Don’t go any further without coffee! This is a 4000 word article about tax! To be honest, I'd get biscuits as well. People with goldfish-type attention spans, or people with no interest in tax or Brexit need not even attempt. You have been warned!!

There are a number of facets to the “Brexit was about tax avoidance” conspiracy theories.

We have:

“Brexit was only brought in after the EU introduced the Anti-Tax Avoidance Directive!”

"Brexit was to avoid a new EU rule that means rich Brexiteers have to disclose their offshore accounts to HMRC!"

“Brexiteers want to keep details of their tax avoidance schemes secret from the EU”, and

“Brexit is about protecting the UK’s tax havens. Did you know Mogg’s firm made £103million profit and paid zero tax?! Shocking!”

The success of the conspiracy theory lies in the complexity of the truth. “The truth is out there” as they say. Well in this case, it’s in here. All these facets are debunked in the same article. It’s not too late to turn back you know? God bless you all and good luck!

One might expect of David Lammy, James O’Brien or Terry Christian to promulgate anti-Brexit conspiracy theories, but this tax avoidance one has Professors of EU law, lawyers, and other professional people sharing and retweeting it - and it has gathered some credence. To give remain supporters credit, many who had the time/patience/sheer boredom threshold to get through one of my twitter threads have been quite gracious in admitting Brexit probably wasn’t about tax avoidance. Not all though!

I’m going to state a lot of facts, references to legislation, events etc – I've used some links, but not too many hopefully. If any aspect requires more evidence let me know – but everything is purposely pretty googleable. If you do google and find a material factual inaccuracy I will re-write the article. This is the “Politax Fact Guarantee”.

The charge is “The referendum date was announced just after the EU announced the Anti-Tax Avoidance Directive (ATAD).” And “Article 50 was invoked so that the UK would avoid the implementation of the Anti Tax Avoidance Directive in April 2019! You Brexiteers have all been conned!” Well, let’s leave aside the fact that the effective date was January 1st 2019 and see who’s being conned by who.

(I know, I know, people keep saying it’s effective from January 1st 2020. If you can just keep your mits off the “close” button a bit longer I’ll explain why that is).

Let’s start by tackling that somewhat simplistic timeline. Jurisdictions have been collaborating on tax avoidance/evasion issues for decades, the Convention on Mutual Administrative Assistance in Tax Matters was founded in 1988, the Global Forum on Transparency and Exchange of Information for Tax Purposes in 2000 and the Joint International Tax Shelter Information Centre (JITSIC) in 2004. The UK is involved in all three to varying degrees.

However, global co-operation on corporate tax avoidance that led to the Anti-Tax Avoidance Directive, was a significant gear change and really began at the G20 summit in Los Cabos, Mexico, in June 2012, and perhaps even more so at the Mexico City G20 Finance Minister summit in November of the same year.

It may be worth putting this into the context of the sovereign debt crisis, which has still not abated, following the financial crisis in 2008-2010. On the one hand western Governments were inflicting austerity measures on their citizens, whilst at the same time Starbucks, Facebook, Amazon, Google and others were hitting the headlines for paying seemingly negligible tax on their income. “We’re all in this together”, remember. Politics demanded action.

At that Mexico City summit the UK and Germany jointly agreed to combat Base Erosion and corporate tax avoidance, with Osborne and Schauble issuing a joint statement, “International tax standards have had difficulty keeping up with changes in global business practices, such as the development of e-commerce in commercial activities. As a result, some multinational businesses are able to shift the taxation of their profits away from the jurisdictions where they are being generated, thus minimising their tax payments compared to smaller, less international companies.”

Later, France also agreed to push for action. The EU, not surprisingly since its 3 dominant economies had all already become involved, made its own statement in December 2012 – after the UK. The UK happened to be President of the G8 in 2013 and so included cross-border tax on the agenda for the May 2013 G8 meeting. Immediately following that meeting the OECD BEPS (Base Erosion and Profit Shifting) Project was launched at the G20 in July 2013.

Whilst the BEPS Project had been initiated by the G20 countries it effectively also applied to the other OECD Member States from the beginning. Engagement in the project was extended to other large non-OECD states and representatives of developing countries. The OECD published over 1600 pages in the ‘final’ reports in relation to 15 BEPS “Action” items in October 2015 and today there are 130 jurisdictions working on the BEPS Inclusive Framework.

Since the UK was pretty instrumental in starting the BEPS project, it is clearly not something we’re going to jump through hoops to avoid happening, and indeed, as an OECD member in our own right and a leading advocate of BEPS, the UK is literally years ahead of the EU in implementing BEPS. So unless you are very selective about what you include, the timeline of events don’t support the assertion that avoiding the new rules was a reason for holding the referendum.

