No place for the truth in critics’ war
Friday 24th April 2009, 2:29PM BST.
PERHAPS the best indication of the difficulties this island faces in the ongoing hysteria over damage the Crown Dependencies allegedly cause as so-called tax havens was provided by the reaction to the progress report from Michael Foot, the man charged by Chancellor Alistair Darling to conduct a hostile review into these finance centres.
In his foreword to the report, Mr Foot set out some interim thoughts, including the inter-dependence of the UK and the financial centres and the substantial flows of business from them to the UK, and vice versa.
He also touched on the harm that could be caused to the UK’s dependencies – a crucial word in this context – if the government’s campaign against tax competition cost people their jobs.
What Mr Foot was driving at was what the credible offshore community has been saying for years: this is not a simple argument that low tax jurisdictions are bad, high tax ones good. There is a far more complex chain of relationships and huge volumes of money and business channelled to the City of London as a result.
Predictably, but it was depressing nonetheless, the islands’ most vocal critic and a founder member of the Tax Justice Network found the truth unpalatable and has set about rubbishing the Foot report, the author himself and, perhaps bizarrely since it was what Mr Darling himself wanted looked at, its terms of reference.
At a stroke, then, two things become clear.
Debate on financial centres cannot be conducted in certain quarters on a serious, rational level and it is not only New Labour that has a liking for using blogs to attack individuals on the basis of misinformation.
The reality for the British offshore finance centres is that they are caught up in international raw politics – a grubby arena at the best of times – where the self interest of large territories rather than fact is what matters.
Which is why America isn’t on a grey list despite condoning ‘offshore’ Delaware, whose concept of standards and transparency would make regulators here weep with shame.
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This is a very poor piece.
What ‘truth’ are you talking about? Have you objectively investigated some of the critics’ concerns and come to a conclusion? Or is it simply that you phone up one of the rent-a-quotes and you convey their predictable responses as ‘truth’ to the Guernsey public?
I really don’t see the problem with people questioning what it is we do here. If we are doing nothing wrong then we have nothing to hide. Instead of these feeble put downs, maybe the Press should be asking the banks to open their doors to an in depth investigation in the name of public interest. Surely the public wants to know that we are not a ‘financial pollutant’ in the bigger scheme of things? We get fed up of being constantly bad mouthed but we don’t see any of the institutions provide convincing ‘truth’ either, just men in suits saying the same old thing time after time.
If the national media always portrays us as a bit ‘grubby’, why doesn’t the Guernsey Press do some proper journalism and get to the heart of the problem and prove unequivocally that there is nothing to worry about?
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The criticsim of the Foot terms of reference appeared elsewhere last December, and have been revived by Mr Murphy in the past few days since the Foot document was published early this week.
Comments as in this headline article merely serve to persuade those who are anti tax havens, that Guernsey has much to worry about and the need to hit tax havens where it hurts.
Far better a policy of keeping your head down and concentrating on getting on with the business and making the most of the Brown and G20 tax haven policy that, as it stands, presents opportunty for Guernsey rather than threats.
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Arnald,
This argument that “if we are doing nothing wrong then we have nothing to hide” and therefore we should disclose our business dealings to the media (or to foreign governments for that matter) simply doesn’t wash.
Surely, if we are doing nothing wrong then we don’t have to prove anything to anybody. If our critics accuse us wrongful activities then they should provide credible evidence to support those accusations (something which Murphy consistently fails to do).
As I understand it, in law, the burden of proof rests on the accuser not the accused. Or does that not apply in our case?
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CD
Arnald’s tactic is exactly the same one used by Richard Murphy. They both know only too well that its impractical to “open the books to prove our innocence” to the public. The resulting loss of confidence in Guernsey from clients who are operating totally within the law and using general privacy for fully legitimate reasons would see those clients abandoning Guernsey altogether for jurisdictions who are more respectful of the use of legitimate privacy. It would be economic suicide for any offshore jurisdiction taking that route. Arnald and Murphy are well aware of that and know that it won’t happen, enabling them to continue to attack Guernsey for failing to prove its innocence.
You are absolutely right in stating where the burden of proof lies. Ultimately there is a role for a totally impartial third party (OECD ?) to have access to looking “under the bonnet” of Guernsey’s finance industry in a highly-regulated and controlled manner. Without that, we will always be criticised and we will continue to be unable to prove our innocence. There must be a suitable solution to this conundrum.
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CD
Specifically, I was talking about the stance taken by The Guernsey Press. However, ‘wrong’ activities are those that breach laws. It is the law that campaigners want changed. If the law is not changed then there should be a clear argument as to why not. Whereas we may have got away with it by being under the radar, conveniently, we are not now. All around the world commentators are picking up on how harmful secrecy jurisdictions can be. It is becoming a policy battleground in the elections in India at present. The Shanghai daily recently picked up on the idea.
I believe, to steal the initiative, we should prove once and for all that we do not undertake any of the resource distortive practices that the critics accuse us of. Prove that we do not promote thirld world poverty. Prove that the structures we administer are not being abused by criminals. I am sure we would win business simply for being honest.
Or is that not how it works? Would we lose business because we would be being honest? Would transparency make depositors nervous? Why? What sort of businesses have we got? Don’t they like questions? Why not?
