Scottish tax haven firms have nothing to do with Scotland – and it’s time we did something about them

What sector of the economy has seen the creation of almost 6,000 new firms in the last year alone and has sparked interest from the world over? The answer, according to many critics, is Scotland’s tax haven industry of which Scottish Limited Partnerships (SLPs) are the key driver.

The Scottish Limited Partnership - a way of registering your business that has existed for over a century - has become attractive to investors around the world of late, as SLPs need not register for UK tax or provide financial reports if they conduct business abroad. They have a separate legal personality and have become popular for many legitimate purposes such as private equity and property investment fund structures. However, many critics argue that they are also the perfect vehicles to mask money linked to criminal activity, fraud and tax avoidance.

Loading article content

It has been reported that a staggering 95 per cent of SLP registrations in the year to April 2016 had faceless offshore corporations for partners, creating an ideal terrain for financial crime to flourish.

But despite what the name suggests, Scottish Limited Partnerships have very little at all to do with Scotland. Introduced by the UK Government under Liberal Chancellor Herbert Asquith in 1907; the regulation, operation and dissolution of SLPs remain the exclusive preserve of Westminster.

The Scottish Government and others may certainly make representations to the Treasury on the governance of company law – as the Scottish Government’s Finance Secretary Derek Mackay did just last week on this very issue – but it is incumbent upon the UK Government to actually do something about it.

But where concerns exist about the potential for dubious tax practices that are fundamentally unethical and an affront to the principles of fair taxation, how reliably can we expect this UK Government to act?

On the steps of Downing Street, Theresa May vowed: “When it comes to taxes, we’ll prioritise not the wealthy, but you.”

But Theresa May forgets that she has been part of a key part of a government that has singularly failed to get to grips with tax avoidance.

In 2013, it was the Tory UK Government that stood in the way of EU efforts to increase transparency around offshore trusts. Facing the prospect of a central register of the owners of such trusts, our Prime Minister personally wrote to the highest-ranking official in the European Union to argue that trusts should not automatically be subject to the same transparency requirements as companies. ?The need to clamp down on tax injustice was heightened by the release of the Panama Paper documents in which 11.5 million files from the database of the world’s fourth biggest offshore firm, Mossack Fonseca, were leaked and published. The papers linked over 143 politicians from around the world to the offshore tax haven, and held a strong connection to the UK. Even the former Prime Minister’s father was named during the leak, having operated an offshore account for 30 years that avoided British tax.

May cannot distance herself from a government of which she was an integral part. And on tax, the Tories have guarded the cloth of the rich whilst insisting that the middle and low earners pay the price.

And they have had plenty of opportunities. My SNP colleagues and I have continuously called on the UK Government to increase transparency and accountability. Following the Panama Papers, we called on the Tories to go further on new measures to crack down on tax evasion and aggressive tax avoidance - pointing out that illicit cross-border financial flows are estimated at more than £1 trillion dollars per year, a figure that amounts to ten times more than global foreign aid budgets combined. ?In our Alternative Queen’s Speech, we called for the Treasury to convene a commission into the simplification of the tax code, which would boost tax yield, encourage compliance, and avoid exploitative loopholes such as the abhorrent and unjustifiable Mayfair tax loophole.

Prime Minister May has much to do if she wants to make the tax system start working for the middle and low earners.

She could start with the Scottish Limited Partnership. Whilst it has many legitimate purposes, there is enough evidence implicating them in dodgy tax arrangements that gives me and many others cause for concern.

It’s time we did something about them.

At the very least, there should be a full review of the way in which Scottish Limited Partnerships operate. That review should take full account of the views of the Scottish Government, and of charities who have evidence to present. It should come forward with robust recommendations about how to limit the potential for tax impropriety.

The Finance Bill will enter its final consideration when the Westminster Parliament returns in September. An SNP amendment in my name will give Theresa May and her Government the opportunity to act on SLPs. I would warmly welcome their support. I fear that if they fail to give it; it will serve as yet another reminder of whose interests they are really working for.