Lord Hunt is impressed with banking sector
Wednesday 8th July 2009, 2:30PM BST.
LORD HUNT is impressed with the calibre of the island’s banking industry.
He is in Guernsey this week, meeting organisations within the sector as he conducts a review that will help to protect it and keep it successful.
The Commerce and Employment Department asked Lord Hunt of Wirral, chairman of the financial services division of Beachcroft LLP, to review Guernsey banking to help set the industry’s strategic direction.
After well-publicised global problems within worldwide banking Lord Hunt said his job would be to help Guernsey maintain its current position as a first-class financial centre.
The review is set to be published at the end of October and Lord Hunt and his team decided to have an intense week of face-to-face meetings with the relevant authorities within the industry before receiving written submissions from the sector, and then formulating the review.
‘It has all been very positive against a background of some considerable turmoil,’ said Lord Hunt (pictured).
‘There is a determination to build an even stronger future for Guernsey.’
Lord Hunt has already met many of the island’s banks, the Guernsey Financial Services Commission and the Guernsey International Business Association, and will continue to meet with industry representatives throughout the week.
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Well, he would say he was impressed with the banking industry here……..wouldn’t he…….crooks in suits all of them…….
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Pete
Do you get punched often or do you just make such inflammatory comments on internet blogs ? Try repeating that comment at around 6pm on a Friday night in the Swan or the White Hart !
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David
You’ve brightened up my morning – I’ve got this image of a load of ‘well hard’ bankers in the pub.
Perhaps the tourist board could organise a WWF style contest with the bankers taking on allcomers!
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David
I have had fun in the Swan of a Friday. The lawyers, after a few ales, start boasting about their expertise in all manner of tax planning shenanigans. They openly admit that the finance industry in Guernsey could be construed as ‘taking the piss’, their words.
It is an old boys game, all reviews of this nature are done by ex players with vested interests.
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Arnald
Tax planning = tax avoidance = legal. Acting within the law isn’t being a crook unless I’ve missed some rather important change in legislation. Being called a crook when one isn’t a crook is defamatory and inflammatory and likely to result in a dramatic reaction.
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David
Yes, yes, not crooks, relax. Just people looking after their own (who happen to perpetrate the flight of capital from the poor to the rich in order to justify ‘growth’.)
Are you pleased about the automatic tax info exchange?
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Arnald
Yes I am very pleased about the automatic tax information exchange. That’s the way we should have gone originally although I understand why we didn’t do so at the time.
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pete burtenshaw you really haven’t got a clue, who do you think props up the local economy. Who buys the big ticket items? The new cars, the new kitchens. Who gets their houses decorated regularly? Employs cleaners etc etc? Yes the employees of the finance industry. You take that away and the whole island will collapse. Then you can rant and rave as much as you want…… when your signing on!!
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David
Good! Next stop: Drop the secrecy. If someone wants privacy, open an account using their real name instead of a front.
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David
Your “Tax planning = tax avoidance = legal” is too simplistic.
That’s the textbook approach but reality is that tax avoidance schemes do sometimes end up as not acceptable to the tax authorities.
The state of tax planning laws simply encourages providers of tax avoidance schemes to “try it on” with more and more esoteric tax avoidance schemes.
The very fact that they are called tax avoidance means that someone else has to make up the tax shortfall. Sadly, this means more tax payable by those who can least afford it.
Hardly behaving morally is it?
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bcr
Not sure why you’re having a pop at Pete, he’s merely saying it how it is. Having sucked up £1.3T of taxpayer cash to save the system to which we are umbilically attached, anyone has the right to call the industry crooked EVEN IF THE MESS WAS CAUSED LEGALLY.
Because a few people earning lots is great for a small economy like ours, yeah? No distortive effects, no?
No, it’s ok, because Guernsey people can become cleaners.
Phew.
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SJ
Grant Thornton are attracting further opprobrium for the accountancy profession by offering schemes to mitigate tax on City bonuses.
No doubt they will be using instruments in jurisdictions like ours.
Are we proud to be part of that type of unpopular business? Maybe we could promote ourselves as a place to deal arms from? Oh yeah….
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Arnald
Why ? Its nobody else’s business if somebody wishes to uses legitimate tax and estate planning vehicles if all resulting taxes are being paid, all required information is being exchanged with the relevant tax authorities, and nobody is defrauding their creditors etc. via the use of such structures. Why on earth does anybody else such as yourself need to know such information ? Why should you know or be able to know that Sheikh X from the Gulf has got specific assets in Guernsey ? It simply doesn’t affect you.
Stephen
You are entirely free to take the moral perspective. I choose not to. My equally free choice is to take the view that people are entirely free to arrange their financial affairs in a way which reduces their tax burden, provided of course they act lawfully and comply with their tax reporting obligations. That’s what the courts and the legal systems allow.
Developments over the past 12 months have drastically reduced the ability of individuals and corporates to unlawfully hide their income and assets offshore. That’s a totally separate issue as that has always been illegal tax evasion. I say good riddance to any such business which may have previously been here in Guernsey, and have no problem whatsoever with such developments.
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Arnald
I suggest you re-read Pete’s posting. He was specifically calling local Guernsey bankers “crooks”.
Arms dealing is a crime. Tax mitigation is legitimate and is not a crime. For somebody who works in financial services compliance I find it frightening that you are unable, or more likely unwilling, to recognise that
clear distinction.
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David
The argument is that undertaking one of these structures is a privilege granted by society. If they are benefiting from this privilege then the whole of society has a right to know. There are no human rights involved, no special dispensations for the rich, just a code that has been invented by the industry to benefit itself and those that can afford to play the game.
The privacy should only extend to an individual. Then whatever Sheik X does under his own name is entirely his business, but if he does it under Sheik X Enterprises, then I need to know that company’s economic standing for the good of free market trade and the main tenets of capitalism.
Otherwise I can only deduce that the structure is set up to steal money from the taxman in the country that the capital originated using proxy names and secrecy.
