The FactCheck Blog

FactCheck: have we really tamed the ‘tax havens’?

The claim

“Each and every one of our overseas territories and crown dependencies has agreed to sign up to the multi-lateral convention on information exchange, to exchange information automatically with the UK and to produce action plans on beneficial ownership.”
David Cameron, 15 June 2013

The background

Tackling tax dodging was one of the big themes of the G8 conference, and the issued dominated today’s Lough Erne declaration.

The agreement – signed by the UK, US, France, Germany, Italy, Canada, Russia and Japan – urges tax authorities across the world to share information with each other automatically, crack down on multinationals shifting profits between different countries, and improve transparency on who really owns companies.

The automatic sharing of information by financial institutions in different countries is seen as one of the key battlegrounds in the war against offshore tax evasion.

As things stand, FactCheck might choose to squirrel away its vast wealth in a tax haven, safe in the knowledge that the details generally won’t be revealed to the taxman back in Blighty.

But if our offshore jurisdiction of choice agrees to contact Her Majesty’s Revenue & Customs automatically every time a British citizen opens up an account or shell company on their soil, our chances of avoiding UK tax shrink dramatically.

David Cameron says he’s leading the way in pushing this idea, and there was much fanfare this week when Britain’s overseas territories and crown dependencies apparently agreed to sign up to the new international gold standard on information-sharing.

But as so often where tax is concerned, the devil is in the detail.

The analysis

Britain’s overseas territories and crown dependencies include sun-kissed places like Bermuda, the Caymans, and the British Virgin Islands, some of which have acquired a reputation, rightly or wrongly, for being tax havens. Most fiercely deny it.

But with charities like ActionAid suggesting that one in five tax havens worldwide has links to London, it was politically difficult for Mr Cameron to try to broker a global deal on tax without being seen to get his own house in order.

That was why there was widespread embarrassment earlier this week when it looked as though the government of low-tax Bermuda was about to defy the prime minister and refuse to sign up to international protocols.

In the end, all the territories and dependencies agreed to a number of measures including committing to joining OECD’s multilateral convention on the automatic sharing of tax information. The government called this “concrete action”.

But how far did territories like Bermuda really back down?

In the end, the British government published slightly different responses from different groups of territories on what they had agreed to do.

Jersey, Guernsey, the Isle of Man and the Cayman Islands said: “We commit to joining the convention and will be requesting its extension to our jurisdiction as rapidly as possible, subject to our domestic procedures.”

But Anguilla, Bermuda, the British Virgin Islands, Gibraltar, Montserrat and Turks and Caicos phrased it slightly differently, saying: “We have committed to joining the convention and have requested its extension to our jurisdictions as soon as possible, subject to our national procedures and the need for ensuring the achievement of a global level playing field.”

FactCheck wondered whether this final caveat – which was not included by accident – had the effect of rather watering down the effect of the announcement.

When would these territories actually start to implement the convention and start sharing information automatically with other countries?

The concern is clear: if one tax regime tightens its rules but its competitors are allowed to carry on as before, the first jurisdiction loses all its customers and we don’t really solve the problem.

But what do these territories consider a ”global level playing field” and how long will it take to achieve it? Months, years… decades?

FactCheck has struggled to get a straight answer on when these territories are going to make good on this agreement, although a source in one told us that the wording has been left deliberately vague and no firm date has been set for when any of this is really going to happen.

The wording of the other points on this plan for “concrete action” are also a little vague.

Britain’s overseas territories are going to “play an active part” in a new pilot scheme on automatic information exchange between the UK, France, Germany, Italy and Spain.

They are going to “produce action plans” on implementing another international standard on telling tax authorities who really owns companies.

The verdict

The government insists it is making more progress than its predecessors did on tax transparency – and even some fierce critics agree.

But one simple question no one is able to answer is when the commitments made by Britain’s crown dependencies and overseas territories will be honoured.

In conversation with Channel 4 News Political Editor Gary Gibbon this week, the deputy premier of the Turks and Caicos islands candidly agreed that nothing more concrete than the “possible implementation of possible principles” has in fact been agreed.

The Treasury told us a smaller bilateral agreement on automatic information sharing between the UK taxman and Britain’s overseas territories is due to begin in 2016.

As far as the broader multilateral agreement is concerned, a spokesman said: “They have been clear that they will join as soon as possible, both in that statement and in conversations with us.”

By Patrick Worrall

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