Britain's tax havens and offshore financial centres must meet international standards on tax transparency, financial sector regulation and financial crime if they are to continue to hold themselves out as internationally active financial centres, the Foot review concluded.
Michael Foot's report for the UK government recommended that nine jurisdictions, including Guernsey, Isle of Man, Jersey and the British Virgin Islands, consider developing a diversified tax base to maximise sources of revenue. He commissioned Deloitte to conduct an evaluation of the "importance" of the Crown Dependencies (CDs) and Overseas Territories (OTs) in tax avoidance by UK corporates.
Corporate tax avoidance costs the UK less than £2bn, the firm estimated. "Deloitte tentatively concluded that the [CDs and OTs] were distinguished within the developed world by differentiating themselves from the international consensus, sometimes through tax rates but more often through the absence or near absence of certain forms of taxation," Foot said. "Whilst there were other drivers for doing business in these jurisdictions … tax was an important motivating factor."
Deloitte estimated that the amount of UK tax avoided by UK corporates using the nine jurisdictions was likely to be "significantly lower" than estimates produced by previous studies had suggested. The firm said: "We estimate the total UK corporation tax potentially lost to avoidance activities to be up to £2bn per annum, although it could be much lower, with avoidance through the CDs and OTs being an unidentified sub-component."
The TUC estimated in 2008 that the UK revenue loss from corporate tax avoidance was £11.8bn per annum.
Critics questioned Deloitte's analysis and the Tax Justice Network pointed out that the report focused on risks posed by the centres' activities to themselves and to the UK. "It simply ignores the elephant in the room: what about the damage these places cause to the rest of the world?" the TJN asked. Richard Murphy, the anti-avoidance campaigner and adviser to the TJN, claimed that Foot had produced "a weak apology for a report".
Tolley's Practical Tax newsletter (6 November) has more on these and other developments including:
- Avoidance and evasion "in any form" will not be tolerated, says the financial secretary to the Treasury;
- Treasury consults on small companies rate rules;
- Scrap measures to counter "false self-employment", says CIOT;
- Compliance reforms call for vigilance – a round table discussion hosted by the Tax Journal reviewed practical issues arising from the latest developments in tax investigations; and
- Expatriate tax and NIC update – Amanda Sullivan reports on October 2009 meeting of the Joint Forum on Expatriate Tax and NICs.
