whatever they were).

Nostalgia aside, no one from any era is a fan of paying tax, unless you do in fact work for HM Revenue and Customs when paying tax is more akin to the staff of John Lewis shopping at John Lewis - you genuinely are keeping yourself in a job. Although I suspect tax inspectors do not get a staff discount on their income tax. If they did, they might be more inclined to pick up the phone. That's directed to the Chapel Wharf Area Tax Office, you know who you are.  When I owed you money, I received menacing letters warning that you were going to repossess my left kidney (my favourite one, since you ask) and sell my wife to a sex trafficker. (Strictly speaking the letters they sent me did not actually threaten organ loss or spousal slavery; but they were curt and I know how to read between the lines). Of course when the debt is the other way round mysteriously enough the income tax refund gets stuck, as if the funds were somehow an overweight feline that had outgrown its catflap.

There is, however, one species of cat that has no problems wiggling out of tight spots.  It's a fat one, who receives a special  tax discount not available to the the little people (as the rest of humanity, tall or short, shall now be known). What's more, this type of moggy is well-greased by Her Majesty's servants. You guessed correctly, fat cats are back in the news again: in this case Goldman Sachs for a backroom deal  with the Revenue that avoided a £10 million liability.

Interesting the contrast between the small trader whose VAT receipts are late: he gets the knock and his property seized. But the likes of Goldman have a cozy arrangement that would do an African kleptocracy proud. For those of you that missed this latest banking wheeze, they had set up a Virgin Islands subsidiary to pay bonuses to its UK employees and after a chat with Dave Hartnett, the UK's most senior tax collector, were let off the money they owed. He did a similar deal with Vodafone, who by some accounts owed the Exchequer £6 billion and paid only £1.2 billion.

Scroungers in suits

Judging by the standards of the 25% of FTSE 100 companies who were named and shamed in the Action Aid report this month, the use of offshore companies located in tax havens to avoid UK taxes is widespread. Two prime offenders are Lloyd and RBS; yes state-owned banks have scores of offshore vehicles designed to avoid UK tax. It is beyond parody, beyond politics, beyond belief.

Brand Values 

In a sense, the rampant tax evasion and freeloading by high net worth individuals and corporations, with the supine assistance of accountants and lawyers who betray their own professional codes, would somehow be more acceptable if it were done brazenly, as a colossal 'Fuck You' to civil society. I guess it might not sit so well with their brand values. You would have to ask Barclays, Vodafone and BP what those values are exactly, if they do not include being a decent corporate citizen and paying your dues.

Yet those involved must have some twinge of conscience because they have to couch their immoral behaviour in the veneer of respectability,  so this is not  rampant tax evasion, parasitism and freeloading of the type if displayed by a member of the underclass would provoke The Daily Mail to new heights of indignation.  No, it is tax competition: a form of free enterprise and a bulwark to socialism.

The concept of tax competition

There is little point dealing with the substance of their arguments as there is none. Tax competition means every country must join in a race to the bottom, where you'll find Afghanistan, the country with one of the lowest tax takes in the world. Reform must take place within the context of people and corporations paying tax; evasion by offshore havens undermines the basic contract that a citizen and corporation makes with the state: live here, trade here, pay tax. Those hedge funds based in the Cayman Islands should actually live in the Cayman islands, the Tesco stores located in the UK owned by a Lichtenstein holding company should be relocated there, breeze block by breeze block if necessary.

Growing deficits in developed economies have coincided with an explosion in tax avoidance via offshore activities, with lost revenue accounting for over half the deficit by some calculations. Crack down on benefit scroungers and welfarism if you want, but how else would you describe an individual or multinational who derives all the benefits of UK civil society but avoids paying their dues?

Tax havens should be shut down by old fashioned gunboat diplomacy, using a boat with guns on it. Even though the British navy has been reduced to a canal barge with canon of Napoleonic vintage and a couple of blokes in outboards with cricket bats, they could still handle these offshore jurisdictions. Seriously, what exactly could Jersey do if we decided to send over some marines and forcibly open its books?  Likewise, the French should storm Monte Carlo, the Spanish march into Andorra, if the Germans can't quite bring themselves to invade Lichtenstein, subcontract the job to the Poles if you to get the job done properly.

The law needs to change: if it looks like duck and quacks like a duck, it's a duck. If it looks like tax evasion, then the burden of proof should be reversed so that companies must prove that setting up numerous shell companies in tropical islands that are notorious for laundering drug money is in  fact a legitimate way to structure a business. Likewise, lawyers and accountants who help offshore tax evasion should be held accountable, with criminal charges if appropriate. If a little person dodges his tax, they can face prison, why should it be any different because miscreant is better dressed?

Let's call time on this offshore party at our collective expense.