UPDATE 1 November 2015
I have submitted a version of this blog as further evidence to the Rural Affairs, Climate Change and Environment Committee. This evidence also contains my opposition to the hypothecation of non-domestic rates for the Scottish Land Fund. 

After a fairly hectic summer, I now plan to publish more regular analysis of the Land Reform Bill as it makes it way through the Scottish Parliament. The Bill is currently at Stage One with the lead committee, the Rural Affairs, Climate Change and Environment Committee (RACCE) taking evidence. The Committee will produce a Stage One report before the end of the year which will then be debated in Parliament before going back to Committee for Stage Two for detailed scrutiny and consideration of amendments.

In this blog, I want to return to one of the contested areas of the Bill – the question of land registered in offshore tax havens.

BACKGROUND

In 2012, during the passage of the Land Registration (Scotland) Act 2015, I proposed that it be incompetent to register title to land in Scotland in the name of any legal person (company, trust etc.) that is not incorporated in member state of the EU (see written evidence).This was opposed by Fergus Ewing, the Minister responsible for the Land Registration Bill and was rejected by Scottish Ministers despite a recommendation by the Economy, Energy and Tourism Committee that “the Scottish Government should reflect further on options for ensuring that the land registration system reduces the scope for tax evasion, tax avoidance and the use of tax havens…” See here for comment.

In May 2014, the Land Reform Review Group made a similar recommendation that it be incompetent for any legal entity not registered within the EU to register title to land in the Land Register.

In December 2014, the Scottish Government launched a consultation on the measures to be included in the forthcoming Land Reform Bill. A proposal to restrict land registration to EU entities was included as proposal 2. In responses to the consultation, 79% of respondents agreed that such a measure should be adopted.

In June 2015, the Scottish Government published the Land Reform Bill. No measure to restrict non-EU entities was included and the explanation offered was unconvincing. (1) Instead, Sections 35 and 36 contain provisions that persons with a reason to do so may ask the Keeper of the Registers of Scotland to seek information about the beneficial ownership of companies. It is a meaningless provision since authorities in Jersey, British Virgin Islands and Grand Cayman are under no obligation to provide any answers.

RACCE ASKS QUESTIONS

Following a RACCE evidence session on 2 September 2015 with the civil servants responsible for the Bill, the Committee Chair, Rob Gibson MSP, wrote to Trudi Sharp, Deputy Director for Agriculture, Rural Development and Land Reform at the Scottish Government. In his letter, he sought answers to a series of questions including two relating to the EU/offshore provisions. The answers provide further insight into Scottish Government reasoning on why they decided not to proceed with the proposals and are explored below.

Question 2

Question 2 asked for

clarification of why the proposal in the consultation to make it incompetent for non-EU registered entities to register title to land in Scotland is not in the Bill and any analysis that the Scottish Government conducted in this area”.

In its response the Scottish Government provided 6 pages of argument (pages 24-29 in Annex B) which raised a number of issues.

EU still poses problems

Its principal reasoning is that landowners may, instead of incorporating offshore, simple incorporate within the EU but with an opaque shareholding structure involving (possibly) offshore companies. In other words, instead of Hanky Panky properties Ltd. in Grand Cayman, you would have Hanky Panky Properties Ltd. registered in Berlin but, in turn, owned by shareholders in Panama or somewhere. Even taking into account the new registers of beneficial ownership being developed by EU member states, the Scottish Government argue that these will not be fully open to the public and, in any case, do not apply to trusts.

This argument, in essence, suggests that because there remain means of concealing the true ownership of companies, nothing should be done.

But this is not logical.

Currently, we can know nothing about companies registered in tax havens. They have refused to co-operate with efforts to improve transparency. Any company registered in places such as Grand Cayman or the British Virgin Islands is surrounded by an impenetrable veil of secrecy.

A ban may well mean that alternative means of concealment are deployed within the EU. Even so, we will be in a better position that we were before the non-EU ban.

Firstly all such companies will be subject to registers of beneficial ownership. even though the may not be public available in the first instance, the trend is to move steadily to greater transparency and not less. In Scotland and the UK, we have direct influence in the EU and can argue and vote to improve matters. We have no influence over the internal affairs of tax havens.

Secondly, bringing such companies onshore so to speak, means we have access to information on Directors and shareholders as well as annual accounts and returns. Again, such information may be subject to a variety of regimes in terms of openness across the EU but all are better than offshore tax havens.

In other words, if the price of barring of the worst of secrecy jurisdictions is that we may still have residual problems with EU rules and regulations, that is no argument for doing nothing when we are in a position to improve matters within the EU.

Trusts

The second key argument deployed by the Scottish Government is that barring non-EU entities might increase the use of Trusts as vehicles for owning land. Trusts (the argument goes) can be opaque and thus there is no point in doing anything about offshore entities. Again, this is illogical. Trusts are governed by Scots law and are within the jurisdiction of the Scottish Parliament. If there is a problem with Trusts (and there is), we can do something about it. Indeed, the Scottish Law Commission drafted a bill as recently as August 2014. The Scottish Parliament has unfettered competence to legislate to make Trusts more transparent.

