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Thank You, Gordon, Now Here's The Money For Your Bus Home

Jeremy Hetherington-Gore Unleashed
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!


About the Author

Jeremy Hetherington-Gore Unleashed

Jeremy tackles the difficult issues head on!


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