wmlro.com - UK Chancellor leverages OECD tax list

The UK, unlike the USA, does not claim to have worldwide jurisdiction over the world, his bank balance and his grandmother. Well, not really his grandmother - unless she is holding money for a US citizen and keeping it secret from the IRS.

There's a history to the Chancellor's announcement yesterday: in 1997 Gordon Brown announced that the Labour Party would prevent tax evasion by those who used offshore centres. His plans were scuppered when it was discovered that some of his senior ministers, including the Paymaster-General, held money offshore and paid no tax on the income from it. Geoffrey Robinson proved to be something of an embarrassment to Brown - forced out of office in one of the scandals involving Peter Mandelson. Despite Brown's occasional outbursts over "offshore" nothing material happened until he had secured the support of the EU in relation to the disclosure of bank account information within the EU, as a part of his intention to move the UK to a system of personal taxation similar to that in Germany, Australia and the USA.

Brown is a moving force behind the OECD's Black, Grey and curiously uncoloured list of countries named as obstructive in tax investigations a year ago. And one of Brown's last tasks before becoming president (sorry, Prime Minister - we keep getting confused as he has his hand in every aspect of government, it seems) was to demand that all UK banks report to the Treasury the names and addresses of all their customers who held offshore accounts tied to UK addresses. That was followed up with a demand to each of those customers, direct from the Treasury, to disclose their offshore assets - and pay any tax due or face hefty penalties.

The period for those disclosures has expired. Darling then announced that the Treasury would implement, as from 1 April 2010, a scheme of publicly denouncing those who HM Revenue and Customs concluded had evaded tax exceeding GBP25,000.

That left the relatively small-time tax evader and anyone who holds money offshore and not in a UK bank or its subsidiaries.

Yesterday, Darling started to join up all the dots. It might have taken 13 years, and it might have been delayed so friends of Labour could re-arrange themselves better, but the eventual scheme is very neat, tidy and - dare we say it - clever.

For it does not smack of imperialism, it simply deals with a particular domestic problem in a purely domestic way. He said that a tax agreement recently signed with Lichtenstein is expected to "bring in around GBP1,000 million of extra revenue" and "we are ready to sign tax information exchange agreements with three additional countries – Dominica, Grenada and Belize."

What he did not say in the public statement, but is in the Treasury's notes on the topic is that HM Treasury will apply a sliding scale when it discovers offshore evasion.

If the evasion is in a jurisdiction which has not entered into an information exchange agreement (cross -reference this to the OECD list), then penalties will be multiplied, depending on how uncooperative the Treasury considers the jurisdiction to be. At the worst end of the spectrum will be a penalty of 200% of the tax due.

And HM Treasury don't have to deal with or pressure the jurisdiction at all. It's a domestic issue between a person who is resident in the UK for tax purposes and the UK government.

Very neat and very cost effective.

Unfortunately, he entirely failed to deal with the question of the so-called "non-doms" - wealthy foreigners who live in the UK but keep the bulk of their assets offshore yet get favourable treatment from Brown and Darling whilst ordinary people see their tax rates rise to as much as 50% income tax plus a newly ordered additional 1% on National Insurance bringing the marginal rate of tax for some people up to more than 60% - and that's before applying the 50% "bonus tax" in the City - which Darling declared had brought in much more than expected - an additional GBP2,000 million.