London — At least $:1 billion ($2.4 billion) is being lost to Britain's Exhequer every year through legal tax avoidance by comapnies operating offshore subsidiaries, and the government plans to plug the drain.
The extend of the tax loss became known after a national newspaper spotlighted how the Vestey family, believed to be Britain's wealthiest, had avoided paying large amounts of tax for 60 years by taking advantage of a complex system of overseas trusts.
The Vesteys, who are friends of the royal family, have worldwide assests worth $:600 million. Their interests include insurance, shipping, clothing, and food sales. In Britain they own a chain of 1,400 butcher shops.
The family's perfectly legal offshore operations have meant that some years they have paid hardly any tax at all. Business concerns smaller than the Vesteys' have adopted similar tactics, resuting in an annual loss to the Inland Revenue of at least $:1 billion.
The Vesteys' successful record of tax avoidance became a matter of contention when the men from the revenue sent them a tax bill for $:12 million and tried to enforce the claim by taking their case to the House of Lords.
But the Lords last year ruled in favor of the family, pointing out that its operations were within the law as it stands.
There the matter might have rested if the Sunday Times had not devoted a full-page article to the methods used by the family to minimize its tax payouts.
The paper showed how a Paris-based family trust has been used since 1921 to provide the Vesteys with large amounts of cash for their personal use. Accounts of the trust are kept in Uruguay, where the Inland Revenue lacks jurisdiction.
The article produced cries of anger from the opposition of Labour Party. These were answered initially by the chairman of the Conservative Party, Lord Thorneycroft, who commended the Vesteys for their adroit business sense.
Lord Thorneycroft maintained that there was nothing wrong in the family's approach to tax avoidance.
But then rumbling started within the Tory party, with rank-and-file members asking why a business concern that benefits from operating in Britain should not be required to pay a fair share of British tax.
The rumbles reached the ear of the chancellor of the Exchequer, Sir Georffrey Howe, who, to Lord thorneycroft's embarrassment, made it clear that government plans were afoot to eliminate the tax loophole the Vesteys and others had been using for so many years.
Sir Geoffrey hopes to make it much harder for British-based companies to operate offshore trusts, tax free. His proposed change in the law is expected to be part of next year's finance bill enacting the annual United Kingdom budget.