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David
Let’s say that we will agree that the intent was to “drastically reduced the ability of individuals and corporates to unlawfully hide their income and assets offshore”
Whether it is true in practice is another matter.
We shall see.
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Arnald
Are you a stooge for Richard Murphy ? Are you actually Richard Murphy ? Looking at this Tax Research Blog that’s exactly what he says !
But its utter rubbish ! You state: “…I need to know that company’s economic standing for the good of free market trade and the main tenets of capitalism”. Why do YOU need to know ? He’s not trying to trade with you. He’s not actually trading with anyone. He has a passive estate planning structure. He is never going to invite you to trade with him. You are not going to approach him with a view to trading with him because he isn’t even trading !It has nothing to do with you. He’s from the Gulf where there are no taxes. So he’s not setting up to “steal money from the taxman in the country that the capital originated using proxy names and secrecy”.
I think you are totally off the mark here, as is Murphy with his all-too-remarkably similar beliefs regarding public disclosure of trusts and companies.
In any event – until and unless it becomes a global standard requirement for ultimate beneficial ownership of companies to be the norm, it certainly won’t happen first in offshore financial centres. The UK and the US don’t even regulate the trust or fiduciary industry, let alone require public disclosure of trust details ! It just isn’t going to happen.
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David
They used to say that about the climate change theory; it’s so absurd, no country will ever start taking action etc etc. Well, as difficult as it may be, tiny steps are being taken, even after the biggest step which was to get the US to acknowledge the unrefutable connection between mankind’s actions and the threat of habitat and resource scarcity through climate cycle disruption.
To achieve a global system of equality within financial systems across national borders is not as simple as breaking it all up and starting again, but by applying pressure to prove that this set up disadvantages the poorer countries, funnels capital to an ever more secluded minority and holds unaccountable influence over democracies, some redress can be achieved.
It is interesting that a vocal group of a few people are suddenly finding their work quoted left, right and centre, especially against the weight of the business lobbies.
I don’t think the ‘bankers’ here are malicious or crooked. It’s a job. It works well for some.
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Ref bonus culture rules
With people like you in the finance industry you will always get bad press and deservidly so. Stop crossing t’s and dotting i’s and get a real job. We all contribute to the islands coffers not just the finance workers.
Unlike you I’ll use my name with this post and not hide behind a name i dreamt up.
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David
as usual your comments run like a lawyer’s defense of the indefensible. Until the offshore centres admit to their part in facilitating the most damaging financial bubble (causing the worst recession for 80 years in the industrialised world), everything like little tax information exchange agreements are just petty little gestures. I hope the EU and US bring about a framework into place which roles back the off balance sheet structures of the originate and distribute model so that there is a clear link between those who initiate deals and where the damage falls if they go wrong. If this damages the economies of the offshore finance centres it will be a very small price to pay for increased stability and a reduction in systematic risk in the world economy.
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David makes me ashamed to be a Guern. It’s the blind ignorance and complete lack of any social conscience that does it.
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Poor ol David, poor ol’ BCR, both so in denial with their selfish,head in the sand, insular ‘ding ding, I’m on the bus’ attitudes (never mind the effect tax ‘shelters’ – shall we say? Is that more palatable for you? – have on the rest of the world – yes, it’s out there), believing all the finance industry double talk that dresses up their greedy, immoral activities as something worthy and keeps their own pockets filled by emptying others.
Let’s hope that your ignorant, socially irresponsible attitudes will soon be a thing of the past, and something the more enlightened future generations will reflect on with pity.
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Rob Roy, very interested to hear how you think offshore centres were responsible for the current financial crisis.
Kevin Dodd, so working in finance is not a real job? I agree with you that BCR’s comments are a little crass, but unfortunately it is a fact that the island relies very heavily on the finance industry and were the finance industry to disappear Guernsey would be in serious trouble.
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“Guernsey finance industry to disappear?” Lord Hunt of Wirral says it has a great future – so does Peter Niven of GuernseyFinance.
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Greg
I don’t understand the connection between wanting a more just world and an understanding of ethics with the demise of Guernsey as we know it.
Aren’t people allowed to question what we do here? Aren’t people allowed to be wary of the business leaders that feed us the lines that, with their help, Guernsey is Utopia?
Do you think there is a lot of sympathy out there for mealy mouthed defences of practices that involve secret transactions away from poor countries into the offshore jurisdiction (including the Londons of this world) merry-go-round, never seen again or never to be used in a mutually useful way.
The ideology behind Roger Perrot writing a letter to the Press calling tax and SS ‘rapacious’ (at 20%!) and deciding that all social needs should be run by charity fits in neatly with this.
That is why some people aren’t happy. Do you think the firefighters got away with lots of praise for causing a few quid’s worth of economic damage? And we are to bow down to the finance industry?
Honesty, that is all, not spin.
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Rob Roy
Its unarguable that off-balance sheet offshore vehicles played a role. Better regulation will undoubtedly address that, and so it should. But that’s only a tiny fraction of the offshore finance industry and is totally different from tax-compliant tax and estate planning for wealthy individuals.
Student Bob and Scarlett
Its neither blind ignorance nor lack of any social conscience. I’m well aware of the legitimacy of tax planning and I know precisely where the line is drawn. I despise illegal tax evasion and am delighted that the offshore world has been brought into line on that front. But I’m not a socialist and I respect the position of those who are.
Arnald
Your repetition of Murphy’s postings on his blog are remarkably coincidental. It very much looks like he has recruited you to voice his opinions in the Guernsey media. Do you have any of your own ?
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David
I’m fairly late into reading Murphy’s blog, my general opinions have always been with me, just on the precise subject of the exploitation of the poor by the rich using financial markets it has focussed my language. But recruitment!?
Tax planning is an industry borne out of greed. The desire for people and corps to not respect the norms of social systems should not be feted. It is legal, but why do you think it’s been kept quiet? If the system hadn’t crashed through pig ignorance would there have been such a focus on Guernsey? Would there have been this mad dash to promote our respectability to the wider world?
