These are a few further notes on the Paradise Papers following my earlier blog.
My initial feeling was that this was a load of old claptrap. I remain of that view that it is. However, it appears that, in addition, there is a huge amount of hypocrisy here.
I set out a few notes to explain why.
The Parliamentary Contributory Pension Fund (“PCPF”) – the MPs pension fund
Following the release of the Paradise Papers, as you will one aware, the Queen was criticised for the Duchy of Lancaster’s use of offshore funds in its investment portfolio. I have just spent about 15 mins looking at the 2015/16 accounts for the PCPF and have picked three fund holdings:
- The Morgan Stanley Global Property Fund – this is a SICAV domiciled in the Duchy of Luxembourg. We all know about the Public Accounts Committee’s views on Luxembourg;
- The M&G European Loans Fund – is an OEIC domiciled in the Republic of Ireland, which is having a contretemps with the EU over its tax deals with Apple and Oxfam has branded as one of the world’s worst tax havens; and
- BlackRock UK Property Fund – this one is a fund registered and domiciled in Jersey. Jersey being one of those infernal ‘Crown Dependencies’ that Labour are always wittering on about.
Of course, this isn’t tax avoidance. It is exactly the same as the Duchy’s investments. They are made through a structure that one accepts as part of the investment. Off the shelf.
However, if one is applying the same Paradise Papers framework (i.e. the one that the media and the likes of John McDonnell and Tom Watson have applied) to the Duchy’s investments then they must also look much closer to home.
Otherwise it smacks of gross hypocrisy.
It does not end there. The Duchy was also criticised for investing in Thresher’s that went pop. According to reports, it went bust with the loss of several thousand jobs as if the investment actually caused that. I am not sure how. Presumably, if anything, it propped it up. One assumes that the investment was lost.
However, the bigger issue appeared to be the investment in Bright House. A company by all accounts that, in a Wonga-stylee, made exorbitant credit available to those on low wages so that they could purchase TVs, fridges and other electrical appliances.
Apparently, the Duchy should not invest in companies with such unethical business practices.
Since 2016, the PCPF has published its Top 20 equity holdings.
In no particular order these holdings include:
- BAT – that’s British American Tobacco – might be some ethical issues there investing in brokers of certain death
- Diageo – has had a few issues over the Diverted Profits Tax (aka Google Tax – see below);
- Vodafone – has had its fair share of media interest in its tax affairs;
- HSBC – a few issues in its Swiss operations re allegedly assisting clients to evade tax and its chief Stuart Gulliver also has got in on the action too;
- Google (Apple Inc) – do I really need to say anything here. George Osborne created his own tax in its honour… though Diageo is getting stiffed on it first;
- Apple – ditto, though, in the absence of creating a new tax, must console itself with keeping the EU busy;
- Amazon – ditto…
- WPP – A massive shareholder revolt against Martin Sorrell;
- Rio Tinto – The Serious Fraud Office has opened a massive investigation of bribes in Africa
You really couldn’t make this stuff up. MP’s seemingly have no problem with their pension scheme in investing in ethically dubious companies – some of whom many will have directly criticised.
Her Majesty really should be looking for the keys to the Tower of London…
BBC pension fund
One can also look at the top 20 equity holdings held by the BBC pension fund – of course, the BBC being behind the Panorama programme which aired on Sunday night on the Paradise Papers.
The scheme has substantial investments in the following:
- Google (Alphabet Inc)
- Facebook – like its other online friends, it has, of course, suffered criticism for lack of UK tax payments.
- Apple Inc
One can also see the funds that the pension scheme invests in by reviewing the annual report for the pension scheme.
There are a lot of funds listed ripe for exploration, however, these two I did check out:
- Hony Capital Fund LP: although not identifying the exact fund, Hony is a Chinese Private Equity company and its funds appear to be Cayman Island Limited Partnerships. So a bit like the criticised Dover Street Fund in to which the Duchy invested;
- BlackRock Long Lease Fund – Another Jersey domiciled Private Unit Trust for BlackRock
More gross hypocrisy. Same comments as above.
An injection of reason?
Of course, registered pension schemes do not generally pay tax on income and gains by virtue of statutory exemption. So this means things are different?
Well, no. I think it reinforces the point. If an investor who does not pay tax on his investments uses offshore funds then there must be some other driver. My answer would be that it is because the best (and most) funds are domiciled outside of the UK.
And selecting a fund because you think it is the best cannot be tax avoidance, can it?
Furthermore, the murky offshore centre doesn’t care who it gets its money from. So if tax havens are evil, as the BBC and MPs would like us to think, then these schemes are allowing them to carry on as usual.
Do I think it is wrong to invest in non-UK funds? No, I do not. It is a simple fact that most investment funds are domiciled outside of the UK. My view is that I should be able to invest in the best funds, so should the BBC and MPs, and so should the Queen.
If it is the structure of the global fund industry that these tend to be domiciled out of particular jurisdiction then so be it. It isn’t tax avoidance to choose an overseas fund in this context.
Of course, there is some murky behaviour that goes on offshore. However, one cannot simply say that offshore = evil. Send in the battleships.
To plaster all media sources with such ‘revelations’ is really not helpful in developing sensible tax policy in this country – albeit it plays well with the lowest common denominator.
On Sunday night’s Panorama programme, Richard Bilton stated he had spent 12 months reading the leaks from the ICIJ. However, in reality, he could have spent and evening looking at his or his colleagues annual pension statement and half of his story would have been done and dusted.
It could have saved us two episodes of excruciating TV.
If you have any queries or any comments on the Paradise Papers or any tax matter in general please get in touch. We love a good debate!