Long-overdue tax revolt is finally under way in Britain

Posted on in Policy Context

TheGlobeandMail.com – ROB/International Business
Apr. 10 2015.   Eric Reguly – European Bureau Chief, Rome

When I moved from New York to London in the mid-1990s as a foreign correspondent, I hired a British accountant to ease me into the country’s tax system. That he did. He told me about non-domiciled tax status – non-dom for short – a popular little perk I had never heard of previously. I filled in a few forms and suddenly I was in fiscal heaven.

Non-dom status dates back to the Napoleonic wars, a historical quirk that has endured for more than two centuries even though it is entirely unfair, sexist, open to abuse and of dubious utility to the government’s strategic goals.

It allows foreigners with family and business links abroad (in my case Canada) and some Brits who were lucky enough to have a father, but not a mother, born outside of Britain to declare another country as their real “domicile.”

The status allows non-doms to pay no tax in Britain on any income or capital gains earned outside of Britain, although, since 2008, they have had to pay an annual fee to maintain their status. It meant I paid tax only on the portion of my salary that I brought into Britain (I scrapped my non-dom status after a year, when it seemed that London was becoming my permanent home). The non-dom tax dodge is entirely legal, encouraged even, and still is. This week, Labour Party Leader Ed Miliband promised to abolish it if Labour wins the May 7 election. The pledge opened a new front in what had been a tedious and predictable campaign. The pledge worked. Mr. Miliband is now leading the polls as David Cameron’s Conservatives and the conservative press find themselves defending the indefensible.

A long-overdue tax revolt is finally getting under way in Europe and it’s not one against excessive taxes, although that exists, too. The revolt is aimed at wealthy individuals and corporations who game the system so expertly that they pay hardly any taxes, or less tax than fairness would dictate. Europe is riddled with tax havens whose role is to deprive high-tax countries from the resources they need to support their social systems. The Channel Islands, Switzerland, Luxembourg, Liechtenstein, the Netherlands and Ireland all offer corporations and individuals low-tax bolt holes that many finance directors and yacht-equipped oligarchs cannot resist, and who can blame them?

Last week, the Centre for Research on Multinational Corporations revealed that Canada’s Eldorado Gold was using Dutch mailbox addresses to trim its tax load in effectively bankrupt Greece (where, incidentally, high-seas shipping companies are exempt from taxes). Google, Amazon, Starbucks and Apple, among other global biggies, employ entire departments dedicated to devising phenomenally clever, yet apparently legal, tax-avoidance schemes in Europe.

In 2013, a U.S. Senate investigation showed that Apple had paid just 2-per-cent tax on income of $74-billion (U.S.) over three years, largely by exploiting Ireland’s rather convenient tax code. Amazon runs most of its European operations out of Luxembourg, allowing it to minimize taxes from operations in other European countries.

Sadly, the effort to crack down on blatant tax avoidance schemes has few high-profile champions. Countries such as Luxembourg seem to have tax avoidance infused into their sovereign DNA. Last year, it was revealed that no less than former Luxembourg prime minister Jean-Claude Juncker, now President of the European Commission, had overseen the introduction of laws that turned Luxembourg into a tax haven. Meanwhile, of course, the European Commission is urging Greece to get serious about tax collection.

Mr. Miliband’s pledge to sink the non-doms unleashed a pointless debate. Various Tories argued that scrapping the loophole would scare away wealthy investors, costing her majesty’s treasure a fortune. Jobs would vanish and London would lose its status as an international finance centre. Billionaires would bolt from Mayfair and Kensington and head to Liechtenstein or some obscure tax haven tucked away in the Pyrenees (as if). Labour said ending the non-dom freebie would bring in about £1-billion ($1.8-billion) a year in taxes. That claim is equally absurd. The net effect is a wild guess, although it’s probable that any losses or gains to the treasury would hardly be enormous.

But that’s not the point. The point is fairness. The non-dom loopholes make the rich richer, which widens the wealth divide and builds resentment among the unwealthy, all the more so since the non-dom definition appears to be overly flexible. HSBC boss Stuart Gulliver, who was born in Britain and has worked In London since 2003, is a non-dom (he considers his home Hong Kong, where he spent most of his career).

Liberal democracies and enterprise work best when rules are applied evenly, and that goes for the tax code, too. The non-dom loophole reminds all Britons that the rich often do not pay their fair share, that the system is rigged in favour of the wealthy. The bigger story is the tax havens scattered across Europe. Unless they are reined in, the notion that the European Union is a level playing field will remain a farce.

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