When the British tax authorities struck a landmark deal with the
Swiss to crack down on tax evasion, they sat back and waited for
the cash to flow in.
Almost three years later, they are still waiting. So far, only
US$1.7 billion (S$2.1 billion) of the US$8.4 billion windfall they
expected has materialised, and the sheepish tax authorities now
hope to collect just a third of their original
estimate.
The deal struck by Britain, which once seemed a pioneer in
combating tax evasion, is emerging as a cautionary tale for a
growing number of nations that are feeling the pinch of Europes
flat economy and are desperate to reap revenues from secret
accounts held by the wealthy.
The amounts at stake are enormous. In 2012, the British government
estimated that Britons had amassed more than US$68.5 billion in
Swiss banks. Some conservative estimates of the amount of money
tucked away in tax havens and out of reach of governments
worldwidego as high as US$21 trillion - more than the gross
domestic product of the United States.
The British tax authorities are now facing increasing pressure to
act more aggressively. But as the British deal has shown, the
efforts to reduce tax avoidance by striking deals with individual
havens are akin to plugging one hole in a colander.
Asked by lawmakers last month about the missing billions, Mr Jim
Harra, director-general for business tax at Britains tax
collection authority, said it was "a concern that we have had all
along that as the Swiss agreement began to bite, that people would
then move their money elsewhere". In short, he conceded, they took
the money and ran.
The lesson is that "you cannot rely on a black hole to get income",
according to Mr Pascal SaintAmans, a tax expert with the
Organisation for Economic Cooperation and Development, based in
Paris. The organisation is developing standards for a broader
international deal. So far 60 jurisdictions and nations, including
Switzerland, have committed themselves. But that agreement is not
expected to take effect until 2017, and critics are already
pointing out loopholes.
Britain's deal with Switzerland had plenty of its own. For those
who wanted to evade the British tax authorities, the agreement gave
ample warning - 16 months - to shift money to other offshore havens
or put it into gold, bearer funds, artwork, insurance or safe
deposit boxes.
Other money is hidden in ever more elaborate mazes of offshore
trusts and foundations often managed by trustees, usually foreign
lawyers, allowing the real beneficiaries to remain
secret.
Under the deal with Switzerland, about 18,000 Britons disclosed
their names to the British authorities. Those who did not want to
be identified paid a one-time levy of up to 34 per cent to settle
past taxes.
But recently, the Swiss sent the British a list of the
international jurisdictions that had received money from accounts
held by Britons in Switzerland before the deductions could be made.
Mr Jason Collins, a tax lawyer with Pinsent Masons in London, said
the likely locations include Singapore and Dubai. Other experts see money
shifting to Hong Kong, Mauritius and Seychelles.
The above article appeared in "UK fails to get tax-evasion
windfall", The Sunday Times, 3 August 2014, page 24)
