The European Commission has claimed that “Ireland’s tax rules are used for aggressive tax planning by Irish real estate funds and real estate investment …

Will the EU bring to the end British offshore/corporate tax evasion?

Hi Patrick,

John McDonnell MP, Labour’s Shadow Chancellor, to whom the link you have provided applies should check some of his facts before making a political sound bite.

The Crown dependencies are the Isle of Man and the Channel Islands, that is, the Bailiwick of Jersey and the Bailiwick of Guernsey (including Guernsey and its dependencies)

Have a look at the House of Lords Lords report from March 2017.(It is relevant, even though it is about Brexit, as it lays out the UK’s legal position regarding Crown Dependencies..

https://publications.parliament….

and in particular the Summary where the following statement of fact is made

“The Crown Dependencies are neither part of the EU nor of the UK. Nevertheless, they have a unique constitutional relationship both with the UK and, as encapsulated in Protocol 3 to the UK’s Treaty of Accession, with the EU. The consequences of Brexit for the Crown Dependencies are therefore significant.”

And in Section 4

The Crown Dependencies are not a part of the UK, and therefore do not fall within the jurisdiction of, nor have representation in, the UK Parliament. Rather, they each have their own legislatures to which their governments are accountable. It is a matter for the Crown Dependencies themselves to determine the nature of their future relationship with the EU, and any changes to their relationship with the UK that this will entail. We do not therefore make any direct recommendations to the Crown Dependencies themselves. Rather, we draw attention to the pertinent issues as we see them, in order to raise awareness across Parliament, the UK Government and the media, in the run-up to the Brexit negotiations.”

It is normal for a UK politician to blame the other side but in this case it is taken to extremes as some of the “Arrangement” have been around for over 950 years and have seen Kings, Queens, Whigs, Liberals, Tories and Labour over the years.

When it comes to responsibilities have a look at section above I have highlighted in italics and bold.

To summarise The Crown Dependencies do not fall within the jurisdiction of the UK Parliament. Sorry John these are self determining and independent entities which you cannot affect.

They can sever connections with the UK by a simple Act in their own Parliament and the UK could do nothing about it. They do not have a “Governor” to review their legislation.

Now what about the Overseas Territories.

The British overseas territories (formerly known as British dependent territories or Crown colonies) are: Anguilla; Bermuda; British Antarctic Territory; British Indian Ocean Territory; British Virgin Islands; Cayman Islands; Falkland Islands; Gibraltar; Montserrat; Pitcairn, Henderson, Ducie and Oeno Islands; St Helena and St Helena Dependencies (Ascension and Tristan da Cunha); South Georgia and South Sandwich Islands; Sovereign Base Areas of Akrotiri and Dhekelia (Cyprus); and The Turks & Caicos Islands.

This is a slightly different story.

See the WIKI link; British Overseas Territories – Wikipedia

For simplicity I shall reproduce the first 3 paragraphs. (slightly abbreviated)

“The British Overseas Territories (BOTs) or United Kingdom Overseas Territories (UKOTs) are fourteen Territories under the jurisdiction and sovereignty of the UK

They are remnants of the British Empire that have not been granted independence or have voted to remain British territories. These territories do not form part of the United Kingdom and, with the exception of Gibraltar, are not part of the EU. Most of the permanently inhabited territories are internally self-governing, with the UK retaining responsibility for defence and foreign relations. Three are inhabited only by a transitory population of military or scientific personnel. They all share the British monarch (Elizabeth II) as head of state.

As of April 2018 the Minister responsible for the Territories excluding the Falkland Islands, Gibraltar and the Sovereign Base Areas of Akrotiri and Dhekelia on Cyprus, is the Minister of State for the Commonwealth and the UN. The other three territories are the responsibility of the Minister of State for Europe and the Americas.

The BBC’s report on the “”Panama Papers” and Jeremy Corbyn’s comments missed one very important point. It stated that in the “leaks”“ It follows a leak of documents from Panama-based Mossack Fonseca that showed the law firm registered more than 100,000 secret companies to the British Virgin Islands, one of the overseas territories.”. OK so far no problem, is there?

Yes, there is a major one. The British Virgin Islands, alone of all the overseas territories, do not fall under the Bank of England regulations, but rather the Federal Reserve of the USA. Panama would not be the usual route for UK or EU Companies to set up Tax Avoidance Schemes, it would be much more likely to be done through Luxembourg, Liechtenstein, Ireland, The Bahamas or Bermuda. The companies referred to are predominately from the USA.

Another thread of the Panama Papers was the position of Banks and the BBC article stated

“The International Consortium of Investigative Journalists (ICIJ), which published the investigation, showed that 500 banks, their subsidiaries and branches had registered 15,600 shell companies with the law firm. Three of the biggest banks involved are based in the Channel Islands.”

I wonder which countries these banks are from as the major financial institutions investing in the Channel Islands are all French.

Now the ICIJ, LuxLeaks and Panama Papers, reports have finally prompted the EU Parliament to do something about it. Guess what, the UK was not even mentioned. See extract below.

“The MEPs found that seven of the EU’s 28 member states — Belgium, Cyprus, Hungary, Ireland, Luxembourg, Malta and The Netherlands — “display traits of a tax haven and facilitate aggressive tax planning.”