Further Reasoning

The response to the RACCE concludes on page 29 with three further reasons why the proposal will not increase transparency and accountability of landownership in Scotland (1st, 3rd and 4th bullet points). The 3rd and 4th bullet points relate to the claim that there is no evidence that non-EU incorporation has ever caused any detriment to any individual or community. By contrast (it is claimed), there is plenty evidence of instances where UK registered entries have caused concerns. But the rational for the bar on non-EU entities has nothing to do with any alleged detriment. It is a proposal to improve transparency and, thus, accountability. This blog has highlighted a number of instances where such concerns may have a bearing on potential criminal proceedings (Kildrummy Estate here and North Glenbuchat Estate here). Beyond that, there are widespread generic concerns about money-laundering taxation.

But it is first bullet point that highlights how little serious thought has been given to this area of policy. Here is what the Scottish Government has to say.

“There is no clear evidence to suggest that having land owned by a company or legal entity incorporated in a Member State will increase transparency and accountability of land ownership in Scotland. To illustrate, the Tax Justice Network began publishing in 2013 a Financial Secrecy Index that ranks jurisdictions according to their secrecy and scale of their activities. The results from 2013 show that Luxembourg ranks second on the index, Germany eighth and Austria 18th. It is also worth noting that the United Kingdom ranks 21st (just behind the British Virgin Islands (20th) and somewhat higher than some of countries that are sometime perceived to be tax havens; Liechtenstein 33, Isle of Man 34, Turks and Caicos Islands 63).” 

The problem with this analysis (which seems to suggest that EU countries such as Germany and the UK are little different in terms of secrecy that the British Virgin Islands or the Turks and Caicos Islands) is that it relies on a composite index. As the Tax Justice Network explains,

The Financial Secrecy Index is a ranking of jurisdictions based on combining a qualitative measure (a secrecy score, based on 15 secrecy indicators) with a quantitative measure (the global weighting to give a sense of how large the offshore financial centre is). The secrecy score and the weighting are arithmetically combined with a special formula – the cube of a jurisdiction’s secrecy score is multiplied by the cube root of its global scale weight – to create the final score, which is then used for the FSI ranking.”

The secrecy score is base purely on the level of secrecy. The FSI ranking is derived by talking this secrecy ranking and weighting it by the volume of financial transactions that flow through each country. In other words, the most secretive jurisdiction in the world is Samoa. But because it is so small and handles very little financial flows, it ranks 76th out of 82 on the main FSI index. Germany, on the other hand is 58th out of 82 on the secrecy ranking but jumps to 8th place on the FSI index due to the sheer volume of financial flows through Frankfurt and other financial centres in Germany.

For the purposes of assessing the secrecy of any jurisdiction (the rational for barring non-EU entities), it is the secrecy ranking which matters and it is listed here.

The highest ranking EU member state is (not surprisingly) Luxembourg in 52nd place out of 82. Austria is at 52, Germany at 58, Cyprus at 65 and Latvia and other EU member states at 67 onward. In other words, EU member states are considerably more open that the virtually all other jurisdictions on the secrecy index. It is only the volume of transactions  that flow through London and Frankfurt that elevate Germany and the UK higher up in the FSI index.

Question 2

The second question RACCE asked was,

How much land the Scottish Government understands is held in tax havens, and whether it accepts the figure of 750,000 acres as reported by Private Eye magazine.”

The Scottish Government replied that it could not verify the accuracy of this figure because of the limited information available from the Register of Sasines and the fact that the term “tax haven” has no officially agreed definition. The latter statement is not strictly true as the OECD has identified a number of jurisdictions as tax havens

As for the limited information within the Register of Sasines, I have been interrogating this over the past 20 years. The jurisdiction within which any corporate entity is registered is always narrated in full on the title deed. This research led me to conclude in Table 15 in my book, “The Poor Had No Lawyers”, that 727,634 acres of land were owned by companies registered in offshore tax havens in 2012. Land sales since then has increased the total extent to over 740,000 acres.

THE WAY FORWARD

The rational for not having included any provision for the restriction of legal persons owning land to those registered within the EU remains unconvincing. I understand from informal discussions, however, that there is no technical impediment to doing so. Any such amendment would involve amending Section 22 of the Land Registration etc. (Scotland) Act 2012 such that no deed would be accepted where the applicant was a legal person registered in any jurisdiction that was no at the time of recording a member state of the EU. In order to maintain such a condition, there would have to be provision for future action to be taken in circumstances where membership of the EU changes.

A further question remains in relation to retrospective application. Such a condition would require landowners who currently own land held by offshore entities to transfer ownership to a compliant entity. This could be done by requiring all existing owners registered outside the EU to transfer title to a compliant entity within, say, 5 years of a date to be set. (2)

I await further developments with interest.

