Most people accept that not only is tax inevitable, it’s essential for the smooth running of day-to-day life in civilised nations. However, no one likes paying tax, and no one is required to pay over and above their personal due. These facts seem straightforward enough, and the vast majority of people pay what they owe, even if they do so begrudgingly!
There is of course a small minority who seek to exploit tax loopholes and thereby avoid tax – and an even smaller minority who seek to flout the law and evade tax. (Note: tax avoidance and evasion are absolutely not the same thing – I think it was Denis Healey who said: “the difference between tax avoidance and tax evasion is the thickness of a prison wall…”)
The British government is cracking down on those expats exploiting certain QROPS tax loopholes for personal gain, the OECD and EU are cracking down on personal rights to freedom allegedly to prevent tax evasion, and at the same time law abiding expats and citizens around Europe are being squeezed dry by increasing rates of taxation that are set to soar – let’s look at the facts.
QROPS and Tax Loopholes – HMRC Makes its Position Clear to Expats
QROPS are potentially brilliant offshore pension schemes for expats and those who plan to retire abroad – they have advantages such as the policyholder not having to buy an annuity with their pension fund for example, and being able to leave any unspent wealth to heirs and beneficiaries upon death.
Why can’t QROPS’ published and accepted benefits be enough?
HMRC has done well to allow the creation of QROPS as they really can benefit many people who retire overseas, who live abroad and want to save into a pension, and who plan on living abroad when they do eventually retire. However, there are still those out there who want to squeeze even more benefits out of QROPS!
Some expats had been advised to take advantage of a tax loophole that existed with Hong Kong as the QROPS jurisdiction – those who were advised to do so were probably advised by less than reputable financial advisories which make a habit of flouting loopholes. However, the British government and HMRC have been very swift to act and plug the loophole this week, and they have vociferously reiterated that they will not allow QROPS to be manipulated to give greater gains and advantages that they have been designed to offer.
Expats need to beware therefore, that they should only choose a jurisdiction and a QROPS provider that are acting 100% within published and widely available governmental QROPS guidelines. Anyone who suggests differently should be closely questioned – and as a bottom line you need to know that if a loophole does exist or if regulations and guidelines are not clear, they will all be tied up tight in due course.
HMRC will not allow for the manipulation of QROPS for individual personal gain – so do be careful about which scheme you select, which jurisdiction you choose, and who you trust to give you QROPS/expat/offshore pension advice.
As stated, QROPS can be very beneficial and advantageous investment vehicles for many people, particularly expats and those retiring abroad – so just take the benefits on offer as they stand!
The OECD, the European Parliament, the Erosion of Rights to Privacy and the Increase in International Taxation
The OECD’s Tax Policy Reform and Fiscal Consolidation Brief has highlighted just how high taxes need to rise in order to ‘restore public finances.’ E.g. in the UK tax needs to rise by about 6% of GDP – no small increase we’re sure you will agree! At the same time, the European Parliament has decided that it’s legitimate to effectively tar tax evasion and tax avoidance with the same brush - and they are doing so behind the veil of a lie that it’s because the use of offshore tax havens contributed to the global economic collapse.
Do they really believe that people are so stupid that they will accept this? Clearly the EU simply wants to eradicate favourable tax havens for their own gain – however, everyone knows that the global economic collapse was caused by greedy banks, poor fiscal policy at governmental level, and as David Franks from Blevin Franks puts it: - “Personally, I was under the impression that the financial crisis had nothing at all to do with tax havens and quite a lot to do with governments allowing the banks to borrow up to 50 times the level of their capital, not raising interest rates or otherwise limiting borrowing in spite of a huge global property bubble, the mistaken belief that boom and bust cycle couldn’t be repeated, the changed accounting principles which slowed down the recognition of bad debt reserves, a boom in obscure and misleading financial instruments, and inappropriate mergers not being properly thought through by the companies that indulged in them. But then I’m a mere tax accountant; what do I know?”
The effect of the European Parliament’s actions are far reaching: they spell the beginning of the end for tax competitiveness, and the beginning of higher taxes, less choice and less personal privacy for all. After all, the EU is already notorious for its exchange of information directives, so they are hardly working in the individual taxpayer’s interest.
Now the OECD is seeking to take EU directives on the exchange of information on board and run with them, and extend their reach even further because: “better transparency and information exchange for tax purposes are key to ensuring that tax payers have no place to hide their income and assets and that they pay the right amount of tax in the right place.”
The OECD and the EU are getting very aggressive it would seem. The former wants to “invite” nations to sign up to its global forum on transparency and exchange of information (for tax purposes of course) – and it will impose sanctions against those who refuse to commit. The EU plans to massively broaden the scope of its disclosure directives so that soon everything about everyone will be commonly accessible knowledge.
So, on the one hand tax competitiveness is being eroded, and on the other hand taxes are apparently going to have to rise – and as citizens we can do nothing about all of this, we can’t even move abroad to escape the changes it seems, as the powers that be want to take them global. In fact, there is only one way forward if you want to have any sort of say or control over the amount of taxes you pay – and that’s to get a job informing and making policy with the OECD – because your salary will be tax free, and your position will allow you to decide how everyone else will be treated!
In Conclusion
The global fight for and against tax havens and the concept of tax competitiveness even being allowed to exist continues – against this backdrop we have the situation where nations are literally going bankrupt because of poor fiscal policy at governmental level, and it’s ‘the common man (and woman)’ who will have to physically and literally pay to clean up the mess…
The world is not an attractive place financially speaking at the moment – but where advantages legitimately exist, everyone is encouraged to take them! Just don’t exploit loopholes and expect to get away with it – find a tax free job instead if you really want to prosper!