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Yes David, which is why Foot is entirely the wrong candidate for this upcoming review. So the Opinion column is unjustified and unreasonably biased.
Jobs for the boys.
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Good to see David and Arnald locking horns once again on this topic.
My own view on this is that both sides of the story are valid. David provides the tax haven view of defending what exists and is seen a perfectly legal and morally acceptable
Arnald on the other hand presents an equally justifiable argument from the anti tax haven perspective which is morally unaceptable and hopefully will soon be on the wrong side of the law.
Given the vested interests of the Guernsey finance industry I cannot see any mid point being achieved as both cases are at the opposite ends of the pendulum.
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“Prove that we do not promote third world poverty,” says Arnald. “Prove that the structures we administer are not being abused by criminals.”
We, as an island community, have no more an onus to prove these things than we have an onus to prove we are not responsible for the current outbreak of swine flu in Mexico. As CD and David have stated so ably, it is up you, Arnald, and your mate Murphy, to prove these things.
Having had quite a long hard look at your guru’s TJN website, to which you also contribute, I have found not a shred of proof. All I have seen so far is a bunch of allegations from a collection of political propagandists who appear to have set themselves up as judge and jury in these matters.
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Arnald, you mention that the Shanghai Daily recently picked up on the secrecy jurisdiction issue (for which read “jumped on the bandwagon of bashing something that sounds bad but which the journalist doesn’t really understand”). I assume that you are referring to the article for which the link was posted on another thread.
I read that article. Not only was it ridiculously grand in its criticism of an unidentified target, without a single piece of substantiation to show that the situation described actually existed anywhere in the world, but it also bore no relation to the situation of Guernsey (and there was no hint that it was aimed at Guernsey).
If you need to cite authorities like that to support your argument, you are clearly basing your argument on straw.
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Martyn
Isn’t your comment “All I have seen so far is a bunch of allegations from a collection of political propagandists who appear to have set themselves up as judge and jury in these matters”
Aren’t the pro tax haven / low tax jurisdiction supporters also setting themselves up as judge and jury?
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Not really Stephen – the people defending the finance industry are not accusing anyone of anything. So they are not judge and jury of anything.
Arnald makes the point that we should be proactive. To a degree that is right, we should take the initiative and be seen to be playing fair. However, I think that we have done exactly that.
But if you ask the system to prove that it does not cause world poverty, you risk making yourself look like M. Al Fayed asking Prince Philip to prove that he did not kill Dodi and Diana. Lets stick to questions that have some foundation in reality.
And in answer to Arnald’s rhetorical questions, no we would not lose business by being clean (provided we maintain the competitive advantage) – I say that because I firmly believe that the business that we attract here chooses to come here rather than go to some grubby carribean/continental/US haven precisely because we are stable, legitimate and clean.
The business world sees that. If you choose not to, there is nothing we can do.
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TL
The point is that the issue is being picked up by the mainstream in more places than just the US and Europe. Where once it was the preserve of unliked fringe politicians and ‘lefty’ activists, it is now becoming a popular, and probably easy, target for commentators that are reflecting a deep distrust of the hidden machinery behind global finance. The public are witnessing that governments are essentially powerless before the institutions that prop up the global system.
The Guernsey public are not immune to picking up on this vibe. Do the institutions that the taxpayer is funding provide services that disadvantage other countries? We are bombarded with stories about how vital looking after the status quo is important for Guernsey’s future. Maintaining the business is of course important, but at what stage and within which parameters, do the politicans continue the ideology that being in ‘competition’ with other jurisdictions to win the attentions of the rich is providing the best long term future for Guernsey?
Wouldn’t it be in the public interest to know how much of the business going through Guernsey is related to aggressive tax avoidance and not the pithy examples given by some posters around admin convenience? Wouldn’t it be good if the public knew to what extent the shrill critics are incorrect with some independent findings? After all, the whole lot is legitimate isn’t it? What have we got to be ashamed about? It would certainly give the public an angle on the politics needed to provide the foundation for any ‘revelations’ that may be uncovered.
No, on one side you have critics accusing Guernsey of mass murder, and on the other you have the vested interests saying “you can’t prove it”. In these times of general unease towards anything ‘bank-ish’ some well sourced honesty would not go amiss.
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Hi Stephen
You say the tax haven/low tax jurisdiction supporters are also setting themselves up as judge and jury. How is that? They’re not accusing anyone of anything, just defending themselves against outlandish, sweeping and unfounded allegations like the one highlighted by TL.
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Martyn
That’s where you are wrong. Proponents of jurisdictions offering tax ‘competition’ lobby and advertise a constant stream of pernicious lies about the workings of the major countries’ governments. It’s a steady ‘drip feed of animosity’ against social cohesion and progress. The last thirty years have seen a rise in such organisations as the Tax Payers Alliance and the Center of Freedom and Prosperity (one of Dave Jones’ favourites).
If these extremists had their own way then no one would pay any tax and all services would cost at point of use. What do you think the social impact would be? Yet it is these ‘academics’ that hold sway over business because it encourages rapaciousness. The steadier social democratic models may not be as exciting or risky, but they will ultimately deliver more progress to a wider society than any ‘greed is good’ philosophy.