Why haven’t we signed any tax agreements with the third world? We have cash on deposit here from various African operations. Do those countries where the mining/exploration is taking place know how much of these company profits are secreted in nominee accounts? If they did have an inkling would they be able to find out the details?
Is that fair?
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I wonder if Lord Hunt asked any of the 1600 Landsbanki Guernsey Depositors who are still owed around £80 million what they think of the Guernsey banking system, Guernsey’s Government and the way the GFSC continually hide behind confidentiality clauses and will not give any straight answers. Not much I would think !
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Arnald
Really ? You and some of your various pseudonyms have been contributing to Murphy’s blog for quite some time now…
Look, there is no doubt that the global financial system needed a big shake-up. In 10 years time we will look back with astonishment at was the norm 20 years previously. That’s evolution and much of it will be for the better.
I can think of no good reasons why we shouldn’t sign tax agreements with third world countries. It doesn’t appear to have been on too many people’s agendas, but signing with the G20 and EU member countries followed by OECD countries, followed by the rest of the world seem very likely in my view.
Do those African countries who have granted mining rights not demand under the mining rights agreements to see audited accounts of the mining companies in order to verify that their rights are being paid at the correct level ?
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David, fine, whatever helps you sleep at night. I’m sure what you do is legal, but is it ethical?
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Arnald, i’ve no idea why you directed your comments at me.
However, it is very clear to see from your posts that you have pretty much zero idea about the majority of financial business that is undertaken in Guernsey!
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Greg, Arnald probably directed his comments at you because you had said, “and were the finance industry to disappear Guernsey would be in serious trouble.” Which is absolute twaddle.
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David, do we know each other???
The point I was making here is that the world of finance is a murky world with highly paid crooks running this murky world. It seems the minute someone gives their opinion regarding this murky corrupt world you and people like you throw your teddies out of the pram. There are many many hard working under paid staff who work within banking here in Guernsey and who earn their money at the end of every month. I apologise to those good staff for putting them in the category of being a crook.
bonus culture rules, Of course we need the finance industry I have never said anything other then that. However, we are in a recession and ask yourself why or are you totally swallowed up with greed. The world nearly collapsed because of these crooks and it’s not safe yet. Millions of people have lost their homes, jobs and businesses but do you give a dam.. People like you have no social conscience and this is why Guernsey’s changed so much. It’s about selfish, money grabbing, keep up and pass the joneses mentality with massive snobbery. The community spirit is none existent here in the island.
Finally, I have the right to give my opnion and I will continue doing this. I don’t profess to represent anyone else’s point of views or opinions just mine and if you don’t like it then don’t read my posts.
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Steven
So you don’t think the mass unemployment which would result from the finance industry leaving the island would cause Guernsey trouble? Maybe you live in a dream world, but I firmly believe the island would struggle to sustain thousands of people on the dole, especially combined with the massive reduction in (income) tax take.
Perhaps you could elaborate why you think it’s “twaddle”, and show how Guernsey is not reliant on the finance industry?
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Pete, I agree with most of your comments, but I do not think the current recession can be solely blamed on bankers. There was some terrible greed in the banking sector which contributed to the mess we are on, but blame most also be attributed to weak governments who should have been raising interest rates to reduce the stupid amounts of debt households were entering into. The consumer must also take some blame for taking on such extraordinary levels of debt.
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Greg
It is the scenario often regurgitated, especially to me, that if anyone questions or mentions anything negative about the finance industry, then they will all up sticks to Singapore or Dubai or somewhere. That is what is absurd (to me).
It would be a failure of the States not to mitigate against mass unemployment, not because people are waking up and smelling a few rats in the pipes.
Anyway, politicians are always going on about how adaptable we are, especially when it comes to adapting the rules for the industry in order for it to make more profit and reduce it’s social responsibilities in the jurisdiction it uses resources in.
Let’s lose the mental shackles and lobby harder for diversification. Having a go at critics does not solve the problems of our unnatural dependency.
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Arnald, i’m not “having a go” at critics. I’m all for diversification, however i’m also all for the States working hard to retain the finance industry in Guernsey, because if the industrry was to pull out then we’d be in a hell of a mess.
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Greg
And I’m for the States to explain exactly what the tax planning industry is and its effect on the wider world, in order for the electorate to be able to support or not support them from a position of knowledge.
Look at the incinerator saga. On one side you have PSD and its consultants maintaining that the plans are ‘emmissions compliant’, yet we have a series of ‘proofs’ showing statistical correlations where the ‘authorities’ say there are none.
If it can be proven, short of ideological diatribes, that Guernsey’s industry is a net contributor to global aspirations, then we should fully endorse it as an electorate. My pessimistic view is that the public are generally hoodwinked by the lolly and so do not care about increasingly in depth analysis of global capital trends showing the reality of how the rich world systems profit from the poor.
Honesty is all.
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Arnald, I think you’ll find the vast majority of people don’t really care about what you describe as “global capital trends” and perceived tax injustices. The main reason is that most of the stuff sprouted by Richard Murphy et al is far too left wing for the vast majority of the electorate. Also, people have issues that are far more important to them to be considered first.
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Greg
There is no doubt that folk don’t care. Until fairly recently the actions of legal cattle farms in the amazon, or the hardwood industry, or the soya industry – all very lucrative, ‘wealth generating’ and job creating – were widely ignored and worse, seen as necessary for global markets.
There are now no doubts that the destruction of the world’s rainforests has increased risk to the human population at so many levels it becomes an impossibility to contemplate mitigating that risk.
People are now questioning the validity of the claim that this type of ‘wealth generation’ is necessary at all.
I could similarly analogise all manner of business where once it was acceptable as an ‘economic driver’, slavery for instance, until someone actually bothered to look what it actually entails, and then made noises to clean up the issues.
Food retail in the UK, again until a hundred or so years ago, any old rubbish could be added to foodstuffs to increase profit, and most likely increase the consumer’s risk of dying. ‘Do gooders’ campaigned and the posions were removed.
