Brexit and the future of tax havens

“I want to raise my concerns about the UK government’s [post-Brexit] proposals for a Singapore-on-Thames. Senior government ministers have been signalling the Singapore-on-Thames development strategy since January 2017, when Prime Minister May and her Chancellor Philip Hammond both flagged it up as a potential route. 

Just to put this in context, Singapore has rapidly expanded its role as an offshore financial centre in the past decade, currently ranks number five on the Financial Secrecy Index, and has a secrecy score of 67. That secrecy score reflects general weaknesses in Singapore’s corporate transparency regime and a low level of commitment to tackling corporate tax dodging.

Singapore-on-Thames

What the Singapore-on-Thames visionaries appear to have in mind can be summed up as:

• A commitment to sweeping tax cuts for corporations and mobile rich people – tax wars as a fiscal weapon;

• Tax measures such as accelerated capital allowances to attract mobile investments to UK;
• Comprehensive de-regulation, removal of social and environmental protections;
• Weak or non-existent compliance with international antimoney-laundering measures;
• Retaining golden visa arrangements to provide residence rights of wealthy non-British citizens, increasing exposure to oligarchs and corrupt illicit financial flows.

Of course, none of this is new. The UK set out down the route of becoming a major tax haven economy in the 1950s and has pursued this development strategy under governments of all complexions.

What is to be done?

In such circumstances, it seems foolhardy for the European Union to grant financial service providers in London equivalent treatment to providers who operate within the Single Market and are regulated under the common rulebook. Put simply, this gives the fox full access to the hen house.

First ...

The European Union should commission a comprehensive spillover analysis of the external risks posed by the British tax haven empire taken as a single entity.

This spillover analysis should look behind the greenwash of domestic laws in the UK itself and make an assessment on the basis of what international law firms, banks and accounting practices can do in territories like Bermuda, Cayman and the Turks & Caicos.

Until such time as the UK government requires all of its dependencies to fully adopt  transparency standards (e.g. public registries of beneficial ownership), recognition of equivalence of regulatory standards should be withheld and London-based banks and law firms should be required to operate within the Single Market on the basis of having commercial establishment subject to regulatory oversight by an EU Member State.

Second ...

My second recommendation relates to the taxing of multinational companies. The threat of a post-Brexit UK government accelerating the race-to-the-bottom on tax rates and special treatments is clear and imminent. This can only worsen the rise of inequality and the undermining of the capacity of democratic states to protect their citizens. The EU must therefore proceed with its Common Consolidated Corporate Tax Base project and move towards an apportionment-based approach for allocating profits to the countries where they genuinely are.

The threat of a post-Brexit Singapore-on-Thames places Europe at a point in its political evolution at which it must choose between committing to deeper cooperation, for example on setting a common corporate tax base underpinned by a minimum tax rate, or whether to follow through on the current race-to-the-bottom trajectory, which will, inevitably, further erode national tax bases and regulatory standards, leading to slower growth, increased financial market volatility, deeper inequality and social division."