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British Overseas Territories: The fall of a ‘dangerously unequal economic system’ or merely squeezing the balloon?

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Yesterday we heard an announcement which could spell the decline of the BOTS.

That’s the British Overseas Territories, rather than our mechanoid friends.

For example, the list of British Overseas Territories (“BOTS”) would include jurisdictions such as the British Virgin Islands (BVI), Bermuda, Gibraltar and the Cayman Islands.

It should be noted that Guernsey, Jersey and the Isle of Man are not BOTS. They have a different constitutional relationship.

So what has happened?

Well, a proposed amendment to an anti-corruption bill that has been snaking through the house gathered significant cross-party support. The Witch-finder General herself, Margaret Hodge, and Andrew ‘Plebgate’ Mitchell being seen as the architects behind this amendment.

The outcome is that, by the end of 2020, the BOTS will need to have a publicly searchable register detailing beneficial ownership of Companies. In other words, they must go beyond making this data available to tax collectors and enforcement agencies. In other words, any one with too much time on their hands can have a gander at who owns what and where and perhaps how much.

Of course, this has created a huge backlash. The BOTS complain that this is outrageous interference with how they govern themselves. Indeed, this was the reason why the Government’s preference was to ‘keep off the grass’. However, in public, they have said they have deferred to the majority view in the house. It is also interesting that, in respect of the Cayman Islands, the UK Government promised in 2009 not to interfere in their domestic legislation. It appears that this promise has now been broken.

At a time of Brexit, which we are told was all about the right to self-determination and sovereignty, it does seem somewhat hypocritical for the Westminster Government to impose measures such as this.

Mr Mitchell explains this away as a price to pay for them flying our flag. Whatever that means. However, I suspect that this might cause some of them to do a quick cost benefit analysis!

It is interesting that, when lobbied over the issue of Bermuda’s revocation of its gay marriage legislation, the Government played the non-interventionist card.

Oxfam, who have had their own issues recently, seem over the moon about this development. They believe it represents the beginning of the end of a ‘dangerously unequal economic system’. It will result in tens of billions of pounds of funds going back in to the pockets of the developing world.

Or will it.

Will the oligarchs, corrupt politicians and those who simply would rather not have journalists and extortionists crawling over their financial affairs just give up? Will they say ‘Gentleman, do your worst?’

Or will they simply transfer their affairs to other jurisdictions where public registers are not available? Is this merely an example of squeezing the balloon?

What do I mean ‘squeezing the balloon’?

Well, essentially, if one squeezes one end of the balloon, the air does not simply disappear, it moves to and swells another part the balloon. What seems to be missed is that not all tax havens, low tax jurisdictions, international financial centres [insert description of choice] are BOTS or any other type of crown dependency.

Of course, Oxfam and other campaigners will be hoping that the balloon is squeezed so hard that it pops. Their view will be that the international community will stand in solidarity. This represents the direction of travel.

However, even with events such as Brexit, we have seen a land grab for internationally mobile individuals with a number of jurisdictions offering tax incentives. I believe we will see the same with this issue. If a jurisidiction tastes blood in the water, well, the financial rewards may well be too high to resist.

From a purely UK tax perspective, there are perhaps better jurisdictions to have your money in based in the EU. [Indeed, I write this whilst waiting at the airport for a flight to Cyprus where I will be meeting with a number of clients.]

In terms of privacy there are many jurisdictions outside of the BOTS around the world which provide one with a shield. Indeed, the continued rise of the UAE as a financial centre is something to watch.

Why would anyone want to attract the ‘dirty money’ and the ‘tax dodgers’? As alluded to above there are genuine reasons why one would want to keep their financial affairs private from the public. There is now an unprecedented level of global information sharing and many of the practices included in the Panama Papers are old ones to which solutions already exist. As such, a jurisdiction could claim its house was in order.

The content of the Paradise Papers, on the other hand, were largely nonsense.

This, of course, presents the BOTS with a stark choice. They fall in to line and perhaps watch their economies be picked off by other international financial centres or consider revising, or even severing, their links with the Crown.

Only time will tell.

But could this be a start of BOTXIT?

 

If you have any queries on this development, on international tax, or tax matters in general then please get in touch.

 

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