John Christensen ■ The Offshore Wrapper: a week in tax justice #27
A Messi affair
The ongoing tax affair with the world’s top footballer Lionel Messi rolls on. Two weeks ago the Tax Justice Network Germany reported that a Barcelona court had confirmed proceedings against Lionel Messi for tax evasion. He is accused of using a series of shell companies based in Uruguay, Belize and the UK to hide revenue from royalty and licence payments arising from his image from the tax man.
Image rights are a tricky issue for tax authorities since, unlike salaries, the income earned is not tied to any particular location. This has made tax avoidance on image rights a popular off-the-field hobby for international sports stars.
This practice is so entrenched that one company, Finsbury Image Rights, even press released the fact that their client, Manchester City Manager Pellegrini, was registering his image rights in the offshore financial centre of Guernsey using their new image register.
The then Managing Director of Finsbury’s Image Rights Division, Jose Luis Romanillos, crowed:
“This is what Guernsey image rights has been waiting for – he is a massive name. . . . We are delighted for Finsbury but we are also delighted for the team at the Guernsey Registry who have put so much time into the development of the legislation.”
Our Friends at FinancialFairPlay.co.uk reported that this move could save Pellegrini £500,000 a year and save Manchester City a fair amount because they won’t need to pay national insurance on this income.
Messi isn’t the only World Cup star in hot water. Disgraced Brazil Coach Scolari is also currently being prosecuted by the Portuguese Authorities for tax evasion and money laundering, as reported previously in The Wrapper.
Swiss Cheese remains full of holes
When the current coalition government in the UK came to power they were keen to look tough on tax avoiders. Danny Alexander, the Chief Secretary to the Treasury (pictured), was fond of telling people that the tax code they inherited from the previous government had more holes than Swiss cheese, in an obvious and rather overused pun.
A centrepiece of the new crackdown on tax dodging was a new deal with Switzerland. Alexander told the Scottish Liberal Democrat conference in 2013:
“We have signed a Tax Cooperation Agreement with the Swiss Government, that is expected to secure £5 billion of untaxed money hidden in Swiss bank accounts.
We expect to raise around £7.5 billion from offshore measures over the course of this Parliament.”
Wow, £7.5bn. Now that’s a BIG number.
In the last year of the coalition government before the elections in 2015, the team at Wrapper Towers has been wondering whether that money has hit the bank account yet. Well, the news is not good. According to recent reports the tax deal has only collected £1bn so far, a mere fraction of the amount the Chief Secretary to the Treasury was telling the people he hoped to raise just last year: pretty much what TJN predicted in 2011. In fact the deal is so bad that Private Eye reports that UK officials have been sent to Switzerland to renegotiate.
Could any of this have been foreseen? The answer is most certainly yes. As TJN highlighted at the time of the deal, the UK-Switzerland tax deal has more holes in it than Swiss cheese. We take no pleasure in this, but here is a 29 page We-Told-You-So, a copy of which has been sent (with this accompanying letter) to our Danny.
India – Swiss Tax Deal
It seems like the UK is not the only one facing difficulties dealing with Switzerland.
India has placed tackling tax avoidance and evasion on top of the agenda since the election of their new prime minster Modi. Last week the Swiss signed a new tax law which many in the Indian press hailed as a step forward in their attempts to get back hidden money.
But Swissinfo.ch has adopted a more sceptical tone. The new Swiss tax law, the Tax Administrative Assistance Act, will not allow requests based on “stolen” data. Stolen, in this case, is a dysphemism (yes, that’s a word) which usually means obtained by whistle-blowers. So whistle-blower information is locked out.
On top of that the Indian authorities will need to demonstrate that the information they need must be linked to a criminal investigation. This presents layers of whopping big problems: often the authorities do not know whether a crime has been committed unless they can see the underlying data! Those wily, corrupt Swiss.
Many of these problems would be solved with automatic information exchange. But that’s some way away.
Kleinwort Benson flees secrecy jurisdiction after being uncovered
It is common practice in the dodgy world of secrecy jurisdictions to have “flee clauses” that kick in when an investigation begins on an offshore company. The company will have written into its articles of association that it must be immediately wound up and (along with all its assets) shifted elsewhere, making the task of investigators in actually finding the money that much harder.
Investment bank Kleinwort Benson seems to have taken this to a whole new level. The bank, which was the subject of the “Jersey Leaks” scandal last month has been cutting staff in Jersey and is closing down its Isle of Man Office according to the Financial Secrecy Monitor.
Apparently although the company remains profitable it lacks “critical mass”. Could this be code for saying Kleinwort clients are scared their details might be leaked as happened to the Jersey clients?
New free book: Combating Fiscal Fraud and Empowering Regulators
Buffet of tax-evading secrecy revealed by US settlement with Swiss bank Rahn+Bodmer
Capital flight from Africa: Resource Plunder and the Poisoned Paradises in Tax Havens
Beneficial ownership verification: exploring Belgium’s sophisticated system
Some things never change: the use of Swiss banks by crooks
New study and tool for assessing risks of illicit financial flows in Latin America
Vulnerability and exposure to illicit financial flows risk in Latin America
28 January 2021