Link ; Seven EU Countries Labeled ‘Tax Havens’ in Parliament Report – ICIJ (I know the report has spelled labelled incorrectly and as a respected journalist Simon bowers probably does know better, let it pass as a transcription error)

Now to turn to some specific problems with the term Tax Evasion.

There is a common misconception, even amongst some Taxation Professionals, if you can believe some of the other replies to similar questions.

Tax Avoidance – Arranging your financial affairs to reduce your tax bill as much as legally possible. All income declared and itemised. LEGAL.

Tax Evasion – Deliberately not declaring the correct, or declaring the incorrect, amount of income OR claiming incorrect reliefs from taxation. ILLEGAL.

It is not TAX EVASION to use the Law to minimise your liability to Taxation.

Almost every Taxation Jurisdiction I have ever dealt with has this, very basic, formula.

However when you wrote the question you were asking about the EU and the UK and Tax Evasion.

I am assuming you have some concept of International Taxation or how it applies over National boundaries.

NOTE: I have already posted this entry, in part as, as a response to a similar question, but thought it touched to much on “UK bashing” so re-posted part of it.

There are four main points to this, namely ;

1, It is not the UK that the EU have to face as a Tax Haven, but other countries within the EU. In the UK we lock up criminals who try to launder money through our systems so sorry your comment is completely out of order. The UK will never be a Tax Haven, we need all the central funds we can get.

2, Transfer Pricing is Tax Avoidance not Tax Evasion and requires specific Legislation to separate it from the usual “Avoidance” schemes.

3, It was the USA (Federal Reserve)and the UK (Bank of England), through the World Court, World Bank, OECD, IMF and the UN that forced the Swiss to reduce there secrecy systems, not eliminate them, not the EU, who had nothing to do with it as the members could not agree a common front.

4. The UK has been putting pressure on the Overseas Territories to tighten up their “Corporate Transparency” rules which are nearly as restrictive as the State of Delaware in the USA where you can’t even confirm if a company is registered. (I have feeling that this may be the next target of the ICIJ)

The UK has a very robust transfer pricing regime, as well as a law requiring the declaration of membership of any “Tax Avoidance Scheme”.

Tax Avoidance has a legal definition in the UK simply put “An individual arranging their tax affairs to minimise the liability to personal and business taxes”. This is perfectly legal and has been the centre of many Tax Cases in the UK, USA, EU and recently, Russia.

This is the sum of the EU directive not Tax Evasion.

Tax Evasion is a failure to declare income, claim excessive expenses or deductions and is, as far as I know, illegal in every tax regime in the world.

It is also very rare that HMRC has to take companies to court. There have been many cases as Precedent and this usually settles the matter with a simple imposition of additional “Tax”, Interest on the unpaid tax and Penalties based on culpability.

One of the joys of Common Law over Civil Law is that Precedence is much more important and applies, where rational, to all similar cases.

One of the major headaches, for all of the EU, was caused by a Commission Directive, accepted by the Council of Ministers in 1990, that allowed companies to pay taxes in a European headquarters country other than where their subsidiaries operated.

This directive was a “Casus Belli” for tax avoidance schemes and has come home to roost, as they say.

Also as it was pre WWW it could not have anticipated the range of multi national involvement within the EU and the major changes in finance and payment systems.

Basically the Directive was so loose you could drive a bus through it and many did, especially, in the early years, Luxembourg.

Over the years many EU countries have been implicated in “Tax Avoidance” schemes, including Luxembourg, Ireland, Netherlands, Belgium, France, Italy, UK, etc, etc.Have a look at these links:

Why has the European Commission not investigated Lux Leaks tax deals? – ICIJ

Luxembourg Leaks – Wikipedia

Swiss Leaks – Wikipedia

Luxembourg’s response to an international tax scandal

Transfer Pricing Case Law and Guidelines from around the World

Why has the European Commission not investigated Lux Leaks tax deals? – ICIJ

The recent announcement by the Joint Transfer Pricing Forum

Joint Transfer Pricing Forum – Taxation and Customs Union – European Commission

is quite a leap when you consider the foot dragging and long term delays the European Commission has entered into or actively avoided since the ICIJ revelations in 2014.

It must be noted that it was the European Parliament that set up, initially, an inquiry under a special committee on tax rulings in the European Union Member States, not the Commission.

Jean-Claude Junker had been the Prime Minister of Luxembourg from 1995 to 2013 and Minister of Finances 1989 to 2009. He was elected to the Presidency of the EU Commission on 1 November 2014 and the Lux-leaks story broke on 5 November 2014, 4 days later.

In retrospect he, as Minister of Finances and PM, must have overseen the introduction of the advantageous tax schemes in Luxembourg.

See link ; Lux Leaks Confession: Jean-Claude Juncker Admits He Made ‘Major Mistake’ – ICIJ

Lets take a look at what “Transfer Pricing” entails.

Basically Transfer Pricing is the movement of profits from one Taxation jurisdiction where there are high Corporate Tax rates to that with a lower rate or the availability to claim additional deductions.

The method by which it is done varies but it is still an attempt to gain advantage.

So, finally, the answer to the original supposition is that the EU will have to clean up its “Act” not the UK.

Thank you, and sorry for the length,

Mike