The Establishment is the finance industry here. Anything that opposes its bottom line is roundly derided in public. If that isn’t being judge and jury then what is?
Objective analysis would be far more helpful than assuming that all is good and proper. Because it really isn’t.
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Arnald, I too have little sympathy for the anti tax ‘extremists’, as you describe them, but I see extremists on the other side of the argument too, not least your pal Richard Murphy and his lot.
And talking of the ‘drip feed of animosity’, this could be applied equally to the TJN and its supporters, yourself included. The drip, drip effect of the propaganda emanating from groups like the TJN has led to perception of Guernsey being a place where Russian mobsters and Columbian drugs barons stash their ill gotten gains.
You did it again in this thread with your “Prove that the structures we administer are not being abused by criminals…” The reality is that you cannot come up with a single instance, certainly not in the last 10 or 15 years, where this sort of activity has been shown to have happened. Talk about objective analysis! I rest my case!!
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martyn and TL
Judge and jury is mean as a comment on someone making the case and deciding on its outcome. in this case the defence of Guernsey as a tax haven.
The comment of Martyn “They’re not accusing anyone of anything, just defending themselves against outlandish, sweeping and unfounded allegations”.
Those pro tax haven brigade argue the case as if they are right, similarly, the anti tax haven pundits argue the case as if they are right.
Judge and jury in the wider context.
Both are right given the basis on which their cases are based. Whhether the wider society will go with one side or another is to be seen.
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Stephen – fair enough
Arnald – I see what you are saying and I think I agree with your objective (assuming that is that we be seen as a fair, regulated and legitimate jurisdiction, rather than that we have to stop legitimate business). However, I still do not believe that what you are asking is either possible or reasonable.
There is a huge amount fo business that goes through this island. If we were to try to convince you, the TJN and the Shanghai Daily that none of it affects world poverty to a greater extent than any other capitalist activity, or that the proportion of criminals placing business through this island is no higher than the UK, US, etc, then we would need to explain EVERY transaction that goes through this island. These are private matters. It is like asking every individual inhabitant of this island to open their bank accounts to the scrutiny of the world’s media just because the TJN believes that somewhere in St Peters lives a man who has evaded tax somewhere in the world.
All we can do is ensure that we meet the international standards of business and law, and to make it known that we meet them. We have done that.
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TL
Do you really mean it when you say
“that the proportion of criminals placing business through this island is no higher than the UK, US, etc, then we would need to explain EVERY transaction that goes through this island. These are private matters”
Seems you are saying criminality is ok as long as it is no higher than elsewhere. You are also proving the point that criminality does take place but it is not the business of anyone else.
I don’t think anyone is suggesting that the man at Rocque Poisson should have his bank accounts open to the eyes of anyone other than the Guernsey authorities.
The thrux of the case against tax havens is about the comfort and silence they provide for those who live elsewhere, and use the island to protect their income from what some see as the accoounting to the tax man in other places.
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Good debate
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Stephen -
Of course I am not saying that CRIMINALITY is ok as long as we are no worse than anyone else, it is still wrong. But if we as a jurisdiction are no worse than anyone else, why do we need to prove that we do not have some criminals in our midst? The sad fact of life is that there are criminals everywhere. The fact that there are fraudsters in the UK does not mean that it is systemically illegitimate.
You say that no-one is asking to see the bank account of the man at Rocque Poisson. But that is the essence of Arnald’s request – to throw open every private detail so that the TJN can satisfy themselves that the money is legitimate, that the structure is legitimate and that by some extension of the chaos theory, the butterfly flapping its wings in the amazon does not cause world poverty. How else can that request be answered?
I really think that the anti-tax haven brigade do not understand what happens here and believe that if non-residents are using offshore jurisdictions they are doing so furtively, and “hiding” their income. The reality is nothing of the sort – it is using structures that legitimately and openly place income here.
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Speaking on behalf of the church mouse (as whom I am as poor as) I would like to know what you are all talking about.
In years gone by, I think, rich people would move their capital offshore to invest (? technically no different to actually buying a company in that jurisdiction).
Now, if I understand, companies are doing that with income and avoiding tax on that.
I see a fundamental difference between avoiding tax on capital and avoiding tax on income.
How confused am I?
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TL
I did ask whether you meant to say that “the proportion of criminals placing business through this island is no higher than the UK”.
As it read it could have been fact or just a hypothetical example,although your later comment “But if we as a jurisdiction are no worse than anyone else, why do we need to prove that we do not have some criminals in our midst?” makes me wonder.
So far as to your final point is concerned I would venture to suggest (factually and not hypothetically) that the anti tax haven brigade do know what is going on in Guernsey.
What I do accept is that the pro tax haven squaddies see the same things completely differently to the anti tax haven squaddies.
The difference in views are either right or wrong depending mainly, although not exclusively, whether you are in Guernsey or “on the other side”.
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Stephen – maybe I still have not explained myself clearly enough. What I mean is that criminality exists everywhere. Its existence does not mean that there is anything wrong with the system that they infiltrate – just that detection and enforcement are not 100%. So it is pointless asking Guernsey to prove that its systems are not used by criminals, as there are bound to be some despite all best efforts. That is aside from it being impossible to prove a negative.
