An analysis by academic economists found that 26,000 people granted non-dom tax status by HM Revenue and Customs (HMRC) collect an average of £420,000 a year in unreported overseas income and capital gains.
Super-rich overseas people in the UK registered as having non-domicile status are being legally allowed to avoid paying more than £3.2bn of tax on at least £10.9bn of offshore income a year, according to a report.
Andy Summers, associate professor at LSE Law School, said: “Non-doms receive ten times as much investment income offshore as they report in the UK. By rewarding non-doms for keeping their investments abroad, the current tax rules harm our economy as well as being unfair on ordinary taxpayers who must pay tax on their worldwide income.”
The Warwick and LSE research, which is based on HMRC filings, claims that “only 0.3% of those affected would leave the country (fewer than 100 people), most of whom are paying hardly any tax under the current regime”.
The vast majority of non-doms are foreigners living in the UK who use the status so they are only taxed on income and capital gains arising in the country, but not on those generated overseas. Most ordinary people living and working in the UK pay tax on income and capital gains arising here and abroad.
Meanwhile, another investigation has found that two companies – Anglo Beef Processors UK and Pilgrim’s Pride Corporation (owned by Brazilian beef giant JBS) – appear to have reduced their tax bill by structuring their companies and loans in a way that allows them to take advantage of different tax systems, in what one expert has described as “aggressive tax avoidance”.
The meat companies concerned have branches both in the UK and in the Netherlands and Luxembourg, which have different tax regimes. By lending money from a company in one country to a related company in the other, and then borrowing it back at a different interest rate, the companies can significantly and legally cut their tax bills.
“These companies get financed by 0% loans and they pay very little tax because they’re holding companies and Luxembourg and the Netherlands apply special taxing rules to holding companies in order to attract business,” said Avi-Yonah, who is also a former consultant to the Organisation for Economic Co-operation and Development (OECD).
Alex Cobham, CEO of the Tax Justice Network, suggested that “this gives all the appearance of tax avoidance, designed to prevent the declaration and taxation of profits in the location of the underlying real activity – ie, the place where the profits actually arise. What I may consider abusive is not necessarily unlawful, however, such are the failings of the international tax rules.”