British Budget: Brown To Target British Offshore Dependencies

Jeremy Hetherigton-Gore, Tax-news.com, London

20 March 2000

The UK budget is on Tuesday and Gordon Brown, Chancellor of the Exchequer, is expected to announce moves to try to compel Britain's Dependent Territories to exchange information on tax matters with the Inland Revenue, although the word 'exchange' hardly fits what would be a very one-sided flow of information.

This is no simple affair. First of all, it is not primarily about UK tax at all, although the Inland Revenue would be happy enough to reclaim the billions of tax it supposes it 'loses' from the offshore investments of UK tax-payers. Instead it must be seen as the next step in the complex EU tax harmonisation dance: the UK's recent proposals for EU-wide exchange of information on bank accounts, as an alternative to a 20% withholding tax, were slapped down by several EU member states which have no intention of lifting their existing banking secrecy (Austria, Germany and Luxembourg among them).

So does Gordon Brown think that the Dependent Territories will agree to divulge information about UK residents, knowing that some recalcitrant member states will never agree to do the same, thus kicking the withholding tax ball into touch for the duration? Or does he think that the Dependent Territories will refuse, threatening independence, and that this will be enough on its own to defuse the whole issue?

Remember that Portugal has Madeira, France has Monaco (which does pass information on French nationals to Paris), Germany has (so to speak) Luxembourg, Holland has the Netherlands Antilles and Aruba, Spain has the Canaries, and so on. Gordon Brown can appear to offer his own dependencies as a sacrifice, in the confident knowledge that other countries will refuse to go along. After all, if Jersey has to tell London about UK tax-payers, logically it should tell Rome about Italian citizens, and it should tell Warsaw about Poles; therefore, Monaco should tell Stockholm about Bjorn Borg. This may be the neat solution preferred by OECD Finance Ministers, but in the real world it does not seem likely.

Another question: how will the Territories react? The Isle of Man, Jersey and Guernsey have already responded to the Edwards Report, and both Bermuda and Gibraltar have made equivalent changes. All of the Territories, including the Cayman Islands, Turks and Caicos and others, have toughened up their anti-money-laundering legislation. Which of them will be prepared to shoot themselves in the foot by being the first to breach confidentiality to such an extent? There are more than sixty offshore centres in the world, many of them only too happy to pick up customers fleeing their conformist competitors.

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