What makes people SO sure that our industry does not have similar deleterious effects?
Well, the answer is that we don’t care, so it doesn’t matter as long as I can buy a new car every 18 months.
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Peter, I like your robust response to criticism of your original post.
It was Nigel Lawson who said he treated all businessmen as crooks until proved otherwise. Not a bad maxim to go with. Mind you I think it had something to do with one of the City’s top fund management group’s ability to loose nearly all Mr Lawson’s investment portfolio in some disasterous trading!
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Pete Burtenshaw
I completely agree with you – even if nobody else does.
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HA this is hilarious!!
Obviously as most of these comments are in office hours, none of you are working to better the current economic crisis!!
Good work blaming others though!!
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I’m not an expert on finance and I don’t know the fancy words for all the bits involved in tax avoidance, but I do know that it basically involves Guernsey helping relatively (and sometimes disgustingly) rich people to stay rich, sometimes at the expense of people who are less rich. Obviously, despite it being legal now (and who knows how long it will be legal for), it’s still not very moral, and it gives Guernsey a bad name. We all know it.
ANYWAY, I have mixed feelings on the issue because some of my friends rely on the finance industry for their income. But it seems to me that they’ve come to rely on absurdly inflated incomes, and that Guernsey is scared to make moves towards a potential better (if different) future because we’re all terrified that the finance industry will leave and we won’t be quite so rich any more. Since when did we become so dependent on massive incomes? What’s wrong with being like everybody else and working hard for a modest living?
I have always thought that you should draw the line somewhere with how much you allow yourself to want, because if you don’t, you’ll never be happy with what you have. I draw the line at wanting a roof over my head with a kitchen and living space (rented or owned, it doesn’t really matter) and being able to afford to eat comfortably and go out once or twice a week to do something fun. If I have children, obviously I’ll want them to be comfortable too, but not spoiled.
Why are we relying on the finance industry to give us more than this? It looks greedy because it is greedy.
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Ellie
Very nicely put.
However, it is not an argument that will wash with the likes of David because of a core misunderstanding on what success and progress are. All this lifestyle promotes is stress and competition with one’s peers. It will all end in tears.
But a few people will do very well and those are the people that control our lives.
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Arnald
Barely worthy of a response, but I suspect there are many who would prefer the lifestyle which “promotes stress and competition” with the one which results in no jobs, no income, widespread bankruptcy, property for sale at fire-sale prices with no buyers with any jobs to buy it, a derelict island with no means to support its population either now or in the future, and all young islanders leaving to seek job opportunities elsewhere.
But hey, Arnald, you’d be happier wouldn’t you ? That seems to be the sort of Guernsey that you want.
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David
Are you calling Guernsey derelict without your presence? Are you really so full of self importance? Are you so sure that Guernsey wouldn’t adapt?
I haven’t said those things at all, David, but it is extremely telling of the mentality behind the finance industry here that such a recourse is the best you can do.
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Arnald
Look around you. Wake up and smell the coffee. What percentage of Guernsey’s GDP comes from financial services ? How long do you think it took to build that up ? How long do you think it would take to replace it ? Who is going to finance Guernsey’s infrastructure until the finance industry was replaced if you had your way ? Even if we did adapt, it would take decades to get back to even where we are today, while the rest of the world moves ahead. Who would even be living here in say 20 years time ? Our children would all have gone elsewhere to find work. Face facts – the finance industry currently funds Guernsey’s infrastructure whether you like it or not, and has done for the past 20 years.
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David is showing classic signs of having contracted ‘Masters of the Universe Syndrome’ – the disease that got the world into this economic mess in the first place, and for which there is no known cure.
Remember everyone, we owe our very existence on this planet to banks.
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Some really good stuff on this post. And some utter rubbish.
Can you, David, tell us if you think tax avoidance is morally acceptable?
We must now try to create more diversity in our economy because I for one am very uneasy about relying on an industry that is morally corrupt ( but VERY legal, yes we know David).
Guernsey would recover if the finance industry left.
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Well said Cliff. Trouble is the finance industry stifles diversity which then leads some to suggest we can’t do without them. Which like I said earlier is twaddle.
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Cliff
Yes I do happen to think tax avoidance is morally acceptable (and of course totally legal) although at the extreme or more aggressive end slightly less so. I would stress that I abhor tax evasion which is illegal and totally unacceptable. Governments introduce specific anti-avoidance legislation and have a wide range of tools open to them to close tax avoidance loopholes at any time if they so wish. Often they decide not to do so. However, much of Guernsey’s industry is not even about tax avoidance, let alone tax evasion. Prime examples are the fund and captive insurance industries, while many fiduciary structures are primarily concerned with estate planning rather than tax planning although of course Guernsey’s tax regime for non-residents plays a vital role alongside estate planning.
I agree that we must diversify our economy and it would have certainly been better to start doing this 10-15 years ago. The big problem is that there are no obvious land-based industries which will provide a fraction of what Guernsey’s finance industry generates. The export of tidal energy power to France is the one possibility out there but all seems to be very quiet on that front. The sooner we get on with that, the better.
We cannot make things and export them from Guernsey because the high freight cost of importing raw materials and exporting finished goods makes us totally uncompetitive. This is one of the main reasons why the export of high value added financial services is so ideal for Guernsey. Many highly-respected brains have been trying for years to come up with new alternative industries for Guernsey and have, quite frankly, drawn a blank. An island of 62,000 people which is surrounded by an expensive stretch of water doesn’t have a lot going for it commercially without a finance industry in this day and age, but tidal energy holds the key.
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David
“Yes I do happen to think tax avoidance is morally acceptable”
It is to someone who is lacking in them.
Reminds me of a scene out of pirates of there carribean.
“take what you can and give nothing back”
unless it`s illegal of course.
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David
My Samsung plasma was assembled in Malaysia using parts manufactured in Germany, Korea, Republic of Ireland, Australia and many other countries so I do not accept your arguement about manufacturing (Intersurgical manage ok I think).