“Ah”, say the conspiracy theorists having not seen the ATAD, “that might be so, but it is DEFINITELY the reason why tax avoiders supported Brexit. The EU rules didn’t come in until 2019 so the UK didn’t already have these rules and anyway they go much further”. Do they? Well, let’s have a look – here’s the Directive.

https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32016L1164

It’s worth nothing from the outset (yes, still the outset. Do you want to know this stuff or not?) why the EU implemented this directive – it is quite clear from the preamble that it is implementing BEPS across the EU – you know the thing the UK helped kick off?

Anyway, whizz down, ignore all of Chapter 1, the measures themselves start with Ch II, Article 4 – Interest Limitation rule.

There has been UK legislation already in this area for a number of years. We had the World Wide Debt Cap in TIOPA 2010 (Part 7) and elsewhere we had Thin Cap rules in ICTA 1988 sch28AA, but in 2017 we introduced the “Corporate Interest Restriction” to comply with BEPS Action 4, repealing the WWDC. Having debts means you have interest deductions which you can then use against your tax liability. It’s a classic tax avoidance method – create a debt, create an interest deduction, pay less tax. So very basically these rules limit the deductions to 30% of your profits - or “EBITDA” if you want to be technical. It’s not illegal to have more than 30%, but it’s just that beyond this level the deductions are disallowed. The ATAD application of BEPS Action 4 is not materially different – it’s essentially taken from the German model. You will find throughout BEPS, and other areas, that many of the initiatives are either UK or German.

Next up in the ATAD is Article 5, “Exit taxation”. This is in UK law in TCGA 1992 s185-187. This is to do with ensuring companies don’t just move assets outside the UK taking a chargeable gain with them – so you pay an Exit Charge. Now, there is an inconsistency here. In separate UK legislation, TMA 1970 Sch3ZB, there is an optional deferral period of 10 years, whereas in ATAD Art 5(2) it specifically states it should be 5 years where the relocation is to an EEA member state. Since the UK has already implemented these measures (we’ve had Exit tax rules since 1992!), it won’t be surprising that some EU rules are different, and where they go beyond UK rules the UK would need to amend the rules to be fully compliant with the ATAD. So, an amendment in the Finance Act 2019 includes a change to the deferral period – HMRC states the impact is “negligible” (which means under £5million).

However! One Professor of EU Law seemed to think that this deferral period, and it’s restriction to EEA member states is more relevant than HMRC and I make out. To be clear, the deferral period has always been restricted to EEA member states – the original legislation from 1992 was amended in 2013 to include this deferral period – at the insistence of the EU!! See National Grid Indus BV (C-371/10) (“NGI”). Whether the deferral period is 10 years or 5 years doesn’t raise another £1 in tax. If there is a Brexit change to come here it is that the deferral period for EEA relocations is removed, and our Exit tax rules are restored to their pre-ECJ standard.

Ooh, remember the 2019/2020 implementation date thing?? Well, whilst the ATAD has an effective date of January 1st 2019, some aspects were deemed to require more changes than others, so there was a derogation such that the Exit tax and Hybrid Mismatch rules were effective January 1st 2020.

Still awake? Don’t care…moving on.

Article 6 is the General Anti Abuse Rule (GAAR). A GAAR means if an authority finds a scheme is designed to avoid tax, but is not contained in a specific or “targeted” rule, it can nevertheless seek to disallow the deduction under the GAAR. The GAAR, in the Finance Act 2013 s206, was announced by George Osborne in the 2012 budget, before the EU announced anything. The GAAR isn’t in my view something that we should seek to use very often, since it would indicate our targeted rules are rubbish. It’s just a backstop. However, for that one person still following if you look at the first sentence in Article 6(1) of the ATAD you will note the EU GAAR is limited to Corporate tax liability – the UK GAAR is not.

ATAD Articles 7 and 8 are about CFC rules – “Controlled Foreign Companies”. We’ve had CFC rules in the UK since 1984, and they can be found in TIOPA 2010 Part 9A. They are pretty complex, with a number of different gateways your income flows through and if it flows through a gateway and doesn’t meet one of the exemptions on its way it will suffer a CFC charge. “What?” Yes, I know. Essentially, the idea is if a UK company controls a foreign company, then the profits of that foreign company can flow through a gateway and be charged to the UK company, provided it doesn’t meet an exemption on the way. “Ah, you mean a loophole!” Not really, the idea is that these rules are only ever to be used where the arrangement is being used to avoid tax. So a French subsidiary of a UK company would have an entity level exemption since the company is unlikely to be artificially shifting profits to its French subsidiary so it can suffer 33.33% corporation tax!

