I warn you, this is a boring post. However, if you can stay with me to the end I promise you crack cocaine and hookers and other, more subtle pleasures. Really.
Are you with me? Good. We are, as George Osborne is so fond of saying, all in this together. So here goes.
Like most miserable suckers (AKA taxpayers) I've been following the fallout from the Panama Papers leak this last week with some glee. Here at last was incontrovertible evidence on a scale sufficient to excite the attention of the mainstream media of a financial injustice not just prevalent among the so-called global elites but actually de rigueur, a functional part of what it means to be wealthy these days.
I first came across this kind of behaviour when I was running the Telegraph Weekly World Edition, which served the British expat community. The paper had an Offshore Finance section that was mainly concerned with advising Brits working or retiring abroad on how to handle their financial arrangements. We didn't write too much about offshore tax havens other than Jersey and Guernsey, but we did carry quite a bit of advertising by firms operating out of these islands, as well as out of more distant ones.
Because of this I was serially approached by various people keen to educate me on the finer points of difference between tax avoidance and tax evasion, and offering to place "free" articles in our pages extolling the virtues of the former (along with the benefits of their services). Despite our tiny budgets and desperate need for fresh copy these were advances I was generally happy to reject, although the fact of them alerted me to the fact that there was something of an industry here.
Around about that time I began to notice increasing coverage of tax avoidance scams in Private Eye, which I've read regularly ever since I used to filch my Dad's copies to peruse the cartoons as a boy (a great start to any political education). Soon almost every issue seemed to have new coverage of the kind of personal dodges so thoroughly documented in the Panama Papers, as well as the kind occuring on a corporate level and made familiar by the light recently thrown over the tax affairs of Google, Facebook, Vodafone and the like, stories that the Eye was thumping the tub about literally years before they appeared above the mainstream parapet.
These dodges were both completely outrageous and utterly routine, and yet they were being almost completely ignored outside of the Eye's back pages. I wanted to try write something about them to try and help redress the balance but had left the Telegraph by this point. So I duly worked them into the pages of Midland.
Here's my Warwickshire businessmen, Tony Nolan explaining the tax structure of his company NolCalc Limited to his son Sean (if you've been hanging out in my Shed, you may have read this before in the supporters-only extract I posted on March 14):
“If we lose money, we don’t pay tax, and we can even claim rebates on the losses. So everything has to be structured to look like it’s well in the red, while actually remaining solidly black. NolCalc Limited is a UK company, and pays tax here in the UK. But it’s really owned, not by me or my investors, but by an outfit called Motherboards International BV, a Dutch company registered in Rotterdam. But Motherboards International doesn’t own itself, either. It’s owned in turn by two companies called Summit Silicon NV and Third Bay NV, both of which are based in Curacao.
“The way it works is that Curacao companies loan money, and I’m talking about lots of money, to the Rotterdam company, which has to pay interest on the loans. This interest can be lopped off its tax bill in Holland, as interest is a tax-deductible expense, and the loans are big enough that these deductions wipe out pretty much Motherboards International’s entire tax liability. Motherboards International makes its profits by loaning money to NolCalc Limited, along with inflated fees for ‘financial services’, where the process is repeated: the interest gets deducted from the UK tax bill, and the fees suck up any profits that are left, effectively taking that money out of the country and away from the dreaded claw of HMRC.
“To oil the wheels there’s another company, NolCalc Research, which is based in the UK but which is an unlimited private company and so doesn’t need to publish its accounts. Most of the people who think they work for NolCalc are actually employed by NolCalc Research. NolCalc Limited subcontracts most of its work to NolCalc Research, which supposedly charges its services back to NolCalc ‘at cost’ so it doesn’t make a profit or a loss. But those fees are massively inflated too.
“The result of all this is that NolCalc, which should be hugely profitable, in fact makes a substantial annual loss and so pays no tax at all – in fact as I mentioned before it even earns rebates on some of its expenses from the Exchequer. So it makes money from the government – which means from you, because you’re paying for it, out of your income tax. Or you would be if you actually had a job.
“And so it goes on. There are lots of added complications, most of them blind alleys designed to confuse the various regional tax authorities and make it as hard as humanly possible to track where the real profits go and who owes what tax on them where. But what you end up with is mass of wiring, like a bomb. Cut a wire to solve an issue in one country and you can suddenly find you’ve made yourself liable for all sorts of back taxes or fines in another. Of course there’s an army of people on hand to make sure that this doesn’t happen, all dependent on the continued operation of the machine for their eye-watering fees. Machine’s probably not even the right word. It’s more like some gigantic fucking fungus, eating itself at the same time as devouring anything in its path.
“I started it running, but I don’t control it. The lawyers and accountants have that honour. In theory it’s made me rich but I risk losing a fortune in tax every time I put my hand into my pocket. To break free from it I really need to leave here and live abroad at least half the year, which is exactly what my so-called advisors would like me to do.”
Like Felix Dennis, who bought up much of the Warwickshire farm I worked on as a teenager in order to turn it into woodland, Tony Nolan has a dream of recreating a native forest in the English Midlands. With his customary style Dennis, a true maverick who as far as I can tell operated according to a genuine moral code - albeit an idiosyncratic one that sanctioned indulgence in crack-fuelled orgies with multiple prostitutes - made sure that his forest was bought and owned by a UK-based trust to which he left the larger part of his fortune in order to ensure that the forest he has planted survives in perpetuity.
Nolan has similar long-term aims, but has not bought his land in a similar way. Because of the manner in which he's been ensnared by NolCalc's complicated tax history he has been forced to buy his forest via further offshore companies. The moral of the story is that one offshore tax dodge begets another, and another, and another... ad infinitum, unless something legislative is done to break the chain.
Of course not many people can be bothered to followed this kind of narrative at this kind of level of detail (although maybe there are a few more now as a result of the Panama Papers), and that of course is the point. Tracing money in this way is hard, tedious, boring work. It doesn't (supposedly) sell books, which is no doubt another of the many reasons to laud both Unbound, a publisher with a business model that allows it to risk publishing novels containing this kind of content, and to laud you readers for pledging for them. And the tediousness of it all is precisely what has allowed the "elites" to get away with it for so long - they've basically bored us all into submission, and as a result made off with cash that should have gone into boring things like hospitals and schools instead of forcing our grandchildren to pay five times the price of every piece of them via terrific wheezes like PFI and PFI2.
Fortunately worker bees at the likes of Private Eye and the International Consortium of Investigative Journalists are out there boring themselves stupid for the sake of you and me and those grandchildren. I got a grip on the whole land ownership scenario thanks again to work done by the Eye, this time in the form of its online map of properties in England and Wales owned by offshore companies. The map is a marvellous tool: an investigative story in itself, a mine of further such stories, and a weapon for shaming the Government into actually doing something about behaviour that has cost all but a very few of us so very much.
Do check it out and run a few searches on areas that you know. You may find the results depressing, you may even find them shocking. Now that the Panama Papers have come out I don't think you'll find them boring, though. And when you read this kind of stuff in Midland, I hope you won't find that boring either, now that you know what it's really about.
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