Taxing Times

"Why is everyone acting as though @JimmyCarr has killed a baby?! Because babies die in underfunded hospitals". (Comedian John Robins, on Twitter)

'As bad as benefits cheats': Minister attacks Jersey tax avoidance scheme that Jimmy Carr 'has £3.3m in'
Comedian Carr is 'largest beneficiary' of scheme which shelters £168m a year from taxman Danny Alexander, Chief Secretary to the Treasury, says rich tax dodgers are 'moral equivalent of benefit cheats' He warns Government is 'coming to get them' (1)

Those are the headlines in the Daily Mail, although it was in fact the Times which broke the story. And once more, it is Jersey that is at the centre of the tax scheme, termed K2:

K2 works by transferring salaries into a Jersey-based trust, which lends investors back the money. As the loan can technically be recalled, it is not subject to income tax .(1)

Of course, technically, the scheme is a legitimate loophole, so Jimmy Carr is breaking no laws. And before the moral crusaders start wagging their fingers, just see what David Cameron has sent as a message to French taxpayers, who are looking at the possibility of a hike to 75% tax rate over there:

British prime minister David Cameron slammed French tax plans saying that French businesses fleeing high tax rates at home are welcome in the UK.  While speaking at a business forum held on the sidelines of a G20 meeting in Mexico on Wednesday, Cameron said  "If the French go ahead with 75 top rate of tax, we [the UK] will roll out the red carpet and welcome more French businesses to Britain and they can pay taxes in Britain and that can pay for our health service and our schools and everything else. Every country must set its own tax rates but I think in a world of global capital, in a world where we are competing with each other, in a world where we want to send a message that we want people to build businesses, grow businesses and invest, I think it is wrong to have completely uncompetitive top rates of tax," he said. (2)

So apparently it is right for high earners to avoid paying tax - although in this case, the method used is to relocate to the UK. But there is a total inconsistency at the heart of this policy.

If it is fine for people to use such means as they can to legitimately reduce their tax bill, then where does that leave the likes of Jimmy Carr? He hasn't relocated, because he has found a means to reduce his tax bill without being so. And the reason for this is that the rates in Britain are punitive for the high earner. At what point do they become legitimately too punitive? That's a question we should ask because clearly David Cameron is sending out a strong message that a 75% tax rate is too high. But isn't 50% - when the scheme was devised - also too punitive.

Perhaps if you are a Chief Executive, earning millions, packing away bonuses, with a generous pension scheme, you should be paying the top rate, but a comedian, after all, might be earning a lot today, and drop off the radar tomorrow. There doesn't seem to be a way to consider the tax rate for people whose salary might be - if averaged out over 10 years - the equivalent of paying perhaps 30% or lower - but because they have big peaks and then deep troughs - get hit excessively more than someone earning the same amount over that timescale.

In the meantime, the Telegraph reports that:

HMRC have confirmed the K2 scheme is under investigation and have vowed to "challenge it in every way available to them", saying "Government does not intend anyone, no matter who they are, to get away with paying less than they should." (3)

The Daily Mail, meanwhile, is having a full scale rant about tax:

These mercenaries - people, for example, such as the all-too-clever comedian Jimmy Carr, exposed as ruthlessly exploiting a highly aggressive but legal scheme to minimise his tax payments - use financial and legal wizards who specialise in tax avoidance and operate below the radar. (4)

Could this be the same Daily Mail, which some years ago was trying to relocate itself to the Neverlands:

The facts of the Daily Mail case concerned the transfer of the Daily Mail's central management (real seat) to the Netherlands as a tax avoidance measure. The Daily Mail's application to the UK's Treasury for its consent to the move had been refused and so the company appealed to the High Court which referred the matter as a preliminary question to the ECJ in the following terms: whether EC Treaty arts 43 and 48 precluded a Member State from requiring that its prior consent is granted to a company wishing to transfer its Head Office to another Member State given that the transfer constituted a transfer of residence in order to avoid tax liability. (5)

Surely the Daily Mail couldn't have been engaged in trying to ruthlessly exploit a legal scheme to minimise their tax payments? - this is something not mentioned in the Daily Mail, and very much an operation which falls "below the radar". What they wanted to do was firstly to allow - under both UK and Dutch law - the intended transfer of Daily Mails' centre of administration to the Netherlands whilst retaining its legal personality and continuing to be subject to UK company law. The case concerned the UK Treasury's right to refuse to allow Daily Mail to transfer its tax residence without paying accumulated tax in the UK.

The judgement of the courts at the time was that in the context of a tax avoidance scheme such as the one at stake in Daily Mail, a company should not be allowed to invoke the community right of establishment to avoid having to settle its tax situation in the UK before transferring its head-office to another Member State. Yes - a sordid tax avoidance scheme - that's what the very moral Daily Mail was trying to do!

Meanwhile, Jimmy Carr has broken his silence:

Comedian Jimmy Carr has broken his silence over claims that he dodged tax, insisting: "I pay what I have to and not a penny more."(6)

What has happened though - is that in the eyes of millions of people in the UK - Jersey has suffered reputational damage as a result of this whole affair. It may be legal, but it doesn't seem morally right - and there seems to be a total inability to address the subject of moral indignation - the call for fairness. Geoff Cook has defended Jersey:

Jersey Finance's Geoff Cook said the position on tax evasion was clear.  "Tax evasion is illegal in Jersey and it is a criminal offence to facilitate or engage in it," he said. He added: "Jersey is, and remains, one of the best regulated international finance centres in the world. Mr Cook said: "In our view, conflation between illegal tax evasion and legal tax avoidance, or tax planning, is unhelpful in moving any wider debate forward and the articles in today's edition of The Times raise some important points in this area."

I am sure that Shylock in the Merchant of Venice ran a well regulated business, and he broke no laws, all he wanted was his legitimate pound of flesh. That's how people outside tend to see Jersey with this kind of story, and while not every merchant in Venice was like Shylock, it was his actions which tainted the very honest people who also lived and worked there.

That's an issue which we really need to address, and making claims that nothing is criminal here really doesn't address the matter, and it is unfair to all the other people here who do simply make an honest living. Because when Geoff Cook says "tax evasion is illegal in Jersey", what the outside world often hears is a reply which does not address the moral issues in any substantial depth - and that's what we need.

Of course there is nothing illegal in the scheme. But remember the words of Shylock: "It doth appear you are a worthy judge; You know the law, your exposition hath been most sound".

Links
(1) http://www.dailymail.co.uk/news/article-2161394/The-1-tax-haven-Comedian-Jimmy-Carr-3-3m-Jersey-avoidance-scheme.html#ixzz1yKy5akXx
(2) http://www.aljazeera.com/news/americas/2012/06/201261917494482255.html
(3) http://www.telegraph.co.uk/news/celebritynews/9341797/Jimmy-Carr-tax-avoidance-scheme-investigated-by-HMRC.html
(4) http://www.dailymail.co.uk/debate/article-2161833/Jimmy-Carr-tax-avoidance-Its-paying-immorality.html?ito=feeds-newsxml
(5) http://discovery.ucl.ac.uk/11935/1/11935.pdf
(6) http://www.belfasttelegraph.co.uk/news/local-national/uk/jimmy-carr-i-pay-the-tax-i-have-to-16174805.html