What does matter is that we are all satisfied that the systems that are in place are as good as they can be to reduce the amount of criminality that gets through. And since we are talking about how to preserve the reputation of this island, that means ensuring that we are at least comparable to other key jurisdictions. To pass that test, we do not have to be perfect, just as good as the key players.
On that basis, I think that we pass. Our AML requirements are as tight as anywhere else in the world. What more can we do?
On that note, it is worth reiterating that tax evasion is a crime caught by the AML regulations – meaning that if anyone in the Guernsey financial service industry is supplying services to a client who they know or ought to suspect is engaging in tax evasion, then that financial service worker is exposing themselves to criminal liability. So it is false to assert that we are engaging in practices that help people hide their money from home jurisdictions. Unfortunately, the same could not be true of Switzerland, where tax evasion is not a crime…
So if we have systems in place that are judged to be proper by all other leading jurisdictions, what more can we do to answer our critics?
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I am totally with TL on this debate. Proving a negative is indeed impossible.
Our standards here are not just as high as the major leading jurisdictions – they have actually been proven to be higher. Take the US and the UK as examples. We all know about Delaware and Wyoming and we all know that one can acquire UK companies off the shelf with no questions asked within minutes, with no regulation of the trust industry there.
I’ve used this analogy before, but its like a car manufacturer. Just because someone chooses to break the speeding laws by driving his car too fast does not make the car manufacturer guilty of the offence. There has to be a driver. Any finance industry anywhere in the world will attract crooks. The issues are whether (a) we pro-actively seek crooks (which we don’t), and (b) if we do nevertheless attract some crooks how good are we at detecting and reporting them ?
The reality is that we don’t publicly know how many are caught because once a suspicious matter has been reported to the FIU about somebody from another jurisdiction, that process goes through official channels and we may never hear about it reaching the courts. Quite often the client may end up settling a tax liability out of court and it may not just be a tax offence. But we’ve done our job in detecting and reporting it, and after that its out of our control. That process can and does happen, more frequently than many realise.
If we get criticised for condoning and failing to report criminal behaviour then its our neck on the block, and in a very serious way indeed for those responsible locally. It can and does happen. I have first-hand knowledge of some very senior people in the finance industry who have been effectively blackballed from every holding senior positions again within the industry, and where that information is passed on to other offshore jurisdictions to stop the blackballed person moving from finding a senior position elsewhere. Maybe criminal charges could or should have resulted against such persons, but to do so could compromise a conviction in the client’s own country and so in such cases a criminal conviction against the local resident might not be in the public interest. But it does happen and has happened.
TL makes the very valid point that its not the same situation in Switzerland or Singapore or in some Caribbean jurisdictions where tax evasion is not a crime. Therefore clients of finance institutions in those jurisdictions will not be reported for being suspected of evading tax whereas here they would be.
Is Guernsey and its finance businesses 100% compliant ? I’d like to think so but that would be naive. Its definitely in our interests to flush out those who aren’t but that whole process is well advanced and I would predict that there is only a tiny percentage of the level of compliant business which would have existed 10 years ago before the start of the new era of AML reporting and tax information exchange reporting.
But trying to prove a negative just isn’t practical as Arnald and others know only too well.
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No one is saying that Guernsey, within the laws and rules set by the island, is not doing a good job.
The problems arise as as tax adviser Tony Mancini says “This [UK, of course] government has introduced this concept of unacceptable tax avoidance where what you are doing is legal, but still considered to be wrong because you are not paying enough tax.”
I’m sure Mr Mancini realises that the questioning of whether tax avoidance schemes are on the right side of the laws of places other than Guernsey is not new.
Likewise, David, no one suggests that Guernsey seeks out crooks.
Some might find it curious that a tax domain that sells itself as whiter than white doesn’t publish what happens to references to the FIU.
Until Guernsey begins to appreciate that the rest of the world will not always agree with its definitions and interpretations of avoidance and evasion, then this sort of discourse will roll on.
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But that’s the point Stephen, we are not using our definitions, we are using the internationally accepted definitions.
What is happening at the moment is that some politicians are talking about things that are within the current rules but which they don’t like. But it is impossible to adhere to someone else’s view of what is right (particularly when that seems to shift regularly). This is why we have laws. Laws reflect the generally accepted boundaries of behaviour so that people know what they can do and what they cannot. We can only adhere to laws, not to the non-specific soundbites of some under pressure attention-diverting politician.
And as to your comment that no-one is saying we attract crooks, I am not sure that I agree with that. Some of Arnald’s comments allege that we are a secrecy jurisdiction, that our systems are structured so as to allow people to hide from their home jurisdictions, etc. This is suggesting that our very existence relies on allowing people to break the law elsewhere. That is not the case.
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L
Again, its you who assumes that secrecy equates with naughty behaviour.
One of the features of tax havens is the protection it gives through its secrecy and confidentiality laws. only a few weeks ago Peter Niven was quoted in the Press as lauding the privacy of financial details in Guernsey.
No problem with that until the secrecy laws through trusts and other tax avoidance vehicles etc begin to impede lawful tax collection elsewhere.
Tax laws and ideas of tax laws do change. What was acceptable some years ago will be seen as not acceptable today. You will also accept that tax avoidance instruments sold as avoidance by their creators, have been challenged by those who tax the beneficiaries.