NOTES

(1) See Briefing 8 on Bill, pages 4-6 and my written evidence for further detail.

(2) See Briefing 7 on December consultation for further details.

 

On Thursday evening last week, Channel 4 news broadcast the above 11 minute film on land reform in Scotland. It’s worth a watch. It highlights, among other things, how grassroots members of the SNP are campaigning for a more vigorous approach to land reform.

The film was broadcast on the first day of the SNP conference where I was a speaker at a fringe meeting hosted by the League Against Cruel Sports as one of the co-authors of a report on the intensification of grouse moor management. I was also scheduled to speak at an unofficial fringe meeting on land reform on Friday evening.

I noticed that there was a debate at the conference on a motion which congratulated the Scottish Government on its land reform and community empowerment bills. (1) I had heard that amendments had been submitted to the conference organising committee but that they had not been accepted for debate. I knew that some delegates were frustrated. So, when the security guard was gazing out the window, I sneaked past and into the main hall to listen to the debate. It lasted 42 minutes and if you click on the video above it will play from the beginning at 1:15:25.

I knew something was up when a young man called Nicky Lowden MacCrimmon took to the stage (at 1:25:45) to propose that the motion be remitted back for further consideration. Coming after workable contributions from two Ministers, Aileen McLeod and Marco Biagi, Nicky made it very clear that the grassroots membership were not satisfied with the ambitions of the party leadership. Here’s a flavour of his contribution.

“This motion talks about a road to radical land reform and I don’t think as a party we can say we’re being as radical as we can be, as we should be and as we have the powers to be right now.

I cannot support the motion wholly as I and many other grassroots members of the SNP believe that our vision for land reform is not radical enough and that we’ve not had an opportunity to debate that as a party and think where are we going to go with land reform.”

[Claps from audience]

“Does radical land reform leave 750,000, three-quarters of a million acres of Scotland, in the hands of unaccountable, nameless corporations based in tax havens across the globe? No, it doesn’t and we have the power to change that now.”

[More claps and whoops]

Does radical land reform leave tenant farmers with no right to buy, no security of tenure – farmers who have invested in that land, worked that land for generations, who have kids in the local school, who contribute to local economies being told your tenancy’s up, find somewhere else to live, work, raise a family. No it doesn’t and we have the power to change that now.

[Claps]

At the end of the debate, the delegates voted to remit the motion back by 570 votes to 440.

Nicky had watched the Channel 4 broadcast and later told broadcaster, Lesley Riddoch,

Seeing Andrew Stoddart on TV and the stories from Islay just made me think someone has to say something. It was one of those, ‘if not me then who, and if not now, then 
when?’ ” moments. I take it very personally when the SNP is characterised as feart or bottling it on radical land reform. I know this isn’t how people feel in my branch or on social media. What I stood up and said was what other members have been saying to me.”

Jen Stout (here) and Calum McLeod (here) both blog about the aftermath of this debate whilst Lesley Riddoch discusses it and the unofficial fringe we held in Aberdeen with tenant farmer Andrew Stoddart in her podcast here.

I will publish a blog on the offshore tax havens issue tomorrow. See here.

NOTE

(1) See motion here.

Image: Intensive grouse moor management on Millden Estate, Angus.

A report on the damaging environmental and social impacts of the intensification of grouse moor management in Scotland is published today by the League Against Cruel Sports. The authors of the report are Dr Ruth Tingay and myself. The report can be downloaded here (658kb pdf) and a short video here.

The report highlights a land use that where Scotland’s hills are being turned into intensively managed game reserves, where protected species are being persecuted, where electric fencing and roads are being constructed with impunity, and where much of this is eligible for public subsidy.

Image: New grouse butt construction with Firmounth and Scottish Rights of Way sign indicating junction between the ancient Firmounth and Fungle routes (Grid Ref. NO499853) Photo: James Carron

The evidence we have uncovered is a shocking indictment of a land use that is out of control. The methods being deployed to maximise grouse numbers are damaging the environment and are subject to no effective regulation or oversight by the Scottish Government and other public authorities.

The report is published days after a scientific assessment of many of these issues was published by Scottish Natural Heritage. The report was requested in response to concerns of SNH Board members about intensified moorland management practices in some areas, including the spread of hill tracks, increase in muirburn, heavy culling of mountain hares, and using chemicals to dose red grouse to increase numbers of grouse for shooting.

It also comes on the day that the Office for National Statistics published data showing that 33% of jobs in Angus pay below the living wage – the highest percentage of any Scottish local authority. Two of the case studies in the report focus on grouse moors in Angus. This may have something to do with the fact that, as the report reveals, the 2640 full-time equivalent jobs in grouse moor management pay an average of £11,041 which is below the national minimum wage.

 

Heatmap of Confirmed and Probable Raptor Persecution Incidents 2005-2014

The report will be launched at a fringe meeting at the Scottish National Party conference on Thursday 15 October at 6.30pm.