Ed Miliband tonight warns the tax havens costing British families and businesses billions of pounds that they will have just six months to put their house in order and open their books - or face being placed on an international blacklist.
He will highlight figures showing that despite David Cameron boasting more than 18 months ago that he had forced tax havens to open up, not one of the tax havens linked to Britain as Overseas Territories or Crown Dependencies have yet delivered on Cameron’s promise that they would publish a register showing who owns the companies registered there – and some have explicitly refused to do so.
The lack of leadership shown by the UK government has frustrated and slowed the pace of reform on tax avoidance across the world.
In a letter to heads of government, he will serve notice on them that that under the next Labour government they will have six months to publish publicly accessible central registers of beneficial ownership.
If they fail to meet this deadline, the next Labour government will withdraw the protection they get from international scrutiny and ask the Organisation for Economic Co-operation and Development to place them on its tax haven blacklist.
In an interview with the Guardian newspaper, Ed Miliband said:
“More than 18 months have passed since David Cameron promised to shine a light on the tax havens in UK overseas territories and Crown Dependencies – and their affairs are still shrouded in darkness. That may be good enough for him, but it will not satisfy me, or the incoming Labour government
“There is nothing pro-business about defending tax avoidance. The United Kingdom has a responsibility to open up the Overseas Territories and Crown Dependencies which are held responsible for so much tax secrecy and avoidance.
“And it is costing everyone who relies on our schools, our hospitals, our roads and our railways. It is costing everyone who pays their fair share of taxes, including millions of British businesses.
“Billions of pounds is being siphoned off into tax havens where our authorities cannot discover even the true ownership of firms registered there, let alone the scale of wealth hidden away.
“Today, I am putting these tax havens on notice that they will have just six months to open up their books or face international sanction.”
Ends
Policy detail:
1. A publicly accessible central register of beneficial ownership is a register you can go to which tells you who is the actual owner of a company – in the sense of who benefits financially when that company makes money. Such a registry is already being set up in mainland UK.
2. Registers in Overseas Territories and Crown Dependencies would help stop or stem tax avoidance by showing the tax authorities who is diverting money into companies in these havens and where the money of UK taxpayers is going. At the moment, they can’t even check whether someone has set up a company in the tax havens, let alone whether any money is being diverted into that company.
3. The OECD is the guardian body for international tax rules. It has a list of uncooperative tax haven which low tax jurisdictions can be placed on depending on the transparency of their tax affair. Rather than protecting UK Overseas Territories and Crown Dependencies as we do now, we would act as whistle blowers, making a formal request to the OECD that they should be added to the blacklist.
4. The UK tax gap - the difference between what HMRC thinks it should collect and what it gets - has risen under David Cameron to £34bn
5. Overseas Territories and Crown Dependencies are under the jurisdiction and sovereignty of the UK, but are largely autonomous. The G20 has produced a list of potential measures that could be taken against black-listed countries which could include reviewing tax treaties with them, increasing disclosure, and even withholding taxes on finance flowing there.
Labour has already promised the following action on tax avoidance, set out in the paper Delivering Long-term Prosperity – Reform of the Business Taxation published by Ed Balls MP and Shabana Mahmood MP:
· Take the lead on tax transparency. A multilateral agreement on enhanced corporate reporting of tax liabilities in different jurisdictions would enhance transparency and reduce the risk of companies intent on avoiding tax relocating to territories with less exacting disclosure requirements. Nevertheless, even if international agreement is not forthcoming, we will work with business to create a disclosure regime that will increase transparency about what taxes are being paid and where, and bolster public confidence that companies are contributing their fair share. Furthermore, we will force UK Overseas Territories and Crown Dependencies to deliver on their promise to make the names of e beneficial owners of companies based in their jurisdictions publicly available, and extend this to trusts.
· End Exploitation of the Quoted Eurobond Exemption. A Labour Government will make it harder for companies to shift profits off-shore by addressing tax loopholes such as the Quoted Eurobond Exemption. HMRC themselves have identified the problem, but have failed to act. Those businesses legitimately using the exemption to obtain finance from international bond markets would be able to continue to do so. But those who use it as a loophole to move profits to connected companies in tax havens will be prevented from doing so.
· Tackle dormant companies. It has been estimated that 30% of all UK companies are not asked to submit tax returns. One explanation given is that these companies are either dormant or not liable to tax in the UK as they are exclusively trading overseas. Once companies have declared themselves to be dormant, there is an exemption from filing a Corporation Tax return for five years. For some companies, this five year window could be an opportunity to trade with tax impunity. Labour will require the annual confirmation of dormancy and explore the possibility of banks automatically informing HMRC when there is activity in supposedly-dormant accounts.
