Chancellor's Broadside For Offshore Tax Industry

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

22 March 2000

Britain's Budget: The Offshore Headlines

Betting Tax Abolished

Withholding Tax Abolished

The Death-knell For Trusts

CFC Regime Tightened-Up

Gordon Brown failed to reduce the rate of UK betting duty, but in an announcement alongside the Budget speech, the Inland Revenue said that the duty would be scrapped next year, to be replaced by a new tax after consultation with the industry. One method would be to tax every every UK punter placing bets; another would be to base a tax on the gross profits of a business, which would of course include offshore subsidiaries. Surprisingly, the Revenue said that it wasn't currently losing revenue, with its take from betting duty up from £480m to £490m in the last year. Several of the UK's biggest betting operators had previously warned the Chancellor that there won't be a UK betting industry by next year; it remains to be seen whether this rather vague Inland Revenue proposal will be enough to stem the exodus.

In his speech, the Chancellor announced the abolition from April 2001 of the existing 20% withholding tax levied on payments of Eurobond interest to British residents, a gesture that spits in the face of EU officials trying to impose just such a tax across the Union. The Chancellor's move is in fact part of an attempt to improve information-sharing between tax authorities, and is far from being a concession of any kind. The tax will be replaced by a system under which banks or agents making interest payments will provide information to the Inland Revenue about UK-based recipients. In parallel to this, Mr Brown announced a legislative package that will give the revenue the ability 'to collect routine information about the savings income of all individuals.' The information will be shared on a reciprocal basis with overseas tax authorities. The Revenue will also be given the power to gather information solely for the use of tax authorities outside the EU; at present, such authorities can have only information the revenue has collected for its own use. This package amounts to a major increase in the already sweeping investigative powers of the Inland Revenue, and a further whittling away of financial confidentiality for UK residents.

The Inland Revenue's post-speech announcements (traditionally the place for anti-avoidance measures) also included additional rules to block the use of trusts by individual entrepreneurs to avoid capital gains tax on the disposal of their interests in businesses. The Government has gradually eaten away at offshore trust regimes for UK residents in successive Finance Bills, and the few remaining advantages will now disappear, particularly since the eventual reduction of capital gains tax to 10% removes most of the need for avoidance schemes.

In a parallel attack on the corporate tax-avoidance industry, the Revenue yesterday set out its intentions for a major tightening of the UK's international tax regime. The use of 'mixer' companies in intermediate countries with favourable tax treaties, such as Luxembourg, Cyprus or the Netherlands, will be curtailed, and there will be further 'controlled foreign corporation' rules to tax profits held back in low-tax jurisdictions. The Revenue estimated that it would raise over £1bn from this corporate anti-avoidance legislation.

For a good summary of the Budget and detailed analysis, see http://www.ft.com/budget/

.

Recommended

Write a comment