This isn’t tax evasion

It’s not even tax avoidance:

Stuart Gulliver, the HSBC chief executive who has vowed to reform the crisis-hit bank, sheltered millions of pounds in a Swiss account through a Panamanian company and remains tax domiciled in Hong Kong.

Leaked files show that the Derby-born Gulliver, who is due to present HSBC’s annual report on Monday in the wake of the international controversy over its Geneva-based private bank, was also one of its clients, holding about £5m in a Swiss account.

The bank executive was listed as the beneficial owner of an account in the name of Worcester Equities Inc, an anonymous company registered in Panama, containing a balance in 2007 of $7.6m. It was through this entity that Gulliver’s HSBC bonuses were paid until 2003. He also held a second account in the name of Worcester Foundation, which had been closed before 2007.

Although now based in the UK, where HSBC has its headquarters, Gulliver is domiciled in Hong Kong for legal and tax purposes.

He’s a non-dom. Thus money kept out of the UK is UK tax free. Thus, this money in a Swiss account. In fact, he must have a foreign account for him to be obeying the law.

In response to queries from the Guardian about his personal account as revealed in the leaked files, a representative for Gulliver said he had made use of HSBC Suisse to hold his bonus payments prior to 2003, when he moved from Hong Kong to London.

Lawyers for Gulliver said that Hong Kong tax had been paid on this income – and explained that he “followed this procedure because he wanted his taxed bonus earnings to remain private from his then colleagues in Hong Kong, which they would not have done if he had kept them in an HSBC Hong Kong account”.

And he also paid tax on those earnings.

Smear job really, eh?

45 thoughts on “This isn’t tax evasion”

  1. As a (after lengthy back-and-forth with HMRC) non-dom myself (but not resident either so it’s irrelevant) I think the entire concept is nuts. Especially when you can move back to the UK in 2003, list “Kensington” as your primary residence, and still be considered non-dom!

  2. It is tax avoidance – he is keeping money offshore because if he brought it in to the UK (where he is resident) he would pay tax on it. He does not need a foreign account to comply with the law: he can put this money in the UK, and comply with the law by paying tax on it.

    The trouble is that (I suspect deliberately) the pack that this “dog whistle” message is aimed at cannot distinguish between tax avoidance and tax evasion, and this is being packaged as the latter.

  3. Tim, for Fatty ‘ s benefit (and mine): he was NON -resident when the money was paid into these accounts and no earnings have been paid in there since he became UK resident. Are these the facts here?

  4. Sorry, I’ve fallen into the same trap as the media and been less than clear. I presume that at the very least interest accruing on the balances would be taxable – I don’t know whether the underlying amounts would be subject to tax just by bringing them into the UK

  5. I believe he’s *not* considered UK resident for tax purposes – he’s employed by HSBC in Hong Kong and seconded to the UK company, his family house and primary residence remain in Hong Kong.

    Nonetheless, the Panamanian company seems sketchy, given that all the completely legitimate things Tim mentions could have been achieved solely involving entities in Hong Kong and Switzerland.

  6. Yes, he was non-resident and non-dom when he made those earnings and paid them into that account. So, if he brought them into the UK they would remain untaxed. Now he is resident and non-dom. So, he pays UK tax on current earnings and would pay tax on the earnings from those savings if he brought them into the UK (either the savings or the earnings). As those savings are in Swiss then he does not pay UK income tax on the earnings from those savings.

  7. Can’t see how that could be true. Just cannot see how a Brit working in London (ie, more than 30 days a year or whatever) would not be considered tax resident. Non-dom, sure, but residency?

  8. The HSBC statement released in relation to this latest news confirms that he is UK resident for tax purposes (and a non-dom). I think I call bullshit on the non-dom thing for this bloke, but there is no way of proving it of course

  9. Tim: yes, you’re right, the Graun’s reporting was confusing/confused. The fact that his nominal permanent job, family house and wife remain in Hong Kong (where he legitimately worked and was a permanent resident before he got the CEO gig) is why he gets counted as a non-dom despite being a UK-born UK citizen.

    Panama shell company still dodgy, though.

  10. The key to this guys tax affairs will not be whether there is an o/s a/c, but rather whether a NON – UK company gets paid for his services overseas – and how much.

  11. Andrew M: Given that Swiss bank accounts currently pay no interest, it’s not as if HMRC is missing out anyway.

    Is that just SFR accounts or is that true for accounts in other currencies too?

  12. Sorry, but if you tell the Financial Times you live in Kensington I think you can forego the non-dom status.

  13. Ironman: that’s in the article – he’s paid by HSBC Asia Holdings BV, which is a Dutch company.

    BiG: no – non-dom status *doesn’t mean* you don’t live in the UK, otherwise it’d be no different from every other non-US country’s regulatory rules. It is about showing you have strong ties to a non-UK country, which can still be true even if you are a British citizen living in the UK (eg the Daily Mail’s owner, Lord Rothermere).

  14. BiG, non-dom status is about long term, living in Kensington is short or medium term.

    It will have been very difficult ultimate for him to claim non-dom status having been born in the UK to what sound like UK parents, but the Revenue will not have accepted a change of domicile away from the UK unless there was a lot of evidence.

