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Banking offshore isn't, in itself, illegal. Luckily for some. Ronen Palan is Professor of International Politics at City University London and an expert in offshore tax havens. He told me that, if you were to wander into a hypothetical party in Mayfair and kick out everyone who banks offshore, the room would empty."The leaks show that about 6,000 British people held accounts in HSBC Geneva," Palan says. "That's only one bank among many in Switzerland. It appears that so many of the British elites are using Swiss bank accounts that if the Inland Revenue began a program of prosecution we'd be in danger of losing a considerable portion of our business, political, and cultural elites. All these people are linked to the centers of power. If we went after them seriously, we'd decimate the British establishment."
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While tax evasion (cheating the tax authority by not declaring assets or misrepresenting information) is a criminal offense in the UK, tax avoidance (using a legal scheme to reduce your tax) is legal. A huge, lucrative industry is built around it.A 2013 parliamentary investigation revealed that the four big accountancy firms—Deloitte, Ernst and Young, KPMG, and PricewaterhouseCoopers (PwC)—earn £2 billion [$3 billion] in the UK and around £16 billion [$25 billion] globally through advising companies on how to minimize their lax liability. HMRC is always one step behind."HMRC appears to be fighting a battle it cannot win in tackling tax avoidance," the report concluded. "HMRC has far fewer resources. In the area of transfer pricing alone there are four times as many staff working for the four firms than for HMRC."For both companies and individuals, there's a sparkly range of "tax avoidance" products to choose from:•If you're a company, shift your profits to a low-tax country like Luxembourg.•If you're an individual, just call yourself a company. Your "company" might make a million pounds this year, but hey, you were only paid £20,000 [$30,000]. Corporation tax is much lower than high-bracket income tax. Jimmy Carr was slapped on the wrist for something similar.•If you register this "company" offshore, all the better, as British tax authorities can't snoop around. You'll also benefit from another layer of offshore tax breaks.
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HMRC claims (rightly) that prosecuting high-earning tax cheats is time-consuming and costly. Instead, it often comes to an arrangement out of court. However, the disparity between resources devoted to catching benefits cheats and wealthy tax dodgers is kind of conspicuous.In 2012/13, £1.2 billion [$1.85 billion] of benefits were fraudulently claimed, while £4.1 billion [$6.3 billion] went missing through tax evasion. Reports from bodies such as Tax Research UK suggest that, if you also take into account tax avoidance, the figure for missing taxes from high-earners is even higher.
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The Swiss leaks uncovered accounts belonging to an impressive line-up of high-profile figures, from the heads of royal families to top bods in business, film, and sport. Having an account in a Swiss bank isn't illegal and doesn't prove tax avoidance; however, given the shady dealings which have emerged at HSBC, it's hard to believe that everyone's hands are clean."I tend to believe that protection of the elite plays an important role [in HMRC's historic failure to prosecute]," Palan told me. "Tax evasion—and, in particular, complex tax avoidance techniques—are a way for power and money to extend their power and money at the expense of all the rest. It's about entrenching inequality. The offshore system essentially allows the rich and powerful to avoid playing by the rules that everyone else has to play by."Tax justice campaigner and director of Tax Research, Richard Murphy, agrees. "The rich get away with it because HMRC has been dominated, since its creation in 2005, by big business interests," he told me. "There is no political will in it to collect tax from these people."THE LITTLE PEOPLE WILL PAY
A 2014 report by the Equality Trust revealed that the poorest 10 percent of British households pay eight percent more of their income in all taxes than the richest; 43 percent compared to 35 percent. And that's before tax avoidance schemes have been taken into account. What the rich fail to put in, the rest of the country must cover in taxes like income tax and VAT.
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According to lawyers, if UK bankers misbehaved in Switzerland, they can't be prosecuted here unless they advised clients on UK soil, which, according to Panorama, they may have done. But how aggressively will they be pursued? Richard Brooks—former tax inspector, Private Eye writer, and author of The Great Tax Robbery—believes the answer is: not very."If you're inside an economy sustained by financial services then you have to protect the banks," Brooks told me. "All the stuff coming out from Switzerland and the let-off for HSBC is just part of the picture. Look at how the government reacted to charges HSBC faced a couple of years ago; it lobbied heavily to get them off prosecution in the US."THE UK TAX CODE IS BULLSHIT
The UK has the longest tax code in the world. It's more than 17,000 jargon-packed pages long, loophole after glorious loophole. There is probably no one on the planet who understands our tax code in its entirety.Anarcho-capitalist Christian Michel, who used to run a finance company in Geneva, is a cheerleader for legal tax avoidance.
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So there we have it: UK tax law is shambolic and a lot of tax avoidance is legal, ergo people will take the piss. It's almost as if some might prefer it that way.Follow Frankie on Twitter.