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It is not true to say that Guernsey “doesn’t publish what happens to references to the FIU” (Stephen John, above)- The FIU produces a comprehensive annual report containing statistics on all disclosures:
http://www.guernseyfis.org/pdfs/FIS-Annual-Report-2007.pdf
Obviously they cannot put more detailed information regarding specific cases into the public domain.
Nevertheless the level of international co-operation this agency displays is another demonstration of Guernsey’s efforts to comply to the highest standards.
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Stephen –
I equate secrecy with naughty behaviour for the purposes of this discussion, because that is the main pillar of the critcism!!! If secrecy is not naughty, then the critics are even less justified!
But I dispute that we have “secrecy and confidentiality laws”. Please point to one aspect of our laws that means that we are more secretive in comparison to the equivalent rules in the UK.
You then say that secrecy is fine as long as it does not impede lawful tax collection elsewhere. That would be tax evasion, which as we have discussed is illegal and if any individual was supplying those sorts of services here, they would be looking at a jail sentence.
Of course the line between avoidance and evasion has always been open to challenge. But that does not mean that Guernsey is using one definition and the UK uses another. Quite the contrary. That same debate happens within the UK as well when companies and individuals take onshore measures that reduce tax. The issue arises because the tax payer (or their advisers) interprets the rules one way, whereas HMRC interprets them another. HMRC is always playing catch up, issuing new guidance and closing loopholes. That issue is not limited to offshore measures.
Remember that it is the onshore jurisdictions that set the tax rules, not us. Guernsey has no input into how they are interpreted, that is a matter for HMRC and ultimately the UK courts (in the case of the UK). So it is not as if the UK are saying that something is wrong and we are saying it is ok – if an action is found to be wrong in the UK then we have no choice but to abide by that.
But what some people would like us to do is follow some sort of non-specific moral code that does not apply to onshore activities. So rather than follow the law as it applies to everyone else, we have to “not harm anyone else”. Sorry, but I believe in the rule of law – especially when those laws are set by the same people who are complaining.
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David Cranch – your question seems to have gone unanswered, so I will try to answer it.
Yes, there are structures that ensure that income is treated as arising in this jurisdiction. However it is worth making the distinction between real “nuts and bolts” businesses, and investment businesses.
With a nuts and bolts business with factories and employees, you simply cannot shelter income offshore because the management and control is where the employees are – back in the UK, for example. HMRC would tax it no matter what structure was used.
With investment business, you could have investors from all over the world investing into an investment vehicle. You could locate that vehicle in any one of the jurisdictions in which an investor is resident, or you could locate it somewhere unconnected with any investor. Those sorts of businesses will be set up with their management and control here so that the income arises here and qualifies for 0% tax. The investors will obviously pay tax in their home country when they receive a distribution from the investment vehicle or if they sell their investment, but the vehicle has not paid tax in the meantime and so there are more profits to distribute or reinvest.
So yes, investment income earned by the investment vehicle can be located here. The investors however, will still be resident somewhere and will be subject to tax in that country – they cannot get their own personal income to be treated as Guernsey income unless they are resident here.
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The Guernsey taxpayer has paid millions of pounds to promote tax avoidance around the world. Guernsey is a leader in certain structures that only really exist for this purpose. Because of the laws, always lagging behind the changing landscape, it is next to impossible to actually quantify the effect this has on those jurisdictions that lose out. So the critics use models to calculate numbers from any available data. Naturally, then, it’s easy for those being criticised to say “you’ve made it up”, but when asked exactly what the numbers are they will respond “that’s up to you to find out”.
This notion of secrecy being sacrosanct is being abused. If our primary industry was anything else, such as growing, then there would be clear data saying who bought what and where. But when it comes to multinationals setting up subsidiaries to securitise debt in SPVs within labyrinthine trust and cell companies, then mum has to be the word. Why is that?
Surely it’s in the Guernsey public’s interest to know what we are voting for when candidate politicians say “we must protect the finance industry”? The public may well then shrug their shoulders when perhaps the critics’ numbers prove correct and that they are happy that they are continuing to deprive other jurisdictions of tax receipts. It seems a lot would rather agree with the ‘truth’ as spread by the Guernsey Press rather than understand the consequences of our speciality. At least they would be voting with intent rather than through farmyard tendencies.
There is no doubt that Guernsey adheres to the letter of the law admirably. However, a bit like the TIEAs that were written in the economic climate of 2001, are those laws and guidelines applicable with meaning now?
Until people know what is really going on behind the scenes then there will always be critics. There is enough evidence to suggest that the rich multinationals and individuals are using jurisdictions like Guernsey to absolve responsibility in their home countries. That means that jurisdictions like Guernsey are actively interfering in other countries’ social development.
Yet the likes of Dave Jones will say that it is the EU and the UK that are ‘financial terrorists’. Who is right?
Without any meaningful information due to the secrecy in place to protect the rich no one will ever be able to make an informed decision.
Incidentally, the source of Dave Jones’ economic prowess, groups like Cato and the CF&P have proven that they couldn’t have got it more wrong. They lauded Iceland and the Baltic states as model economies, waxing lyrical on their ‘miracle’ growth and expecting them to follow the mythical stages as set up in their incorrect theories. I don’t reckon the public in Iceland will be quoting much Dan Mitchell for a while.