Again, there were a couple of amendments necessary to UK legislation in the Finance Bill 2019, to do with the definition of control including non-UK associated enterprises, but again HMRC determined the impact to the exchequer to be “negligible”. Scroll down this link until you get to the “Summary of Impacts” section (you can read it all if you want, but I really don’t recommend it).

https://www.gov.uk/government/publications/controlled-foreign-companies-and-eu-anti-tax-avoidance-directive/controlled-foreign-companies-and-eu-anti-tax-avoidance-directive

CFC rules are another great example of membership of the single market being detrimental to our tax avoidance rules. If you still have the Directive open, find Article 7, para 2. The godsend for tax avoiding companies everywhere is this statement, “This point shall not apply where the controlled foreign company carries on a substantive economic activity supported by staff, equipment, assets and premises, as evidenced by relevant facts and circumstances.” What does that mean? Well, as long as you have staff, sat indoors at computers in your Luxembourg subsidiary it does not matter that the purpose of that subsidiary is to avoid UK tax.

So, I want to book some very lucrative, profitable, taxable, contracts then that business can be directed to my Luxembourg/Irish subsidiary. Surely the EU are the good guys, sent to save us from tax avoidance not enable it? Well, let’s hear it from the EU – Cadbury Schweppes vs HMRC:

http://europa.eu/rapid/press-release_CJE-06-37_en.htm

“…the establishment by a parent company of a subsidiary in another Member State for the purpose of enjoying the more favourable tax regime in that other State does not constitute, in itself, an abuse of freedom of establishment.”

Perhaps read that sentence a couple of times. “For the purpose”. This is the principle that is now in the Directive. You are absolutely free to have a subsidiary in Luxembourg/Ireland or any EU member state PURPOSELY to avoid domestic tax in the parent company’s jurisdiction. So if you have some very lucrative, profitable, taxable, contracts then that business can be directed to your Luxembourg/Irish subsidiary. This is the reality of the impact of the EU on corporate tax avoidance. To those who wonder what the purpose of the 30,000 corporate lobbyists that reside in Brussels is, this will come as no surprise.

And breathe. You’re doing very well if you’ve got this far. To be honest, if you’ve got this far you may as well finish the article. Grab another biscuit though.

Lastly, in the ATAD, we have the Hybrid Mismatch rules, which are in UK law TIOPA 2010 Part 6A, and appear briefly in Article 9 of 2016/1164 EU, but substantively these are in “ATAD II” 2017/952 EU (effective January 2020 remember!) These are to prevent the use of entity classification arbitrage between jurisdictions. So, for example, you find a jurisdiction which treats a partnership as transparent (not taxable) and another which treats the same partnership as opaque (taxable) and arrange your affairs so the profits aren’t taxable anywhere.

Some people may have heard of a “Double Irish with a Dutch sandwich” where you basically use a combination of domestic rules and treaty rules to create “stateless income” which no-one taxes. These rules are designed to ensure that if an entity isn’t taxed in one jurisdiction, it will be taxed in the other regardless of whether it is considered opaque/transparent etc.

Again, the UK is going to amend the rules we have had since 2016 to accommodate the EU variances, and again this is allowed for in the Finance Bill 2019 and again HMRC have deemed the impact negligible. Same drill as before, scroll down to "Summary of Impacts":

https://www.gov.uk/government/publications/corporation-tax-changes-for-hybrid-and-other-mismatches-regime/corporation-tax-hybrid-and-other-mismatches-regime-two-minor-changes

If you’re interested (well you might be!) the minor amendments can be found in the Finance Act 2019 attached. This should take you to ‘international matters’, the amendments are in sections 19-23, and further in sch. 7 and 8.

http://www.legislation.gov.uk/ukpga/2019/1/part/1/crossheading/international-matters/enacted

There will still be some die-hard conspiracy theorists who will state, “OK, but I bet they’ll get rid of these rules as soon as we leave”. Well, as I say, this is an OECD initiative, so as an OECD member in our own right we would have implemented any measures we didn’t have anyway. Annex 4 of the Withdrawal Agreement contains a specific commitment to continue to implement these rules beyond transition. “Ah, what about no deal. This is what is intended, then we could just repeal the legislation!” Sure, the UK could repeal all our tax legislation, leave the OECD, JITSIC and the rest of our international commitments and become an international pariah.

