Oxfam: close legal loophole that's turning Scotland in to a tax haven

Its move comes after a series of Herald stories highlighting SLPs implicated in everything from the $1bn looting of Moldovan banks and Ukrainian gun-running corruption scandals to scam internet sites pushing diet pills, plagiarised essays and high-risk financial gambling.

READ MORE: Oxfam tax expert on dangers of SLPs

Oxfam Scotland's Jamie Livingstone said has written to all party leaders asking them to commit to a change in the law amid concerns that defacto secrecy regime offered by SLPs is being abused on industrial scale by tax dodgers and money-launderers.

Mr Livingstone said: "Oxfam cares about tax dodging because we know it is the poorest people – in Scotland and globally – who lose out when governments are denied vital revenue.

"SLPs are a complex way of structuring a business. Not all of them are being used for illegitimate purposes. However, they have rapidly grown in number and we are concerned by media reports suggesting they are being explicitly promoted overseas as 'Scottish zero per cent tax companies. "We are particularly alarmed that it can be hard to know who really owns SLPs."

Mr Livingstone's appeal to party leaders comes after SNP, Labour, Green and Liberal Democrat politicians at Holyrood raised concerns. The Scottish Government has asked the UK Government to close the loophole, which is subject to reserved corporate law. One SNP MP, Roger Mullin, has said he will try to achieve reform from the floor of the House of Commons by tabling amendments to the coming Finance Bill.

Jamie Livingstone

Mr Livingstone said it was important for Scotland to show a "united stance" on the issue to Westminster to provoke urgent action by the UK Government.

While Scotland has a disproportionate number of "brass plate" companies, English limited liability partnerships are also being exploited around the world as fronts for tax avoidance and organised crime.

READ MORE: Roger Mullin MP on why he wants to reform SLPs

Writing in today's Herald, tax expert Gary Deans explained the specific Scottish issue.

He said: "SLPs are undoubtedly being marketed overseas as legal entities that deliver zero per cent tax.

"Other entities can deliver the same result, but the lack of transparency afforded by SLPs, and Limited Partnerships in the UK, make them attractive to those who wish to remain hidden. "Scotland, and in fact the UK as a whole, is seen as a trusted, legally robust and stable environment: a good choice to add some respectability.

"It looks likely that these advantages are being exploited, and there is a real danger that Scotland’s reputation is tarnished as a consequence."

Grand Cayman, the more traditional image of a tax haven

Mr Deans, who advises Oxfam, also questioned why SLPs had been omitted from UK legislation to force firms - or at least try to force firms - to lift the veil of secrecy over their ownership.

He said: "The UK Government has placed great store on ownership transparency but it seems that we have structures on our own doorstep that are being used to enhance ownership secrecy.

"It’s now up to the UK Government to act."

The number of SLPs has now topped 25,000 as off-the-peg firms are openly advertised as tax avoidance and secrecy vehicles, especially in the former Soviet Union.

READ MORE: the secret bases of SLPS

One website, in English, from an agency called Five Consult is explicit. "The UK is known internationally as a jurisdiction with a standard level of taxation; hence it has no image of a ‘tax haven’," it says. "At the same time, the UK law provides for the possibility to incorporate and use companies with zero tax rate - Limited Partnership."

FiveConsult: A rare English language website promoting SLPs as zero-percent-tax vehicles

Jamie Livingstone's statement in full

"Oxfam cares about tax dodging because we know it is the poorest people – in Scotland and globally – who lose out when governments are denied vital revenue.

“Scottish Limited Partnerships (SLPs) are a complex way of structuring a business. Not all of them are being used for illegitimate purposes.

"However, they have rapidly grown in number and we are concerned by media reports suggesting they are being explicitly promoted overseas as ‘Scottish zero per cent tax companies’.

"We are particularly alarmed that it can be hard to know who really owns SLPs.

"Scotland should have no desire to be linked, in any way, to the practice of tax avoidance and, to date, there has been strong cross-party support for this position.

"Power to close any loophole rests at Westminster, but we believe a united stance from Scotland’s political leaders will encourage urgent action by the UK Government.

"We are therefore asking political party leaders at the Scottish Parliament and the Secretary of State for Scotland to unite in support of efforts to immediately close tax and other loopholes which could allow ‘Scottish Limited Partnerships’ to be abused. By doing so, we can protect Scotland’s reputation for legal and financial professionalism, fairness and transparency."

Oxfam Scotland’s campaign asks politicians to add their name in support of the following statement:

“I agree that tax avoidance, wherever it happens, is wrong. It denies Governments – at Scottish and UK levels, as well as within developing countries – vital revenue which could be used to tackle poverty and fund schools and hospitals. I will work with other parties to ensure Scotland isn't unintentionally helping tax dodgers and that we prevent any perception that this is the case. I will support efforts to immediately close tax and other loopholes which allow ‘Scottish Limited Partnerships’ to be abused in order to protect Scotland’s reputation for professionalism, fairness and transparency.”

For more info on Oxfam's campaign, visit their website here