Governments are legislating against tax avoidance schemes all the time. Are you telling us that one day you can find something morally acceptable but the next you would “abhor” it? If yes I think you are confusing morals with something else.
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David
Would you count the burgeoning PCC and ICC industry as ‘aggressive’ tax avoidance instruments?
After all, why bother?
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bcb
I happen to find lawful tax avoidance morally acceptable. That of course is my right. You don’t. That of course is your right. Sounds fair enough to me.
Cliff
I don’t understand your first paragraph. What has that got to do with the economic viability of manufacturing and exporting from Guernsey ? Just how many manufacturing companies choose high-cost Guernsey over low-cost just about anywhere else to produce goods ?
Yes, governments are legislating against tax avoidance schemes all the time, just as they have done for the past 100 years or so. Nothing new there. You haven’t read my earlier posting properly. I said that I abhor tax evasion, not tax avoidance. Once a legal tax avoidance scheme is outlawed it becomes illegal and so to continue with it becomes tax evasion. Until then it is tax avoidance and that is legal. That is not confusing morals with anything else. My morals are crystal clear. I don’t and won’t break the law. I can drive at 35mph in a 35mph zone and am not breaking the law. If the speed limit in that zone is then reduced to 25mph it gives me no moral problem to think about all the times when I previously drove legally there at 35mph.
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Arnald
Just like other instruments, it depends entirely on how they are being used and promoted and whether the resulting tax reporting obligations are being complied with. Some are being used and promoted far more aggressively than others. Its rather like owning a fast car. As far as I know its not obligatory to drive it fast.
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David
Until a few decades ago it was lawful to segregate blacks in the US. Previously slavery was legal. It is legal now for a multinational company to set up in the third world, exploit the workers and then treat the profit as if it originated in a tax haven.
This is not a Guernsey specific problem, of course not, but until the law changes to place fair value on transactions regardless on their location and that the relevant tax is counted where the money is made, then we will forever be associated with spivs making cash for themselves whilst the rest of the world goes to pot.
As for the secrecy issue which most irks the critics (tax levels should be determined by local democracy and not be interfered with by external forces), if someone wants privacy then why not use the existing laws that protects accounts opened in private individuals’ real names.
If someone wants to set up a company or any other structure to handle their affairs then all details should be recorded for access to whoever needs it.
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Arnald
You have just shot your arguments in the foot.
“It is legal now for a multinational company to set up in the third world, exploit the workers and then treat the profit as if it originated in a tax haven.”
This is an incorrect statement. If the workers are in the third world country then the third world country will tax the profits that are generated there. The company, regardless of where it is incorporated, will be treated as tax resident in that third world country (unless that country has chosen not to adopt the “normal” tax residency tests). The solution is in the hands of the third world country, not Guernsey.
A lot of the criticism of tax avoidance is based on a misunderstanding of what it actually is.
If I live in the UK and have size 5 feet so that I could fit into childrens’ shoes, and see a pair of trainers that come in an adult model and a childrens’ model but are otherwise the same, am I morally obliged to buy the adult version so that I pay VAT rather than the childrens’ version? Of course not. No-one is morally obliged to pay more tax than the system and the law requires them to do. If you have a choice of ways in which to conduct your affairs within the law, then you are morally permitted to choose the route which incurs less tax. You are not stealing from anyone, you are just choosing how to spend the money that you earned elsewhere (and will, in course, spend somewhere else to someone’s benefit).
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The tax haven apologists are doing a splendid job in making Richard Murphy’s case for him by showing the lack of morality of tax havens.
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that is a very glib statement Stephen. Exactly what is the alleged immorality that you are referring to?
Please be specific.
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Arnald
You have your own socialist views about what’s right/wrong and moral/immoral. That’s your choice. I don’t happen to share the same views. Tax mitigation is about using lawful planning techniques.
Please elaborate on your last paragraph. It’s spookily close to Richard Murphy’s definition which is rather a coincidence of course. How would you differentiate between those who rightly “need” access to the details of companies and those merely “want” it for nosiness reasons ? Where do you draw the line ? Would you want details of your personal finances pinned to a public notice board ? It might not bother you if you don’t have any wealth, but it sure does worry those who have. As far as they are concerned the tax authorities are entitled to the information but Joe Bloggs from the Guardian certainly isn’t.
Stephen John
Lawful tax mitigation is at the heart of international and offshore tax planning and always has been. What’s new ? What Murphy has achieved, and I have no problem whatsoever with it, is to assist enormously in eradicating unlawful tax evasion, which of course is immoral. But the last time I checked tax mitigation was perfectly legal if the planning is carried out properly and duly reported to the taxpayer’s relevant tax authorities. That’s where I have a problem with Murphy and his ilk. By all means stamp out tax evasion as that has always been illegal. But trying to deem tax mitigation or avoidance to be illegal is most unlikely to succeed.
Let’s be realistic – socialists are never going to view tax mitigation as acceptable. So be it. The world would be a dull place if we all had the same views.
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David
Don’t make the mistake of assuming those against tax avoidance are automatically socialists.
Many socialists are avid tax avoiders.
Those with a social concience see tax avoidance such as the Resolution scenario, and proposals to pay bonuses three years in advance to avoid the 50% tax rate, as anti social.
WShat it means is that others have to pay the tax those who could afford to pay avoided. Some would see this as selfish and greedy. I accept you see it as the norm.
This is very different to being a socialist.
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TL
No one should pay more tax than they ought to according to the laws in the country of residence. But before the cash reaches the owner (in effect), it should be taxed in the country it was realised.
Do you really believe that multinational companies (and those individuals wealthy enough to play the game) are not using every legal and accounting rule under the sun to minimise any tax cost, anywhere?
Are you really telling me that the concern for poor countries losing significant proportions of their tax take to rich countries’ economies (using instruments invented by the industry and protected by the legal and accounting boards that contain members from the legal and accounting firms that profit the most) are barking up the wrong tree and the black holes in the accounts must be something else?