Is that what is intended? If it is the intention then surely the Government would’ve repealed our current legislation and transposed the ATAD in full as an EU directive, bringing it into scope of the Henry VIII clause in the EU Withdrawal Act? If it is the intention why did the Government introduce, without EU prompt, the Profit Diversion Compliance Facility in January? Bit of a waste of effort wasn’t it? If the Government is intending on repealing tax avoidance legislation, why did it bring in new Profit Fragmentation laws from April this year? This one piece of legislation will, by some distance, raise more tax than all the amendments we had to make to comply with ATAD combined!

In reality, the Anti-Tax Avoidance Directive is simply the EU implementing a global standard in a manner compatible with the Single Market. It has been said that the OECD BEPS Actions are not binding. This is true, but it’s not that simple. The UK was one of the first signatories of the BEPS Multilateral Instrument (MLI). The MLI is designed to change thousands of bilateral tax treaties to include BEPS measures, such as Hybrid mismatch rules, without each treaty having to be separately amended. The UK has one of the most extensive tax treaty networks in the World, which we have built up over time and which help the UK create cross-border investment opportunities, both inward and outward. Leaving the civilised world of international tax cooperation just isn’t going to be on the agenda.

In truth, the UK has some of the most advanced anti-tax avoidance legislation in the World. We are thought-leaders in the field, and it comes as no surprise that the rules the OECD, and the EU, have introduced are closely aligned with much of what we already do anyway.

"OK, OK, shut up now, we get it - Brexit wasn’t about the Anti-Tax Avoidance Directive. It was more to do with the EU finding out about dodgy tax avoidance schemes. That was it. Definitely.” Was it? Really?

The EU has introduced Mandatory Disclosure rules in an initiative called DAC6. Many remain supporters obviously fawn over these rules. This is basically why we need to stay in the EU because the UK alone would never introduce anything like this. As I say, the more "#FBPE" amongst them may even say tax avoiders supported Brexit for this very reason. Don’t get me wrong, this is a very sound initiative – so let’s look at it more closely. This is the Directive:

https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:32018L0822

Intermediaries/promoters and beneficiaries of tax avoidance scheme must disclose the scheme to their tax authorities. E.g., intermediaries must report “reportable cross-border arrangements with the competent authorities within 30 days”. The original proposal was actually 5 days. But anyway, how do you know if you have a reportable scheme? Go down to Annex IV and it will describe the “Hallmarks” of a tax avoidance scheme. So if your scheme meets the definition of cross-border and one of these Hallmarks, it needs to be reported.

This is amazing, right? There is no way the UK would do anything like this? Well, actually we introduced something called DoTAS (Disclosure of Tax Avoidance Schemes) 15 years ago. UK rules:

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/701190/DOTAS-March.pdf

“Where a promoter is required to disclose he must do so within 5 days”. So the EU is doing something similar to the UK – probably a coincidence. Also, in the UK rules, “A tax arrangement should be disclosed where… …it is a hallmarked scheme by being a tax arrangement that falls within any description (the ‘hallmarks’) prescribed…”

Basically, the EU has introduced an existing UK initiative, and #FPBE, aided by the Guardian et al, say this is why the UK wants to leave!

“Ah”, say the eagle-eyed remainers, “DAC 6 requires that information to be shared amongst all EU tax authorities. That sort of cross-border co-operation can only be achieved in the EU”. Again in 2004, the UK with the USA, Australia and Canada formed an organisation called JITSIC (which you will no doubt recall from earlier, obvs) “to facilitate the ongoing work of tax administrations in countering abusive tax schemes and tax avoidance structures.” They basically shared intelligence and provided “administrations with an agile mechanism for… information exchange and collaboration”. That organisation now includes 38 tax authorities around the globe, including 19 EU member states, the USA, Japan, China, India – literally billions more people than captured within the EU.

"OK, so the UK did this stuff anyway, but still, at least it shows the EU is a progressive organisation, proactively preventing tax avoidance.” Not really. When the UK founded JITSIC and introduced DoTAS we did so to combat tax avoidance independently – no-one told us to. There was no international standard of mandatory disclosure schemes. The only reason the EU is introducing DAC6 now is, again, because of the OECD BEPS Project – Action 12.

http://www.oecd.org/tax/mandatory-disclosure-rules-action-12-2015-final-report-9789264241442-en.htm

"OK, you’re just avoiding the topic. Stephen Fry (?) on youtube has told us that Brexit was about rich people using tax havens. The UK has loads of tax havens. The EU has a tax haven blacklist, and wants to impose sanctions on them.”

You’ve got me. The UK does have a number of “tax havens” – BVI, Cayman Islands etc. Yet they are not on the blacklist, why? This is Sven Giegold, Green Finance spokesman, “The British are particularly sceptical about the EU’s black list of tax havens, for self-protection. It takes a lot of British humour to understand that Caribbean islands with a corporate tax rate of zero per cent should not be tax havens, according to the EU definition. We must make best use of the Brexit negotiations to close the UK’s tax havens.”

