• mikeinfrance
  • 12/10/08 28/09/09
  • a depositor
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Posted: Tue, 04/11/2008 - 02:18

Shortly after hearing Alistair Darling's "tax haven" comment during the treasury committee's session on 2nd Nov. I came across this 637 page Treasury Commission report on "Offshore Financial Centres" :

On scanning through it I couldn't help noticing how many references there were to the UK (City of London Financial Centre) being considered to be one of the largest tax havens in the world ! Here are just a few extracts which caught my eye:

As we are now seeing this behaviour is being
replicated in the world’s major tax havens, of
which, the UK is without doubt the most important.
It is nolonger 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

  1. The UK as a tax haven
    In the context of this report it is important
    to note why comments about tax havens must
    refer to the UK as well as those territories
    more often considered to have that status.
    In July 2007 Alistair Darling said121:
    claims that the UK was a tax shelter were
    seriously flawed’. ….[T]he IMF does
    not categorise the UK as a tax haven. This was
    suggested by some organisations
    on the back of some seriously flawed
    experimental methodology for identifying
    tax havens. The truth was that it was Darling who was
    making the wild claim: although the
    methodology used by Ahmed Zoromé for the IMF122
    had flaws within it, they were, as
    previously noted, ones mainly of limitation of
    scope due to lack of data. The conclusion
    that the UK was an offshore financial centre

Then in October 1957 the Bank of England
created the regulatory concept of offshore
when it declared that transactions that took
place in London but which were undertaken
between two parties resident outside the UK
were not subject to UK financial regulation
as they were deemed to take place somewhere
‘elsewhere’ to London, even though it was
obvious to all involved that this was a
fiction. As such the UK created all the key
components that underpin the fiction of the
‘secrecy space’ that is critical to offshore
activity. Only banking secrecy was created
elsewhere, but since, as the Swiss like to
point out, the same result can be achieved by the use
of UK trusts owning UK companies
registered in the names of nominees even this
distinction is somewhat arbitrary.
Finally, the UK quite literally created more of
the world’s tax havens than any other state,
it being the deliberate policy of the Foreign &
Commonwealth Office over many years to
encourage small island states to develop as tax
havens. It is not chance that so many of
the world’s tax havens are small states closely
allied to the UK or its Commonwealth.

The domicile rule is the quintessential
evidence that UK is a tax haven. Albeit now
modified and reduced in scope from April 2008
its impact is in practice little reduced for
it has always been of greatest benefit to the
very wealthy migrant person, and they still
have easy access to the benefits it provides

One of the chief characteristics of a tax haven
is that it provides a secrecy space -
an opportunity for something to happen about
which it is almost impossible for
anyone, including tax authorities, to ask
questions. The UK makes this possible
because any company trading in the UK need
never file a set of accounts

The UK trust regime, already noted in this
report is the other characteristic of the UK
that makes it a tax haven. There is no register
of trusts in the UK: worse it is apparent
that HM Revenue & Customs’ data on trusts is
seriously deficient and is likely to result
in their incomplete taxation130. This looks
dangerously like tax haven behaviour,
especially when trusts can, in combination with
nominee companies be used to create
banking secrecy.

The UK is a tax haven and hosts a massive OFC.
It is therefore part of the tax haven
problem for the rest of the world

the UK has become the most
populous tax haven in the world according to an
IMF study183.

Treasury policy is massively influenced by two
things. The first is that London is a tax
haven and the biggest OFC in the world, which
has arisen as a result of deliberate policy
decisions taken by the UK.

In assessing this issue the UK has a particular
problem to address. As we show, it is a tax
haven in its own right. It also hosts what is
almost certainly the largest OFC in the world
in the City of London. All objective observers
agree that this is so. Indeed, many would
argue that the UK is at the epicentre of the
tax haven phenomenon, having created many
of the instruments that tax havens now utilise,
and still being in the market for their
supply at this time. As we also show, whether
this happened by either accident or the
circumstance of chance is now irrelevant: the
UK’s economic policy and the Treasury’s
taxation policy is explicitly based on
maintaining the UK’s role as a haven. This
might not be advertised, but it is a fact. The
evidence is impossible to interpret otherwise,
and the impact is being seen in many of the
taxation issues that have caused recent
embarrassment to the government.

