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Going dutch - Magda Hassan - 06-01-2011 GOING DUTCH The next Vodafone: Our exchequer has missed out on at least £2bn thanks to HSBC's cunning plan Having exposed Britain's biggest tax avoidance scheme, run by Vodafone, the Eye can reveal number two: an equally clever offshore wheeze operated by the country's largest bank, HSBC. It, too, is to benefit from the multi-billion-pound let-off given by HM Revenue & Customs' Dave Hartnett to the mobile phone company. Since 2002, the colonial-era bank that moved its headquarters to London in 1993 as the price of acquiring Midland Bank has been operating a huge tax avoidance structure that has so far cost the British taxpayer £2bn. HSBC still makes a large chunk of its profits (71 percent last year) through the Hong Kong and Shanghai Banking Corporation Ltd out in the old colony, and duly sends billions of pounds to London every year for distribution among the company's grateful shareholders. But for the best part of a decade it has done so through a contrived offshore structure that enables it to dodge billions of pounds in UK tax. Hong Kong and Shanghai Banking Corporation Ltd is owned through a Dutch company called HSBC Asia Holdings BV, which receives dividends from the Hong Kong bank tax-free under Dutch laws designed to make the country an attractive staging post for multinationals hoping to cut their tax bills. Wholly redeemer When this money is eventually paid to HSBC in the UK it ought to be taxed here, with credit given for the 16.5 percent Hong Kong tax paid, but HSBC's tax-planners make a smart swerve round this. Instead of receiving taxable dividends from the Netherlands, the British HSBC company that owns HSBC Asia Holdings BV simply "redeems" some of its shares in the Dutch company. Hey presto! Cash back home with no tax bill. In 2008 alone, $4.3bn (£3bn) of shares in the Dutch company were "redeemed" to avoid unfortunate tax consequences. As a result, the Eye understands, HMRC investigators have identified at least £2bn in tax avoided up to last year. (That's enough to pay for three-year degree courses for 75,000 students even at the new top rates and, since the scam continues full steam ahead, this is unlikely to be the limit of it.) While most of the money funnelled through the tax scheme comes from Hong Kong, much also arrives in HSBC Asia Holdings BV's coffers from the not-so-Asian tax havens of Panama, Bermuda, Cayman Islands and the British Virgin Islands. In 2008, for example, $240m was sent from HSBC-owned Bank of Bermuda (taxed at 0 percent) in this way. Time to make a call to Vodafone… In one particularly egregious piece of tax chicanery, over the past eight years the Hong Kong and Shanghai Banking Corporation Ltd has paid over $3bn in "preference share dividends" for which it receives a tax deduction in Hong Kong, while claiming the payments are not taxable when received in the Netherlands nor when sent to the UK. This scam alone has set the UK exchequer back £700m in lost tax and interest. The lost billions should, however, be rescued for the exchequer by British anti-tax avoidance laws covering profits dumped in tax havens (including the Netherlands) except these so-called "controlled foreign company" rules are the very ones from which (in similar circumstances) Vodafone was recently all but excused. HSBC, unsurprisingly, is after similar treatment, as are many others (see last Eye). PS At the heart of HSBC's offshore setup which produces its phenomenally low overall tax rates (5.4 percent in 2009) is tax director Chris Spooner, whose presence as a founding director of HSBC Asia Holdings BV betrays the tax motivation behind the company. The same Mr Spooner sits on the Treasury "liaison committee" that has just successfully persuaded the government to relax the rules governing offshore profits. PPS Presiding over the industrial-scale tax dodging was HSBC's chief executive from 2003 to 2006, then chairman until this month, ordained Anglican priest Stephen Green, whose £6m-worth of HSBC shares and £1.25m salary were enhanced by every penny of tax avoided. He was also a director of the Hong Kong bank. Green's personal output includes books Good Value and Serving God? Serving Mammon?, which eased his ennoblement and his new job as a government business minister, Vince Cable drooling: "In Stephen we will be appointing a minister with a long career as a leading international banker, one of the few to emerge with credit from the recent financial crisis, and somebody who has set out a powerful philosophy for ethical business." The same St Vincent this month baulked at Cadbury's new owner Kraft moving famous chocolate brands to Switzerland for tax reasons. Someone ought to mention that his new ethical minister has been up to far worse for the best part of a decade. http://www.private-eye.co.uk/sections.php?section_link=in_the_back&issue=1275 Going dutch - David Guyatt - 06-01-2011 The "6 points" bank strikes again. Someone needs to tell the Eye that HongShangers only repatriated itself to Blighty because it was bust, and that the "Old Lady of Threadneedle Street" worked out a deal whereby its swooning and purse-less Mistress, Midland Bank, and the money-laundering monolith of Macau (HK doesn't work ) could wed and enter happily into dirty-money coitus with impunity. Er, I suppose... From complete stark naked rags to the top 10 bank ranking in the world in under 10 years. Quite a stunning tale of derring so. Or wizardry?