Anyway, it is legal, and Guernsey is good at it, we are told. For that reason it is right the government of a jurisdiction like ours defends our position in the outside world, at least if the representatives have been elected on the promise of doing that specifically, rather than the usual “try my hardest to do what’s best” and then research the subject by reading the Daily Mail. And that’s the two issues for me: is the Guernsey public being truly democratically represented when a political team go out and try to lobby and cosy to others that our primary industry is harmless money multiplying, and do the politicians research the industry here, that generates a good chunk of the revenue they get to allocate.
Awareness of the outside world didn’t used to be important for Guernsey until quite recently. We are now a ‘player’ with some influence on other countries’ operations, by default. Shouldn’t we know exactly what that influence is? Could we find out?
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David asks
“How would you differentiate between those who rightly “need” access to the details of companies and those merely “want” it for nosiness reasons ? Where do you draw the line ? Would you want details of your personal finances pinned to a public notice board ?”
You know the answer! If my company wants to trade with another, it would be good practice, would it not, to be able to have as much detail as possible about the owners/directors’ other companies to see if their business methods and accounts are suitable for my company to deal with? Could I find this information out if a company was structured in a way that invokes the laws of a jurisdiction that offers secrecy? Would that not then introduce a large element of risk into my dealing? Would this not affect the market, ultimately?
It just doesn’t tie in with capitalism. It is inefficient and biased. I’m not sure why you’d have to be a socialist to appreciate that. The fact is, people call themselves capitalists and bang on about rights for wealth, when really they mean greedy. Of course those that service them will say otherwise, but as David says, vive la difference.
How can anyone have faith in a system where large chunks of it fall out of sight?
Individual privacy is entirely different, but if you form a legal structure to privilege you to certain perks, then secrecy should not be one of them.
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Arnald – some valid questions there at the end.
I agree that income should be taxed where it is generated and all tax systems that I am aware of work on that basis. Are people barking up the wrong tree about depriving the third world? Quite possibly because I have seen that statement made on this forum many times but no-one has actually provided details of how it is supposed to happen, until you posted your example of exploiting third world workers.
If it happened as you say in your example then I would agree that the third world country should be taxing the Guernsey company in that instance. But my understanding is that it would do so because its own tax laws would be expected to say that the presence of an income generating operation in that country would make it liable to local income tax. If the laws do not say that (maybe because the laws are as undeveloped as its economy) then the country can bring its laws up to speed and make the company liable to local tax.
Some critics seem to think that using an offshore vehicle means you do not pay tax elsewhere. That is not true. It just means that provided that you are very careful not to have a taxable presence elsewhere, or to have management and control located elsewhere, then you will only be subject to the offshore tax system. That does not work for “real” physical businesses. It does work for investment structures which can be located wherever the directors are willing to travel to in order to hold their board meetings (which, unlike “real” businesses, is the only tangible action of the company).
So are investment structures depriving other countries of tax income by locating themselves offshore? Not in my view, since they are easily mobile and so who are they depriving? If you have an investment company with 20% UK investors, 15% French, 20% US, 10% Australian, 15% German, 20% Norwegian, there is no moral argument that says that they must chose to subject themselves to the tax system of one of those countries rather than the tax system of an offshore centre. And remember that when the untaxed profits of the company get paid out to the investors, the local jurisdictions will claim their tax then.
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Stephen
Not being a socialist I confess to being somewhat ignorant of the way that they think or operate.
But no I don’t see being “selfish and greedy” as being the norm (your words) at all. I see paying no more tax than what one is legally obliged to pay as the norm, a long-established principle which has held firm for close to the last 100 years in the English courts at least, and as a result throughout most Commonwealth countries.
And paying bonuses 3 years in advance to avoid the new 50% rate is what I would consider to be very aggressive tax planning and unlikely to succeed. Its also foolhardy as the employee may no longer be an employee in 3 year time to earn it !
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Arnald – in reply to your reply to David about secrecy. I am not sure what this has to do with offshore centres.
The information that you seem to want in relation to companies is no more available in the UK. The obnly difference here is that the Companies Registry information does not show registered shareholders – but in the UK you can use a nominee as the registered shareholder and so the public has no idea who the real owner is.
Guernsey is no more secret than the UK. In fact, my experience is that the authorities require greater disclosure (to them, not the public) than in the UK. So the charge of secrecy is misplaced.
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Arnald
I’m increasingly convinced that you are just cut and pasting from Murphy’s website as the coincidences are staggering.
As you well know (or should know, given that you are apparently a compliance officer with a local finance institution), a massive majority of companies registered in Guernsey or administered here are not “trading” companies at all. They are investment holding companies who don’t trade at all with third parties. The chances of them wanting to trade with you are non-existent, likewise the chances of you wanting to trade with them. They hold cash or an investment portfolio or a property portfolio – they aren’t interested in touting for Arnald’s business, which rather blows your argument out of the water. Why on earth would you need to know anything about a private, passive investment holding company which has no plans to trade with you or any other members of the public and has no plans to raise extra investment from the public ? It has absolutely nothing to do with you and if you had access to its accounts it would be of no use to you unless you were intending to use it for malicious purposes. So what if Mr. X, residing in Hong Kong or Dubai, has $10m in a Guernsey company which holds his personal wealth purely for estate planning purposes (for those who don’t know, the Hong Kong tax system formally exempts foreign income or gains from Hong Kong tax, so massive sums of Hong Kong wealth are held, totally legally, in offshore structures). What possible relevance does that have to you or to anybody else if he is complying with everything that he is required to comply with in all other jurisdictions of relevance ? Its simply none of your business and you have no need to know.
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I genuinely wonder if Lord Hunt would still be impressed after reading these rantings of the finance apologists??
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On the basis that Lord Hunt clearly actually understands what the finance industry does (unlike many of its critics), I am sure that he would not consider anything on here to be a rant from a finance apologist. Which bit are you referring to?
