Budget 2010: Is the joke on Belize or the chancellor?

In view of the political fallout surrounding Tory donor and deputy chairman Lord Ashcroft, it was no surprise that chancellor Alistair Darling raised a laugh among the Labour front bench as he announced the imminent signature of a tax information exchange agreement ( TIEA) with Belize, the Caribbean haven he is domiciled in and holds many business interests.

Ashcroft wasn’t mentioned by name, but Darling’s own amusement on the uproar his announcement caused suggested that the Tory peer was indeed implied in his subtle joke.

However, the forthcoming signing of a TIEA with Belize (along with similar agreements with Grenada and Dominica) is not necessarily targeted at non-dom Lord Ashcroft - of whom there is no suggestion of any tax wrongdoing - and, according to the profession, may not prove as useful as the Treasury hope.

Barry Hallam, senior tax manager at Mercer & Hole, said that they are “not as comprehensive” as they could be. “The information exchange under these agreements is not automatic,” he said. “HMRC would have to be very specific in their enquiries in order to obtain information under these agreements - for example, as well as the identity of the person they’re enquiring about, they would need to disclose to the tax haven’s authorities what exactly that person is holding there, why they believe it’s in that country, and the tax purposes for which that information is sought,” he explained. “The use of a TIEA is therefore limited.”

However, Hallam concedes, it is better than not having an agreement at all, a view that is shared by Mike Warburton, tax director at Grant Thornton.

“They can be worth it for UK-domiciles who are hiding money offshore which they should be paying UK tax on,” he says. Paul Harrison, UK head of tax investigations at KPMG, agrees. “TIEAs can be useful in clamping down on offshore evasion,” he said.

“They have increased markedly in the last three or four years - HMRC has sought to enter into these agreements as part of their ongoing clampdown on offshore centres.

However, HMRC would still need to request specific information on a specific taxpayer,” he concluded.

IN OUR VIEW

Information agreements are all very well but they offer no gurantee that data will actually change hands. Indeed, their real effect is to throw a spotlight onto a problematic territory. This is useful in itself, but not enough in total. And, as can be seen from the article, HMRC has to be ver y specific in its requents if the agreements are to work. Measures like these can only ever be a small part of any largescale crackdown on tax avoidance overseas and the government may have to do more.