Wednesday, February 10, 2016

Scotland - the Tax Haven

A legal loophole that has made Scotland a soft-touch for international money-launderers and tax evaders, according to critics. The legislation governing SLPs date from 1907. The English and Scottish Law Commissions recommended reform as far back as 2003 but no action has been taken by successive UK governments since. 

Scottish limited partnerships (SLPs), The Herald revealed, are being marketed across Eastern Europe as tax avoidance vehicles. They are promoted across Eastern Europe as "Scottish zero-per-cent-tax companies" in the "Scottish offshore zone". This is because - unlike English partnerships - the Scottish firms do not have to provide financial reports or register for tax if it conducts its business overseas. Such firms - often registered in unglamorous housing schemes - were used as part of an alleged elaborate scam to loot $1bn from Moldovan banks.

The number of SLPs has more than doubled since 2009 on the back of a booming Scottish cottage industry creating them for foreign investors, especially from the eastern and south-eastern edges of the European Union. Capital flight, legal or illegal, is a huge issue in the former Soviet Union. Nearly $60bn left Russia alone in 2015. And that was a huge improvement from from than $150bn in 2014.

SLPs are now part of a range of offshore products that law enforcement experts say can be exploited to funnel money out of some of Europe's poorest nations. A classic scheme sees an SLP set up with two shareholders or "members" which are themselves companies based in Panama and the British Virgin Islands, where corporation tax is zero per cent. The resulting SLP carries the kudos of a "British" company and can open a bank account elsewhere, such as Cyprus or Latvia, but has no need to register for UK tax or provide full financial accounts in Scotland. Such a firm can then be used to move money from east to west without attracting the attention of officialdom.

One typical Russian-language advertisement for SLPs offers partnerships, complete with "nominal" or front-man shareholders and a Scottish legal address, for just 2000 Euros. The whole process takes just seven weeks. Another firm, with addresses in England, Cyprus and Russia says it can provide an off-the-shelf "ready-made" SLP in half an hour. The advert says SLPs are an "ideal solution for any investor who wants to work with a company registered in the European Union but at the same time exploit a tax-free instrument".

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