  15. BiG: Sorry, but if you tell the Financial Times you live in Kensington I think you can forego the non-dom status.

    This kind of ex cathedra statement is a bit reminiscent of RM. Try inserting “candidly” for the full effect.

  16. “He was born in the UK in 1959. His father Philip was a legal executive, while his mother Jean was personal assistant to the senior engineer at a local dockyard. Gulliver went to Grammar school in Plymouth, Devon.”

    I’m struggling with a UK born and resident british citizen being a non-dom. No obvious signs of an exotic background.

  17. Murphy is (obviously) squawking away about it on his website.

    In an earlier thread he had droned on about how easy it was for people to become UK domiciled as all you had to do was declare this in your tax return, so anyone living here who didn’t do this was obvioulsy up to no good. Now of course he’s droning on about how dubious it is that someone can just claim to be Hong Kong domiciled.

    Yet more proof that he’s hopelessly UK oriented and blind to the rest of the world on tax.

    And he won’t even see it.

  18. I guess Gulliver is claiming domicile of choice. Move to new country, set up permanent home there, break all ties with UK.

  19. Luke,

    > I’m struggling with a UK born and resident british citizen being a non-dom. No obvious signs of an exotic background.

    Not a tax issue for me as my homes are both in the UK, but I get the principle. Born and mainly raised in London, but left England in 1992; have lived in NI for eleven years; my wife and children are Norn Irish, my home is in NI, I’m on the electoral register in NI, but, technically, I spend most of my time in London ’cause of work. I’m a resident of NI with strong ties to and roots in NI, and no ties to London beyond it being where my office happens to be. I fail to see how my parentage (with not the remotest hint of any Irishness in my ancestry) or place of birth are even relevant.

    If we did have separate tax laws (which could happen under devolution), I’d’ve thought I’d be paying tax in NI. If it were cheaper than English tax (highly unlikely), I’d certainly apply. NI is, after all, where all the state services I use are.

  20. Bloke in North Dorset

    Given the armies of immigration and tax layers that HSBC will have access to I’m betting he’s squeaky clean when it comes to his status. If he isn’t someone needs shooting.

    As to him having been born in the UK so what? As Wellington said said: “being born in a stable doesn’t make you a horse”.

  21. @Richard, I’ve achieved the hallowed non-dom status myself so I know a bit about how you get it (and can lose it). Property ownership, established and overseas-resident family, and acquiring foreign citizenship by naturalisation go a long way.

    I’m guessing, just guessing mind you, that if I moved back to the UK and lived there for 12 years and gave newspaper interviews saying I lived there with my wife, HMRC might look into it again. Even if I went to the extreme length of renouncing UK citizenship. Candidly.

  22. johnb78

    I’m just wondering if you would like to read my question again and then perhaps try to find the answer in the article.

    Actually don’t bother; my question was VERY specific, is framed strictly in the present tense and the article doesn’t address it.

  23. BiG,
    The property ownership clause is easy to subvert: just register it through a shell company in the West Indies, or a trust, like Milliband Sr did. It might be tricky to persuade family to move far from the UK, but they might consider nice anglophone places like Jersey which don’t count as UK for non-dom purposes.

    Meissen: HSBC.ch don’t advertise their rates, so I don’t know. Looking at a Swiss price comparison website, I find one bank that offers 0.3% (on both CHF and EUR, amazingly); and most of the rest around the 0.15% mark. Overall I don’t expect the revenue are losing huge sums.

  24. BiG: hang on, surely Gulliver has been in Hong Kong for years and it’s only his new job as CEO (which, at a large plc without founder ownership, is rarely longer than five years) that’s dragging him back to the UK?

    Ironman: your question was not clearly written and I misread it; so shoot me.

  25. Just to follow up on my comment, HSBC’s Swiss subsidiary was reported to have £14.3bn across 8,844 accounts registered to Brits. I’ll assume that half of those account-holders aren’t tax-resident in the UK, and that the average interest rate is 0.15%. That makes for some £10.7m in interest; at 45% the tax bill on those comes to £4.8m. It’s hardly worth the amount of column inches devoted to it.

  26. @Andrew M: they made very little from the drugs accounts in the Mexican bank they bought, either.

    I think the idea here – and it’s not an entirely stupid one – is that the UK Government has the right to say that a London-domiciled bank should be less crooked than a generic crooked bank in a generic crooked place where crooked banks happen.

    The main unacceptable thing that has been happening is that the US government has fined foreign banks for being crooked outside the US, on an incredibly dubious legal basis but where “pay up or don’t do any dollar business any more” are your only options.

  27. @johnb,

    According to Wikipedia Gulliver moved back to London in “early 2003”.

    Sorry, but this is, candidly, one rule for the rich, another rule for everyone else territory.

  28. “Sorry, but this is, candidly, one rule for the rich, another rule for everyone else territory.”