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David
You are fixated with Richard Murphy. He isn’t saying anything different to a number of other commentators, from hacks to US senators. Just because his blog also includes some ‘socialism’ doesn’t make the essential critique of the finance industry – or rather the way it is overseen and the way it acts – as it being detrimental to social progression for the majority.
Similarly I could say to you that you are just cutting and pasting tired repetitions from the elite who wish to preserve their unearned power. Because you are, and it would appear that even those less sensitive than me are noticing.
TL
I do keep saying that the issues are not just Guernsey’s. I also keep saying that we do what we need to do very well. But I’m sorry, I can’t buy your rosy precis of how multinats and the rich operate. It is counter intuitive to the reality. And since I live in Guernsey, it would be hypocritical of me to constantly talk about anywhere else, wouldn’t it? After all, Guernsey finance people and politicians are always telling ‘outsiders that don’t know what we do’ to stop interfering.
I’m glad you think that third world administration is up to the job of making multinational companies comply with their tax laws. I can’t imagine why those multinationals wouldn’t want to not try and pay tax there as opposed how they hardly pay any tax anywhere else. How do they do that? Because according to you they do pay their full share.
Prove that Guernsey isn’t facilitating the poor getting poorer. You couldn’t if you tried. Why is such a fundamental question not answerable?
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Student Bob
As TL correctly states, please rest assured that the UK knows exactly how our finance industry operates.
Arnald
I stand by my assertation of your repetition of Murphy’s views. I follow his blog very closely. I see his views posted on there and then “your” similar views follow on this blog. I also see your postings on his blog. Quite a coincidence isn’t it ?
And I don’t agree at all with your comment about TL’s comments re. the multinationals and the rich being “counter intuitive to the reality”. It rather suggests that TL is much closer to the reality than you are, but of course that rather disrupts your agenda. If you are seeing anything to the contrary at your employer as first-hand evidence then you are clearly working for the sort of organisation which shouldn’t still be operating here.
Like many others with a socialist outlook, you seem to think that paying more tax than is strictly necessary is wrong. TL’s point is that they pay what is due under the relevant tax legislation, but that doesn’t mean that they cannot or should not structure their investment so that, perfectly legally, they may pay less tax through one structure than by another structure. Tax, after all, is a business expense, and shareholders in companies are interested in maximising post-tax returns, not pre-tax returns. That’s a fact and always has been, and is right at the heart of the conflict between left-wing and right-wing regarding the rights and wrongs of taxation systems. You and others openly attack the role of the Big 4 accountants in advising on structures which mitigate a company’s tax liability, yet there is no doubt that the same Big 4 would be negligence in its obligations to its client (the company and its shareholders) if it failed to advise the company to mitigate its tax liability. Even if the directors of the company wrre happy to pay more tax, the shareholders almost certainly wouldn’t be, and that seems to be an unresolvable problem.
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Arnald
So in your view a third world country is being deprived of tax because its own tax system is not up to the job of enforcing tax collection. I am all for a global social conscience but it is not our job to do their job for them. If they cannot collect taxes that are due to them then you cannot blame the developed world. Sending a tax bill to the factory of a multinational company is hardly rocket science.
You then ask me to prove that Guernsey is not facilitating the poor getting poorer. I think that you are intelligent enough to know that you are asking the impossible, despite the pretence of your following sentence. I could ask you to prove that the ripples of air caused by the flight of a butterfly in the amazon did not cause Hurricane Katrina. Why can you not answer such a fundamental question?
So far, you have not provided a single workable example of how offshore structures deprive third world countries of tax revenue. Provide a genuine example (hypothetical or real) and we can discuss it.
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David says “Like many others with a socialist outlook, you seem to think that paying more tax than is strictly necessary is wrong”
The other, and more unpleasant side is that tax avoiders are happy to see others less well off than them, pay the taxes they ought but avoid paying.
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Stephen
If you had said “tax evaders” rather than “tax avoiders” then I would certainly agree with you.
But what is the tax that somebody “ought to be paying” ? Is it (a) the maximum amount of tax which the transaction might generate, or (b) the lesser amount which the law permits them to pay by lawfully arranging their tax affairs in such a way that they don’t end up paying the maximum ? The courts for generations have decreed that its the latter, but socialists of course wouldn’t agree.
Do you claim a tax deduction for mortgage interest or for using up your full allowance of pension contributions so that your income tax bill is reduced as a result ? It is of course laeful, but please explain to me how that isn’t “tax avoidance”. Surely a socialist would decline to claim such tax allowances and simply pay the full amount of tax which would be due if such “tax avoidance” was not undertaken. Seems to be to somewhat hypocritical otherwise.
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David
In the same way that you find it impossible to break my dogma, I am incredulous at your lack of vision.
A burgeoning industry around tax avoidance can only mean that tax is not being used in the countries it is democratically elected to be charged. A global industry is sucking the wealth out of nation states in a secret and undemocratic fashion.
Your other examples relate to domestic allowances, not cross border.
While we can laugh at the faults of bigger countries, maybe we should feel a bit responsible at their crumbling infrastructures and people in poverty?
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David
I accept that mortgage and pension payment relief are both tax avoidance.
If tax avoidance was totally outlawed then it is likely that the basic rate would be lower.
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Arnald
Not a lack of vision at all, but a realistic view of the factual position, unlike your unrealistic utopia.
Every single country is capable of putting in place appropriate anti-avoidance legislation to whatever extent it chooses, and that’s exactly what happens. We aren’t “sucking the wealth out of nation states”. Residents of those nation states are exercising their lawful and democratic right to place money abroad whilst complying with their tax reporting obligations. Or are you suggesting that they should not be permitted to hold assets abroad ?
And what possible difference does it make whether tax avoidance or mitigation tools such as pensions are domestic or cross-border ? It has the same effect does it not of the the tax bills of the wealthy being lawfully reduced. Have you not heard of globalisation ? The days of exchange controls by countries shutting their borders to foreign outward investment tends to be mirrored by an unwillingness for foreigners to invest into that country, which is self-defeating.
