Well I didn’t see that one coming – and I don’t mean the England rugby team’s 3-0 whitewash of Australia. On 24 June, Britain stunned the world by voting to leave the European Union, with a lead of 1.3 million votes for the leave campaign. Immediately after the “Brexit” shock, the UK was apparently facing political chaos, financial crisis, and economic disaster. The prime minister was standing down, the stock market and currency were in freefall, and all the wise men and women of the international financial system were predicting doom and recession. What a difference a few weeks makes. We have a new PM — two months ahead of schedule — and British stocks and government bonds are both stronger. Just as important, humour and perspective seems to have returned.
Meanwhile, it’s business as usual for Sovereign and we anticipate a surge in activity over the next two years as businesses and individuals seek to make the best use of the cards that they have been dealt. Cypriot and Maltese holding companies, amongst others, offer full access to EU treaty freedoms, while there are numerous residency or citizenship options available to those who wish to reside in the EU or obtain an EU passport. Things will become clearer as the Brexit negotiations get underway and the most important thing will be to seek timely advice.
Hammond targets economy’s “temporary loss of confidence”
Philip Hammond, the new chancellor, signalled that he would scale back austerity as he works to tackle the economic “shock” of Brexit, writes Gemma Tetlow in the Financial Times. On his first day in the job, Hammond said the UK is entering a “new phase” and that confidence has been shaken. Hammond said he is “no longer tied to the commitment to bring the public finances into balance by 2020”. He will need this additional flexibility to accommodate the effect of the predicted economic slowdown. Abandoning the surplus target allows him to avoid implementing new tax increases or spending cuts in the short term that would weaken the economy further when it is already struggling. “There is no doubt the shock, the surprise of the decision taken by the British people has had a dampening effect on the economy. It has caused at least a temporary loss of confidence,” Hammond said. But he also cautioned that the UK “is already highly indebted and we need to be very careful about the signal we send to markets about our intentions”.
Use Brexit to “reboot Britain”, says think tank
Brexit is a chance to reignite the UK economy by scrapping corporation tax and other reforms according to the Adam Smith Institute, writes Peter Spence in The Daily Telegraph. He reports Madsen Pirie, the Institute’s president, as saying that leaving the EU provided “a unique chance of the sort that occurs perhaps once in a generation”. Pirie identified tax as one area where policy has evolved “from accidents and incidents rather than from design” and proposed sweeping reforms, including the elimination of corporation tax in stages – 12.5%, 6.25% and then zero. He said other levies, such as capital gains tax, should also be abolished, and that income tax should be flattened over time by progressive reduction of the top rate. He said that “the aim” should be to deliver a system where workers on the minimum wage paid no tax, while those earning more would face a flat rate. Pirie’s comments came as Philip Hammond, the new Chancellor of the Exchequer, refused to confirm whether he would follow through on George Osborne’s pledge to cut corporation tax to 15%.
Google boss says firm won’t be paying any more tax
Google CEO Sundar Pichai has hit back at accusations that the global Internet giant failed to pay enough taxes in Europe, writes Qin Xie on AFP. As Google faces a raft of fiscal probes across the continent, Pichai told Germany’s Welt am Sonntag newspaper: “As a global company, we find ourselves between the conflicting priorities of international tax law. Based on the structure of existing tax law, most companies pay the bulk of their taxes in their home countries.” He said Google respected the laws on the books, and that governments would have to take action if they wanted to ensure more revenues stayed at home. Pichai added: “Only the further development of the global tax system by politicians can lead to better results.”
London property regulation “totally inadequate” say MPs
MPs said that supervision of Britain’s property market remained “totally inadequate”, writes Henry Mance in the Financial Times. It recommended that estate agents and lettings agents should have to do more to due diligence on clients. “At the moment it is far too easy for someone intent on laundering money to buy a property with their ill-gotten gains, and rent it out in a very buoyant and robust letting market, and take in clean money in perpetuity,” said a report by the home affairs select committee. It said it was “astonishing that just 335 out of some 1.2 million [UK] property transactions last year were deemed to be suspicious” and cited an official at the Serious Fraud Office as saying money-laundering was subject to a “fragmented” regulatory framework, and that the area should be “regulated more robustly”.
€2m fine over tax fraud is small change for Messi
Barcelona and Argentina footballer Lionel Messi and his father Jorge were both handed 21-month prison sentences by a Spanish court, writes Graham Keeley in The Times, after each was convicted on three charges of tax fraud. Neither is likely to serve time behind bars because, under Spanish law, sentences of less than two years for first-time offenders are suspended. Messi was also fined €2.09 million — less than he earns in two weeks — while his father was fined €1.5 million. Both are appealing. They made a voluntary €5 million “corrective payment”, equal to the unpaid tax plus interest, in August 2013. Messi earned €67 million last year – €47 million from playing and €20 million from sponsors, according to Forbes.
During a four-day trial the court was told how Messi and his father hid earnings from image rights in havens in Latin America, using companies based in Britain and Switzerland. Judge Mercedes Armas Galve, who presided over the trial, said in a statement: “[Messi’s] avoidable ignorance, which was derived from indifference, is not an error and it does not remove responsibility. The information that the accused avoided having was, in reality, within his reach via trustworthy and accessible sources.” Fans claim that Messi is the victim of a witch-hunt by the Spanish tax authorities, which have investigated several of his teammates at Barcelona but none from their archrivals, Real Madrid.
Lady Green favours offshore centres for “strong regulation”
The wife of retail tycoon Sir Philip Green has defended their use of companies based in tax havens, praising their “strong regulatory regimes”, writes Zoe Wood in The Guardian. In a written response to MPs investigating the collapse of high street retailer BHS, Monaco-based Lady Green gave details of 11 companies in which she or her wider family hold the controlling stake, with the majority incorporated in Jersey and the British Virgin Islands. However, she claimed the choice of jurisdiction was not related to the benevolent tax regimes.
“My understanding is that jurisdictions such as Jersey and the British Virgin Islands are commonly preferred for their strong regulatory regimes and well-respected regulators and the size and competence of their professional communities,” she wrote. “For the avoidance of doubt, my husband is not, nor has he ever been, a director or a shareholder of any of the non-UK companies referred to.” In her letter Green confirmed that she had been resident in Monaco since 1998 and was domiciled there. The Greens have an estimated £3.2 billion fortune.
HMRC issues post-Brexit “business as usual” message
A recorded message on the HMRC helpline states that no laws have changed and that tax rules remain the same following the UK’s Brexit vote, reports the Daily Mail. “There are no changes to any taxes, tax credits, child benefits or other HMRC services as a result of the vote on the EU referendum. Everything is continuing as normal. No laws have changed. There is no need to contact HMRC as a result of the EU referendum,” said the announcement. The tax authority said the recorded message was added to the helpline in line with plans made before the vote, not in response to calls from taxpayers.
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sdenton@SovereignGroup.com or call on +44 (0)20 7389 0555