| 05 April 2009
Just in the last week, the outlines of the 'new world order' which will shape
the international fiscal landscape for the next few decades have become perceptibly
clearer, with low-tax jurisdictions rushing to sign information exchange agreements
with their high-tax tormentors in order to avoid inclusion on the OECD's new
blacklist, which most of them have indeed escaped.
Before giving up on offshore as a bad job, however, it is worth remembering
what has actually changed, and what happened last time that the OECD bullied
low-tax countries, in 2000. On that occasion the OECD wanted two things: transparency
and higher taxes. It got transparency, as dozens of offshore jurisdictions enacted
'know your customer' rules and banned bearer shares. But it didn't get higher
taxes - the offshore jurisdictions banded together and shamed the OECD into
agreeing a 'level playing field' which maintained tax competition as a respectable
concept.
This time the OECD is attacking secrecy, making sure that high-tax country
citizens cannot hide their wealth or income away from the eyes of their home
tax authorities. But the OECD is flogging a dead horse: fishing expeditions
by tax authorities in the UK, the USA, Ireland, Germany and France have made
offshore concealment a dangerous and expensive game to play. No sensible, seriously
wealthy person would any longer take the chance of evading taxes on a major
scale. And they don't have to, anyway, there are plenty of legitimate ways of
protecting your wealth without hiding it under a rock on a Caribbean island.
One of the best ways of protecting yourself from taxes is by not living in
a high-tax country, and the counterpart of the OECD's efforts to prise open
the offshore shutters will be an ever-increasing stream of tax-emigres. Something
that the tax authorities don't 'get' is that taxation is a bargain with two
parties - the taxman and the taxpayer. Taxpayers pay because the bargain is
worth it to them, and for the last fifty years wealthy people have accepted
the bargain because they were able to protect most of their wealth from taxation,
using legitimate or illegitimate means.
The behaviour of the cloth-eared British Treasury over 'non-doms' is a perfect
example of how to kill the goose that was laying such a rich harvest of golden eggs.
New rules apply an annual GBP30,000 charge to any long-term non-domiciled UK
resident (not born there, roughly speaking) in addition to local-source taxation.
One in four resident but non-domiciled taxpayers in the UK who responded to
a recent poll regarding the changes to the non-dom tax regime have already made the decision
to leave the country, and another 25% have said they will wait and see before
doing so. Now, do you suppose these are the poorer 50% of non-doms, or the richer?
No prizes for guessing that the richer people will leave, while the poorer ones
will stay.
Something else that the tax authorities don't 'get' is the Internet. There
is no longer any need for a business person, an investor or a company to have
a physical presence in a country in order to operate there. The foreign hedge
fund managers in New York who have been able to treat 'carried interest', ie
their fund management profits, as low-taxed capital gains rather than high-taxed
income will all be on the way to Dublin, Zurich or Cyprus as soon as Congress
passes the inevitable law to change the current regime. All the rich Russians
have already left Moscow as fast as their Lear Jets could carry them.
And this uncomprehending behaviour at a moment when the trillions of taxpayers' money being thrown
at the world's banking sector by short-sighted politicians hang like a toxic
cloud over the rich countries' fiscal landscape. Taxes are going up, make no mistake
about it, and big time. They will have to - but not offshore, where the banks
are mostly as solid as the rocks they stand on. In between the year 2000, when
the OECD launched its anti-offshore rockets, the banking and investment fund
assets held offshore have increased by approximately 500%, and it has become
almost impossible to find anywhere to live at a reasonable price in any offshore
territory with a halfway-decent climate and good Internet connectivity. Now
that the world's leaders are kindly insisting on the removal of the last shreds
of ill-repute from offshore, just watch it grow in the next 10 years!
You have been reading an entry on the following blog:
Jeremy Hetherington-Gore Unleashed
Jeremy tackles the difficult issues head on!
Contact: jeremy@lowtax.net
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