Earlier this week FactCheck cast some doubt on the government’s claim that Britain is getting its own house in order where offshore tax evasion is concerned.
Tax dodging has become big news in recent years and the government is keen to be seen to be cracking down. But embarrassingly, many of the most notorious tax havens are British Crown Dependencies or overseas territories.
The Treasury claimed it had secured an commitment from all of Britain’s island territories to sign up to new international standards designed to make tax evasion and avoidance harder.
We noted that many of the overseas territories had managed to word their commitment in such vague terms that they could get away with doing nothing for years to come.
But it was a different story with Britain’s Crown Dependencies – Jersey, Guernsey and the Isle of Man.
They all agreed to join the OECD’s multilateral tax convention, an agreement between countries to automatically share information on individuals who may be moving their money between different jurisdictions, as soon as possible.
They also agreed to draw up action plans to “ensure much greater clarity about who really owns, controls, and benefits from companies”, a key concern in the secretive world of offshore finance.
We’re grateful to a reader, Andrew Dundas, who posed the question of whether the island of Sark would come under these new measures. The answer surprised us.
Sark is a small Channel Island with a population of about 600, no cars or street lights, and a long history of tax tomfoolery.
The tiny territory is perhaps best known as the home of Sir David and Sir Frederick Barclay, the identical twins who own the Ritz Hotel, Littlewoods and the Daily Telegraph.
The brothers own an island off the coast but are subject to Sark law, which means they pay property taxes but are not liable for income or inheritance tax.
In the ’80s and ’90s the island became notorious for the “Sark lark”, where some islanders became the nominee directors of tens of thousands of companies who wanted to hide their real identities.
Residents were essentially selling the right to use their names and an offshore address to help companies obscure their real ownership.
It was perfectly legal, although it wasn’t really such a lark: one of the front companies registered by an islander helped Saddam Hussein skim money from the UN’s oil for food programme.
The government appeared to have put a stop to the directorship wheeze in 1999, but Sark’s name has cropped up in connection with other tax wrangles since then.
Last year the BBC accused an company called ISS Ltd of using its offshore status to help UK-based recruitment agencies avoid paying National Insurance contributions for temporary workers like supply teachers.
The company denies any wrongdoing, saying: “At ISS we have a history of working closely with the HMRC to ensure compliance of our business model. Our employees can be assured we are fully compliant with current HMRC legislation and all tax and NI due by them during the course of their temporary employment is fully paid.”
ISS describes itself as “Sark-based”. But the government of Sark says: “The island has no company law. There is no such thing as a ‘Sark company’.”
It’s a riddle beyond FactCheck’s powers to unravel.
Sark’s rulers appear keen to reject the accusation that the island is a tax haven, although at least one resident candidly describes it as just that.
Bearing all this in mind, you might have thought that the island was ideal for inclusion within the government’s plans for greater information exchange and transparency about company ownership.
But for obscure historical reasons, it appears that Sark has quietly managed to dodge David Cameron’s efforts to rein in the offshore havens.
Although it is part of the Bailiwick of Guernsey, the island has its own parliament and enjoys complete fiscal autonomy. That’s why it’s able to set income tax at zero per cent.
The Treasury and the government of Guernsey both told us that Sark will not come under the new agreement signed by Guernsey despite its strong connections with the larger island.
Apparently if the Treasury had wanted to include Sark it would have had to negotiate a separate agreement with the island’s government. For reasons of its own, it did not do so.
This may not be a big problem where automatic information sharing is concerned. The Guernsey government assured us that the only two banks on Sark are Guernsey-based and so will come under the agreements entered into by Guernsey.
So it would appear unlikely that a UK taxpayer will be able to open a bank account on Sark without attracting the attention of Her Majesty’s Revenue & Customs.
But the moves on beneficial ownership – more openness on who really owns a company – would presumably be welcome in the home of the “Sark lark”.
Tax campaigner Richard Murphy told FactCheck the failure to take Sark into account is a serious oversight by the government.
He said: “To ignore Sark in this sense is completely absurd. It just creates another opportunity for a loophole. The Sark lark will rise again.”
By Patrick Worrall