date: 5 March 2008

embargo: 00:01 hours Thursday 6 March 2008

Government should join EU clampdown on £3.6 billion tax evasion in UK-linked tax havens

The TUC is today (Thursday) calling on the Government to back an EU led crackdown on tax evasion through UK linked tax havens such as Jersey, Guernsey and the Isle of Man.

The TUC estimates that as much as £3.6 billion may be lost to the Treasury through illegal tax evasion, conducted under the cloak of secrecy offered by these tax havens. The total revenue lost to UK taxpayers through use of tax havens throughout the world is estimated to be around £7.2 billion.

TUC General Secretary Brendan Barber said: 'This may be a once in a generation opportunity to get tough on tax evasion. Tax evasion is not a victimless crime. If the super-rich are dodging paying their fair share then the rest of us have to make up the difference. In the past UK ministers have been too keen to listen to those who profit from tax havens, this EU debate gives them the opportunity to show they are on the side of ordinary tax payers and properly funded public services.'

Since 2005, the European Union Savings Tax Directive has required people who place their funds in tax havens administered by EU states (which includes Jersey, Guernsey, the Isle of Man, the Cayman Islands and many others) have either to agree to have details of the interest paid to them disclosed to their home government each year, or to have tax at 15% deducted at source from that interest payment. At least 70% have opted to have this modest tax charge deducted at source. (The payment does not settle their full UK tax bill on this income.)

The Directive has not been fully effective because it is simply avoided. If cash on deposit is transferred into a trust or a limited company then there is no obligation to exchange information or to deduct tax at source. The UK ensured this was the case to protect the financial services industry in the many tax havens for which it is responsible.

Following the disclosures of massive tax fraud in Liechtenstein, there is growing EU pressure to remove these loopholes. The TUC is calling on the UK Government to back reform of he EU Savings Tax Directive to ensure that:

• The withholding tax option is removed so that information exchange is required in all cases;
• The Directive is extended to all private companies and trusts;
• The income covered is extended to include all forms of investment income and not just interest on bank deposits;
• The Directive is extended to places like Hong Kong, Singapore and Dubai who are currently marketing themselves on the basis of being outside this scheme and so available for continuing use by tax evaders.

NOTES TO EDITORS:

- The TUC asked tax expert Richard Murphy to make a conservative estimate of the likely sums lost. Using publicly available information, he estimates that tax evasion in Jersey, Guernsey and the Isle of Man costs British tax payers £3.6 billion a year and that double this would be a reasonable estimate of the total amount lost.

Methodology for tax calculation

A recent estimate suggests

http://dev.tax.org/www/features.nsf/Articles/05044F00957624558525737F00565D69 that £250 billion of funds are held on Jersey on which tax might be evaded on the resulting income. About 31% of these funds are held in sterling http://www.jerseyfinance.je/_support/uploadedFiles/Quarterly Report for period ending 30th September 2007 - FINAL.pdf suggesting they might be linked to the UK. In that case, assuming a 6% return, about £4.5 billion of income might not be declared and about £1.8 billion of tax not paid in this one location, assuming those evading are higher rate tax payers. Guernsey and the Isle of Man have as much on deposit again. This would increase the tax loss to £3.6 billion.

- There are many other tax havens. Cayman, Switzerland, Singapore, Dubai and Hong Kong hold substantial British funds. So might Bermuda, the Bahamas, the British Virgin Islands and, of course, Liechtenstein. To double the estimate of tax loss from evasion based on data from Guernsey, Jersey and the Isle of Man is therefore an entirely reasonable thing to do. If that is done that loss might be at least £7.2 billion a year, and the result is what is still, almost certainly, a cautious estimate.

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Contacts:

Media enquiries:
Liz Chinchen T: 020 7467 1248 M: 07778 158175 E: media@tuc.org.uk
Rob Holdsworth T: 020 7467 1372 M: 07717 531150 E: rholdsworth@tuc.org.uk
Elly Brenchley T: 020 7467 1337 M: 07900 910624 E: ebrenchley@tuc.org.uk

Richard Murphy T: 01366 383500 M: 0777 552 1797 E: richard.murphy@taxresearch.org.uk

Press release (900 words) issued 5 Mar 2008