In many cases, three different levels of tax law apply, according to where you live, where you work and where you keep your money.
Tax law is a complicated web between governments of double taxation treaties, agreements to exchange information and memorandums of understanding and it’s easy to trip up on what should be reported to whom and when.
Two favourite offshore financial centres are Jersey and Guernsey. Both are trying to disassociate themselves from being viewed as tax havens rather than financial centres.
Finance is an important source of income and employment for Jersey – 40% of the island’s economy is generated from handling other people’s wealth.
Politicians and financial leaders are speaking out against aggressive tax schemes, like the now infamous K2 which held comedian Jimmy Carr’s millions and was criticised by Prime Minister David Cameron.
Jersey Chief Minister Ian Gorst said: “We will continue to be clear that Jersey does not need nor does it wish to be associated with aggressive tax planning schemes of the kind to which recent publicity has been given in the UK press.
“I have every intention of ensuring to the best of my ability that this message is received, understood and acted upon by all concerned.”
Guernsey blames the controversy on HM Revenue & Customs for failing to explain how tax law works.
Guernsey Finance chief executive Peter Niven said: “Guernsey applies international standards in relation to tax matters. We do not condone tax evasion and we do our utmost to ensure that the island’s clients comply with tax laws in their own jurisdictions, whether that is the UK or elsewhere.”
He suggests HMRC should deliver unambiguous guidelines to offshore financial centres that clearly state the law.