So for now I’ll believe the likes of Murphy more than the vested interest accountancy firms that supply the Guernsey Press editorial with the supposed ‘voice of islanders’.
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TL – we have no public right of access to company accounts, which the UK does have. Not that many of them are up to date, or tell us anything interesting. Still, that’s ONE aspect!
Yet for the Revenue collectors, that isn’t a problem because they can use the TIEA to get information through our tax office – they can get your door kicked in upon request under S.75 of the tax law. That gives them more power in a tax investigation than the local police have in a criminal one.
So I agree that we aren’t any more secretive than anywhere else, and a lot more open than other places. Just because Murphy and his cronies cannot get to the information THEY want – to cause trouble elsewhere, perhaps in attempting to annoy larger corporations – doesn’t mean that HMRC can’t.
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David Cranch – Very! There isn’t a difference in many general respects. It becomes important in looking at the minutae of the various tax laws. Income can become capital by containing the taxable income flows within a shell company – the shares are capital and have an associated income flow (dividends) which may be zero if desired. Alternatively sell the income producing asset, or swap it for something more exotic – say a future right to receive share options or the like. Financial engineering. Lovely. The trick is that each country has a specific and usually slightly different relationship with each other country, so most tax treaties have wrinkles somewhere that could be exploited by the dedicated shopper. In extremis, by lining these relationships up and chaining jurisdictions together and converting income to capital and vice-versa as required, many legitimate millions can be saved, and many hundreds of thousands paid in professional fees, government fees and so-on.
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L’Eree Lad
Thanks for the info re FIU. Fascinating statistics and case studies.
TL
What much of this exchange boils down to is whether Guernsey is as open about the business of its tax avoidance/ tax planning clients as it makes out.
You clearly think it is. I don’t share this view.
Are you suggesting that information about the benficiaries of trust are readily available to the tax authorities in the UK or elsewhere? That is one of the criticisms of offshore tax havens.
You mention the rules concerning avoidance and evasion. Perhaps the understanding would be greater if the term interpretaion were used, rather than rules.
What is amazing, and this is a general comment; is that so many people from President Obama down, are apparenty wrong about Guernsey and its tax haven repute.
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Bob shows how bias affects reason.
The HMRC would not be able to use TIEAs because they would not know, in most cases that have trust and/or cell structures, who the beneficiary of the structure ultimately leads to. Without this fundamental information no request can be made. Only in the case where an indicidual has been sloppy with their tax ‘planning’ would it be useful. He then goes on to highlight how not paying tax becomes a ‘trick’ if you can pay the right people for advice, and then has the gall to suggest that campaigners who are wanting justice and level playing fields are only trying to ‘annoy larger corporations’.
And then people wonder why crtics are lining up to have a pop. Don’t get me wrong, Guernsey is no worse than other places, like the City, but the ‘worse’ is very bad, and since I live in Guernsey then that becomes my point of reference.
Guernsey needs to adapt its industry to cater for non aggressive avoidance vehicles and ethical investment.
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Stephen
A UK-connected settlor of an offshore trust, together with his UK advisors, are obliged to report the creation of an offshore trust to HMRC. Failure to do so is an offence. As a resuly of that disclosure, HMRC know the names of the settlor, the trustee and the stated beneficiaries and are then in a position to ask for whatever information they require. The Guernsey trustees of such a trust are then sent tax returns for completion, and those returns will provide all relevant information to enable tax assessments to be issued.
The HMRC reporting requirement is largely one of self-assessment, and so the Guernsey trustees themselves have an obligation to file those self-assessment returns. If they fail to do so then the trustee is committing an offence.
About 5 years ago HMRC raided an Irish bank-owned trust company in Jersey which had habitually failed to report their creation of hundreds of trusts for UK-resident, Irish-domiciled clients who were “deemed domiciled” in the UK for IHT purposes due to their duration of UK residence. This meant that the 10-year anniversary charge to IHT on the trust assets was being evaded. All hell broke loose and the Irish bank and its trust company got into all kinds of trouble, as did all of their clients. That same onus is on all Guernsey trustees for UK-connected persons, although the degree of compliance required depends on whether or not the settlor of the trust was domiciled or “deemed domiciled” in the UK at the time that the trust was created.
The vast majority of trusts administered in Guernsey are discretionary trusts. The beneficiaries of such trusts have absolutely no entitlement to any income or capital from the trust, merely a right to be considered for benefit by the trustee. The class of beneficiaries is often very wide, covering several generations of a family, plus their spouses, siblings and children and grandchildren. Until and unless benefits are actually granted to a beneficiary there is usually nothing to report to HMRC, although if the settlor, spouse and their own children are not excluded as beneficiaries then in many cases any trust income and gains are deemed to belong to the settlor and are taxable accordingly.
All Guernsey trustees are required to submit appropriate returns to HMRC in respect of such UK-connected persons. Quite often the tax compliance role is undertaken by the settlor’s UK tax advisors who are engaged to do so by the Guernsey trustees. But the self-assessment obligation remains the responsibility of the Guernsey trustees to ensure that it happens.
