Feast your eyes on the tax haven secrets of the rich and powerful! Fortunes hidden in offshore accounts! Few exposures have been given such massive coverage as the so-called Paradise Papers.
The leak of 13.4 million financial documents, the BBC intoned, “has revealed how the powerful and ultra-wealthy, including the Queen’s private estate, secretly invest vast amounts of cash in offshore tax havens”.
Scandal! From the Queen, through Prince Charles, to senior advisers of the powerful here and beyond, to Conservative Party financier Lord Ashcroft, to sports stars and TV celebrities, the beans have been spilt on dark dealings hidden from public view in the discreet brass plate canyons of the Caribbean. That many are British Crown dependencies only fuels our now well-fired indignation. We may be not be sure what exact crime has been committed.
But the whiff of avenging sulphur is unmistakable as the financial cavorting of the super-rich is exposed. We are not told how the leak of thousands of confidential documents came about, who was responsible, or their motives. We are not told why The Guardian and the BBC emerged as the chosen disseminators in the UK.
Arguably most puzzling of all was the exact nature of the wrong doing. Both the Paradise Papers website and the BBC Panorama documentary, given an astonishing top billing plug on the BBC’s flagship 10pm news programme on Monday, repeatedly stressed that no laws had been broken and that UK tax due had been paid. Indeed, as the BBC documentary made clear, “the vast majority of the transactions involve no legal wrongdoing”.
But time and again there seemed an all too casual elision of definition between the words “tax evasion” (which is illegal) and “tax avoidance” (which is not).
For some, such fine distinctions hardly seem to matter in this orchestrated finger-pointing. But what ethical line has been crossed by legal tax avoidance? Tax evasion is certainly unacceptable. But what of legitimate tax avoidance? It may be legal, but is it moral?
These are big questions. But none of them were addressed in the Paradise Papers. Rather, we had the implicit assumption that all manner of wrong had been committed.
Really? These questions are far from confined to the sun-kissed shores of Belize and Bermuda. Indeed, they could well become acute in Scotland should Holyrood move to increase income tax rates on higher earners – and those higher earners opt to be paid in dividends or tax-sheltered drawdowns (Scotland’s tax-raising powers not extending to savings income).
Many individuals and firms may well move in this direction. Is it morally wrong to protect your family or business in a lawful manner? Is it shameful to mitigate a tax liability? How should the government respond? Why should we be obliged to pay more tax than required by law? Millions of us shelter our savings in low-tax savings structures such as Individual Savings Accounts, donations to charity, pension plans and trusts to benefit grandchildren.
Governments of Left and Right have sought to encourage long-term provision for our old age by pension tax relief. UK companies enjoy any number of tax breaks and reliefs without being jumped upon and “exposed” by the “International Consortium of Investigative Journalists”.
The Paradise Papers made much of the disclosure that about £10 million of the Queen’s private money was invested in the British Overseas Territories of the Cayman Islands and Bermuda. The Duchy of Lancaster, which provides the Queen with an income, said all of its investments were fully audited and legitimate, that the Queen voluntarily pays tax on any income she receives from the Duchy, and that it was not aware of any tax advantage accruing from funds held in these jurisdictions.
However, there was one benefit to emerge from the disclosure: the questionable investments made on behalf of the Queen on the recommendations of external advisers. One was in rent-to-buy firm BrightHouse which has been ordered to pay £14.8m to 249,000 customers by the Financial Conduct Authority which said the business had not acted as a “responsible lender”. Another was the off-licence chain Threshers which went bust owing £17.5m in UK tax.
Her Majesty might usefully ponder what advantage was gained when the Duchy of Lancaster could far more easily have put some of its funds into Baillie Gifford’s top-performing investment trusts or Dundee-based Alliance Trust. Do we not have a professional investment management sector in Scotland which has stood the test of time? What fees could have been saved! What better gains secured!
Elsewhere, the documents revealed that private equity firm Blackstone “avoided tens of millions of pounds in UK taxes” on property deals in Glasgow and London. On the advice of accountants it used offshore companies to purchase and operate the St Enoch Shopping Centre in Glasgow and Chiswick Business Park in London. Should these strategies now be outlawed for UK firms? What, then, of overseas developers? Formula 1 champion Lewis Hamilton came under scrutiny for avoiding tax on his £16.5m luxury jet. Three stars of BBC sitcom Mrs Brown’s Boys diverted more than £2m into an offshore tax-avoidance scheme.
What the Paradise Papers did not reveal might be considered as relevant as what it did. The Labour Party rents its London headquarters from a tax-exempt property unit trust fund based in Jersey. Shadow Chancellor John McDonnell’s pension investments are managed in Guernsey. Do British Overseas Territories and crown dependencies deserve the tag of ‘tax havens’? They have agreed to take the necessary action on tax information exchange with the United Kingdom. The convention developed by the OECD and the Council of Europe was endorsed by the Group of 20 nations. The Cayman Islands and all other UK overseas territories and crown dependencies committed to joining the convention. A report by the OECD Secretary-General, giving a green, amber, or red rating, found Cayman rated green across all nine categories.
Broader questions are raised. Might not the assault on perceived tax havens be seen as a move by high-tax jurisdictions to bully low-tax ones out of business? When does a country with a low rate of corporation tax (Ireland) become a low-tax jurisdiction? Luxembourg has competitive low-tax advantages, permitted by the EU.
It’s certainly true that offshore bank accounts are restricted to the wealthy. Many years ago when in Grand Cayman I sought to open a deposit account with a bank. I filled in the forms, handed over my passport and was asked ow much I would like to deposit. “Fifty pounds,” I ventured. The teller’s face switched from beaming welcome to cold stare. “The minimum deposit, Mr Jamieson, is 50,000 dollars.”
My bold attempt to join the super elite with a tax haven bank account crumbled in humiliation. The International Consortium of Investigative Journalists would surely have approved.