Some structures will be property holding vehicles. And some of these property holding vehicles will be reducing tax in a way that was entirely intended by the British parliament to encourage foreign direct investment into commercial property. These structures benefit the liquidity of the commercial property market – by allowing investors globally to add British real estate to their portfolios on a similar cost basis to other asset classes like general equities and bonds. Without such vehicles, stamp duty land tax would typically add a four per cent charge on every transaction, and would likely render commercial property uncompetitive against other classes where no such costs apply. However, others may be exploiting the loophole in the law to avoid stamp duty payments on transfers of residential property. But, we don’t know the proportions of each, so using wide assumptions for the scale of this activity and plausible figures for the frequency with which property changes hands, we estimate that a maximum of £253 million per annum of stamp duty land tax revenues would have been lost in 2011 through this route. The second type of structure that appears under corporate avoidance is offshore corporate services. These vehicles provide financial or human resourcing or other services to a parent company in the United Kingdom. Most of these will be entirely legitimate (and not avoiding tax) as they are, for example, international shipping companies whose staff do not work in the United Kingdom anyway. However, it is possible that some are set up only to exploit the difference between corporation tax in Jersey and the United Kingdom. Renting workers employed by the Jersey firm at a mark-up to the United Kingdom firm, allows the United Kingdom firm to reduce its taxable profits. The numbers in Figure 66 assumes that firms make revenues worth ten per cent of assets, and charge a mark-up of ten to fifteen per cent to the parent firm. This gives an upper bound of £94 million in avoided tax. However, there is good reason to believe that this incidence of this and other types of profit reallocation activity is low. This is because, first, we found little evidence in our survey and interviews. Second, there is little rationale in the Channel Islands for the type of profit reallocation that for which Switzerland and the Netherlands are used. Jersey has few double taxation agreements with other countries, which would leave any corporate using it as its tax hub at the risk of paying twice. Moreover, in most cases the island is too small for it to have meaningful operations there; as such companies may find it difficult to defend a significant apportionment of revenues and profits to it. As a result few British companies (other than financial services firms) have a presence in Jersey, and those that do are simply serving the local market or appear to be focused on managing their global property portfolios. Overall this gives an estimate of up to £479 million per annum for tax avoidance. Pulling together the calculations for avoidance and evasion, the bottom up approach has identified a maximum potential tax leakage of £630 million per annum using data for 2011.
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