    Well yes and no. Its one rule for the rich, another for everybody else in the sense that the rich have Bentleys and everybody else doesn’t. The laws are exactly the same on non-dom status whether you are a billionaire or a bog cleaner. The point is the billionaire has a) lots of money to throw at expensive lawyers and accountants, who will argue the minutiae of the tax code with HMRC and threaten to go to court if HMRC try to pull a fast one, and b) lots of incentive to achieve non-dom status given his world wide income/assets. Whereas our bog cleaner has neither, and if he attempted to become a non-dom HMRC would laugh at him, tell him a bunch of lies that he couldn’t do it, and there’d be nothing he could do about it, if he even ever realised they were lying to him.

  29. How do these masters of the universe ever cope with living in places that don’t allow them to shield all their investment income from taxation?

  30. BiG:
    By doing what most people outside northwest Europe do: just ignore the law. The French former finance minister didn’t declare his Swiss bank account, tax dodging is a national sport in Italy, and the Greeks are all on the fiddle. Rule-based societies like Germany and the Scandis try to outlaw such things and enforce the law; while pragmatics like the Brits and the Dutch prefer to legalise such things. Anywhere south of Belgium, laws are optional. Even the French finance minister was caught with an undeclared Swiss bank account containing €600,000.
    (If we assume a 0.2% interest rate and a 45% top income tax rate, that’s a loss to the French state of €540 a year. Most accountants would call that a rounding error.)

  31. @BiG – That’s the point. They go to places that DO allow them to shelter their investment income. Wouldn’t you if you had the choice?

    It’s why those who say that ending non-dom rules would bring in a flood of tax from non-doms are deluded. The only flood would be non-doms leaving the UK.

    Suppose you’re a rich arab sheik, £100m a year in oil profits and they change the rules so that you’ve the choice of relocating to Switzerland (and only popping back to London on your private jet at the weekends) or paying HMG £45m a year. What’re you going to do?

  32. “Suppose you’re a rich arab sheik, £100m a year in oil profits and they change the rules so that you’ve the choice of relocating to Switzerland (and only popping back to London on your private jet at the weekends) or paying HMG £45m a year. What’re you going to do?”

    The Swiss are still going to want a fair chunk of that, even if you get on flat-rate taxation. Contrary to popular belief, Switzerland is generally not a tax haven, particularly for individuals – it is a lowER tax environment (often not that much lower, sometimes not lower at all for people in equivalent personal situations*). What it also offers is regulatory stability (no worry that after the next election a government will be listening to Ritchie-types), and an easily-navigated burocracy.

    *I did the calcs a few threads back – a batchelor in the Jura on CH average wage (who is no better off than a Brit on GB average wage, despite the hysterical exchange rate) is paying a higher overall rate of tax and a higher marginal rate of tax than his British cousin. Plus, Jurassic Man also has to pay for health insurance and his first CHF2000 of healthcare per year out of pocket.

  33. I think it would be much better if we let JohnB decide stuff like this on the back of what he thinks ‘looks’ ‘sketchy’ or ‘dodgy’.

    🙂

  34. It would be dodgy if he was having UK earnings paid to a company, rather than himself as he’s an employee.

    He doesn’t seem to have done that though.

    Not surprising really as he’s a white northern European with what looks to be a perfectly manly head of hair for a man his age.

  35. I do find the non-dom rules bollocks. Taxation should be based on residency, so anyone living more than 90 days per year in the UK should have to cough up. Double taxation treaties exist for most normal countries, meaning people don’t get whacked twice for (say) overseas rental income. I’ve nevr quite understood the argument that people should be able to live in the UK and not pay UK tax.

  36. It may well be nonsensical but the rationale is that if we dropped it, these people wouldn’t suddenly start paying tax, they’d move, and that the other monies they bring in is worth it.

  37. @abacab

    Not so. foreigners resident in Switzerland but not working there may choose to pay a “lump-sum tax” instead of normal income tax on world-wide income. The tax is nominally levied on the taxpayer’s living expenses, but in practice (which varies from canton to canton), it is common to use the quintuple of the rent paid by the taxpayer as a basis for the lump-sum taxation.

    You think Lewis Hamilton moved there so he could pay ‘about the same’ tax as in the UK?

  38. It may well be nonsensical but the rationale is that if we dropped it, these people wouldn’t suddenly start paying tax, they’d move, and that the other monies they bring in is worth it.

    In my experince, few foreigners opt to live in the UK without good reason. My guess would be some would move out, but most would pay: if they had a choice or desire to not spend time in the UK, they’d not be here in the first place. A further minority would skate around the 90 day rule by coming in via ports of entry with lax passport scanning.

  39. @Andrew,

    I didn’t say our *sheik* would pay about the same. Even with Pauschalbesteuerung he’ll still pay a lot. Of course not as much as Westminster would take, but it’s not like he’ll live tax free in CH. I pay less in CH than I would on a UK equivalent salary (NB – not one calculated with the current exchange rate), because I am married with kids. If I were single w/o kids, I would only pay a little less, of which a bit more would go out on health insurance and healthcare costs.

    Also, contrary to popular belief the Pauschalbesteuerung must NOT be less than the ordinary income tax on CH and foreign income. (pretty sure it exempts wealth tax though). There is supposed to be a “Kontrollrechnung” to check this.

    One major advantage of it is that it is easy to calculate and administer.

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