Some reports include the UK within the list of
countries which are defined as OFCs. These
include the IMF Background Paper “Offshore
Financial Centres” published in 2000283, and
Zoromé’s Working Paper cited above.
Thus the defining characteristics of an OFC are
not necessarily restricted to relatively small
island territories. Major Nation states such as
the USA, UK, Switzerland, Ireland, Dubai and
Luxembourg have all been considered by various
commentators to fall within this categorisation.

The geographic proximity and time zone of the
Isle of Man and other Crown Dependencies has
been important factors in the development of
the City of London over the past two decades,
to its current position as the World’s pre-eminent
finance centre

As stated above, the Isle of Man is not a
closed jurisdiction, and it has no bank secrecy
laws.Over the past decade, the Island has been
assessed by a number of international agencies
and reviews. These have all confirmed that the
Island is proactive in its co-operation with
other territories in the pursuit of international
financial crime and that its defences against
money laundering comply with the highest global

The many billions of pounds collected by Manx
investment and insurance businesses from
expatriates around the world mainly find their
way to the United Kingdom and in particular,
the City of London. The profits earned by the
various City institutions on this business
contribute notably to the UK's tax take.
Furthermore, from the resources of the IOM
government, generated in large part by the
success of the various IOM financial
institutions, verysignificant sums have been spent of improving
our infrastructure. The companies employed to
complete this work are invariably UK companies,
thus again enhancing the UK tax take, together
with benefits for UK employment

In the modern-day context, the Isle of Man
strives towards full compliance with international
standards. In their November 2003 report, the
International Monetary Fund commented297
that “the financial regulatory and supervisory
system of the Isle of Man complies well with
the assessed international standards. The
authorities are to be commended for the
attention they have given to upgrading the financial
regulatory and supervisory system to meet
international supervisory and regulation standards in

banking, insurance, securities and anti-money
laundering and combating the financing of terrorism
(AML/CFT), and the introduction of a
comprehensive regime for the licensing of
corporate service providers (CSPs)”

The Isle of Man is a key contributor of
deposits and business referrals to the City of
London. The Island (along with the other Crown
Dependencies) is a significant component of the
UK’s proposition as the world’s leading financial
centre. We propose that it would be to the
benefit of both the UK exchequer, and to the Island,
for the Isle of Man to be promoted and endorsed
internationally by the UK Government as a key
contributor to the success of the City of London.

The Inquiry’s terms of reference contain no
clear definition as to what constitutes an
Offshore Financial Centre (OFC). The
categorisation of ‘offshore’, however, is
becoming increasingly less meaningful, given the
diversity of the financial services centres
covered by this term. The Inquiry should be wary of the
generic connotations encapsulated by the term

The public perception of OFCs as
havens for tax evaders etc is somewhat out of
date and, particularly in the case of the
Channel Islands and the Isle of Man, is quite
at odds with the reality.

The capital from OFCs, such as the Channel
Islands and Isle ofMan, may in fact be used by neighbouring
onshore finance centres to assist the flow of
liquidity around the world, thereby assisting
financial stability

The sustained interest in, and monitoring of,
OFC activities has already gone some
considerable way towards tackling concerns
relating to the transparency of such
jurisdictions.Jersey, Guernsey and the Isle of Man have all
received positive assessments on their 449
regulatory regimes from the IMF. They are also
included in the OECD’s list of 35
jurisdictions committed to improving
transparency and establishing effective
exchange of information in tax matters, resulting in their
designation as co-operative jurisdictions.

There are numerous reasons why financial
institutions, in whichever jurisdiction they
operate, would not wish to foster links to
customers engaged with illegal and nefarious
activities. Jersey, Guernsey and the Isle of
Man have comprehensive legal frameworks for
countering money laundering and the financing of terrorism.

The public perception of OFCs as havens for tax
evaders etc is somewhat out of date and,
particularly in the case of the Channel Islands
and the Isle of Man, is quite at odds with the
reality. They have not enacted banking secrecy
legislation, their compliance with
international regulatory and supervisory
standards is judged by organisations such as
the International Monetary Fund (IMF) to be high,

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