The reason why BVI and the Cayman Islands etc are not on the EU’s tax haven blacklist is the same reason why the tax haven blacklist doesn’t contain a single territory belonging to an EU member state. Not one. Even if they find themselves on there, they will be off within weeks. They are not on the blacklist because we get to determine the parameters for who is on the blacklist. We get to lobby ourselves about removing/keeping territories off the blacklist. The EU is the ultimate rich kid club!

Watch this space, if the UK leaves the EU with no deal, this time next year there will be UK overseas territories on the tax haven blacklist. This is UK Green MEP (and super-remain) Molly Scott Cato suggesting that very thing…”Once we leave the EU, the UK will no longer be able to use the EU to hide their dodgy tax practices. The EU should use the opportunity of Brexit to blacklist the UKs overseas territories”.

If I was trying to avoid tax by having operations in BVI like, say, Richard Branson, it is imperative the BVI doesn’t end up on the tax haven blacklist – I need the UK to be in the EU. The tax haven blacklist is a motivation for tax avoiders to support remaining in the EU, not leaving.

"Yeah, but what about Jacob Rees-Mogg, with his Cayman Islands company. It made £103million profit in 5 years and paid no corporation tax at all!” The firm JRM receives income from is Somerset Capital Management LLP. It’s a UK registered partnership. The reason why we know it made £103million profit without paying any tax is because its accounts are on Companies House! The reason why it doesn’t pay Corporation tax is because it is a Partnership, and not subject to Corporation tax. It’s not a loophole or a big scandal. An LLP is “transparent” for UK tax purposes – that means that tax is payable by the partners, not by the partnership itself. The profits available for distribution to you as a partner are taxed as if you earned them yourself. If you are an additional rate individual taxpayer you will pay tax at 45%, if you are a Corporate you pay tax at your corporate rate etc etc.

"Ah, I see you’ve ignored the EU rule about scrutinising offshore accounts! This whole thing is a charade. A deflection! You Brexit-supporting charlatan!”

This is a strange one. This appeared first, to my knowledge anyway, in a “London Economic” article written by Jack Peat which stated in January 2020 the EU “will bring in a law instructing anyone with offshore accounts and investments to disclose them to enable full scrutiny so they can no longer get away with tax avoidance and evasion.”

Hmmm…I thought, I wasn’t aware of that. I challenged it, and people said “yes it is, it’s the Anti Tax Avoidance Directive”. Well, no it isn’t (as you well know by now!) the ATAD is nothing to do with individuals, or anyone else, hiding money in offshore accounts.

As it happens, there are ”3 new criminal offences relating to offshore income, assets and activities” which require any inaccurate tax returns, where you have omitted any offshore accounts, to be amended. The first deadline for amendment is January 31st 2020. This is the only piece of legislation that remotely resembled the claim.

However, the key piece of information about this legislation is that it is UK – it is nothing whatsoever to do with any EU Directive. It can be repealed today, it can be repealed when we leave the EU, it can be repealed if we remain in the EU. It is nothing to do with our EU membership. It’s not even BEPS. It’s just us. This is the law itself:

https://www.gov.uk/guidance/offshore-tax-evasion-offences-relating-to-offshore-income

Following a bit of a challenge, the Jack Peat article was amended. It now says Brexit was about DAC6 instead. But we all know better, don’t we? Trouble is, it’s out there. It’ll get repeated on twitter, facebook etc. Same as the “Boris Johnson supporters all took out billions in short positions” nonsense. If it’s not that, it’s money laundering. Such is life!

“OK, seriously, enough! Just stop. I’m beaten into submission. I can literally feel all hope escaping from my body. I just want to get my life back to the relative glory I felt before I started this article”.

Seriously, congratulations to anyone who got this far. It’s so easy to say “look, a new tax avoidance rule, this is what Brexit is all about. Follow the money!!”

Actually getting to the bottom of whether that is true, especially if you are predisposed to “remain”, takes quite a bit of patience. Social media, especially twitter, lends itself to eye-catching one-line conspiracies and false assertions, it lends itself far less to their rebuttal.

Whether you are a remainer or a leaver, if you have got this far without cheating, thank you for taking the time.

In summary, Brexit wasn’t about avoiding tax rules, some of which we invented, all of which we already have, have had for years, and would have whether we were in the EU or not.

If after all that you still think it is…fine. Disagreeing is OK. (You’d be wrong like, but it’s OK).