Last week I was invited to the BBC in Regent Street to take part in the ‘Weekend Program’. I arrived, was screened and checked and then taken to the second floor, where we were squeezed into a tiny broadcasting studio amongst a sea of researchers and journalists all working on current affairs and news.
Before we went ‘live’ and while we were waiting for a computer glitch to be fixed, the few of us in the room had a general discussion ‘Are people not bored with stories on offshore financial centres and leaks – haven’t they heard it all before? Everyone knows the rich evade taxes, do they need to hear it again?’
The discussion went on ‘Surely it is not fair that the rich can squirrel their surpluses offshore leaving those with no surplus to foot the bill for health, education and the safety of our nation?’
When on air, I drew Julian to what the law says on the question of tax avoidance and quoted Lord Clyde in the Ayrshire Pullman Motor Services:
‘No man in the country is under the smallest obligation moral or otherwise so as to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in its stores’,
The argument his Lordship makes, with which I concur, is that Governments are powerful – if they do not like something they can change the law to compel a person to change and pay more tax. I went on to say that people are free to move their money where they chose; exchange controls were lifted in 1979, Governments cannot legislate over other countries.
Gordon Brown when in power was messianic about blocking any form of tax planning. Under his stewardship the anti-avoidance legislation mushroomed. The UK now has more anti avoidance legislation than anywhere else in the world, bar India.
In response to the ‘Paradise Papers’ leak Gordon’s response was ‘trillions are still being siphoned off to dodge tax in the most shadowy places in the global economy.’ He challenged people to put a stop to it by appealing to the G20.
It is easy to see why people like Gordon Brown get so hot under the collar. Governments believe there is a whopping $7,600 billions of wealth in offshore financial centres. Africa, for example, it is surmised has 22% of financial wealth offshore and Russia 50%.
Most of this financial wealth is in trust. Governments are of the view that trusts are ‘sophisticated tax avoidance arrangements’ and they are committed through the OECD to stamp them out. What is alarming however, is that they now have the information they need to investigate, the methodology and the strategy as to whom, why and when to attack.
The automatic exchange of information (CRS) gives Governments the identity and contact details of the settlor, the trustees, how much wealth is settled what transactions are made, and the name and contact details of the Protector.
The importance of the Protector in this mix, is critical. This is the proof tax authorities across the globe need to claim that the settlor did not have the necessary intention to create a trust. They will first go to the trustees to collect and collate information on the set up of the trust and then will issue the settlor with a claim.
If following the claim the tax authority is successful the settlor will be taxed as if there was no trust and the trustee will be compelled to return all fees and pay all its own legal costs without access to the trust fund under a trust indemnity. If this puts the fiduciary out of business – Governments will shed no tears.
However, not everyone is convinced by my concerns; ‘Surely the UK Government would not wish its Dependencies or Crown territories to go out of business?’ said someone in our discussion last week. From my first-hand experience of dealing with the Treasury and HMRC – Governments care little for third parties so if business happens to suffer for these industries, then tough luck.
Of course, there are steps which can be taken now to ensure that a specific trust will be less likely to be investigated – but if you or your trustees are not convinced about the intentions and power of HMRC to attack trusts offshore and do not fear the dire consequences for anyone caught up in it – trustees will continue to do nothing – which they may live to regret!
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