If you believe that countries can keep endlessly raising taxes to fund the fixing of their infrastructures then you are seriously deluded. Companies and individuals reach a point where they simply say “enough is enough” and they relocate elsewhere. Why ? Because they can. And they do. A few socialists aren’t going to stop them. That’s globalisation for you and there’s no going back.
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Stephen
But on the other hand if tax avoidance was outlawed altogether then more individuals and companies would physically relocate to lower tax regimes (as indeed they are doing now, in significant numbers) and so even less tax would be collected as a result.
The surest way to collect more tax is to reduce tax rates to such an extent that taxpayers don’t bother to avoid it. But that isn’t going to happen. How many people actively seek to avoid Guernsey’s 20% income tax ?
But tax avoidence, other than at the more extreme end of aggressive tax planning, isn’t capable of being outlawed. If some countries were to try to outlaw it then companies and individuals would nove outside the taxable scope of the countries concerned. In this day and age, wealth and its owners, both corporate and individual, are totally mobile.
Have you ever been to the South of France or Spain and noticed how many wealthy Swedes and Danes are living there ? They aren’t just there for the weather – they are there because they don’t want to be paying 60%-plus tax on their income and can live even in high-tax EU jurisdictions like France and Spain very tax-efficiently. How many wealthy French and Dutch people live in Belgium ? Tens of thousands of them. Why ? Because they only pay 15% tax in Belgium on investment income and Belgium does not tax capital gains (its even more tax-friendly than Guernsey for wealthy individuals who are living off investment income, while those who are employed in Belgium pay close to 60% tax on their earned income). How many wealthy Germans live in Majorca ? Huge numbers of them. The EU right to freedom of movement of individuals and their capital simply cannot prevent such relocation.
Wealthy people and highly profitable companies will move if the fiscal regime is too unfavourable. It is happening everywhere. Raising taxes or trying to outlaw currently lawful tax avoidance simply accelarates that process. Governments are well aware of this, which is why they can’t afford to do it.
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David
So the rich and multinats are allowed to reduce their social responsibility to a bare minimum whilst the poor of the world have to live within a ‘delusion’ that their efforts in working for the rich and the multinats will somehow bring prosperity to their country?
How can the poor access such choice?
How do you justify to the electorate that a City player can pay less tax whilst living and working in London than their office cleaner does? Is that what the UK population really voted? It’s very different to the tax allowances that are spelled out in Budgets. The man on the street does not know that mandate they provide for a government to act on its behalf is being used to further gratify a tiny percentage of the already rich.
Do you think if they did they would get voted in?
The same here. If a politician said “well I support lowering the tax cap on the high net worths which will mean that there will be likely rises in other taxes to compensate if there is shortfall” would they get much shrift from anyone without money like that?
Where is the proof that it works well for wider society anyway?
So you see, I can’t buy the assertion that “we are where we are” so don’t worry because we’re doing OK out of it.
It’s the same global business that allows vulture funds to exist. They’re legal after all. Does that make them morally acceptable?
If a Guernsey company was found to be making, say, weapons grade white phosphorous and selling it to the Israeli Defence Force would the people of Guernsey consider that ethical, or just business?
We are a booking centre for foreigners to escape paying tax, our resource is our ability to set a tax rate that is less than the originator countries and a legal framework that protects from enquiry. I can see why it is so attractive for Guernsey. It’s easy money to ask the rich to pay fees so that they can absolve any state duties. The ideologies that encourage monster companies to make global monopolies, that allows a small amount of shareholders to ratify distribution of profits, and so empower that company to pay for lobbying (and bribes) governments into setting preferential rates for them, are the same that want to suppress the democratic power of the poor, and to restrict any opportunity they may have for emulating this success.
Globalisation could work, in the sense that trade is now a global issue, without giving the rich the opportunity to hide their wealth and not use it in the real economy.
And are investments really passive? If you play a market, you influence that market. That market may be linked to pensions or food prices. PE funds? Currency dealing? Emerging markets? Any investment affects something, be it the price of essentials, or the intangible confidence of a trading floor.
The more money there is concentrated in one area, the more that area can be said to interfere with the lives of people that have no access to that influence.
I have no agenda, David, I’m just a sad poster on a Guernsey local paper portal, the same as those calling for this or that, but I have to be cynical after decades of armchair politics when those that do well out of a granted luxury without wanting to recognise there may be an equal and opposite reaction to their business say “yes, because a ‘Lord’ who happens to be a legal player in this very field, probably doing nicely from their own personal ‘harmless portfolios’ says we are impressive then we must be impressive to everyone, after all he knows.”
There is a large absence of data and no real stomach from anyone in power to find out what impacts the complicated industry has on life for the majority.
Being global doesn’t mean just the one percent at the top. It means the billions that have no choices too. You make the suffering and the inequality sound like a fait accompli. Why should it be?
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David
I don’t have a problem with physical relocations, as long as tax on income is raised where it was earned, and that the income is a true reflection, and that it can be verified through transparent record keeping.
It is the accounting standards and legal structures of certain instruments that allow those that can afford it to manipulate the numbers as to hide the true worth.
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Arnald
I have nothing to say in response to your 4.14pm post. Those are your views and you are of course entitled to them.
Re. your 4.20pm post, why wouldn’t tax on income be raised where it is earned ? Most onshore jurisdictions levy withholding tax on income paid to non-residents, and most tax foreign companies which trade through a branch or agency there. Not sure that I can see your point.
If an individual sells his business and takes the proceeds with him to a more benign jurisdiction, then he has no future liability to tax in the jurisdiction that he has left as he is no longer earning income there. You don’t seem to have a problem with that.
If a company decides to move its head office from say the UK to Switzerland or Guernsey or Ireland and continues to pay UK corporation tax on its trading operations in the UK, which it would, then you don’t seem to have any problem with that either.
I must be missing your point.
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