Introduction – Ineos tax avoidance
In Blackadder Goes Forth, Speckled Jim was General Melchett’s favourite carrier pigeon. It was said that Melchett raised our feathered friend from a chick and who was his only childhood friend.
Unfortunately for Blackadder, he shoots Speckled Jim and despite ‘eating the evidence’ finds himself facing a Court Martial. Melchett is both the Judge and the main witness for the ‘prosecution’
The impartial Melchett states:
“He’s a hound and a rotter, and he’s going to be shot! However, before we proceed to the formality of sentencing the deceased… I mean the defendant… I think we’d all rather enjoy hearing the case of the prosecution”
Sometimes, it feels like this is the same kind of court that publicly tries alleged tax avoiders.
Sunday Times – Ineos tax avoidance
There is no more current example that that another Jim. ‘Plucky’ Sir Jim Ratcliffe, the majority shareholder of the private company behemoth, Ineos. His case was featured in the most recent edition of the Sunday Times.
He has found himself hauled over the coals for coming up with an ‘egregious’ piece of tax avoidance seemingly conjured up with his fellow shareholders / directors. This has (apparently) got even the company’s auditor, PWC, in a bit of a lather.
Of course, with these articles, it is difficult to piece together what has actually gone on with any degree of precision (or, indeed, at all!) The main aim being a headline to set off the gnashing of teeth, with the dissection of the facts a much more subsidiary goal.
This article is no different.
However, there is some indication of what might have been contemplated in the last paragraph:
“According to a tax lawyer, an individual has to spend at least five years offshore to avoid being taxed on dividends…”
The basic rule is that if one is non-resident for a tax year then the receipt of a UK dividend is not taxable in the UK. As such, one could roll up profits in a Company and then, in the crucial year where a large dividend would be paid out, ensure that one is resident in a non-UK and tax favourable jurisdiction.
Following in the footsteps of the Dave Clark Five?
This was famously (and successfully) taken advantage of by Dave Clark of the 60s band The Dave Clark Five.
However, when the Statutory Residency Test was introduced in the UK in 2013, the Government also slipped in an antidote to this problem. They introduced a 5-year temporary non-residence rule which meant if one did the Dave Clark trick and came back to the UK within 5 years then the tax charge came back from the dead in the year of departure.
So, the question is, what is the problem?
The rules were changed in 2013 to give the result that Parliament deemed satisfactory. In other words, if the taxpayer was prepared to leave the UK for five years (and this is a long time) then one could escape tax on the dividend.
Of course, the key is remaining non-resident for the five years. Something that can be particularly difficult if one needs to continue managing the business.
As such, if Sir Jim and his colleagues moved to Monaco, pay a dividend in a year of non-residence, and remain outside of the UK for half a decade, then there is no tax on the receipts.
This is regardless of whether it is £10 or £10bn. Of course, the latter is more likely to be reviewed by HMRC and more likely to make the newspaper headlines.
Ineos tax avoidance – can it be so simple?
So could the Ineos tax avoidance story be so simple?
I would be surprised if PWC had spent its time hand-wringing over such a simple manoeuvre. Indeed, if one sets aside the amount of tax at stake, there is nothing ‘egregious’ about I have set out above. So perhaps something far more complex was pulled together.
However, this does raise an issue for the larger accountancy firms such as PWC and the rest of the Big 4. Clearly, it cannot be a good position if the client is inhibited by the adviser running scared of being mentioned in the newspapers. It represents a conflict. I have always admired the ethical guideline for barristers that requires he or she to“fearlessly promote and protect their client’s best interests” Such a conflict of interests is a million miles away from this approach.
Of course, it also reopens the issue of whether alleged tax miscreants should be able to benefit from the honours system.
That said, the article does give Sir Jim some credit stating that “there is no doubt they have earned their wealth”. Of course, this is a compliment through gritted teeth.
However, even this goes on to say that “the question is how much tax they should pay on it”.
Well, if the planning is as surmised above, then assuming they stay non-resident for five years, Parliament’s intention is that it should be nil.
However, in the current climate, those suspected of tax avoidance will gain as much sympathy from the public as ‘the Flanders Pigeon murderer’ gained General Melchett.
More information on international tax issues for private clients can be found here.
If you have any queries regarding the story on Ineos tax avoidance or international tax planning then please do not hesitate to get in touch.