Next Wednesday details of the trailed “Google tax” will presumably be unveiled in the Budget by George Osborne. Onshore trading profits will be taxed, rather than what’s left after surpluses are siphoned offshore. The fiction that Google, Apple and Amazon etc do not have “permanent establishment” in Britain will end. Foreign firms turning over more than £250m will no longer be able to fib that their head office is in the shady Caymans. About time. Meanwhile…
Hundreds of office blocks and shopping centres in the UK are officially “owned” offshore via structures that create an illusion of “management and control” from outside the UK, which is a legal necessity to avoid paying UK capital gains tax. To maintain the fiction of local control, the managers fly to the Channel Islands, Luxembourg, or sunnier locations, for occasional board meetings, which last minutes. Then off for a beer or an ice cream.
On 6 February, Tax avoidance: a General Anti-Abuse Rule was deposited in the House of Commons library. The 77-page document draws together official thinking on the 2013 General Anti-Avoidance Rules implemented to “dissuade the most egregious efforts to avoid tax”.
Relax, for now. The words “management” and “control” do not appear together, The word “property” appears only three times, and then only in relation to residential taxes paid by overseas buyers.
Those rules are set to tighten further next month, when capital gains tax at 28% will be due from non-UK resident sellers. They are already paying a minimum of £15,000 a year annual residential property tax and SDLT at 15%.
Yes, yes, you might say, what has this got to do with the commercial sector? Because what is becoming an acceptable way to squeeze the residential goose, is also a neat way to squeeze the commercial gander. Why might this happen?
Last week Transparency International produced a report showing that 36,342 properties in London alone are held in offshore vehicles. Of those, 38%, nearly 14,000 properties, are held in the British Virgin Islands. In 2011 £3.8bn of real estate was bought by BVI-registered firms. Were they all homes owned by honest oligarchs? Of course not. The lobby group says, almost in passing, that their figures include “offices”.
The report is also “commercially blind” to the type of property that the Metropolitan Police say has been used to launder money via offshore vehicles. The £180m used to buy real estate is “just the tip of the iceberg”, says the Met’s corruption unit, which is conducting criminal probes into the source of the cash. Does the iceberg contain only homes? It seems unlikely. Either way, one recommendation is to make it an agent’s duty to report suspicions over the buyer as well as the seller.
Agents are a trusting lot. In the year to September 2014 just 0.5% of the suspicious activity reports filed under money laundering regulations came from property agents. “This figure does not match the risks posed by money launderers to the UK property market,” reckons Transparency International. Probably not. Agents do tend to take rather too-easy comfort from assurances given by the vendor’s solicitor and/or bank.
Last week Transparency International repeated a call it made last May for the Land Registry to demand the names of beneficial owners of properties held in offshore companies to be listed in land transfer documents. The Department of Business Innovation and Skills is due to make good this year on a G8 summit promise to publish the beneficial ownerships of UK companies. The EU published a directive on the topic in January. Ed Miliband last year promised a “crackdown”.
You get the drift. The Google Tax move is just the latest turn of the screw being turned by public unease. It is a reaction to the sentiment expressed famously by hotelier Leona Helmsley during her 1989 trial for tax evasion: “We don’t pay taxes. Only the little people pay taxes.” Osborne’s “crackdown” on big people has been held back and is being misused as a vote catcher. But what the Coalition has been doing since 2010 shows a clear direction of travel. Beware.
planet-property.net
