It has become a truism that there is a clear distinction between tax avoidance and tax evasion: the former is legal, the latter illegal. This, however is where the clarity ends; for it relies on a purely theoretical, narrow and misleadingly glib distinction. In the real world there is no clear distinction, because at the margin, the limit (the only place it matters) the issue can only be decided on a case-by-case basis: in the courts. Since all tax avoidance schemes have not been tested in the courts, nor is there any likelihood of all schemes being tested there, the esoteric matter of avoidance-evasion in Britain has been completely fudged. The responsibility for the fudge is entirely that of successive governments; ultimately of Parliament itself. The fudge is not an accident.
“Users of tax havens and offshore financial centres [OFCs], whether for tax evasion (illegal), or transfer pricing or other tax avoidance strategies (legal), benefit from public services, facilities, and infrastructure in the countries where they operate/live, but make a disproportionately small contribution towards their maintenance, leaving other taxpayers to make a disproportionately large contribution. As highlighted by a 2012 United States Senate Investigation, financial institutions with operations in tax havens also facilitate and profit from the criminal activities of others, thereby contributing to social and security risks, and increasing the cost, to other tax payers, of combatting these problems” (‘European Initiatives on Eliminating Tax Havens’ [EIETH] Study, April 2013; p.9)
“Tax havens and offshore financial centres undermine democracy as the users of these structures (including corporations), which account for a fraction of society, use their significant financial resources to lobby governments to implement or maintain policies that are not necessarily in the interests of the majority of society.” (EIETH Study, April 2013; p.10)
“The index shows that the biggest player in the world of offshore secrecy is Britain, if it is lumped together with its island dependencies in the English Channel, the Caribbean and elsewhere. Britain itself is only in 21st place, but two of its satellites—Jersey and the Cayman Islands—are in the top ten, with Bermuda and Guernsey not far behind. Together they account for between a third and a half of the global market in offshore financial and corporate services. Much of the money they collect is funnelled through the City of London.” (TJN Secrecy List reported in ‘The Economist’: 6th November, 2013)
“the power in this relationship lies with OFCs and the companies that work within them, not the tax havens, so the focus of regulation must shift onto limiting the powers and impact of OFC operators within the global economy” (TJN: Evidence, p.3)
“It is no longer possible for any objective person to deny the obvious fact that the UK is a tax haven and that the City of London is an OFC seeking to exercise control over our state. The evidence also shows that the City of London is also intricately connected to a web of satellite tax havens spread across the globe, including Crown Dependencies, British Overseas Territories and various members of the Commonwealth, which have served as conduits for capital flows into London whilst also providing facilities for tax evasion on an industrial scale.” (TJN: Evidence, p.4)
- Ending the role of the UK as a tax-haven;
- Adopting a tax strategy that does not favour large companies over small ones;
- Updating the 1998 Edwards Report on UK-dependency Tax Havens (including the Edwards recommendations, which were not even implemented);
- Improving the regulation of Tax Havens;
- Ending ‘light-touch’ regulation of offshore UK activity, and placing it on the same basis of transparency as UK corporate activity.
“Conventional wisdom among policymakers is that the G20 tax haven crackdown is a success. The evidence presented in this paper challenges this view. It suggests that, so far, treaties have led to a relocation of bank deposits between tax havens but have not triggered significant repatriations of funds. The least compliant havens have attracted new clients, while the most compliant ones have lost some, leaving roughly unchanged the total amount of wealth managed offshore.” (VI, Concluding Remarks, p.27)
In an amendment to a Labour motion on tax evasion/avoidance made in Parliament last week (a motion that was a typical parliamentary, outraged-knee-jerk response to the Panorama report), the Government made the preposterous claim to have been doughty champions of Anti-Abuse, and listed its triumphant ‘endeavours’; in which it boasts a “commitment to implement the G20-OECD agreed model for country-by-country reporting“. It is unfortunate that the Government hadn’t noticed that the G20 model has been a failure.
The Government department with the greatest operational leverage in prosecuting Anti-Abuse initiatives is HMRC. In 2013 HMRC published ‘No Safe Haven’, which conveniently provides its “offshore evasion strategy for 2013 and beyond”. This is purely an ‘anti-evasion’ not an ‘anti-avoidance’ strategy. It is notable that HMRC makes much of claiming that it is going to apply “tough sanctions” for tax evasion, with penalties up to 200% of the tax evaded, but in spite of quoting Case Studies that create an impression that HMRC is determinedly prosecuting criminal evasion, and will use the sanction of prison for the guilty, there is little evidence that prison rather than non-criminal financial penalties is the (so-called) tough, effective sanction on which it principally means to rely.
On 11th February, 2015 there was much acrimonious argument in a Parliamentary Hearing between Patricia Hodge MP, Chair of the Public Accounts Select Committee, and Lin Homer and Jennie Grainger (Respectively CEO and Dir. General of Enforcement of HMRC), regarding the poor prosecution performance of HMRC against offshore tax evasion, with particular reference to the Panorama case. The frustration of MPs was understandable: of almost 7,000 British names turned up by the Swiss case, HMRC has only delivered one (1) single prosecution.