· Encourage stronger independent scrutiny of the tax system and the government’s efforts to tackle tax avoidance. Labour will affirm and strengthen the powers of the National Audit Office to scrutinise tax reliefs and, in particular, where they are abused to avoid tax. The Chancellor and the Chief Executive of HMRC should also be expected to give evidence to the Treasury Select Committee each year on the Government’s efforts to tackle tax avoidance and evasion and the progress made on reducing the tax gap.
· Ensure developing countries are fully involved in international efforts to tackle tax avoidance such as the OECD’s Base Erosion and Profit Shifting project. Too often, the developing countries that are directly harmed by tax avoidance – such as stripping profits out of countries where natural resources are extracted – do not have a seat at the table when decisions are made on global reforms.
· Combat disguised employment in the construction industry. We will finalise the proposals which we were developing in government to deem construction workers as employed for tax purposes if they meet criteria which most people would regard as obvious signs of employment.
· Ensure HMRC has the expertise it needs to work effectively. It is crucial that HMRC’s specialist investigation, enforcement, compliance and anti-avoidance units have the expertise they need if we are to reduce the tax gap. We will make sure that resources in HMRC are deployed more efficiently: for example, by liberating resources currently tied up in administering the Government’s “shares for rights” scheme.
· Bring in tough penalties for those who are caught by the General Anti-Abuse Rule (GAAR). At the moment those who are caught using abusive avoidance schemes under the GAAR only have to pay back the tax which they should have paid anyway. This is because the government failed to back up the GAAR with proper penalties. The GAAR introduced by this government is too weak to properly deter tax avoidance because there is no disincentive for those trying to game the system. Labour would introduce fines of up to 100 per cent of the value of the tax which was avoided through abusive schemes. This will ensure a genuine deterrent to aggressive tax avoidance with fines which can make those who use abusive avoidance schemes pay back twice the sum they avoided.
Notes to Editors:
1. Details of action taken by Overseas Territories and Crown Dependencies since David Cameron demanding they “shine a light” more than 18 months ago.
Overseas Territories Consultation Notes
Anguilla Yes - closed in Aug 2014 No further action as yet
Bermuda None announced Rejected proposal to make it public
British Virgin Islands Yes - closed in Jan 2014 Interim rejection - likely to become firm
Cayman Islands Yes - closed in Jan 2014 Rejected proposal to make it public
Gibraltar Yes - closed in Sep 2014 No further action as yet
Montserrat Yes - closed in May 2014 No further action as yet
Turks and Caicos Islands Yes - closed in May 2014 No further action as yet
Crown Dependencies
Bailiwicks of Jersey Yes - closed in May 2014 Website states that response due on 30th October 2014 - but nothing as yet
Guernsey No - they’re ‘assessing’ No further action as yet
Isle of Man Yes - closed in Sep 2014 No further action as yet
2. Text of the letter from Ed Miliband, Leader of the Opposition, to heads of government in these Overseas Territories and Crown Dependencies:
Dear xxx
More than 18 months ago, David Cameron announced that you and he had reached agreement on increasing transparency around the ownership of companies based in your jurisdictions. This was to reduce the opportunity for them to be used for tax avoidance, evasion and other illegal activity.
He said that you and he would focus on beneficial ownership, and that you would publish the true owners of shell companies based in your jurisdictions. He claimed that this was a “very positive step forward” ahead of the G8 meeting in June 2013, and followed it up with a letter saying that
“Beneficial ownership and public access to a central register is key to improving the transparency of company ownership and vital to meeting the urgent challenges of illicit finance and tax evasion”.
However, since then no Overseas Territory or Crown Dependency has produced a publicly accessible central register of beneficial ownership. And, despite his initial enthusiasm, David Cameron has done nothing to ensure that they are produced.
Ahead of the General Election in May, I am writing to put you on notice that a Labour government will not allow this situation of delay and secrecy to continue. Labour will act on tax avoidance where the Tories will not.
All UK Overseas Territories or Crown Dependencies will have to produce a publicly accessible central register of beneficial ownership within six months of the election of a Labour government. If any Overseas Territory or Crown Dependency does not meet this deadline, we will ask the Organisation for Economic Co-operation and Development (OECD) to put them on the OECD’s tax haven blacklist.
Yours sincerely,
Ed Miliband