Is now the time to tackle the Monaco boys?

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The Comprehensive spending review is almost upon us. Wednesday is D-Day. In this case, D for Deficit, Debt, Deepest Cuts Since Lloyd George, David Cameron’s big mistake, Death Knell To Public Services. Take your pick.

In light of that, everyone not in the Coalition government is busy looking for alternatives. Seeking other ways to make savings. A different path to the massive cuts looming over us at the moment.

One such alternative could be to close some loopholes in the tax residency rules. Some simple changes to those rules could bring in £4 billion annually. At the moment, thousands of  bankers exploit the ‘ordinary residence’ rules by commuting from Monaco. If they arrive on a Monday morning and leave on Thursday, they don’t establish residency and therefore don’t have to pay UK tax on income and profits earned in the UK.

This is due to uncertainty about the statutory definition of tax residence in this country. A change to a passport-based residency test, as used in the USA, would simplify the tax system and also raise up to 4 billions a year.

The ordinary residence rules are given more loopholes with the ‘domicile’ rule. This allows people to avoid tax on uk-based income by claiming a Non-domicile status which you can claim or inherit if you’re born outside the UK. This can still currently be applied even if the person has long-term interests in the UK, a la Lord Ashcroft.

Remember, clarifying both the residency and domicile rules would raise £4 billion a year toward paying down the deficit. That’s £4 billion which could be spent each year on schools, healthcare, transport infrastructure or job creation.

Introducing a passport-based residency rule would close these loopholes currently being exploited by a minority of super-wealthy high flyers. With that scheme, anyone with a UK passport would default to a UK tax resident status. The only flaw with this type of scheme would be where UK subjects live in, for example, an EU country where there is a full double tax agreement with the UK. A simple exception to passport-based residency can be enabled to allow those UK passport holders who live in such countries to pay tax in the country where they work rather than having to pay tax here. That would allow for migration in and out of the UK.

 HMRC would need to set up a list of countries that enjoy such double tax arrangements with us. That would include the USA, Japan, the EU and most OECD countries. Importantly, though, the list would not include tax havens like Monaco where big numbers of tax avoiders nominally reside.

In times like this, it’s wrong to have such a huge loophole in tax law, allowing very rich people to evade paying their share of tax and helping reduce the deficit that was caused by some of these uber-rich bankers in the first place. A significant number of people working in banking which began our economic crash are currently escaping making a contribution to repairing the nation’s economic condition, while everyone else has to face an increase in VAT and likely cuts in public services to be announced on Wednesday.

Cameron and Osborne say they want to crack down on people not paying their share of taxes. Surely if that’s true, then it’s time to tackle the Monaco boys.

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