Homer and Grainger argued that the evidence simply was not there to prosecute; but while this specific excuse may have some technical justice, it merely exposes to view the utter failure of UK anti-evasion and avoidance measures and powers; and at the same time better explains HMRC’s emphasis in ‘No Safe Haven’ on financial fines and 200% penalties as the key sanction offered; but only at the expense of undermining their excessive claims in the same paper that HMRC will vigorously prosecute criminal evasion. HMRC simply cannot have it every way.
No doubt HMRC has lacked mechanisms that could have been provided by a Parliament intent on retributive justice and deterrence, rather than burying its head in the sand; but meanwhile Homer and Grainger simply look like hapless provincial bureaucrats, some way out of their depth, attempting to subdue circling offshore sharks with a wet loofa.
The overwhelming sense of HMRC’s dismal inadequacy that emanated from the Select Committee performance, was compounded by the announcement that HMRC now intends to discuss the disputed issues with the police and Serious Fraud Office; followed by Grainger announcing a desire to “‘collaborate’ with other agencies” (BBC report, Kamal Ahmed). This late flurry of activity at the starting post, in a race already long run, scarcely inspires confidence; for we must consider this performance against a setting in which HMRC have had the Panorama evidence in the HSBC case since 2010; it also now appears that the FCA (the UK’s new, prime Financial Regulator) was not informed about the Swiss case, and it is now reported that in spite of the efforts of the original whistleblower (Hervé Falciani) who produced the Swiss evidence, nobody from HMRC has ever contacted him. Meanwhile the French tax authorities have recouped around €300m (circa £220m – source, Le Monde) from the French clients of the Swiss HSBC bank, against HMRC’s £135m recouped; but the comparison is worse, for the total number of French clients, and their capital sums involved were also significantly lower than the comparative British figures.
HMRC was keen in 2013 to trumpet an array of investment initiatives in anti-evasion, claiming proudly 2,500 “extra staff” and £1Bn Government investment to pursue evasion, which decisively closes off the last thin excuse for their poor performance; a lack of resource. Notably, however all this resource fails to deliver even a single quantified estimate of the financial loss to the UK Treasury through evasion; save only the memorably limp phrase that “there is no clear view of the cost of offshore evasion” (No Safe Haven; Exec. Summary, p.2). Or to put it more succinctly, £1Bn has been spent for virtually no perceived return. The best that can be said of HMRC’s futile endeavours (and wherever the balance of blame may rest between the Department of State, Government, or Parliament itself); as the UK’s policeman of first resort in offshore tax evasion, HMRC is a complete and expensive failure.
Most of HMRC’s planning has depended not on tough sanctions, but on bilateral arrangements and international treaties, most of which do not yet exist. It is reasonable to deduce from such slow and ineffective measures, or our appallingly lax history in the UK of failing to prosecute evasion vigorously, or closing avoidance loop-holes; that in Britain we are all suffering the inevitable consequences of casual British complacency, the glib mantra of ‘light-touch’ regulation being good for business, and over-indulgence toward ‘aggressive avoidance’ and even of indifference to systematic evasion over the last ten years or more. Indeed most of the issues identified in the HMRC ‘Action Plan’ (No Safe Haven, p.19) stretch out to 2017 or beyond before they expect them even to be fully implemented. By the time HMRC achieves anything, the evaders will no doubt have developed effective new secrets and new evasions, as perhaps may be deduced from Johannesen and Zucman’s paper on the G20 experience. On evasion, or on aggressive avoidance, glaciers move faster than HMRC, the British Government or our Parliament.
Why has the British Government and Parliament effectively treated ’Business’, especially ’Big Business’, as being above the law, or at least allowed it experimentally, stochastically and effectively to write its own law on tax avoidance? Why has evasion been treated almost as a minor peccadillo; not worthy of facing severe retributive justice, whatever the sums involved: the criminal sanctions that are generally held to deter more effectively than a fine or penalty, which merely increases the marginal cost of doing risky business, and reduces crime to a mere business calculation? It is time that the electorate began asking searching questions of their politicians: why have they totally failed the British people in devising a fair and equitable tax system, and why has this disreputable state of affairs been allowed to develop, and embarrass the good name of the British people?
On 11th February, 2015 at Prime Ministers’ Questions, as Parliament feigned indignant concern about the Panorama investigation, loudly if scarcely convincingly, and the web of recondite relationships between offshore financial activity, rich donors, political parties and lobbying resurfaced yet again; endlessly to circulate as a perpetual backdrop to the profound irrelevance of Westminster party ‘politics’ (which really should have allowed the penny to drop with the public by now), David Cameron resorted to making a statement that manages to plunge new depths of meaningless fatuity that even he rarely ventures: “no government has been tougher than this one in chasing down tax evasion and tax avoidance”. Really? Then we can all rest safe in the certain knowledge that the last vestiges of an equitable and fair tax system have finally been destroyed; what remains in force is tax-at-source, including PAYE, which is protected by the vice-like grip on income distribution exercised over ordinary people by HMRC, for Government. Here evasion is rare and the scope for avoidance much reduced and managed. It is the mechanism of payment that enforces this equity of treatment, not the equity of the underlying tax system.
What we have now discovered is that the underlying tax system itself is not fair or equitable; but rather just another exploitable business opportunity. For those outside PAYE, the tax they pay will ultimately depend at least in part on just how much disposable income they have, or how much they can afford to pay for advice; or even how far they are prepared to go in pursuit of unvarnished greed.