Very similar rules exist in relation to trusts connected to the US, Canada, Australia and some other jurisdictions although Guernsey’s degree of involvement with such jurisdictions is miniscule compared to the UK.
What’s very important to recognise that many other countries, particularly mainland European jurisdictions based on civil law, do not recognise trusts within their domestic law, and so they do not have specific anti-avoidance legislation in relation to trusts set up by settlors resident in the country, or for beneficiaries resident in the country. In some countries that is starting to change (e.g. Italy and Germany). As a result, the self-assessment reporting regime of the UK is not replicated in Europe. However, because of the lack of recognition of trusts, the initial gift to a trust is invariably treated extremely unfavourably for Gift Tax purposes in the settlor’s country of residence. That is a big deterrent. On the other hand, the gifting of low value assets with significant growth potential enables that growth to be legitimately sheltered and accumulated tax-free in trust structures even with the full knowledge of the tax authorities in the European country. Anything coming out of the trust will be taxed, but if structured correctly there simply is often no tax liability. Those rules are beginning to change as European countries have cause to be more familiar with trusts (i.e. Brits retiring to France and setting up a trust before they become French resident).
However, very crucially, it is clearly the obligation of the Guernsey fiduciary to ensure that all clients take appropriate tax advice in their home country and to take reasonable steps to ensure that the client is complying with ongoing tax reporting obligations in his home country regarding the offshore structure. If the Guernsey fiduciary knows or suspects that the client is not complying in his country of residence then we have an obligation to submit a report to the FIU for suspected tax evasion. Its as simple as that. But its equally important to recognise that in many, many instances there is nothing to report to the client’s tax authorities until and unless benefits are paid to them, totally in accordance with the anti-avoidance legislation of the countries concerned. If those anti-avoidance laws get tightened up then the situation clearly changes, but that’s how it is.
Stephen – the bottom line is that the names of the beneficiaries of trusts are known to the tax authorities in certain countries if their domestic tax laws require that information to be made known to them. That is certainly the case in the majority of UK-connected trusts, but more often than not in other jurisdictions.
Also bear in mind that the fiduciary industry is completely unregulated in the UK, both for trustees and for the trusts themselves. Indeed, it is possible for non-UK connected settlors to create UK trusts for non-UK connected beneficiaries and to have those trusts administered completely tax-free in the UK by completely unregulated persons. Those rules have been tightened up slightly in the past 2 or 3 years but many overseas persons don’t even need to use jurisdictions like Guernsey for an offshore trust – they can in many cases achieve exactly the same by using a UK trust with a UK trustee and still be exempt from UK tax. What do you make of that ?
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I wonder what you Arnald and you (to a lesser extent) Stephen want to see at the end of the day? Are you calling for Guernsey to take unilateral action to go beyond what any other offshore jurisdiction is prepared to do in order to satisfy your warped Utopian ideals?
In which case we all know what the consequences of that will be. A flight of the finance industry out of the island quicker than you can say the words Richard Murphy followed by a bankrupt economy while all the other jurisdictions around the world pick up our lost business.
You mention Barack Obama Stephen but never any mention of America’s internal tax havens of Delaware, Montana and Wyoming. Do you want to see them open their affairs up to all too Arnald?
No, I thought not.
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Stephen – I agree that the difference of opinion naturally depends on one’s perception of what is happening. From what I see first hand, I do not encounter any secrecy beyond that which exists in London – on the basis that a company’s private dealings are just that: private (subject to the obligation to disclose to tax authorities, the auditors and, to a limited extent, the public). No jursidiction in the world requires companies to throw open their management accounts and lists of assets to the public, which is what I assume Arnald is asking for when he draws the comparison with knowing how many tomatoes Farmer Le Noury sold to France.
In answer to your question about knowledge of the ultimate beneficiaries of trusts and companies, then my experience is that we are more highly regulated than in London (having worked in both places). My own personal work involves corporate vehicles rather than trusts, but I believe that it is the same for trusts in that if you want to set up a vehicle with hidden beneficiaries, it is easier to do it in London. The systems here make it easier for our authorities to know all about a Guernsey vehicle, than is the case for the UK authorities regarding UK vehicles. Granted, you don’t get the same tax breaks, but we have stricter disclosure requirements (to the authorities, not the public) when setting up and maintaining vehicles than is the case in the UK.
Good debate, though. I think we can all agree that we would like Guernsey to be well regarded and respected – the difference is whether we think that the criticisms directed our way are warranted or not. The other difficulty is that much of the journalistic and political criticism is non-specific and so it is never clear whether politician X actually means us or not – their criticisms could be valid for Mauritius (for example) but many people reading it will assume that they are also directed at the Channel Islands.
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Martyn
You usually make sensible posts.
Shame that you have to resort to insults such as “satisfy your warped Utopian ideals” to support your particular view.
The categorising of the wish of some for a more equitable tax system as being to “Satisfy warped utopian ideals” is a gem that deswerves wider publication that the Guernsey Press web site.
Those who have to pay exxtra tax to subsuidise the tax avoider and indirectly Guernsey PLC have a right to their views. Such personal and ill thought abuse, simply destroys the credibility of the Guernsey argument.
