Offshore tax havens: crackdown

Offshore tax havens: crackdown

From Bermuda to the Isle of Man, the Taxman is closing in on offshore tax havens

The UK government is halfway through a sweeping crackdown on UK citizens
hiding their money in offshore bank accounts and the French and German
governments have urged the nations in the Organisation of Economic Cooperation
and Development (OECD) to get tough with offshore tax havens.

In the US, Barack Obama has also talked about the need to clampdown on
offshore tax centres, which have been estimated to cost the US government at
least $50bn a year in lost
tax revenues.

Offshore tax centres, buoyed by globalised finance and cross-border tax
planning, have seen rapid growth over the past few decades. The big accounting
firms have done well out of the expansion and expanded their offshore tax advice

But is the offshore tax boom coming to an end? Some experts predict that the
latest crackdowns by governments and tax authorities will undermine offshore tax
centres and see their influence wane.

Beginning of the End?

Richard Murphy, an offshore tax expert and director of Tax Research LLP, is a
vocal critic of offshore tax havens. He reckons these tax havens and their
advisory services will be caught in a pincer movement between the current
economic crisis and further crackdowns from governments.

‘The one plus side of the credit crunch is that it may give rise to the death
throes of the tax havens,’ says Murphy. ‘No one who values free markets or who
believes in democratic government should mourn their passing. They threaten the
existence of both.

‘Barack Obama has said he will close down tax havens. It is clear that the
French have the same objective. The major countries in the world now realise
that tax havens exist to undermine their regulatory regimes and for no other

The big accounting firms will come under increasing pressure to reduce their
offshore tax practices, he adds. ‘You cannot expect places like the UK to
license your activities, to offer you consulting contracts and to then go out of
your way to destroy the UK government’s revenue stream.’

Prem Sikka, professor of accounting at the University of Essex, also predicts
tough times ahead for offshore tax havens. ‘My feeling is that the offshore
world is increasingly going to be squeezed and that their secrecy is going to be
eroded,’ he says. He adds that tax havens will face growing pressure to become
more open from governments and trading blocs like the European Union.

‘Lots of countries are facing budgetary deficits and there is a limit on how
much tax they can levy on individuals. [Governments] will hone in on tax
avoidance and there is no way offshore centres can avoid this.’

New opportunities

Tax experts are predictably more optimistic about the future of offshore tax
centres. Government crackdowns on offshore tax avoidance schemes have made
planning more difficult, they admit, but new rules open up new business

Paul Hotchkiss, director, tax, at KPMG in the Isle of Man, says: ‘The
offshore environment has been changing over the years. It adapts new solutions
when legislative regimes come into play. An example of this is Protected Cell
companies [investment schemes introduced in Guernsey in 1997]. They have been
used for funds but now they are being used for Capital Gains Tax planning.’

Recent changes to tax rules on non-domiciled UK residents also have the
potential to increase demand for offshore advisory services.

Keeping pace with changing rules isn’t easy, but for tax advisers in offshore
centres it can mean that day-to-day work is more varied.

‘Every day is different,’ says Hotchkiss. ‘It’s probably less restrictive
than working in a larger practice where you may need to focus on one narrower

‘You have to be adaptable and assimilate a wide range of knowledge and store
this and find it. Very often you just can’t do it all but you have to know where
to look.’

But how do the big accounting firms respond to criticism that they are
undermining governments and regulators by working with offshore tax havens?

Behind closed doors

Firms are reluctant to speak on the record but privately argue that they work
within complicated tax rules to offer rich individuals or multinational
companies a chance to plan their finances more effectively, thereby minimising
their tax bills.

Tax experts stress that there is a crucial difference between giving advice
on legal tax avoidance and illegal tax evasion ­ often involving money
laundering ­ which has given offshore centres a bad reputation.

One senior tax partner at a Big Four accounting firm, who asks not to be
named, plays down the importance of offshore practices to Big Four accounting
firms, saying his firm’s offshore practice is about the same size as its Bristol

Growth in offshore financial centres has slowed slightly over the past few
years, he says. But he adds that rich investors and multinational companies will
continue to use offshore centres for investment advice and to help them pay less

The partner adds that there is room for governments to work more closely with
accountants to crackdown on illegal offshore tax activity while allowing tax

‘It’s not as if offshore [finance centres] are bad and onshore good. Of
course the list of people evading tax in Liechtenstein bank accounts is
absolutely appalling but offshore centres are an easy target,’ he says. ‘Plenty
of people in the UK avoid paying tax.’

A new life abroad?

Fancy swapping a rainy commute into work for a stroll along a pristine beach?

For accountants with the right qualifications and experience, working in an
offshore financial centre could prove a smart career move as well as a
lifestyle change.

David Angel, director of Michael Page Offshore, part of recruitment
consultancy Michael Page International, says there is good demand for chartered
and certified accountants in offshore tax havens.

The most common accounting job vacancies in offshore centres pay the
equivalent of around £40,000-£60,000 per year, he says.

Accountants in offshore centres could work in a range of organisations,
ranging from an accounting or law firm to a bank or insurance company.
Promotion prospects offshore are often good, as the operations are usually
smaller than the UK, meaning competition for promotion is usually less fierce.

‘I have seen some rapid career progression of accountants [in offshore
centres],’ says Angel.
‘Twenty years ago going to [work] in the Cayman Islands was seen as a bit of a
jolly but now it’s seen as a legitimate move to gain international experience.’

Accountants with experience in small offshore financial centres are also
highly sought after by financial institutions in countries such as Dubai,
Singapore and Switzerland, adds Angel.

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