Still a good disussion with some of the latter posts lending evidence that supports the view of the US Senate and others that Guernsey is one of the better run tax havens.
I would certainly want to see both London and Washington to clear up their internal tax havens. Somehow I suspect they won’t for reasons posted elsewhere soome days ago.
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I am sorry Stephen if I have strayed into areas of insult with my choice of words that upset you so much. The underlying point I am trying to make is that some of those seeking to achieve ‘a more equitable tax system’ (maybe not yourself) seem to be calling on Guernsey to act unilaterally.
I simply don’t see the point in us acting as some sort of sacrificial lamb to get the whole worldwide process started, which is what some within the TJN seem to be suggesting. Thanks for clarifying your own multilateral viewpoint that you want both London and Washington to clear up their own internal tax havens too.
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Martyn
Thank you for your concern over my upset.
On reflection, I can see why you might see things as a Guernsey bashing exercise that requires Guernsey only to change.
As I said earlier and in other posts Guernsey is not seen as the bad girl or bad boy of offshore centres. That is one of the reasons why I wrote in support of the Chief Minister and his courting of the USA at the end of last year.
Whilst the actions of the island would not have satisfied all of Obama Levin requirements I believe that a blind eye would have been turned to these other issues.This is why I would have preferred to see a “keep quite and let the others take the flack” approach
Isle of Man and Jersey are a different kettle of fish. Both islands feature with regularity in features of what is regarded as bad behaviour by tax havens.
However, even Isle of Man and Jersey are more respectable than some of the more esoteric crown dependencies.
And yes, Martyn, I would like Pa Broon of Downing Street to clean them up.
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Arnald- only in cases where someone has been “sloppy” with their tax planning (or worse, have perfectly good planning, but choose to ignore it and evade tax they know is due) should HMRC ever NEED to use a TIEA.
As David points out (albeit from a trustee perspective) we have to make disclosures relating to clients. Any “scheme” such as I outlined above has to be declared to HMRC by any firm of professional Lawyers, Accountants or Trustees that promote it (as a product) to their (UK) clients. HMRC themselves were involved in a sale and leaseback of their own offices to Charles Parkinson’s Mapeley – a Bermudan company, swithching a revenue cost (rent) for a capital receipt (sale proceeds), effectively borrowing off balance sheet to prop up Brown’s ailing economy. If its good enough for the government, its certainly good enough for the rest of us.
We, offshore, have to keep our clients within the law. We don’t write the laws, we leave that to governments. That governments wish to twist and turn on all sorts of matters where they can be seen to be hypocrites, has become apparent in the recent G20 listing of jurisdictions. The absence of the internal jurisdictions of the US and pet “administrative” ones of China leaps from the page. Many countries are not mentioned at all, as this is some sort of progress listing. Presumably, the other half of the world’s jurisdictions will be assessed at some point.
Commerce has become truly global, with the Largest corporations operating in pretty much every country, and arranging their affairs efficiently. That is the job of the directors, whether you like it or not, and is perfectly legitimate.
Government and tax assessment largely remains a national or often regional affair.
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TL,
thanks for your reply of 28 April.
I’m not sure if you understood the essence of my query, which related to the practice of some companies actually avoiding the income tax which you say HMRC (in the case of UK companies) would levy on the fruits of their business. This is done by intricate accounting procedures which pretend that the income arises in an ad hoc company in a low tax jurisdiction.
Maybe you are saying that is not possible in Guernsey, but it is certainly one of the practices that is annoying the UK and EU.
I would like some clarification on this issue because, as I’ve just indicated it is pretty central to the attention being paid to us.
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Bob
It is an absurd notion, even perverse, that a multinational company can set up in one country and avoid paying taxes in that country through legitimate ‘efficiency’ planning. The law needs changing. It’s just exploitation.
If everyone did that then civilisation would implode, so it’s an easy assumption to make that the rules are only there to assist the already rich to get even richer and to absolve their societal responsibilities.
All the time we release literature attracting this type of business we will be targets for increasing opprobrium.
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Arnald – I think that this discussion proves that we see what we want to see. You regard it as perverse that a company should be able to choose between two courses of action (each of which are within the laws of the countries in which they are operating), one of which results in a lower tax bill than the other.
I see that as common sense.
You choose to see that the result of this is the rich getting richer (I think you’ve used the phrase “parasitic sociopathic spivs” before). I choose to see that a company which arranges its affairs so that it pays nor more tax than it needs to will be able to employ more people – especially in these tight times.
Job creation helps everyone doesn’t it?
The business we attract is no different from the business attracted to the Netherlands, or the tax planning services provided within the UK. If what we do is wrong, then a vast amount of business done within the UK is also wrong. But it is only wrong if you don’t believe in the right of people to arrange their affairs within the rules laid down by various governments (not ours).
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TL
Unwittingly I’m sure, you have just made the case for the anti tax havens.
Thankfully, it will be the world outside of Guernsey who will decide on the morality of your argument.
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Stephen – yes, I have set out an argument against tax havens, but only in the same way that a judge in a court of law will summarise the case put forward by the plaintiff, just before he says “however, I am not satisfied that this proposition is right in principle or supported by the facts” ;-)
I am perfectly willing to see the argument against tax havens, but that doesn’t mean that I don’t think that it is misplaced.
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